Johnson Controls merger savings ahead of schedule as sales slow

Earnings up 16%, revenues up just 1% in Q3

Johnson Controls Inc. headquarters
The Johnson Controls Inc. operational headquarters in Glendale.

Johnson Controls International plc reported a 16 percent jump in earnings during the third quarter even as sales were up just 1 percent.

Johnson Controls Inc. headquarters
The Johnson Controls Inc. operational headquarters in Glendale.

The company, which is run from Glendale but based in Ireland for tax purposes, reported $7.67 billion in adjusted revenue during the quarter, up just 1 percent compared to the combined revenues of Tyco International and Johnson Controls before their merger last year.

Net income increased 16 percent to an adjusted $671 million and diluted earnings from continuing operations moved from 61 to 71 cents per share.

The building and technologies segment was down slightly with revenue of $6.06 billion compared to $6.09 billion last year. Sales were up two percent organically after excluding the net or mergers and acquisitions and foreign currency exchange.

The segment did improve margins from 13.9 percent to 15 percent as cost synergies and productivity savings combined with slightly higher volume and a favorable mix offset the cost of other investments.

The power solutions segment reported a 6 percent increase in revenue to $1.61 billion, but after excluding higher lead pass-through and foreign currency exchange, organic sales were down by 2 percent with lower volumes across most regions.

Original equipment battery shipments were down 6 percent and aftermarket shipments were down 2 percent. Start-stop battery shipments were up 17 percent led by growth in China and the Americas.

“Our capacity plans are pretty significant,” Johnson Controls chairman and chief executive officer Alex Molinaroli said of the start-stop battery business. “What we’re seeing is probably going to move faster than we can even meet the capacity.”

Molinaroli and other company executives said the cost synergies and productivity savings from the Tyco merger are trending towards the higher end of the $250 million to $300 million range the company hoped to achieve this year.

But some of those efforts are having an impact on operations as the company goes through massive changes. Molinaroli said one area that’s happened is in accounts receivable, where changes have meant money hasn’t been brought in at quite the same pace.

Another area has been in sales for the North American buildings business, one of the largest areas of overlap between Johnson Controls and Tyco before the merger. The company has sought to establish a leaner structure for running the business and has taken out several layers of management to make that happen.

“In the end, when you get out in front of the customer, that hasn’t changed,” Molinaroli said.

The company timed many of the changes to begin at the start of the third quarter to avoid impacting second quarter results.

“As we came  together you can’t point to a specific thing and say we lost a project, ” Molinaroli said. “It’s just change and I think it would be naïve for us to think that didn’t have some impact.”

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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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