Johnson Controls adds $250 million to its cost saving targets

Last updated on May 3rd, 2021 at 01:46 pm

Johnson Controls International is targeting $250 million in net savings in its cost of goods sold by the end of its 2023 fiscal year, an initiative that comes on top of $300 million savings the company is targeting in its selling, general and administrative expenses.

The newly announced cost cuts come out of what was a $14.8 billion pool of spending on costs of goods in the company’s 2020 fiscal year.

Around $180 million would come from field labor, including standardizing practices, improving project execution and accelerating service technician productivity with digital tools.

Another $70 million in net savings would come from manufacturing and distribution, including digitizing processes, maximizing use of best practices and value chain optimization.

“We believe we are going to add significant profit to the bottom line,” Olivier Leonetti, chief financial officer of Johnson Controls, told analysts during the company’s earnings call Friday.

George Oliver, chairman and chief executive officer of Johnson Controls, said the programs are a continuation of the work JCI did after its merger with Tyco International. He said the company had developed a robust operating system that provides a detailed understanding of the costs throughout the organization, information that will now help the company achieve its savings targets.

The two cost savings programs come as Leonetti settles into his role as CFO, having joined the company in November 2020.

“When I started, George asked us to now look at levers to close the productivity gap to our competition, so that was the driving force,” he said.

The total savings from the cost of goods program will be around $465 million, but that figure is offset by $135 million in operating investments.

The program also comes with $335 million in one-time restructuring and implementation costs. Combined with the selling, general and administrative expenses the company is targeting, JCI is planning for $385 million in restructuring costs.

The plans appear to include a workforce reduction of around 1,600 for Johnson Controls. The company’s latest securities filings call for a reduction of 8,100 employees under JCI’s 2020 and 2021 restructuring plans. The previous quarterly filing only included the 2020 plan and called for the elimination of 6,500 jobs.

As of Dec. 31, around 4,700 of those employees had been separated from the company, a figure that climbed to 5,300 as of March 31.

Johnson Controls had used $2 million of the $32 million it reserved for employee severance and termination benefits under its 2021 plan and $92 million of the $196 million it reserved for those purposes under the 2020 plan.

The company had 97,000 employees worldwide as of Sept. 30, the end of its last fiscal year.

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Arthur covers banking and finance and the economy at BizTimes while also leading special projects as an associate editor. He also spent five years covering manufacturing at BizTimes. He previously was managing editor at The Waukesha Freeman. He is a graduate of Carroll University and did graduate coursework at Marquette. A native of southeastern Wisconsin, he is also a nationally certified gymnastics judge and enjoys golf on the weekends.

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