North America Segments Leads Growth For Johnson Controls In Q2 2019

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Johnson Controls (NYSE: JCI) announced its Q2 2019 (ended March 2019) results on May 1, 2019, followed by a conference call with analysts. The company posted revenue in line with consensus  which was recorded at $5.8 billion, down by 22.6% y-o-y. The revenue decrease was due to the sale of the Power Solutions Division in early November. Building Solutions Revenue increased at 2.6% y-o-y. The earnings beat consensus and was recorded at $0.57, up from $0.47 per share in the same period of 2018.

 

Johnson Controls reported $23.4 billion in Total Revenues in FY 2018. This included 4 revenue streams: (We have disregarded Power Solutions as the division was sold off).

  • Building Solutions North America: $8.7 billion in FY 2018 (37.1% of Total Revenues). This includes Building Solutions provided in the North America region.
  • Building Solutions EMEA/LA: $3.7 billion in FY 2018 (15.8% of Total Revenues). This includes Building Solutions provided in Europe, Middle East, Africa and Latin America regions.
  • Building Solutions Asia Pacific: $2.6 billion in FY 2018 (10.9% of Total Revenues). This includes Building Solutions provided in the Asia Pacific region.
  • Global Products: $8.5 billion in FY 2018 (36.2% of Total Revenues). This includes the design and production of heating and air conditioning for residential and commercial application across the globe.

We have summarized our key expectations from the earnings announcement in our interactive dashboard –What Has Driven Johnson Controls’ Revenues & Expenses Over Recent Quarters, And What Can We Expect For Full-Year 2019?  In addition, here is more Industrials data.

 

 

Key Factors Affecting Earnings:

Building Solutions Revenue to Grow:

  • Johnson Controls has seen a steady increase in revenue over the past few quarters. In Q1 2019 and Q2 2019 (ended March 2019) we see a big fall in Revenue due to the sale of Power Solutions Division. Revenue for Q2 2019 was $5.8 billion with North America segment contributing the highest at around $2.2 billion.
  • Building Solutions Revenue has been increasing at a steady and moderate pace across geographies after a good growth jump in 2017, where Total Revenue went up by more than 60% year on year.
  • Global Products segment and Building Solutions North America are expected to continue contributing the highest to Total revenue, approximately 73%, by posting around $8.7 billion and about $9.1 billion in revenues, respectively. This has been aided by the growth in the North American non-residential construction markets.
  • Power Solutions division was sold off in November 2018 and thus is recognized as a Discontinued operation.

 

Trend in Expenses:

  • Total Expenses have stayed steady across the quarters. The fall in Q1 2019 and Q2 2019 (ended March 2019), like for Revenue, is due to the sale of the Power Solutions Division.
  • Cost of Sales has remained around the same range over the quarters. i.e. 68%-70%. In Q2 2019 (ended March 2019) it was 68.1%

 

Full Year Outlook:

  • For the full year, we expect gross revenue to decrease by 22.5% to $24.3 billion in 2019.
  • Building Solutions revenue is expected to increase by 4% as all geographies will continue on the growth path.
  • Overall EBITDA Margin is expected to remain steady at around 13% in 2019.

 

Trefis has a price estimate of $36 per share for Johnson Controls’ stock. The value is based on the expectation that the company will continue to grow its Building Solutions revenue while maintaining the EBITDA margins.

 

 

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