Johnson Controls reports fiscal Q3 earnings with strong organic growth and underlying margin expansion Redacción AMI

Johnson Controls International reported fiscal third quarter 2018 GAAP earnings per share (“EPS”) from continuing operations, including special items, of $0.78.  Excluding these items, adjusted EPS from continuing operations was $0.81, up 14% versus the prior year period (see attached footnotes for non-GAAP reconciliation).

Sales of $8.1 billion increased 6% compared to the prior year.  Excluding the impacts of M&A, foreign currency and lead prices, total sales also grew 6% organically.

GAAP earnings before interest and taxes (“EBIT”) was $1,011 million and EBIT margin was 12.5%. Adjusted EBIT was $1,062 million and adjusted EBIT margin was 13.1%, up 10 basis points over the prior year.   Excluding the impact of the Scott Safety divestiture, foreign currency and lead prices, the underlying adjusted EBIT margin increased 70 basis points.

“We delivered another quarter of strong results, with our commitment to execution driving continued operating momentum across the organization.  Organic sales growth accelerated to 6%, with solid growth in both Buildings and Power Solutions.  More disciplined operating fundamentals and processes are driving improved performance against all of our key initiatives, including service, pricing, orders, underlying margins and free cash flow,” said George Oliver, chairman and chief executive officer.

Additionally, I am very pleased with the significant progress we have made on the strategic review of our Power Solutions business, across multiple alternatives.  We expect to conclude the review by the release of our fourth quarter earnings,” Oliver continued.

“Based on our year-to-date performance and continued momentum in the businesses, we are tightening our full year guidance range for adjusted EPS from continuing operations to $2.80 to $2.82.”

BUSINESS RESULTS

Building Solutions North America

Sales in the quarter were $2.2 billion, an increase of 5% versus the prior year quarter.  Excluding M&A and foreign currency, organic sales also increased 5% versus the prior year, driven primarily by strong growth in Fire & Security and HVAC & Controls.

Orders in the quarter, excluding M&A and adjusted for foreign currency, increased 8% year-over-year.  Backlog at the end of the quarter of $5.4 billion increased 7% year-over-year, excluding M&A and adjusted for foreign currency.

Adjusted segment EBITA was $318 million, up 10% versus the prior year. Adjusted segment EBITA margin of 14.2% expanded 60 basis points driven by favorable volume and mix as well as cost synergies and productivity savings, partially offset by salesforce additions and, to a lesser extent, lower margin backlog conversion.

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

Sales in the quarter were $926 million, an increase of 4% versus the prior year quarter.  Excluding M&A and foreign currency, organic sales were flat with the prior year as stronger service activity was offset primarily by continued softness in project installations in European HVAC and Industrial Refrigeration. By region, growth in Latin America and the Middle East was offset by declines in Europe.

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 $1.6 billion increased 6% year-over-year, excluding M&A and adjusted for foreign currency.

Adjusted segment EBITA was $98 million, up 10% versus the prior year quarter. Adjusted segment EBITA margin of 10.6% expanded 60 basis points over the prior year, including a 40 basis point headwind related to foreign currency.  Adjusting for foreign currency, the underlying margin improved 100 basis points driven primarily by the benefit from cost synergies and productivity savings.

Building Solutions Asia Pacific

Sales in the quarter were $681 million, an increase of 8% versus the prior year quarter.  Excluding M&A and foreign currency, organic sales increased 4% versus the prior year, with double-digit growth in service and low-single digit growth in project installations.

Orders in the quarter, excluding M&A and adjusted for foreign currency, declined 1% year-over-year.  Backlog at the end of the quarter of $1.5 billion increased 9% year-over-year, excluding M&A and adjusted for foreign currency.

Adjusted segment EBITA was $97 million, up 15% versus the prior year. Adjusted segment EBITA margin of 14.2% expanded 90 basis points over the prior year, including a 50 basis point headwind related to foreign currency.  Adjusting for foreign currency, the underlying margin improved 140 basis points driven by the benefit of cost synergies and productivity savings as well as favorable volume and mix, partially offset by salesforce additions.

Global Products

Sales in the quarter were $2.4 billion, an increase of 1% versus the prior year quarter.  Excluding M&A and foreign currency, organic sales increased 7% versus the prior year led by high-single digit growth in both HVAC & Refrigeration Equipment and Building Management Systems, and mid-single digit growth in Specialty Products.

Adjusted segment EBITA was $441 million, down 1% versus the prior year, primarily attributable to the impact of the Scott Safety divestiture.  Adjusted segment EBITA margin of 18.2% declined 30 basis points over the prior year including a 90 basis point headwind related to the divestiture of the Scott Safety business. The underlying margin expanded 60 basis points as favorable volume leverage and the benefit of cost synergies and productivity savings was partially offset by product and channel investments.

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