Johnson Controls’ Revenue Could Touch $25 Billion By 2020 Despite Divesting Power Solutions Unit

Johnson Controls International (NYSE: JCI), is a global diversified technology company specializing in creating intelligent buildings, efficient energy solutions, integrated infrastructure and next generation transportation systems. Trefis captures trends in Johnson Controls’ Revenues over recent years in an interactive dashboard along with our forecast for the current year. You can understand the revenue trends and division-wise revenue performance, and alter the assumptions to arrive at your own estimate for the company’s revenues in the dashboard. Additionally, you can find more Trefis Industrial Data here.

Johnson Control’s revenue for fiscal 2018 (ending September) grew 4% year-over-year to $31.4 billion driven by higher sales in the Building Technologies & Solutions business, the favorable impact of foreign currency translation and higher sales in the Power Solutions business. However, the company’s year-to-date (FY’19) revenue has fallen considerably compared to the same period last year because of the sale of its Power Solutions division in last November. Going forward, we expect JCI to achieve steady organic revenue growth and record $24.8 billion in total revenues in FY’20

A Quick Look At Sources of Johnson Controls’ Revenues

• Building Solutions North America: This includes Building Solutions provided in the North America region. Major product offerings include control systems, security systems, fire-detection systems, other equipment and services
• Building Solutions EMEA/LA This includes Building Solutions provided in Europe, Middle East, Africa and Latin America regions.
• Building Solutions Asia Pacific: This includes Building Solutions provided in the Asia Pacific region.
• Global Products: This segment includes the designing and production of heating and air conditioning for residential and commercial applications across the globe.

How Has Johnson Controls’ Revenue Trended Historically?

• JCI has added more than $10 billion to total revenue since 2016 at an average annual rate of 23% driven by its merger with Tyco in 2017, as well as higher sales volumes across all operating divisions
• The company’s revenue is expected to decline by 23% in 2019 due to the sale of its power division which was completed in the current fiscal year. Power division accounted for roughly 25% of the company’s revenues in 2018
• However on an organic basis, we expect the company to achieve steady revenue growth and add roughly $1.4 billion to total revenues by FY’20.

A Detailed Look At Johnson Controls’ segment performance and revenue change over the years:

Building Solutions North America Is JCI’s biggest division

• North America consistently contributes a bulk of the company’s revenues, with an average revenue share of more than 35% in the last three years.
• Moreover, the segment’s share has gradually increased from around 33% in 2016 to more than 37% in 2018 due to higher volumes in HVAC, controls, fire and security sales
• The segment grew by 4% year-over-year in fiscal 2018, contributing more than $330 million to total incremental revenues.
• We expect the segment to continue its steady growth and record around $9.3 billion in revenues in FY 2020.
• With ample order backlog and robust demand for its HVAC and Fire & Security equipment, this segment is poised to lead JCI’s growth over coming years.

Building Solutions Asia Pacific Holds Strong Growth Potential

• The company’s Asia Pacific business has seen steady growth over the last few years, adding more than $800 million to total revenues since 2016 at an average annual rate of 21%.
• This growth can be attributed to additional sales from the Tyco merger as well as accelerating project installation activity
• We expect this segment to continue its steady growth and generated around $2.7 billion in revenues in FY 2020.
• Moreover, strong growth in HVAC and building management services (BMS) platforms (particularly from China) have continued to drive the segment’s growth. Upbeat demand for new project installation will help this segment achieve steady growth in the coming years.

Global Products Segment Growth Likely To Rebound After Sluggish 2018

• Global Products segment has been the largest driver growth driver for the company, with an average revenue share of nearly 39% in the last 3 years.
• However, the segment’s share has declined from above 43% in 2016 to nearly 36% in 2018 due to sluggish performance of the segment in 2018.
• The segment’s revenues remained flat in 2018 as higher sales volumes were offset by loss of business due to business divestiture.
• However, going forward, we expect this segment to rebound and grow in the low single-digit range and record around $9 billion in total revenues in FY’20
• This increase is likely to be driven by growth in Business Management System and an uptick in construction activities in North America.

Building Solutions EMEA/LA Contribution Expected To Remain Stable Around 15%

• EMEA/LA has grown more than 2x over the last three years. After more than doubling in 2016, this segment’s growth has normalized to reach around $3.7 billion in 2018. We expect this segment’s revenue to increase in the low double-digit range and reach around $3.85 billion in FY’20
• Moreover, the segment’s share to total revenues has remained around 15% since 2017, and going forward, we expect its share to remain around current levels.

Based on our forecasts, JCI’s adjusted EPS for full-year 2019 is likely to be around $1.95. Using this figure with our estimated forward P/E ratio of 21x, this works out to a price estimate of $41 for Johnson Controls’ stock which is slightly below the current market price.

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