01—Abstract
Summary
Summary of the 10-Q filed August 2, 2023. Cited figures are marked; the original filing is the authoritative source.
Johnson Controls International plc (JCI) reported a strong third quarter for fiscal year 2023, with net sales increasing by 8% to $7.13 billiona and net income attributable to Johnson Controls more than doubling to $1.05 billion, or $1.53 per diluted share, compared to the prior year quarter.
This robust performance was driven by a combination of higher organic sales, effective pricing strategies implemented to combat inflation, and improved operational efficiencies. The company also saw a significant positive swing in its effective tax rate due to reserve adjustments related to tax audits and benefits from global tax planning. For the nine-month period, net sales grew 7%b and net income attributable to Johnson Controls increased by 69%.
The company's 'Building Solutions' segments, particularly North America, demonstrated strong growth in both sales and segment EBITA, reflecting increased demand for HVAC and fire and security systems. The 'Global Products' segment also contributed positively with increased pricing and sales volume. JCI continues to benefit from growing demand for smart, healthy, and sustainable building solutions, supported by favorable government initiatives.
Despite ongoing macroeconomic challenges such as inflation and supply chain disruptions, the company's mitigation strategies have proven effective, leading to improved margins. Key financial highlights include a substantial increase in gross profit, improved SG&A as a percentage of sales, and strong cash flow from operations, which increased by 2%c year-over-year for the nine-month period.
The company also reaffirmed its commitment to shareholder returns through its ongoing share repurchase program and dividend payments. While the company faces environmental liabilities and ongoing litigation, particularly related to PFAS, these are being actively managed and are not currently expected to have a material adverse effect on its financial position.
02—Key points
Key Highlights
- Net sales for the third quarter of FY2023 increased 8% to $7.13 billion, driven by organic sales growth and effective pricing strategies.
- Net income attributable to Johnson Controls more than doubled to $1.05 billion ($1.53 diluted EPS) in Q3 FY2023, compared to $379 million ($0.55 diluted EPS) in Q3 FY2022.
- Gross profit margin improved to 34.1% in Q3 FY2023 from 33.3% in the prior year quarter, reflecting favorable price/cost dynamics.
- Selling, General, and Administrative (SG&A) expenses as a percentage of sales decreased by 220 basis points to 21.8% in Q3 FY2023.
- The company recorded a significant tax benefit in Q3 FY2023 due to reserve adjustments and global tax planning, leading to a negative effective tax rate.
- The Building Solutions North America segment showed strong performance with a 10% increase in net sales and a 48% increase in segment EBITA.
- Cash provided by operating activities from continuing operations remained strong, totaling $831 million for the first nine months of FY2023.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-QQ3 FY2023filed August 2, 2023Financial Statements
Q3 FY2023 against Q3 FY2022
| Line item | Q3 FY2023Q3 FY2022 | Change |
|---|---|---|
| Revenue | $7.13B$6.61B | +7.8% |
| Cost of Revenue | $4.70B$4.41B | +6.5% |
| Gross Profit | $2.43B$2.20B | +10.5% |
| SG&A Expenses | $1.55B$1.59B | −2.1% |
| Interest Expense | $79.00M$54.00M | +46.3% |
| Net Income | $1.05B$379.00M | +176.8% |
| EPS (Basic) | $1.54$0.55 | +180.0% |
| EPS (Diluted) | $1.53$0.55 | +178.2% |
| Shares Outstanding (Basic) | 683.30M692.20M | −1.3% |
| Shares Outstanding (Diluted) | 686.20M694.90M | −1.3% |
05—Questions
Frequently Asked Questions
What drove the significant increase in net income in the third quarter of fiscal year 2023?
The significant increase in net income was primarily driven by higher gross profit, stemming from increased sales volume and favorable pricing strategies to offset inflation, and a substantially lower income tax provision. The tax benefit was largely due to reserve adjustments related to tax audits and statute expirations, along with the ongoing benefits of global tax planning.
How is the company managing the impact of inflation and supply chain disruptions?
Johnson Controls has implemented pricing increases to combat inflation and has taken steps to mitigate supply chain disruptions, including expanding and redistributing its supplier network. While these trends have impacted margins, the company has observed improved margins as supply chain issues ease and higher-priced backlog is converted to sales.
What is the company's outlook regarding its environmental liabilities, particularly PFAS?
The company has accrued significant reserves for environmental liabilities, primarily related to PFAS contamination at its Wisconsin facilities. While these liabilities are substantial and ongoing investigations and remediation efforts continue, Johnson Controls does not currently believe that any claims, penalties, or costs beyond the amounts accrued will have a material adverse effect on its financial position, results of operations, or cash flows. The company is also actively defending against related litigation.
How is the company returning value to shareholders?
Johnson Controls continues to demonstrate commitment to shareholder value through its active share repurchase program, with approximately $3.0 billion remaining under its authorization as of June 30, 2023. The company also continues to pay dividends, declaring $0.37 per common share in the most recent quarter.
06—Continue