In its fourth-quarter fiscal 2023 earnings call, Johnson Controls (NYSE:JCI) reported a strong performance, with 8% organic sales growth and an 80-basis-point expansion in segment margins to 15%. The company delivered a 17% increase in adjusted earnings per share (EPS) and saw its Service business grow by 10% for the year. Despite a cyber incident's impact, Johnson Controls generated $1.8 billion in free cash flow and returned $1.6 billion to shareholders. Looking ahead to fiscal 2024, the company anticipates mid-single-digit growth in sales and adjusted EPS, with an 85% conversion of free cash flow. Johnson Controls, trading under the ticker JCI, is set to focus on growth in sustainable and healthy buildings, leveraging its OpenBlue digital platform to drive momentum in its service business and improve margins and cash flow.
Key Takeaways
- Johnson Controls achieved 8% organic sales growth and expanded segment margins to 15%.
- The Service business grew 10%, with a $12.1 billion backlog.
- $1.8 billion in free cash flow was generated, and $1.6 billion returned to shareholders.
- Fiscal 2024 projections include mid-single-digit sales growth and an 85% free cash flow conversion.
- The company is capitalizing on sustainable building trends through its OpenBlue platform.
- In North America, Building Solutions orders and sales grew significantly, while APAC sales declined due to China's weakness.
- A cyber incident is expected to create a 1% headwind in Q1 2024 but will be recovered in Q2.
Company Outlook
- Projected mid-single-digit organic sales growth for FY 2024, with Building Solutions leading.
- Anticipated 25-basis-point expansion in segment EBITA margins.
- Adjusted EPS growth projected at 4% to 9% year-over-year.
- Focus on improving cash flow, reducing inventories, and enhancing cash collection.
Bearish Highlights
- Sales in the Asia Pacific region declined by 6%, largely due to China's market weakness.
- Flat sales expected in Q1 2024, partly due to the cyber incident's impact.
- Challenges in the EMEA/LA segment, with efforts needed to improve margins.
Bullish Highlights
- Strong demand in the Building Solutions segment, particularly in North America.
- Service business backlog of $12.1 billion, indicating continued momentum.
- Significant growth opportunities in the data center business, with the potential for over $2 billion in revenue.
Misses
- The cyber incident led to a temporary loss of momentum and a $200 million impact in Q1.
- Despite flat organic sales, there was a decline in profits, attributed to weaknesses in residential sales and the China market.
Q&A Highlights
- Confidence in the guidance range, supported by strong order momentum and growth in digital services.
- Inventory and receivables are key drivers for improving free cash flow.
- The company is positioned to support future demand despite channel inventory headwinds.
Johnson Controls remains optimistic about its future, underpinned by a solid foundation and strategic focus on high-growth areas like sustainable buildings and digital services. The company's leadership expressed confidence in overcoming short-term challenges and delivering value and results in the coming fiscal year.
InvestingPro Insights
In the context of Johnson Controls' recent financial performance and future outlook, real-time data and insights from InvestingPro offer a deeper look into the company's financial health and market position. With a market capitalization of $35.57 billion and a P/E ratio that has adjusted to a more attractive 13.53 in the last twelve months as of Q4 2023, Johnson Controls is demonstrating financial stability and potential for investment growth.
The company's commitment to shareholder returns is evident through a dividend yield of 2.78% and a remarkable track record of maintaining dividend payments for 53 consecutive years, showcasing its reliability in providing consistent shareholder value. Moreover, revenue growth has been accelerating, with a 5.91% increase over the last twelve months as of Q4 2023, reflecting the company's ability to expand its business despite broader market challenges.
InvestingPro Tips highlight two particularly relevant points for investors considering Johnson Controls' stock. The company has raised its dividend for 3 consecutive years, which could be a sign of confidence from the management in the company's cash flow and future prospects. Additionally, Johnson Controls is trading at a low P/E ratio relative to near-term earnings growth, suggesting that the stock may be undervalued given its earnings potential.
For investors seeking more comprehensive analysis and additional insights, InvestingPro offers a plethora of tips, including 8 analysts who have revised their earnings downwards for the upcoming period, indicating potential caution in the short term. It's also noted that Johnson Controls is a prominent player in the Building Products industry, which could be a key factor in its sustained growth and market leadership.
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