Johnson Controls (JCI) Up 10.9% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for Johnson Controls (JCI). Shares have added about 10.9% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Johnson Controls due for a pullback? 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 Q3 Earnings Surpass Estimates, Up Y/Y

Johnson Controls reported adjusted earnings per share of 67 cents in third-quarter fiscal 2020, handily outpacing the Zacks Consensus Estimate of 50 cents. The reported figure also comes in higher than the prior-year quarter’s 65 cents per share. This outperformance has been mainly aided by higher EBITA from the company’s Building Solutions North America segment.

Johnson Controls reported revenues of $5,343 million, down 17.2% year over year, in the fiscal third quarter. The revenue figure, however, beat the Zacks Consensus Estimate of $5,143 million. Gross profit decreased to $1,832 million from the year-earlier quarter’s $2,144 million.

Selling, general and administrative expenses in the fiscal third quarter totaled $1,334 million, lower than the prior-year quarter’s $1,388 million.

Segmental Results

Building Solutions North America: This segment’s adjusted revenues came in at $2,020 million, down from the year-ago quarter’s $2,327 million on decline in HVAC & Controls and Fire & Security. The segment’s EBITA increased to $311 million from the $310 million reported in third-quarter fiscal 2019 driven by cost-mitigation actions during the quarter.

Building Solutions Europe, Middle East, Africa/Latin America: Adjusted revenues in this segment came in at $756 million, down 18% year over year, due to fall in project installations, and volume declines across all regions and platforms. The segment’s EBITA was $62 million, down from the third-quarter fiscal 2019 level of $103 million. Significant volume declines during the quarter resulted in this downtrend.

Building Solutions Asia Pacific: Adjusted revenues decreased to $588 million from the year-ago quarter’s $691 million on declines in project installations and services. This segment’s EBITA came in at $92 million, down from the third-quarter fiscal 2019 level of $98 million, on lower volume.

Global Products: Adjusted revenues in this segment decreased to $1,979 million from the prior year’s $2,511 million, mainly due to lower sales within Building Management Systems, HVAC & Refrigeration Equipment and Specialty Products. This segment’s EBITA was $385 million, down from the third-quarter fiscal 2019 level of $481 million due to dismal volume.

Financial Position

Johnson Controls had cash and cash equivalents of $2,342 million as of Jun 30, 2020, down from $2,805 million as of Sep 30, 2019. Long-term debt declined to $5,671 million in the reported quarter from $6,708 million as of Sep 30, 2019.

Outlook

The company projects organic revenues to be down 9-11% in fourth-quarter 2020. It also expects adjusted EPS in the range of 68-72 cents in the current quarter.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted 10.68% due to these changes.

VGM Scores

At this time, Johnson Controls has a nice Growth Score of B, though it is lagging a lot 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 trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise 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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