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Why Is Johnson Controls (JCI) Down 0.5% Since Last Earnings Report?

Zacks Equity Research
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It has been about a month since the last earnings report for Johnson Controls (JCI). Shares have lost about 0.5% in that time frame, underperforming 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 the most recent earnings report in order to get a better handle on the important catalysts.

Johnson Controls Q4 Earnings Top, Revenue Miss Estimates

Johnson Controls International plc reported adjusted earnings per share of 78 cents in fourth-quarter fiscal 2019, surpassing the Zacks Consensus Estimate of 76 cents, mainly aided by higher Building Solutions North America and Building Solutions Asia Pacific segment revenues. Earnings were 93 cents per share in fourth-quarter fiscal 2018.

For the quarter under review, Johnson Controls reported revenues of $6.3 billion, up 25% year over year. However, revenues missed the Zacks Consensus Estimate of $6.42 billion. Gross profit declined to $1.98 billion from $2.06 billion a year ago.

Selling, general and administrative expenses in the fiscal fourth quarter totaled $1.96 billion, higher than the prior-year quarter’s $1.39 billion.

Segmental Results

Building Solutions North America: This segment’s adjusted revenues were $2.4 billion, up from the year-ago quarter’s $2.32 billion on strong growth in HVAC & Controls and Fire & Security. The segment’s EBITA rose to $357 million from $336 million in fourth-quarter fiscal 2018 backed by favorable volume leverage as well as cost synergies and productivity savings.

Building Solutions Europe, Middle East, Africa/Latin America: Adjusted revenues in this segment were $948 million, flat year over year. Segment’s EBITA was $111 million, up from the fourth-quarter fiscal 2018 level of $103 million. The increase was mainly driven by favorable volume as well as cost synergies and productivity savings.

Building Solutions Asia Pacific: Adjusted revenues at the segment rose to $726 million from $689 million a year ago, primarily aided by strong growth in project installations and solid growth in China. This segment’s EBITA was $103 million, down from fourth-quarter fiscal 2018 level of $105 million due to unfavorable mix.

Global Products: Adjusted revenues at this segment dropped to $2,199 million from $2,222 million a year ago, mainly driven by a slight revenue decline in HVAC & Refrigeration Equipment. This segment’s EBITA was $419 million, up from fourth-quarter fiscal 2018 level of $395 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 $2.81 billion as of Sep 30, 2019, up from $185 million as of Sep 30, 2018. Long-term debt declined to $6.71 billion in the quarter under review from $9.62 billion as of Sep 30, 2018. The debt-to-capital ratio stands at 26.75%.

In the reported quarter, the company repurchased 20 million shares for $861 million.

2020 Guidance

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

The company is expected to repurchase shares worth $2.2 billion with incremental synergy and productivity savings of $150 million in fiscal 2020.

How Have Estimates Been Moving Since Then?

Estimates revision followed a downward path over the past two months. The consensus estimate has shifted -6.56% due to these changes.

VGM Scores

At this time, Johnson Controls has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. However, 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Johnson Controls has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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