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Johnson Controls (JCI) Down 9.7% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research
·4-min read

A month has gone by since the last earnings report for Johnson Controls (JCI). Shares have lost about 9.7% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Johnson Controls due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Johnson Controls' Q1 Earnings & Revenues Beat Estimates

Johnson Controls reported adjusted earnings per share of 40 cents in first-quarter fiscal 2020, surpassing the Zacks Consensus Estimate of 38 cents. The reported figure also comes in higher than the prior-year quarter earnings of 26 cents per share. This outperformance was mainly aided by higher revenues and EBITA across all its segments.

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Johnson Controls reported revenues of $5,576 million, up 2% year over year, in the first quarter . The revenue figure also beat the Zacks Consensus Estimate of $5,547 billion. Gross profit increased to $1.8 billion from the year-earlier quarter’s $1.72 billion.

Selling, general and administrative expenses in the fiscal first quarter totaled $1,427 million, lower than the prior-year quarter’s $1,438 million.

Segmental Results

Building Solutions North America: This segment’s adjusted revenues were $2,167 million, up from the year-ago quarter’s $2,116 millionon strong growth in HVAC & Controls and Fire & Security. The segment’s EBITA rose to $259 million from the $253 million reported in first-quarter fiscal 2019 on favorable volume leverage, and cost synergies and productivity savings.

Building Solutions Europe, Middle East, Africa/Latin America: Adjusted revenues in this segment was $928 million, up 2.3% year over year, owing to solid growth in project installations and service. Segment’s EBITA was $90 million, up from the first-quarter fiscal 2019 level of $77 million. This upswing was mainly driven by favorable volume as well as cost synergies and productivity savings.

Building Solutions Asia Pacific: Adjusted revenues rose to $629 million from the year-ago quarter’s $613 million on growth in project installations, particularly in Fire & Security. This segment’s EBITA was $72 million, up from thefirst-quarter fiscal 2019 level of $66 million, owing to solid volume as well as cost synergies and productivity savings.

Global Products: Adjusted revenues inthis segment increased to $1,852 million from the prior year’s $1,828 million, mainly driven by robust growth in Building Management Systems and to a lesser extent, SpecialtyProducts. This segment’s EBITA was $204 million, up from the first-quarter fiscal 2019 level of $194 million, mainly aided by positive price/cost as well as cost synergies and productivity savings.

Financial Position

Johnson Controls had cash and cash equivalents of $2.16 billion as of Dec 31, 2019, down from $2.81 million as of Sep 30, 2019. Long-term debt declined to $5.92 billion in the quarterfrom $6.71 billion as ofSep 30, 2019. The debt-to-capital ratio stands at 27.36%.

In the reported quarter, the company repurchased 15 million shares for $651 million.

2020 Guidance

The company reaffirmed its fiscal 2020 adjusted EPS from continuing operations of $2.50-$2.60, suggesting a 28-33% increase from the year-ago reported figure.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month.

VGM Scores

Currently, Johnson Controls has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Johnson Controls has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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