The high-end of Johnson Controls International plc fiscal 2017 forecast calls for a nearly 20 percent increase in earnings and an almost 5 percent organic revenue increase, according to guidance issued in conjunction with the company’s annual analyst meeting.
The company, which is based in Ireland but operates from its headquarters in Glendale, projected earnings before special items to be $2.60 to $2.75 per share, a 13 to 19 percent increase. Revenue was forecasted to be $29.7 billion to $30.2 billion, including 2.5 to 4.5 percent organic growth.
But those targets actually came in below consensus analyst expectations of $2.72 for earnings and $30.7 billion for revenue, according to Seeking Alpha.
“We are well positioned as a market leader to accelerate growth in our core buildings and energy businesses, said Alex Molinaroli, Johnson Controls chairman and chief executive officer. “We expect fiscal 2017 to be another year of strong earnings performance for Johnson Controls based on both solid operational execution and merger related cost synergies.”
The company is also targeting $500 million in annual sales synergies from its merger with Tyco International by 2020. Executives from the company have repeatedly said they expected the deal to bring additional revenue, but this is the first time they’ve identified an amount.
Executives also added $100 million to the more than $1 billion in productivity and cost savings they plan to realize from the merger. The company plans to realize $250 million to $300 million in operational savings in fiscal 2017 alone.
Approximately 40 percent of the savings will come from consolidating general and administrative operations and eliminating corporate costs. Another 30 percent will come from enhanced procurement operations. The final 30 percent will come from integrating operations in the field.
The company plans to reduce its 20 million-square-foot branch network by double digits over the next four years. Logistics and distribution networks will become more integrated and warehouses will convert to a hub and spoke network instead of being focused at each branch location.
Johnson Controls will also centralize its back office services instead of maintaining the individual back offices of Tyco and Johnson Controls. Distributed design teams will also be consolidated into centers of excellence.
The company also introduced new financial targets for fiscal year 2020, planning for 12 to 15 percent compound annual growth rate in earnings and a 3 to 4 percent for organic revenue increases.
“Looking forward to our mid-term outlook, we have a significant amount of earnings growth within our control. We have developed financial targets which we believe are attainable through dedicated and consistent execution across the portfolio,” Molinaroli said. “Within our planning horizon, we will look to supplement core financial performance with disciplined capital deployment.”
