Johnson Controls Revenues: What Will Lead To $1.6 Billion Sales Decline In 2020: North America Or Asia Pacific

Johnson Controls (NYSE:JCI) reports its revenue for the Building Products & Solutions segment, which includes heating, ventilation, and air-conditioning (HVAC), and other mechanical systems for buildings. The segment revenues can be split into different geographies, North America, EMEA/LA (Europe, Middle East & Africa/Latin America), ASPAC (Asia Pacific), and Global Products. Of these, North America region has seen revenues grow from $8.3 billion in 2017 to $9.0 billion in 2019. Why is this important? North America as a region is the company’s largest revenue source – contributing more than 60% of the company’s revenue growth in the last 3 years. Sales growth in this region has been driven by higher volumes in HVAC, controls, fire and security products sales. Looking forward, the segment’s revenues are expected to decline 6% to $8.4 billion in 2020, accounting for roughly 37% of the total revenue decline for the company, as we detail in our interactive dashboard, Johnson Controls Revenues: How Does JCI Make Money?

Johnson Controls’ sales are largely linked to commercial and residential construction, which in turn, are dependent on general economic conditions. The COVID-19 pandemic is expected to have significant repercussions, with the global economy feared to go into recession. This is expected to impact the commercial and residential construction. Looking at North America, the commercial construction starts are expected to fall in mid-teens (percent) in 2020. The U.S. unemployment has also been on a rise, with over 20 million job losses in the month of April, half of which came from the construction sector, implying the weakness in the market. This will have an impact on the company’s business in North America, and we estimate the drop in regional sales to be around 6%.

Beyond North America, the company’s Asia Pacific business is also expected to take a hit in 2020, and the decline could be even more steep in this region, as the economic growth is expected to be nearly zero in 2020. With respect to new construction, the availability of workers remains an important issue in the near term, due to social distancing norms. Fewer construction starts will directly impact Johnson Controls’ business, as we detail in our interactive dashboard on Johnson Controls Revenues.

Johnson Controls Company Overview

Johnson Controls is a global multi-industry company that provides heating, ventilation, and air-conditioning (HVAC), and other mechanical systems for buildings. The company also provides technical services, energy management consulting, and operational support for the entire real estate portfolios in the non-residential buildings market. The company serves security, fire detection and suppression and life safety needs across commercial, industrial, retail, small business, institutional and governmental markets, as well as non-U.S. residential markets. Johnson Controls’ business model faces stiff challenges and competition from offerings by its global competitors such as, 3M, Corning, and General Electric.

The company’s $24.0 billion revenue in 2019 was spread across different geographies.

• 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 ASPAC: 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.

Among the company’s 4 business segments, Asia Pacific has seen the fastest growth with revenues growing 9% from $2.4 billion in 2017 to $2.7 billion in 2019, led by strong economic growth and construction boom. Though, just as the other segments, Asia Pacific sales will likely decline in 2020. Overall, all of the company’s segments are expected to face headwinds in the near term, though Asia Pacific could be the worst hit, in our view. Additional details about how other components of Johnson Controls’ Revenues have changed over the years and are likely to trend going forward, along with comparison of the company’s top line with peers, Teleflex and Xylem, are available in our interactive dashboard. Trefis estimates an outlier case of Johnson Controls’ stock falling to $20, in view of the current pandemic and its impact on businesses.

Our dashboard forecasting US COVID-19 cases with cross-country comparisons analyzes expected recovery time-frames and possible spread of the virus.

Further, our dashboard -28% Coronavirus crash vs. 4 Historic crashes builds a complete macro picture. Additionally, the complete set of coronavirus impact and timing analyses is available here.

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