Johnson Controls Reports Second Quarter Results and Increases Share Repurchase Program by $500 Million

CORK, Ireland, 

• GAAP loss of $0.16 per share driven by non-cash tax charge and other special items
• Adjusted EPS from continuing operations of $0.50, up 11 percent versus prior year
• Adjusted sales of $7.2 billion, reflecting organic growth of 2 percent versus prior year
• Adjusted EBIT margin expansion of 20 basis points year-over-year, to 9.8 percent
• Third quarter adjusted EPS from continuing operations guidance of $0.70 to $0.73, an increase of 15 percent to 20 percent year-over-year
• 2017 adjusted EPS from continuing operations guidance range tightened to $2.60 to $2.68, a 13 percent to 16 percent increase year-over-year

Johnson Controls International, plc (NYSE: JCI) reported a fiscal second quarter 2017 GAAP loss per share ("EPS") from continuing operations of $0.16 driven by a non-cash tax charge and other special items (see attached footnotes for additional information).  Adjusted EPS from continuing operations was $0.50, up 11 percent versus the prior year period.

Adjusted sales of $7.2 billion increased 3 percent compared to the prior year.  Organic sales growth of 2 percent and higher lead pass-through were partially offset by the negative impact of net acquisition and divestiture activity and changes in foreign currency exchange rates.   

Earnings before interest and taxes ("EBIT") was $509 million and EBIT margin was 7.0 percent. Adjusted EBIT was $711 million, up 5 percent over last year (up 7 percent excluding foreign exchange and lead cost increases) with adjusted EBIT margin expansion of 20 basis points, to 9.8 percent.

"Strong second quarter results, ongoing portfolio actions and an increase in our share repurchase program all demonstrate solid progress towards our 2017 priorities and commitments as a newly combined company.  Our leading brands, along with our global footprint and strategic customer relationships, uniquely position us as a world leader in buildings and energy solutions and technologies," said Alex Molinaroli, Johnson Controls chairman & CEO.  "Another quarter of double-digit EPS growth, accelerating organic sales growth in Buildings and a continued focus on integration, supports our expectations of 13% to 16% EPS growth for the year," Molinaroli continued. 

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 second quarter of 2016, which are adjusted to reflect the combination of Johnson Controls' historical Building Efficiency business with historical Tyco results of operations as if these businesses had been operated together during the periods presented, along with certain other adjustments.  For additional information, see the unaudited supplemental financial information included in the Current Report on Form 8-K filed by Johnson Controls with the SEC on Nov. 8, 2016 as well as the attached footnotes.  The spin-off of Adient plc occurred on Oct. 31, 2016 and the results of this business are reported in discontinued operations for all historical periods presented. 

Organic adjusted sales growth, adjusted segment EBITA, adjusted EBIT, and adjusted EPS from continuing operations 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 reviewing second quarter results can be found in the Investor Relations section of Johnson Controls' website at http://investors.johnsoncontrols.com.

Buildings sales in the second quarter of 2017 were $5.5 billion, up 1 percent versus the prior year quarter.  Excluding M&A and foreign exchange, organic sales increased 3 percent versus the prior year led by 4 percent growth in field sales, which were partially offset by a 1 percent decline in product sales.    

Orders in the quarter, excluding M&A and adjusted for foreign exchange, increased 2 percent year-over-year, with 3 percent growth in field orders, including early cross-selling wins, and a 1 percent decline in product orders.  Backlog at the end of the quarter of $8.3 billion, increased 6 percent year-over-year, excluding M&A and adjusted for foreign exchange.

Buildings adjusted segment EBITA was $628 million, down 1 percent versus the prior year.  Adjusted segment EBITA margin of 11.3 percent decreased 30 basis points compared with the prior year quarter as the benefit of volume leverage, productivity savings and cost synergies were more than offset by incremental product and channel investments, as well as mix. 

Power Solutions sales in the second quarter of 2017 were $1.7 billion, an increase of 7 percent versus the prior year quarter.  Excluding the impact of higher lead pass-through and foreign exchange, organic sales declined 1 percent versus the prior year, as positive mix was offset by lower unit volumes in North America and China.  Global original equipment battery shipments were consistent with the prior year, while aftermarket shipments declined 3 percent in the quarter due to timing of shipments related to customer demand patterns.  Start-Stop battery shipments increased 36 percent year-over-year, with growth in all regions.  

Power Solutions adjusted segment EBITA was $303 million, up 7 percent from the prior year quarter, due to favorable product mix, as well as productivity savings, partially offset by lower volumes and the impact of lead.  Adjusted segment EBITA increased 12 percent excluding the impact of foreign exchange and lead.  Adjusted segment EBITA margin of 17.9 percent increased 10 basis points compared with the prior year quarter, including a 220 basis point headwind related to the impact of lead.  Excluding the impact of lead, adjusted segment EBITA margin increased 230 basis points year-over-year.    

Adjusted corporate expense was $128 million in the second quarter, a decrease of 2 percent compared to the prior year quarter driven by productivity initiatives and cost synergies, partially offset by the timing of expenses.   

OTHER ITEMS

• During the quarter, the Company repurchased $119 million of its shares and expanded its full year share repurchase program by $500 million.  The Company now expects to complete up to $750 million of share repurchases during fiscal 2017.
• On Feb. 7, 2017, the Company issued $500 million in 30 year senior notes at a fixed annual interest rate of 4.5%. Proceeds were used to repay outstanding commercial paper borrowings and for other general corporate purposes.
• On March 15, 2017, the Company issued €1 billion in 6.5 year senior notes at a fixed annual interest rate of 1.0%. Proceeds were used to repay existing debt and for other general corporate purposes.  
• On March 15, 2017, the Company announced a definitive agreement to sell its Scott Safety business to 3M in an all cash transaction valued at approximately $2.0 billion.  Net cash proceeds from the transaction are expected to approximate $1.8 to $1.9 billion, and will be used to repay a portion of Tyco International Holding Sarl's ("TSarl") $4.0 billion of merger-related debt.  The transaction is expected to close in the second half of calendar 2017, subject to customary closing conditions including required regulatory approvals. 
• On March 15, 2017, the Company completed its previously announced divestiture of its ADT South Africa business.  Proceeds from the transaction of approximately $130 million will be used to repay a portion of the TSarl merger-related debt. 

About Johnson Controls:

Johnson Controls is a global diversified technology and multi industrial leader serving a wide range of customers in more than 150 countries. Our 120,000 employees create intelligent buildings, efficient energy solutions, integrated infrastructure and next generation transportation systems that work seamlessly together to deliver on the promise of smart cities and communities. Our commitment to sustainability dates back to our roots in 1885, with the invention of the first electric room thermostat. We are committed to helping our customers win and creating greater value for all of our stakeholders through strategic focus on our buildings and energy growth platforms. For additional information,