For the fourth quarter of fiscal 2015, Johnson Controls, Inc., (NYSE: JCI), a global multi-industrial company, reported net income from continuing operations of $3 million on $8.7 billion in revenues. Adjusted non-GAAP diluted earnings per share from continuing operations for the quarter were a record $1.04. As a result of the previously announced sale of its Global Workplace Solutions (GWS) business, the Company has reclassified GWS results to discontinued operations. Prior year financial statements have been revised accordingly.
Excluding transaction / integration / separation costs and non-recurring items in the fourth quarter, continuing operations highlights include:
- Net revenues of $8.7 billion versus $10.0 billion in Q4 2014, due primarily to the deconsolidation of the company’s automotive interiors business and foreign exchange. Excluding the impact of the deconsolidation of the interiors business and foreign exchange, sales increased 3 percent.
- Segment income from continuing operations of $939 million compared with $911 million a year ago, up 3 percent (up 8 percent excluding foreign exchange)
- Segment income margins increased 150 basis points versus the 2014 fourth quarter
- Diluted earnings per share of $1.04 were up 7 percent versus $0.97 in the same quarter last year
Non-recurring items that impacted reported Q4 2015 and Q4 2014 income from continuing operations include:
2015 fourth quarter (net charge of $1.04 per share)
- Non-cash mark-to-market pension and postretirement losses of $422 million ($257 million after-tax)
- Transaction, integration and separation costs of $34 million ($28 million after-tax)
- Restructuring and non-cash impairment charges of $397 million ($310 million after-tax) primarily related to Automotive Seating plant restructuring as well as asset impairments
- Net gain from divested businesses of $145 million ($38 million after-tax)
- Non-recurring net tax expense of $124 million mainly due to foreign cash repatriation related to business divestitures
2014 fourth quarter (net charge of $0.48 per share)
- Non-cash mark-to-market pension and postretirement and settlement losses of $252 million ($188 million after-tax)
- Transaction and integration costs of $19 million ($15 million after-tax)
- Restructuring and non-cash impairment charges of $162 million ($135 million after-tax) primarily related to the Building Efficiency reorganization
- Non-recurring net tax benefit of $17 million
“We ended fiscal 2015 with solid contributions from all of our businesses, continuing the strong performance we have seen throughout the year,” said Alex Molinaroli, Johnson Controls chairman, president and chief executive officer. “While the macro-economic environment is challenging in some key markets, each of our businesses again generated significant margin improvements in the fourth quarter and we see increasing benefits from the Johnson Controls Operating System across the company. We enter the new fiscal year well-positioned to execute on our enterprise plan and deliver long-term shareholder value.”
Business results (Excluding transaction / integration / separation costs and non-recurring items)
Building Efficiency sales in the fiscal 2015 fourth quarter were $2.9 billion, level with the same quarter last year. Excluding foreign currency, revenues increased 5 percent, with growth in North America Systems and Service and the Middle East offset by softness in Europe.
Orders in the quarter, excluding foreign exchange, were 4 percent lower year-over-year. Order growth of more than 4 percent in the core North American branch business was more than offset by weakness in the Federal government business as well as softness in Europe and Asia. The Federal government decline is primarily related to delays and reduced funding caused by Congressional Continuing Resolution deferrals. The backlog of projects at the end of the quarter, adjusted for foreign exchange, decreased 1 percent, to $4.5 billion; however, the North American bidding activity remains strong.
Building Efficiency segment income was $351 million, up 5 percent (8 percent excluding foreign exchange) from $335 million in the fiscal 2014 fourth quarter, due primarily to higher volumes and favorable price / mix. Segment margins for the 2015 fourth quarter were 12.1 percent, up 60 basis points from the prior year quarter.
In the quarter, Johnson Controls announced a number of new product introductions as it advances its strategy to broaden its equipment offerings, including the P2000 security management system, an award winning gas turbine inlet air cooling solution to optimize power plant performance, and the Champion LX series packaged units for residential and light commercial applications. In addition, the company launched Hitachi variable refrigerant flow (VRF) in North America and opened its VRF training facility in Dallas, Texas.
Power Solutions sales in the fiscal fourth quarter of 2015 were $1.7 billion, down 6 percent versus the 2014 quarter. Excluding the impact of foreign exchange, sales increased 3 percent, with higher volumes in all regions. Global shipments of AGM batteries for start-stop vehicles increased 44 percent compared with the prior year quarter.
Power Solutions segment income was $340 million, up 5 percent (11 percent excluding foreign exchange), versus $325 million in the fourth quarter of 2014 due to improved product mix, higher volumes and operational efficiencies. Segment margins for the 2015 fourth quarter were 20.2 percent, up 200 basis points from the prior year quarter.
During the quarter, the company announced plans to expand AGM production capacity in China. It also signed a memorandum of understanding with Beijing Automotive Industry Group Co., Ltd. (BAIC) to accelerate its expansion in the Chinese automotive market. At the Energy Storage North America conference in October, the company formally announced its entry into the lithium ion distributed energy storage market with new product solutions to optimize energy management performance and costs for building owners and utilities. Navigant forecasts this nascent market will grow to $16 billion by 2024.
Automotive Experience sales in the quarter declined 21 percent to $4.2 billion versus $5.3 billion last year, due primarily to the deconsolidation of the interiors business as a result of the July 2015 formation of the Yanfeng automotive interiors joint venture. Excluding the impact of the interiors deconsolidation and foreign exchange, sales grew 3 percent, approximately in-line with global industry production. Revenues in China, which are primarily generated through non-consolidated joint ventures, increased 27 percent to $2.3 billion (decreased 3 percent to $1.7 billion excluding the impact of the Yanfeng interiors joint venture), while industry production decreased 5 percent versus last year.
Automotive Experience segment income was $248 million, 1 percent lower than the same quarter last year. Excluding the impact of foreign exchange, segment income increased 4 percent in the quarter primarily due to higher seating volumes.
Full year 2015 results (Excluding transaction / integration / separation costs and non-recurring items)
Johnson Controls fiscal 2015 revenues were $37.2 billion, a decrease of 4 percent from $38.7 billion in 2014 due primarily to the deconsolidation of the interiors business and foreign exchange. Excluding the impact of these items, sales increased 5 percent. Segment income totaled $3.2 billion, up 12 percent (16 percent excluding foreign exchange), from $2.9 billion last year. Segment income margins for the year improved by 120 basis points. Adjusted non-GAAP diluted earnings per share from continuing operations for the year were a record $3.42, an increase of 14 percent from $3.00 in 2014.
Several actions intended to improve long-term shareholder value were undertaken in fiscal 2015, including:
- $1.4 billion share repurchases
- Quarterly dividend increase of 18 percent
- Execution of the Johnson Controls Operating System to leverage scale, technology and expertise across the enterprise
- Global workforce reductions targeting $250 million in future cost savings
- Significant business portfolio activities:
- Completed Yanfeng Automotive Interiors joint venture
- Completed the divestiture of the Global Workplace Solutions business
- Completed the Hitachi joint venture (October 1, 2015) to obtain number two market share in VRF (variable refrigerant flow) systems in China
- Announced the future spin-off of the Automotive business with a target date of October 1, 2016
“Our ability to achieve record results while executing on our portfolio changes is a testament to the commitment of our employees and leadership team,” said Molinaroli. “Fiscal 2015 was a year of transformation and execution as we change our portfolio and build upon our foundation for operational excellence and growth in the future. We are well-positioned to deliver record growth and profitability as we enter fiscal 2016.”
Fiscal 2016 outlook
For the first quarter of 2016, the company expects earnings of $0.80 – $0.83 per diluted share an increase of 8 -12% versus the prior year first quarter. This guidance excludes transaction, integration, separation and non-recurring items. Johnson Controls will provide full fiscal year 2016 guidance at its annual New York analyst day on Dec. 1, 2015.
Molinaroli added, “We have a solid start to fiscal 2016 in all of our businesses. Through our capital allocation strategies, we’re focusing Johnson Controls on growth technologies and markets with higher returns. Delivering on our commitments remains our highest priority. I would like to thank all Johnson Controls employees across the globe for embracing the continuing changes to our company as we work together to achieve even higher levels of success.”
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