Johnson Controls Reports Solid Fourth Quarter and Full Year Results; Initiates FY23 Guidance

• Q4 GAAP EPS of $1.10; Adjusted EPS of $0.99, up 13% versus prior year; full year GAAP EPS of $2.19; Adjusted EPS of $3.00, up 13% versus prior year
• Q4 reported sales +5% versus prior year; +10% organically; full year reported sales +7%; +9% organically
• Q4 Orders +9% organically year-over year; full year orders +10% organically year-over-year
• Record backlog of $11.1 billion, increased 13% organically year-over-year
• Initiates fiscal 2023 adjusted EPS guidance of $3.20 to $3.60, an increase of 7% to 20% year-over-year; fiscal Q1 adjusted EPS guided to $0.65 to $0.67, an increase of 20% to 24% year-over-year

CORK, Ireland, Nov. 3, 2022 /PRNewswire/ -- Johnson Controls International plc (NYSE: JCI), a global leader for smart, healthy and sustainable buildings, today reported fiscal fourth quarter 2022 GAAP earnings per share ("EPS") from continuing operations, including special items, of $1.10. Excluding special items, adjusted EPS from continuing operations was $0.99, up 13% versus the prior year period (see attached footnotes for non-GAAP reconciliation).

Sales in the quarter of $6.7 billion increased 5% compared to the prior year on an as reported basis and grew 10% organically. GAAP net income from continuing operations was $761 million. Adjusted net income from continuing operations of $682 million was up 9% versus the prior year. Earnings before interest and taxes ("EBIT") was $666 million and EBIT margin was 9.9%. Adjusted EBIT was $917 million and adjusted EBIT margin was 13.6%, improving 70 basis points versus the prior year.

"During the year, we capitalized on robust demand and progressed our transformation, enhancing our differentiated business model and launching unique solutions that further establish Johnson Controls as an industry leader in smart, healthy, and sustainable buildings. While macro challenges continue to cause uncertainty for the broader market, we are optimistic about extending our strong momentum as we convert our backlog and execute our new capabilities powered by OpenBlue in the upcoming fiscal year," said George Oliver, Chairman and Chief Executive Officer.

"We recorded another strong quarter in both orders and revenue, and delivered margin expansion which offset material foreign exchange headwinds," said Olivier Leonetti, Chief Financial Officer. "We have built our backlog considerably over the year, driven by our mission-critical solutions, which increasingly resonate with our customers. As we look ahead, we remain confident in the resiliency of our products and services as we continue to navigate through an uncertain operating environment."

Income and EPS amounts attributable to Johnson Controls ordinary shareholders
($ millions, except per-share amounts)

The financial highlights presented in the tables below are in accordance with GAAP, unless otherwise indicated. All comparisons are to the fiscal fourth quarter of 2021. Effective October 1, 2021, the Company's Marine business, previously reported across the Building Solutions Asia Pacific, Global Products and Building Solutions EMEA/LA segments, is now managed and reported under the Building Solutions EMEA/LA segment. Historical information has been re-cast to present the comparative periods on a consistent basis.

Organic sales growth, adjusted sales, organic segment EBITA growth, total segment EBITA, adjusted segment EBITA, adjusted corporate expense, EBIT, adjusted EBIT, adjusted net income from continuing operations, adjusted EPS from continuing operations, and free cash flow are non-GAAP financial measures. For a reconciliation of these non-GAAP measures and detail of the special items, refer to the attached footnotes. A slide presentation to accompany the results can be found in the Investor Relations section of Johnson Controls' website at https://investors.johnsoncontrols.com.

SEGMENT RESULTS

Building Solutions North America

Sales in the quarter of $2.6 billion increased 9% versus the prior year. Organic sales also increased 9% over the prior year, led by low double-digit growth in our project-based business and continued growth in HVAC & Controls.         

Orders in the quarter, excluding M&A and adjusted for foreign currency, increased 13% year-over-year. Backlog at the end of the quarter of $7.5 billion increased 18% compared to the prior year, excluding M&A and adjusted for foreign currency.

Adjusted segment EBITA was $377 million, up 6% versus the prior year. Adjusted segment EBITA margin of 14.7% declined 50 basis points versus the prior year as the benefits of the SG&A/COGS optimization actions were more than offset by lower absorption related to supply chain challenges and labor constraints.    

 Building Solutions EMEA/LA (Europe, Middle East, Africa/Latin America)

Sales in the quarter of $976 million declined 3% versus the prior year. Organic sales grew 9% versus the prior year with low double-digit growth in Fire & Security and high single-digit growth in HVAC & Controls. By region, strong organic growth in Europe was offset by a decline in Latin America and the Middle East.          

Orders in the quarter, excluding M&A and adjusted for foreign currency, increased 3% year-over-year. Backlog at the end of the quarter of $2.0 billion increased 7% year-over-year, excluding M&A and adjusted for foreign currency.

Adjusted segment EBITA was $92 million, down 16% versus the prior year. Adjusted segment EBITA margin of 9.4% declined 160 basis points versus the prior year, as the benefits of SG&A/COGS optimization actions were more than offset by continued FX headwinds and unfavorable region and project mix.

Building Solutions Asia Pacific

Sales in the quarter of $751 million increased 5% versus the prior year. Sales increased 12% organically versus the prior year, led by strong demand for HVAC & Controls.  By region, sales in China grew high-teens in the quarter, led by strong Service execution.

Orders in the quarter, excluding M&A and adjusted for foreign currency, increased 3% year-over-year. Backlog at the end of the quarter of $1.6 billion declined 2% year-over-year, excluding M&A and adjusted for foreign currency.

Adjusted segment EBITA was $105 million, declining 5% versus the prior year. Adjusted segment EBITA margin of 14.0% declined 140 basis points versus the prior year as positive price/cost and the benefits of SG&A/COGS optimization actions were more than offset by FX headwinds, lower volumes, and unfavorable mix due to higher HVAC shipments.    

Global Products

Sales in the quarter of $2.4 billion increased 5% versus the prior year. Organic sales grew 11% versus the prior year driven by strong price realization and continued growth in Light Commercial, Residential HVAC, and Fire Detection products.

Adjusted segment EBITA was $533 million, up 21% versus the prior year. Adjusted segment EBITA margin of 21.9% expanded 300 basis points versus the prior year, driven by higher volume leverage, positive mix, and the benefits of SG&A/COGS actions.    

Corporate

Adjusted Corporate expense was $89 million in the quarter, an increase of 7% compared to the prior year. 

OTHER ITEMS

• For the quarter, cash provided by operating activities from continuing operations was $1.2 billion and capital expenditures were $162 million, resulting in a free cash flow from continuing operations of $1.0 billion.
• For the full year, cash provided by operating activities from continuing operations was $2.0 billion and capital expenditures were $592 million, resulting in a free cash flow from continuing operations of $1.4 billion, representing 67% conversion.
• For the full year, the Company repurchased 21.7 million shares for approximately $1.4 billion.
• During the quarter, the Company recorded net pre-tax mark-to-market gains of $192 million related primarily to the remeasurement of the Company's pension and postretirement benefit plans and restricted asbestos investments.
• During the quarter, the Company recorded pre-tax restructuring and impairment costs of $167 million, including a $75 million impairment of goodwill attributable to the Silent-Aire reporting unit and a $45 million impairment of long-lived assets in our Asia Pacific segment.
• The Company recorded a pre-tax charge of $255 million to increase its environmental remediation and related reserves primarily associated with long-term remediation activities at its facilities in Marinette, Wisconsin.
• The Company recorded a discrete period tax benefit of $301 million upon the expiration of the statute of limitations for certain tax years.
• In September, the Company issued €600 million senior notes due 2028 and $400 million senior notes due 2032.

FIRST QUARTER GUIDANCE

The Company initiated fiscal 2023 first quarter guidance:

• Organic revenue growth of low double-digit year-over-year
• Adjusted segment EBITA margin improvement of 120 to 130 basis points, year-over-year
• Adjusted EPS before special items of $0.65 to $0.67

FULL YEAR GUIDANCE

The Company initiated fiscal 2023 full year EPS guidance:

• Organic revenue growth of high single-digits to low double-digits year-over year
• Adjusted segment EBITA margin improvement of 80 to 120 basis points, year-over-year
• Adjusted EPS before special items of $3.20 to $3.60; representing 7% to 20% growth year-over-year

CONFERENCE CALL & WEBCAST INFO

Johnson Controls will host a conference call to discuss this quarter's results at 8:30 a.m. ET today, which can be accessed by dialing 888-324-9610 (in the United States) or 630-395-0255 (outside the United States), or via webcast. The passcode is "Johnson Controls". A slide presentation will accompany the prepared remarks and has been posted on the investor relations section of the Johnson Controls website at https://investors.johnsoncontrols.com/news-and-events/events-and-presentations. A replay will be made available approximately two hours following the conclusion of the conference call.

About Johnson Controls

At Johnson Controls (NYSE:JCI), we transform the environments where people live, work, learn and play. As the global leader in smart, healthy and sustainable buildings, our mission is to reimagine the performance of buildings to serve people, places and the planet.

Building on a proud history of nearly 140 years of innovation, we deliver the blueprint of the future for industries such as healthcare, schools, data centers, airports, stadiums, manufacturing and beyond through OpenBlue, our comprehensive digital offering.

Today, with a global team of 100,000 experts in more than 150 countries, Johnson Controls offers the world`s largest portfolio of building technology and software as well as service solutions from some of the most trusted names in the industry.

Visit www.johnsoncontrols.com for more information and follow @Johnson Controls on social platforms.

JOHNSON CONTROLS CONTACTS:

Johnson Controls International plc Cautionary Statement Regarding Forward-Looking Statements

Johnson Controls International plc has made statements in this communication that are forward-looking and therefore are subject to risks and uncertainties. All statements in this document other than statements of historical fact are, or could be, "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. In this communication, statements regarding Johnson Controls future financial position, sales, costs, earnings, cash flows, other measures of results of operations, synergies and integration opportunities, capital expenditures, debt levels and market outlook are forward-looking statements. Words such as "may," "will," "expect," "intend," "estimate," "anticipate," "believe," "should," "forecast," "project" or "plan" and terms of similar meaning are also generally intended to identify forward-looking statements.  However, the absence of these words does not mean that a statement is not forward-looking. Johnson Controls cautions that these statements are subject to numerous important risks, uncertainties, assumptions and other factors, some of which are beyond its control, that could cause its actual results to differ materially from those expressed or implied by such forward-looking statements, including, among others, risks related to: Johnson Controls ability to manage general economic, business and capital market conditions, including recessions and other economic downturns, the ability to manage macroeconomic and geopolitical volatility, including global price inflation, shortages impacting the availability of raw materials and component products and the conflict between Russia and Ukraine; the ability to develop or acquire new products and technologies that achieve market acceptance and meet applicable regulatory requirements; the strength of the U.S. or other economies; fluctuations in currency exchange rates; changes or uncertainty in laws, regulations, rates, policies or interpretations that impact Johnson Controls business operations or tax status; changes to laws or policies governing foreign trade, including economic sanctions, increased tariffs or trade restrictions; maintaining the capacity, reliability and security of Johnson Controls enterprise information technology infrastructure; the ability to manage the lifecycle cybersecurity risk in the development, deployment and operation of Johnson Controls digital platforms and services; the risk of infringement or expiration of intellectual property rights; Johnson Controls ability to manage the impacts of natural disasters, climate change, pandemics and outbreaks of contagious diseases and other adverse public health developments, such as the COVID-19 pandemic; the ability of Johnson Controls to drive organizational improvement;  any delay or inability of Johnson Controls to realize the expected benefits and synergies of recent portfolio transactions; the outcome of litigation and governmental proceedings; the ability to hire and retain senior management and other key personnel; the tax treatment of recent portfolio transactions; significant transaction costs and/or unknown liabilities associated with such transactions; labor shortages, work stoppages, union negotiations, labor disputes and other matters associated with the labor force; and the cancellation of or changes to commercial arrangements. A detailed discussion of risks related to Johnson Controls business is included in the section entitled "Risk Factors" in Johnson Controls Annual Report on Form 10-K for the 2021 fiscal year filed with the SEC on November 15, 2021, which is available at www.sec.gov and www.johnsoncontrols.com under the "Investors" tab. The description of certain of these risks is supplemented in Item 1A of Part II of Johnson Controls subsequently filed Quarterly Reports on Form 10-Q. Shareholders, potential investors and others should consider these factors in evaluating the forward-looking statements and should not place undue reliance on such statements. The forward-looking statements included in this communication are made only as of the date of this document, unless otherwise specified, and, except as required by law, Johnson Controls assumes no obligation, and disclaims any obligation, to update such statements to reflect events or circumstances occurring after the date of this communication.

Non-GAAP Financial Information

This press release contains financial information regarding adjusted earnings per share, which is a non-GAAP performance measure. The adjusting items include restructuring and impairment costs, net mark-to-market adjustments, Silent-Aire other nonrecurring items, Silent-Aire earn-out adjustment, charges associated with the suspension of operations in Russia, certain transaction / separation costs, certain environmental remediation and related reserve adjustments, Power Solutions divestiture reserve adjustment and discrete tax items. Financial information regarding organic sales growth, adjusted sales, EBIT, EBIT margin, adjusted EBIT, adjusted EBIT margin, organic segment EBITA growth, total segment EBITA, adjusted segment EBITA, adjusted segment EBITA margin, adjusted Corporate expense, free cash flow, free cash flow conversion and adjusted net income from continuing operations are also presented, which are non-GAAP performance measures. Management believes that, when considered together with unadjusted amounts, these non-GAAP measures are useful to investors in understanding period-over-period operating results and business trends of Johnson Controls. Management may also use these metrics as guides in forecasting, budgeting and long-term planning processes and for compensation purposes. These metrics should be considered in addition to, and not as replacements for, the most comparable GAAP measure.  For further information on the calculation of the non-GAAP measures and a reconciliation of these non-GAAP measures, refer to the attached footnotes.