01—Abstract
Summary
Summary of the 10-Q filed May 5, 2023. Cited figures are marked; the original filing is the authoritative source.
Johnson Controls International plc (JCI) reported a significant increase in net sales for the third quarter of fiscal year 2023, up 10% year-over-year to $6.7 billiona, driven by both organic growth and strategic acquisitions, though partially offset by unfavorable foreign currency translation.
The company demonstrated improved profitability with gross profit increasing by 15% and the gross profit margin expanding by 140 basis points, primarily due to favorable price/cost dynamics and increased pricing in response to inflation. Despite top-line growth and margin expansion, net income attributable to Johnson Controls saw a substantial decrease of 36% in the first six months of the fiscal year compared to the prior year, largely due to significantly higher restructuring and impairment costs, including a $498 millionb charge related to businesses held for sale and $184 million in goodwill impairment.
The company continues to navigate supply chain challenges and cost pressures, though it notes early signs of margin improvement as these disruptions ease. Investors should monitor the impact of ongoing restructuring, potential future impairments, and the significant environmental liabilities, particularly those related to PFAS chemicals, which represent a notable contingent risk.
02—Key points
Key Highlights
- Net sales increased by 10% to $6.7 billion in Q3 FY23, driven by organic growth and acquisitions, with total sales for the first six months up 7% to $12.8 billion.
- Gross profit increased by 15% to $2.2 billion in Q3 FY23, with gross margin expanding by 140 basis points to 33.5% due to favorable price/cost dynamics.
- Restructuring and impairment costs increased significantly, reaching $418 million in Q3 FY23 and $763 million for the first six months, impacting net income.
- Net income attributable to Johnson Controls decreased by 36% to $251 million for the first six months of FY23, despite a Q3 increase due to higher gross profit.
- The company is actively managing its balance sheet, with working capital improving significantly from a deficit to a surplus of $907 million.
- Significant environmental liabilities related to PFAS chemicals, particularly concerning firefighting foams, continue to be a notable contingent risk, with substantial accruals and ongoing litigation.
- The company repurchased $93 million of its ordinary shares in Q3 FY23, with approximately $3.4 billion remaining under its share repurchase authorization.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2023filed May 5, 2023Financial Statements
Q2 FY2023 against Q2 FY2022
| Line item | Q2 FY2023Q2 FY2022 | Change |
|---|---|---|
| Revenue | $6.69B$6.10B | +9.6% |
| Cost of Revenue | $4.45B$4.14B | +7.3% |
| Gross Profit | $2.24B$1.96B | +14.5% |
| SG&A Expenses | $1.58B$1.45B | +8.6% |
| Interest Expense | $71.00M$56.00M | +26.8% |
| Net Income | $133.00M$11.00M | +1109.1% |
| EPS (Basic) | $0.19$0.02 | +850.0% |
| EPS (Diluted) | $0.19$0.02 | +850.0% |
| Shares Outstanding (Basic) | 686.80M699.10M | −1.8% |
| Shares Outstanding (Diluted) | 689.70M702.70M | −1.9% |
05—Questions
Frequently Asked Questions
What is the company's overall financial performance for the quarter and year-to-date?
Johnson Controls International plc reported strong net sales growth of 10% to $6.7 billion for the three months ended March 31, 2023, and a 7% increase to $12.8 billion for the six months ended March 31, 2023. Gross profit also saw robust increases of 15% and 13% respectively, with gross margins expanding due to favorable pricing and cost management. However, net income attributable to Johnson Controls for the six-month period decreased by 36% to $251 million, primarily due to a significant rise in restructuring and impairment costs.
What are the major factors impacting profitability, and what is the outlook for margins?
Profitability was impacted by significant restructuring and impairment costs, totaling $418 million in the third quarter and $763 million year-to-date. These charges, along with supply chain disruptions and cost pressures, have weighed on net income. However, the company is experiencing improved margins due to favorable price/cost dynamics and increased pricing to offset inflation. Management anticipates improved margins as supply chain disruptions ease and higher-priced backlog converts to sales.
What are the key risks and contingent liabilities the company faces?
A significant contingent risk relates to environmental liabilities, particularly those associated with PFAS chemicals from firefighting foam. The company has accrued substantial reserves and faces ongoing litigation and regulatory scrutiny. Additionally, while not a new risk, the company continues to manage potential impacts from macroeconomic volatility, currency fluctuations, and supply chain disruptions.
How is the company managing its capital and shareholder returns?
Johnson Controls is actively managing its capital structure, with working capital improving significantly. The company continues to return capital to shareholders through share repurchases, having bought back $93 million in the third quarter with approximately $3.4 billion remaining on its authorization. It also continues to pay dividends, with a declared dividend of $0.36 per common share for the quarter.
06—Continue