01—Abstract
Summary
Summary of the 10-Q filed May 1, 2024. Cited figures are marked; the original filing is the authoritative source.
Johnson Controls International plc reported mixed results for the second quarter of fiscal year 2024.
While net sales remained relatively flat year-over-year, the company experienced a significant net loss attributable to shareholders, primarily driven by a substantial $750 milliona charge related to the settlement of Aqueous Film-Forming Foam (AFFF) litigation. This charge, alongside a $230 million goodwill impairment, significantly impacted profitability, resulting in a diluted loss per share of $0.41 compared to earnings of $0.19 in the prior year. Despite the bottom-line pressure, the company saw positive trends in certain segments, with Building Solutions North America and EMEA/LA reporting increased net sales and segment EBITA.
The company also highlighted ongoing efforts to drive growth through its OpenBlue platform and smart building solutions, capitalizing on increasing demand for sustainable and efficient buildings. However, persistent supply chain challenges and weakness in certain markets, particularly China, continue to pose headwinds.
02—Key points
Key Highlights
- Reported a net loss attributable to Johnson Controls of $277 million, or $0.41 per diluted share, for the three months ended March 31, 2024, a significant decline from a net income of $133 million, or $0.19 per diluted share, in the prior year's quarter.
- Recognized a $750 million charge related to a settlement agreement with a nationwide class of public water systems for PFAS claims stemming from AFFF use, which significantly impacted SG&A expenses and net income.
- Recorded a $230 million goodwill impairment charge in the Global Products segment, reflecting a quantitative goodwill impairment test triggered by lower-than-expected results.
- Building Solutions North America saw a 9% increase in net sales and an 18% increase in segment EBITA, driven by organic growth, price increases, and acquisition contributions.
- Building Solutions EMEA/LA reported a 3% increase in net sales and a 29% increase in segment EBITA, benefiting from productivity, higher-margin backlog conversion, and service growth.
- Total net sales for the quarter were $6.70 billion, relatively flat compared to $6.69 billion in the prior year, with growth in Services partially offset by declines in Products & Systems.
- The company ended the quarter with $843 million in cash and cash equivalents and maintained a share repurchase program with approximately $2.5 billion remaining authorization.
03—One dollar
Follow one dollar
For each $1.00 of revenue in Q2 FY2024, Johnson Controls International plc lost $0.05.
- Revenue$5.60B100.0%
- Cost of revenue−$3.67B65.7%
- Gross profit$1.92B34.3%
- Operating costs−$1.90B34.0%
- Operating income$19.0M0.3%
- Interest, other & tax−$296.0M5.3%
- Net income−$277.0M4.9%
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2024filed May 1, 2024Financial Statements
Q2 FY2024 against Q2 FY2023
| Line item | Q2 FY2024Q2 FY2023 | Change |
|---|---|---|
| Revenue | $5.60B$6.69B | −16.3% |
| Cost of Revenue | $3.67B$4.45B | −17.3% |
| Gross Profit | $1.92B$2.24B | −14.2% |
| SG&A Expenses | $2.06B$1.58B | +30.7% |
| Operating Income | $19.00M— | — |
| Net Income | -$277.00M$133.00M | −308.3% |
| EPS (Basic) | $-0.41$0.19 | −315.8% |
| EPS (Diluted) | $-0.41$0.19 | −315.8% |
| Shares Outstanding (Basic) | 679.00M686.80M | −1.1% |
| Shares Outstanding (Diluted) | 679.00M689.70M | −1.6% |
05—Questions
Frequently Asked Questions
What caused the significant net loss in the current quarter?
The primary driver of the net loss was a $750 million charge recorded in SG&A related to a settlement agreement for Aqueous Film-Forming Foam (AFFF) litigation with a nationwide class of public water systems. Additionally, a $230 million goodwill impairment charge in the Global Products segment contributed to the loss.
How did the AFFF settlement impact the company's financial statements?
The $750 million settlement charge was recorded as an increase in Selling, General and Administrative (SG&A) expenses for the three and six months ended March 31, 2024. This significantly impacted the company's profitability, leading to the net loss for the quarter.
What is the outlook for the Building Solutions Asia Pacific segment, given its sales decline?
The company noted continued weakness in the China Systems/Install business and expects economic conditions in China to remain soft throughout the remainder of fiscal 2024, which could impact the performance of the Building Solutions Asia Pacific segment. While Service growth partially offsets this, the overall outlook for this segment remains challenged.
What is the company doing to address its supply chain challenges and cost pressures?
Johnson Controls is taking actions to mitigate supply chain disruptions and inflation, including expanding and redistributing its supplier network, supplier financing, price increases, and productivity improvements. While these efforts have helped offset some impacts, further disruptions and cost increases could occur.
06—Continue