JCI - Earnings call transcript Q4 2017 | Johnson Controls International plc

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Operator

Welcome to Johnson Controls Fourth Quarter 2017 Earnings Call.

Your lines have been placed on listen-only until the question-and-answer session. [Operator Instructions] This conference is being recorded. [Operator Instructions] I will now turn the call over to Antonella Franzen, Vice President of Investor Relations. Please go ahead.

Antonella Franzen

you fourth our fiscal quarter thank discuss call XXXX and Controls Johnson and morning, for conference joining to results. Good full year this at the release as the can Investor press and of related on issued The our portion website all be found well call conference earlier as Relations slide johnsoncontrols.com. presentation tables morning Chief Officer, our Executive and With are Controls Johnson Oliver; me Stief. Chairman President George Financial and today Brian and Chief Executive Officer, Vice

that that during would we and I we today’s cautionary you that included forward-looking today’s certain to Before informational press the course like call, we’ve the remind there. will forward-looking begin, of information. you release providing be through statements We read ask review

impairment Adjusting diluted these tax and our the prior and integration items that sections primarily items. and In the Johnson of special through margins pension purchase references the of the release we items items, $X.XX press mark-to-market to in In accounting share shareholders earnings read during call, partially includes exclude ordinary press release. other $X.XX special GAAP accounting. quarter. items. are prior schedule recurring of a addition, share which and continuing use adjusted earnings to our offset share will to our to was $X.XX ask costs results from excludes discussing non-GAAP certain combined special we net attached per gains a to per you adjusted and net These continuing for operations of reconciled of related use and related included address benefit comparisons and Tyco, $X.XX attributable in the transaction compared restructuring, to Controls and of non-GAAP adjustments that on for are year EBITA the by measures metrics the was non-GAAP from postretirement as operations costs. Adient year integration All results the these EBIT our discussions, measures and conforming special basis, adjusted in These the per discrete to items. as quarter are and results well

Now, over call let the to me turn George.

George Oliver

good Antonella, you call. for today’s us everyone. joining on and Thanks, Thank morning,

of back combined around around debt. recently with integration down ADT structure. And the redeployed what noncore year. and portfolio from capital assets. other look several TSARL historic South our the divestitures Adient proceeds first merger-related where year and the those We accomplished as small We Scott with of you as in although of of spin-off America. me significant Despite into amount proud the of place, cost productivity results of work hope million fiscal our generating the our the across North of progress for reorganization Let also we in at came away of strides year. made points extremely expansion incremental that and in rigor I low margin basis $XXX in We structures, we optimizing synergies begin driving XX have globe, the significant in savings, taking well the our and with a on as substantial divested company. Safety most a at completed aligning maintained our a paying teams integration done made portion globe merger the we major Africa message walk completed substantial financial a the throughout end the a have would cost our Controls. structure and XXXX, We the I’m Johnson expected operating have is we

in orders gross commitments. Slide areas Buildings, we side we consistently finished transaction, to organic expanding of of move already X, as buybacks. have of related X, to $XXX everything us we I’ll accelerating in improvement said, to offset turn right If forward: creation to year shareholder That the the and tie there and in million on we margins where to of Scott value the cash share Buildings, the we at need we growth and changes delivering we in opportunistic our the we enable coming flow improving conversion approximately repurchase to improve our are Slide put share the Additionally, as pursued Safety an with identified areas performance dilution those forefront implemented free do. to have on effort

CEO few us a leadership I’d from you change this of service senior take with She With team seen departure Judy over announced Mars appointments, worked like Incorporated. Donofrio best. in to morning, a have recent and change incentives Judy and plan wish and be decade. a to compensation we John may also I’ve for press team well release XXXX, our to aligned shareholder the Reinsdorf. her Counsel with to our the as the a time to for First, in expectations. a and all other year our driving transitional to this our in we welcome joining Tyco Beginning with this General who’s opportunity sincerely more has was held I’d be coming past is fiscal Judy Controls. performance accountable for together will linked execution. closely many role as her here Johnson at for voice instrumental in her the of to and years crucial been my like of throughout thank

Specifically, consistent field are that to accelerating metrics with sales comes sales flow continued organic it organic capacity the by tie cash but region expanding strong and EBIT by the to our and and When productivity. growth and by simple the we growth, areas Growing including sales a sounds intense monitoring incentives revenue businesses, demands performance It orders leaders, in focus and are we productivity business force sales to tracking conversion. free businesses and on: business essential. requires plan myself. compensation growth focused field key

growth. areas combination the in have businesses, we With reorganization and of of of force sales the reinvested Buildings the remixed

required of year, For were we to capacity full growth. the the increased short accelerate

adds the net achieved enhanced salespeople. fourth However, of and process quarter, XX in the we

technologies growth. accelerating our in forward move in orders how we respect are will businesses. XXXX, the of adds ramp salespeople our response ultimately improvements in put a with enhance targeting As solutions to core positive their to will first customers new as XXX structure, are organic in This sales customers we but into bit net increase strong of the feedback a investment and higher drive in year execution is This to helping our the be growth. pressure capacity from in revenue fiscal which new will our half the and up,

the we XXXX, course fiscal we keep on you through As will posted of our move progress.

ensure at down similar we on focused I starts on project right created will operated after and driving is growth. be that are to that to the management how provide change projects, Tyco, And the paid we rigorous for growth revenue all pricing not to we customers Additionally, profitable This being disciplined value going equal. orders. our remaining to with

With the our that it margin installed base growth, profile. accelerate which is we to we enhances critical continue create, our service

look gross the pressure. backlog field in and America put year underlying I our as of size billion, of backlog, we business. margin is margin the we field the entering say our the America basis backlog of pressure this gross To there $X.X is points some turns context, North are we with would North business expect roughly XX our As in fundamentals in at to see

targeting productivity, large compensation are strict acceleration, focus importance quarter put we to expect drive more realigning in meeting the discipline ensure free place together in plan towards are ensure and Brian, incentive closely for monitored margins approval our the established had fourth We more the and to metric flow and gross With growth. service organization. to a both installation we sales it the project can cash When for have structure teams met sales free intense entire to to growth improving incentives projects process conversion, set. margins weekly price, that and and generation. We profitability. weight more this flow we sales more an we a improved of our sales so cash management on profitable expectations the drive I, increased with comes

solely cash process talent the Additionally, have we management set working some internal office we out. focus a solve achieving targets of establishing reallocating and of on are our capital challenges in to the

our to in we more a fourth improvement lot to the know have quarter, While increase we generation our do cash in cash flow saw flow work we free conversion.

As we spending, CapEx more our return selective will reducing our be in move on and forward, ratio. focused high projects we also reinvestment

focus you repurchases remaining M&A expect In on balanced capital cash near-term share us terms shareholders approach can comes returning to to accretive to it opportunistic a of buybacks. a between with and more when overtime, and allocation, disciplined remain

values honored discussed, we and are technologies. returns at of outlined. we I same to entire focused the humbled discipline all team, the CEO My is mission across past We to reiterate positioned businesses noncore. Buildings, intensely those evolution the permeate Johnson is on where market are as that to changes will resources have creating that strongly our both areas am have expectations. are want the we on is needs and which value. and throughout Controls the in this driving improve. from be we I fundamentals this to within over positions ensuring intent divesting on and with we my and shareholder the to That executive said, I and that are highest of organizational beyond continue have entirely positioned confident organization. battery executing key clarity, execution With can core to we and I have win I confidence, Power team remain are that, focused a well the generate with look leading team established simplicity Solutions lead actions know And and and management personal organization, of the portfolio and leading set these lead Building We management grounded year, we performance accountability to as where allocating business businesses.

to now Slide X. Turning

strong a quarter, results for minutes. solid Sales a few in reported more $X.X earnings synergy will by expansion driven in another Let continued me margin progress basis X% recap increased on of with and provide quarter and on Overall, billion detail quarter. growth the Brian the of actions. EBIT productivity the

were business lead Global FX margins a and on Excluding divestitures, Power lead. products within billion EBIT sales FX XXX up the and impact synergy basis our realization. XX grew increased Adjusted the as in productivity by $X.X XX%, Buildings. by reported year-over-year X% our points excluding pass-through, well basis of business impact basis points as from or led driven and up EBIT cost strong Solutions of performance organically,

Turning EPS Slide on bridge to X. our

investments $X.XX You offset increased by can the logistics volume and year, Volume productivity line with in and savings and was $X.XX our and mix prior see partially expectations. strong to added adding Solutions synergy in Power strategic hurricane an effective tax XX% were and disruptions in distribution year-over-year costs, pressure. adjusted resulted and Overall, added lower The in also a cost increase EPS price incremental $X.XX. year-over-year. rate $X.XX, this

and Just a Slide mention on on quick productivity synergies X.

and throughout As we you range in synergy end detailing high been $XXX original XXXX. the the have million million productivity in at came $XXX savings of to for $X.XX our or year,

incremental fiscal an segments. that, over the savings. to will As for we we performance Brian the $XXX planning look million to XXXX, within in it to are turn With discuss I

Brian Stief

and George, morning. Thanks, good

& within start on Technologies Let’s Building with XX. structure Slide our new segment Solutions

our Buildings. be billion As channel. segments: of I you go is I America, reported Buildings. distribution new a billion, segments $X Building and EMEA/LA and as annual about and components: channel X revenue regional structure sales the direct products Building to products. and Asia has as through with see, in can has operate We through will two its has our annual field indirect which North within the This will revenue fourth is Solutions, Buildings main and storefronts. and of Global report speak Global Solutions $XX our for segment results business Pacific.

in into get $X X% quarter reported on of on year-over-year sales XX. a let’s Slide details Total basis. the billion Now declined the quarter building of the

impact impacted sales-related However, growth organically. basis adjustments sales sales quarter. points impacts excluding of in final purchase divestitures, the XX Mexico hurricanes, X% some the approximately in by FX the earthquake grew from and accounting and The the

Solutions, X% North In our business. the our unpacking low service-based digits. which field in by organic start project and single decline let’s sales region, So again Building represents declined largest America,

revenue in activity, typically for the HVAC Our grew low and is of digits. relatively sales flat XX% service controls North year-over-year. security which half and about America, to America, fire field business, accounts about XX% of which single North comprises and installation in

federal in government. just weaker decline driven declined However, more business, our U.S. decline by the by this digits within low was growth than was solutions double a about sales to offset in point quarter. that half the large And projects out that of which I’d

Turning with activity growth we offset In low by to inflected and the digits spend growth fire the and in Europe EMEA/LA, sales by project the Middle flat single low organic America service growth was fire across in Latin grew balanced positive to in was saw particularly by in single-digit was Growth as Asia quarter. In East, China. quarter also security. the in led lower in year-over-year, driven HVAC and in growth Pacific, installation project HVAC. quarter security, strong controls. solid growth

venture Turning products. refrigeration which HVAC organically to applied joint year-over-year controls, fire industrial which as and across we about products saw nice these is marine HVAC growth includes includes all and products, of refrigeration equipment global well building XX% specialty products. our security Building products, global X of products, equipment. and comprises a X% global increased and across and with revenue, lines. revenue, Sales refrigeration growth Hitachi about products and management, management, XX% HVAC of as unitary equipment and detection, and product

commercial comparison resi offset would a low we degree national significant north decline HVAC teens in digits that year saw by Within low days. XX% low these lower businesses, growth and resi point our the grew with well HVAC single decline light business. impacted a as a commercial more was tough was growth where accounts than resi as where cooling HVAC in QX light by growth in of fiscal I ‘XX out prior single-digit

from digits year, in new resi grew For XXXX. spring business organically, the the of our high full launches product HVAC benefiting single

Middle range quarter strong the with digits mid-single the larger America North the in in grew and from in performance business East. applied projects Our

by Scott we continue our of food gas solid Hitachi improving quarter in products our venture global the Finally, in the October. single-digit you joint Safety. and platform early which markets. XX% specialty and in is Scott see to and, saw a fire remaining products, in led as natural Safety was beverage well and growth suppression refrigeration as growth know, XM low revenue This includes to pickup as businesses industrial The in sold

in in by and to to turn we’re million growth by X% year-over-year let’s was adjusted cost both our expanding So the well as basis and points as products cost EBITA. margins productivity XX with year-over-year $XXX XX.X%. channels. making synergies led grew savings, continued offset Buildings investments new price basis This to reported pressure partially in

by launched margin we direct And factory Over XX and America. chiller storefronts points. just the out course adding across new year, our new the XX products that of point expanded I North globally XXXX, XX expanded full distribution business for EBITA Buildings basis

Slide by XX. in decline growth So grew high by X% X.X year-end organic as of offset to Pacific was products North year-over-year, billion in grew growth Asia let’s a organically X% business. Field at an EMEA/LA. flat orders were turn on Backlog X% Orders the America led our single-digit single-digit low and basis. year-over-year in

lead pass-through. X.X billion from tailwind includes Sales this So significant let’s basis, XX% move Power on of Solutions. increased but year-over-year reported a a to

of which EBITA strong single-digit and and consistent Start-Stop by across than offset of of in shipments, Americas. growth our and the this OE. a with Global X% points XX.X% to strength strong with the by battery XX% increased lead. lease increased declined aftermarket all of shipments XXX offset FX in aftermarket Europe. due margins rebounded aftermarket. Excluding a which on the from shipments lower nicely units of growth led and biggest more to lead. a headwind across FX, shipments point led X% excluding our low production year-over-year versus decline Start-Stop to partially regions. EMEA lead growth but decline million year-over-year basis Segment basis, and two auto is markets, both organically, with units or the X% shipment China basis last in a Global unit strong with on U.S. XX% sales aftermarket total increased quarter by OE X% China channels is Power’s nearly growth, reported primarily XXX in XXX X% by impact grew X%, reported increased basis includes the X%

XX and basis by quarter, the and costs, product to of than hurricane. the the costs disruptions Excluding lead, and volumes, start-up productivity distribution more the mix leverage savings ongoing declined offset In launch points. margins Power’s FX and logistics including increased were impact favorable higher and and related investments,

XX Power’s points For basis declined basis, the full for XXX reported lead. includes to by year, basis margin on XX.X% a but point this headwind

Excluding for points the strong year. impact FX, and a basis of Power’s XXX margins expanded lead the

XX% as down XX. compensation to expense Slide year. to was continued well versus and XXX as expense million, Corporate lower savings synergy the benefiting productivity a Moving year-over-year prior from

on year, continued full million fiscal with expect the XXX than XXX range December. expense in last progress improvement corporate to expense, million the see pleased guidance adjusted million we we to and in I better overall was provided reducing corporate an XXX the For our basis, am ‘XX.

to billion the In turn generated let’s free Now Slide XX. in cash flow. cash flow reported quarter, on we $X

volume Excluding billion. XXX and Power build flow from also through of XXX saw July end quarter, QX strong primarily QX adjusted in Solutions, inventory our allowed a versus and businesses. the to portion This third from integration growth costs provided of reduction the in us million was which we the X.X out-performance cash across the receivables we a in free the in million of transaction quarter, the resulted target work

and free directly team we excludes internal As and will George corporate, net improving overall units. outflows management treasury, comprised to service XX-plus and to forecasting remain from for to groups we team flow million top one and individuals This shared primarily report related our process the center will cash process to is office. This to area integration, ‘XX, million cash are mentioned, me. income $XXX onetime This our committed business restructuring $XXX management be our of dedicated and which will adjusted tax payments. in of of delivering conversion the of priorities be cash establishing fiscal percent, of cash

Let which you We’ve is of these forward of ‘XX probably stop and the restructuring costs me a million, there ‘XX. pulling of $XXX second $XXX of to onetime integration as or some versus and give actions fiscal just items. got million result us components accelerating of for the higher a roughly QX

million $XX million award broken million the be quarter. got then [Indiscernible] outflow is change U.S regarding which million, Safety deconsolidation tax the area. buckets accept of Scott unfavorable about million fiscal fourth of in got there cause of planning first longer outflows the specific law some that’s We’ve $XXX $XXX executive arbitration related the the to no we’ve into a and we’ve a Mexican in will two would filings required, severance worth $XXX Secondly, about got payments. that they’ll in tax was that cash occurred And Mexico. ‘XX, One tax million of tax consolidated and the which $XXX in were quarter outflow. in There’s $XXX

that’s in to in thought quarter That number expected to million has as million, we So of aggregate, now is $XXX first originally, may increased And ‘XX. recall, going tax $XXX about was million. be fiscal but the we that XXX the $XXX in refund you $X the billion. -- million now $XXX XXXX

into recent outflows $XXX of point $X our in tax more again, are that QX. the inflow cash million $XXX in billion got now ‘XX, free in quarter, now to Similar was outflow to related million where year half quarter million much expect related we that is of gets which I we move ‘XX. $XXX an flow weighted essentially, number. of just in you be So with about expect And first out tax we the we the adjusted QX paid refund largest and first and the of to the as Adient tax worth refunds we’ve to our second that to years, the cash

debt-to-cap to XX.X% XX. XX. of Moving We with net at ended versus Slide the a year June XX.X%

the took and $XXX $XXX issued environment low notes interest one rate year foreign quarter, five debt and year we note. During million the of million again yen-denominated of euro-denominated advantage

the as maturity. paper During $X and strong generation the $XXX issuances as well bond in commercial flow quarter, to we million used debt repay cash the billion

in flows. $XXX with repaid we Additionally, million cash Tyco-related TSARL debt

second TSARL debt As Scott of everyone billion Africa proceeds closed the knows, the of $X.X in net October, debt reduced in from along with the of balance of These proceeds our XM $X.X sale we quarter with $X this repaid ADT sale to the a South this Safety to transaction. year, current TSARL payments, original in billion early and the billion.

million $XXX X.X million in During about the quarter, we or shares. repurchased stock

on we of option a we $XXX And repurchased shares XX available also we $XXX through [to the another shortly. tax change early and revised the as will, fourth minimum, and that of month U.S. was fiscal buybacks the October. the for mention repatriation will for we expected during week, under completed proposal For and well million. us, well. year, pluses provided Senate ‘XX, just million released is as planning buy at million stages we move fiscal deductibility I’d of and the segment to back details special in the as offset but foreign the finally, Controls] impact as our And the from in the of QX appendix we House mentioned quarter, are just been the Slide are Johnson last as other was quarters stock opportunities. to results. earnings we building overall dilution. in reviewing which adjusted XX, minuses related items, have tax headwinds -- And On be earlier, of ‘XX I the proposal the the provided Interest effective in excluded taxes all reform appendix and

with our the George that, ‘XX fiscal to turn me call over let back guidance. review So to

George Oliver

Brian. Thanks,

still plenty work we will mentioned change. to I earlier, merger a XXXX integration, be year have of we As year do. of Fiscal the made to progress significant related past the over have but

focused intensely will We execution. on driving

XX. Slide to Turning

to changes be in in $XX includes to range as currency exchange billion. prices. lead related this rates, well billion million the related to of on Based total current as We expect foreign a tailwind $XX.X $XX.X to a tailwind $XXX sales million

a headwind sales. expected to divestitures Additionally, million the be are recent to of $XXX impact

single We to be low in organic sales expect overall the growth digits.

an investments expectations our increase digits margin divestiture points, XX From growth headwind Buildings business expect expect of backlog, through Going as margins we Buildings. the well and points. Overall, capacity pressure continued single low to within expansion organic we our to benefit ramp margin current Power, related organic and in Scott the begin be by adjusted on EBITA to Based sales approximately offset as to start and to incremental in a Power volume let driven North Safety. for products fiscal in the mid-single our as from adjusted low Underlying basis which volume expected Buildings me the the with we In digits, in are of XX Solutions, to our in we point expect channels. growth we XXXX. aftermarket. field I XX basis in backlog, sales XX to including XX spoke growth American by margin basis expect to EBITA synergies partly perspective, gross earlier, growth

We by mix lead benefits and expect including incremental volume offset prices costs. be and higher launch productivity to investments

We expect EBITA be a on flat basis. year-over-year margins relatively to adjusted

Scott of we increase XX in XX points. to see to increase margins Overall, would are includes X% to corporate Safety. margins headwind expect to basis expected XX to reductions Underlying $XXX EBIT to mentioned million. XX.X% to basis expense points continued our Brian million $XXX adjusted adjusted to XX EBIT an expense related a the to to a are XX divestiture which which basis bring XX.X%, targeting X% As adjusted we to range of earlier, and incremental reduction, point expect down corporate

This below-the-line to be debt related the expected the TSARL Scott down As pay in offset increase the mostly financing million. items, expect we to interest to move total, the be we we a range variable to in tailwind the charges expect In $XXX of interest from see $XXX expense million is net proceeds. of an to Safety to rates. decrease by to

increase year $XXX seen represents Additionally, to items, to nice EPS be of on from earnings noncontrolling expect the versus $X.XX, expect in see to these joint a we to Hitachi last we and our in our million particularly few fiscal Based to have $X.XX increase interest $XXX adjusted share over ventures, years which the range XX% very growth X% per to million. XXXX.

As CapEx year in which to cash the our earnings Brian normal expect of our we up XX-plus second to half due prior the stronger flow $X.X of years, seasonality free of the adjusted Consistent includes per with share conversion billion. we of mentioned, be businesses. percent, to expect

expect for and our to backlog We of in with lead line it movements lower operator slightly EPS cadence earnings open margin let quarterly force last me that, ramp-up Power. quarter, similar of to over percentage our first turn lower our and the be the to sales a questions. in the given price year in the With Buildings to

Operator

Thank you.

Vertical go ahead. question-and-answer will Research. first now We Sprague of begin the session. [Operator Our Instructions] question comes Jeff from Please

Jeff Sprague

other putting Power a on and aside, first which just whole maybe discussion. is the George, portfolio

hear XX%, how X.X names a general you seat there be been us as some expect to kind have be Just additional name way been evaluating Is of view? kind to so only on CEO divested, the that. portfolio you’ve XX% to on a months to Power, but might but that’s of them, You’ve in you’re you COO love your the portfolio your you give in of all obviously, for I And mind? along. do or X%, if can would what wouldn’t a some mark too. thinking of thoughts assessment question candidate the frame about

George Oliver

closely shareholder businesses. take platforms out on over portfolio. fresh leaders on and down to we of there of working last some really take most of the core certainly continue remix create in couple business where what as the businesses. as and we Buildings. we and Power Jeff, do for is been incredible And starting how both focus the look in I’ve the got adjacencies certainly we with long-term businesses, really core do We’ve say, demonstrated our So a look and always to double value could opportunity But months the at Solutions the we as would portfolio, I portfolio past, divestitures the those are understanding potential very will at that proceeds complementary the the this, opportunities in I’ve type the

would of of digits out that here, looking we in that say within core just is standpoint at here investment position down type that outside see able what I our Buildings that So more an seen us to would kind our in you’ve potentially businesses as HVAC to some to are of that high to mid- raise opportunities and starting high-single us and our of portfolio. with double kind the here, be capital core be system single-digit, able building businesses from

Jeff Sprague

Buildings to not Mid- within digits to total? relative high-single

George Oliver

is correct. That

Jeff Sprague

Yes. And it’s the not And analysis. so something couple you on tax also, elaborate flow I How your a next really and tax of pressures do little to reform magnitude a anyhow, on get wonder the Mexico related, else see I shifting and could just bit year cash initial just or after, that we for and comfortable if speak? wondering Brian. on of like, more questions, it’s was relative the to kind year gears you U.S.

Brian Stief

Yes.

sure certainly well Jeff, of limitations see taxes earnings. of that on are the So it Senate those stages, well. of rate in as all I on we what today And the us out providing And effective we’ll are on from our position the tax we the it, in two look mid-teens front I a at have implications start comes well. the today. study early will really two and interest headwind But put in because is the most as the in we’ll me as there’ll foreign proposal, the ultimate be But until I’d probably taking on comment let repatriation the reform. opportunities I’m with think deductibility a planning areas commented items the U.S. tax back say be where and also we to provisions the as sit really on that effect pressure do what aren’t of that

at more we’ll going front one come think with to we’re just that we the everyone time. And center as this keep the it regulations out, I on So and to ultimately and the probably call. you information get and address is have

but your deconsolidation mean of changed, a as here, file you’ve calculations far to until you payment first in required the tax Mexico, I bit relief, get returns. the after unpacking longer payment of our to for we Mexican on color returns on And were made consolidated calculations all is return Mexico, didn’t specifics in finish a these to be on no individual As that ‘XX, group that you to file completed the be tax just of the around and give was returns, law comment can got quarter little individual that that was and going net recently. what of just fiscal us

the payment And will point so of we that recoup these that million, make to the one payment Mexico, up of seven regulations period going $XXX over of we’re thing I way a years. there that working the to out would is are time in

commentary but here. So out was it’s payment over onetime a back something our time, that’s enough we in get we’ll large that called it

Operator

JP Morgan. of comes question Steve from Tusa next Our

Steve Tusa

first So just half kind wanted into of these to margin dynamics. dig

some you’re said margins adding salespeople. The You down. backlog are new

So us lower a make revenue on -- here can half and just on give of an how perhaps margin higher rolls level at through color set sure costs will you some as first how to level, the in of kind that expectation in through? level, the kind operating that these people just are margin play this

George Oliver

Sure.

with me start America. North let So

the create in ramping the progress is pressure orders revenues. that as sales half probably some about good making with the points we’re to that begins to said, and As I have the And in that headwind and there. $X.X in basis up investments combined and certainly as billion to XX of there, convert in we we’re we’re about making through, first that flows backlog there’s going

two And here continue through our somewhere $X.XX organic guidance. about are as reinvestment estimating So it. our that ‘XX. or the beginning about that’s at look year, one -- to to of big then into we’re our XXXX we $X.XX are we Brian, And think that’s we reinvestment, when reinvestment comment? we last had is mainly and large our products. part you as around look will And really that’s the Those products. products want of -- growth, maybe other at to performance start pieces show the into of $X.XX we

Brian Stief

in from at those But we Solutions a the months to on last Steve. in just course comment Power big number spike have over just over like lead could would as wouldn’t can as the it to you and arrangements impact. with of commented headwind then got here, prices at have when QX bit that a seen the to for a there’s spikes I up given of pass few correct, on that, George. lead quarter individual year. that’s But lead well, be look be bit Buildings, QX we spike year in And our we an the probably kind normalize, we we’ve of the impact that look before, we’ve increases of that the tends based as there the on an customers expect upon little impact when

Steve Tusa

Got it.

‘XX, $X.XX $X.XX year, in or I look of EPS first XQ $X.XX earnings the growing in growth quarter? at in be of you when this kind off XQ trajectory $X.XX So mean to sorry here -- I the for will the

George Oliver

the the I then been second of to first less And think that think quarter. been in this way we’ve about maybe in XX% around quarter. slightly probably is the Yes, it’s historically

the And so than where in quarter, before, a you probably general been that’s I give. it maybe think, less guidance we’d we’ve but can the for of dial little kind first

Steve Tusa

organic comp Is cash so any what have. -- discussion one paid by incentive that that last go there around getting and and impact it’s growth like that whole your correct? conversion, The you. your for, doesn’t that, then guess -- income package impacted free and I the for is rates your is And net by EBIT, impacted question you kind up of guys Okay. is if tax you’re

Brian Stief

the On AIPP side, that’s correct.

and On some might And free organic growth. margin would growth, on also side, dollars, modifiers could we to the here, chasing be then chasing it on cash long-term impact. But just short-term aren’t EBIT there on that that be ensure some that X/X revenue could we’re conversion. X/X flow it profitable bonus EBIT growth improvement revenue X/X have the like address things

Steve Tusa

adjusted conversion? And that’s

Brian Stief

Correct.

Operator

Capital of next Your Deane Dray RBC Markets. comes question from

David Lu

Lu is for This Deane. on David

more I cash on will about the side? on the what and increase know for out the of flow? sort some parse different it the but or XXXX in XXXX, flow XXXX CapEx, increase So cash gave could around we you you color ramp-up leads sequential capital the buckets to the working be? from Is think that should how

Brian Stief

Yes.

The think about the to $X.X in to if adjust the that you in still billion going items that fourth the the also in million build quarter $XXX able to happened we what we Solutions, this about third is CapEx way where talked up is -- through flush of about third of Power for $X.X saw So the of or about end the $XXX the we at saw were million at receivables. to here, are billion. and inventory about and range so quarter, quarter we in we be look reduction year that in

thought in of you So $XXX we million million dollars quarter, hundred end talked the could of recall terms and if we in of couple worth inventory receivables. out we third take at a of the

fourth in $XXX $XXX million the quarter million, to out able here. we So were take to

capital place drive payment to we that terms tell expect and terms then trade beyond customers. range. million office there’s billing additional get $XXX you to up that be improvements effort inventory our that, cash to really the in to our continue would in plus to side. management the team going that would And I look would it And and working you at put that is So XX% more

So looking plus. right around now, we’re at XX%

David Lu

is can that decelerating? accelerating around nonresidential in or be then for U.S. color provide it trend or globally, has my on it the great. How to the any would Just expect you how And it follow-up, either an sector Great. update trended? do XXXX, in

George Oliver

Yes.

our when we look regions. across pretty presence good we nonresidential, all So at get the

it you break there. out we of as America regions, is into to lots going North opportunity said, we If -- see

We’re expanding be our sales able force capitalize on that. to here to

than at some And of we digits. recently, U.K. very through go still but strong to well. has expansions do pressure we’ve we’re as the us what has making we’re or to and EMEA little look there positioned single pretty it’s turn that to pipeline Europe starting in the plan nice region. performing the -- had the the that’s been year of look see Continental plus you you strong our a actually year. been the ultimately we businesses and -- going a as investments better been we for orders pretty offsetting If some to We’ve progress we’re metrics, seen growth we’ve EMEA/LA, Latin for here the EMEA/LA, Regionally, bit through accelerate and when begin then low course in America for bit in That’s minuses in there. continue the XXXX, with to still been grow to at

If at progress you that our expansion. we XXXX in new the into investments the and we see and -- with making, Pac we’re that footprint look bringing the Asia here nice when look market at in products business we’re there

that and making. we investments the are to out with digits there expected we say to market And so would we’re as then I continuing continuing with kind mid-single the opportunity look at of play

standpoint. position So with to market as on going overall, we’re the solid that making, capitalize a basis. to investments positioned far go-forward then a we’re fairly And on as be a

Operator

Thank you.

from comes Citi. ahead, question Go Andrew next Kaplowitz Your of please.

Unidentified Analyst

This is on [indiscernible] for Andy.

in orders the Building So were flat. Solutions quarter was X% and down

you talk your can low outlook within single-digit the growth organic for So overall? Building for about business Buildings Solutions

George Oliver

here, in the quarter those some also that’s would we markets some with fire the Hitachi. at regionalization and look and of the of let’s pickup, some investments an include you When the the in And output products, and with back in HVAC nice making seeing the beginning doing see security and controls well our looks And then fourth pretty those quarter. the been progress are and we’ve in that performing of we’re coming at we’ve products fourth across much businesses businesses of to business Buildings, work our board. been

and When Asia, business of timing orders investments saw some of driven in you was of So were America we’re of bit pipeline we those where very our there. got see little but look and some opportunities the did projects we We pressure seeing a we as in there, that’s been. coming with by solutions well a as performance slowdown the we in at our continuing the down see through that XXXX. North robust field has that about businesses, X%,

don’t concern. a believe So that longer-term that’s

sales not only what over from look activity the projects driving up able but So capacity XXXX, where picked salespeople also standpoint, a fell at we’re service. in being we’ve now, when to few our months, in we add short doing you last

the acceleration be of that also And mean, give and see through revenue in to start while XXXX. us we’ll secured in that, as year-on-year so course so project better we place. confidence we’ll position gives continue does orders of to begin confidence to of growth. we up plan X% of orders, going for Backlog accelerating that to us backlog conversion see that have XXXX, better what much driving acceleration the see we’re year as that’s the that of course increased was the a we’ll we And the now that through

Unidentified Analyst

can the that progress? of to then opportunities And about any continue terms revenue cross-selling you’re in you progress talk synergies, seeing on with synergies any

George Oliver

than can you some are in relationships see or bringing within would serve we combined on that here million from are we’re it very with served capabilities in within million developing is to we’ve in, nice traction. or strong the million. HVAC the historically, and across pipelines it they’re I And pipelines, new be what seen board. be really controls -- our These whether then we less business, the mean pipelines that executing customers tell the have fire happening with space, most customers is needs and of our -- those what’s that anywhere the differentiate conversion I of we’ve to starting expansion how progress truly whether Sure. have that these first we’re expansions projects their $X security. it’s and -- $X year to we nice And $XX

go-forward going of to And first that we the see start conversion third, year securing orders we that plan, was and basis, the about a second the revenue. did the longer-term say originally we’d so on be when laid and out to

the we’re to that’s a to pickup orders here now going -- to in XXXX. So those we’re the that what’s of of to happen. see start into orders, acceleration revenue going of start turn the see to We’ll see beginning

Brian Stief

that, of -- And just we’ve just back of is there I got the to would got we’ve this lot momentum would that year. a comment, add half I that in

third we on quarter pull-through. ‘XX. given seeing in aren’t So fourth benefit ‘XX in But we’ll activity, line and get revenue top the the from some benefit the

Operator

please. ahead Rich comes from question Wells Go Kwas next Your Fargo. of

Rich Kwas

On up so for I CapEx, to facilities billion, X.X does was of what in the that thought some there China. imply expansion CapEx? Power

So what’s the latest on that?

Brian Stief

that part So of for got would Piston and Power facility of plan, the our venture. that in million Solutions XXX next will year, the the be include we’ve construction Bohai joint

The other ‘XX. in starting about into late ‘XX, talked even maybe facility be will that China in we’ve

‘XX. probably fiscal big on the a the not will impact flows cash in facility So in China second have

Rich Kwas

peakish I we out of ‘XX, as still year ‘XX? there for years next a look Brian, of ramp this So the as still think kind bit in you know the CapEx couple of or about is is

Brian Stief

like X.X, that that’s I say the billion. billion a it say we’re peak. not X.X would this at is I level, I X.X, opportunistic of the very Even peak would have to I to mean, investments, would the looking be with at at Buildings for depending the levels ratio something that. the have No, probably up us end being that a we something reinvestment I see peak. upon could mean, X.X

to into X.X, So the X.X we’re that get range. working down more

Rich Kwas

It in for terms considering had Or guide year? upside should Okay, do we you the that And that was to includes you to delivering Is upside synergies, on I a million. parts year? good. that, number? And of the feel how conservative moving so number? it there’s then I reasonable whatnot, with but and XXX million is projects regards The some last expected. later better interpret in know that potentially than a ‘XX. mean, how XXX just

Brian Stief

XXX at the through exactly fiscal much could million end. last some that. on we’ve and number focused the our ‘XX. we we that’s say delivering Maybe. as XXX I’d But the year. which you to ended toward million we’ve for teams what we’ve right what pretty high now, I got be We would XXX the tell million, working there the map road XXX trackers, I go guided up upside? we’re a million is in got mean year, got is

I think So that’s Rich. where are, we

Rich Kwas

one. And price the the then assumption Okay. last quick What’s year? lead for

Brian Stief

X,XXX.

Operator

Company. question Cowen Our and Gautam of ahead. Please from next comes Khanna go

Gautam Khanna

job. the new on George, Congratulations,

questions. two So

just exceed abroad of the adjusted Is upon pricing one, to you if in that? just North worse conditions you recovery? follow-up, comment projects the function expand chasing could market could that a First in if And expand America. will demands is it softer the or warrant why pricing backlog’s applied it of as flow? those -- well? free as given much, Adient tax will the actual free both by Brian, all so, how cash flow, Any And cash adjusted a in, if $XXX color there And in million XXXX free questions? on in

George Oliver

the pressure. take margin I’ll Gautam, Sure,

As a said we’ve I on systems that go-forward incentive what the in past. sales place that purely basis margins. in now sales the its my and And prepared remarks, in done, incentivizing that changed were were we’ve

applying board. So the that weren’t concept consistently we across

out was all of so last then been and the gross certainly pressure the -- there XX margins. we’ve it’s a plays over And margins. That months, course other then being deterioration through months, improve the to got year. we’re to actions over backlog result, in XX in last be a all of to And that’s drive going book over accountability cost you’ve to as really the the improvement. place, discipline that that that of in course able the taking, of benefit the pricing gross also with get got addition the ultimately the we’ll said, margin And

other and growth. -- the then so is And service element

service I going the single-digit on to of business across I higher we’re low board within very growth, it as attractive growth of growth is right is profit getting to go-forward -- the you which As field very part businesses, believe, and we’re making mix growth, service that was which basis. talked be working in XXXX. had accelerate that the those a about, sure know a we

that have margin be overall the execute actions the will we’ve taken we rate. confidence to that elements two those that positioned really it’s And So well contribute with that. on to I

Gautam Khanna

Pricing outside the on U.S. U.S. the well? as as well? Just outside pricing

George Oliver

Yes.

the we and competitors. have lot disciplined around equipment, with little to and bit out a HVAC a some been We’ve driving of we’ve put you’ve So price -- it relates seen of cost. continuing and that some as been of of our cost very to had intensity price

it segment, a first little And the quarter reviews details in XX fourth on start say the so and with price -- fourth quarter, I’d what been points the cost was in the about that I’ve have within the we’re is to going of see based price and in million more that that in But we’ll was actions bit with cost see actions, seen, second the all to of the the basis our within it other $XX or taken, improve quarter. the beyond XXXX. building that

Brian Stief

committee Whether talked talk about bit a payment to guess we’re because, obviously, ‘XX. of it’s I it to targeting so in past, I we I or fiscal go on how can mean million that today. early That here to sit million $XXX in ‘XX. get fiscal the but quickly my to it’s upon size in really get thoughts the But Gautam, ‘XX got think get from a the in tax depends refund, flow $XXX to going you ‘XX, ‘XX given we’ve I’ll to committee. hope ‘XX, it’s as now ‘XX. that the joint cash we for we’re And calendar through refund get joint it Adient give is fiscal we

reform cash adjusted short to I be well Relative the through So number could to restructuring wildcard, exceed and just integration, there, there’s I to million, I that. to we fiscal other is mean. below be ‘XX. need we at would we flow items that guess the be a bit in would reported adjusted cash and But or free flow ‘XX, million as $XXX that cash what expect expect onetime those response flow right? fiscal when I $XXX free into might probably tax it’d sort look a that that move of guess out and

Operator

last from Your comes of question Pokrzywinski Research. Wolfe Josh

Josh Pokrzywinski

when Just up similar in the Tyco, made gross you that over discipline. to you backlog. trying at enhance phenomenon I continue some comments pressure, on and on a went George, margin there margin bring backlog guys some the took of the pressure to you think bidding margins through

kind current selectivity the I time of next slow growth. you think anticipating up of Is the there of handoff system? that something or Is could in that where was a something are as couple outlook? that you just in that period uneven be over a that work that quarters guys through showed the

George Oliver

at Not all.

think the strong. doing significantly I margins time, tell net resulted mean weren’t both. pretty -- is market the a what’s as markets And strong. environment it selectivity, would I in period We’re decline improving. you that different is is current I maybe of when we did during that the with obviously What in the

We’re adding to salespeople, talking our customers.

to projects making projects do then We’re of more the a we certainly now on we capacity proper got And staying deliver. and lot ultimately create standpoint, value. a customers the actually that that after return feedback and good go we price a from our that for the sure there’s that of most can the getting amount lot for we that focused get

so went Tyco. in than is think we And through what it I different

that as trying as are making ultimately incentive what margins. the of same and focus more sure apply. systems Some in the we’re achieve to well and It’s aligned growth to principles discipline both

Josh Pokrzywinski

Asia the Got on a would Power mix that generating generation. flow growth factors a side, normalize a growth it Hitachi, your growth big is I’m the Is the on Power like ‘XX you calibrate. or or into component XX%? this has I something than lower could building guys cash of like businesses for case And maybe seems a projecting Asia growth that mix of you. to more scenario that’s on follow-up and growth those trying capital of consumer. between helpful. and guess, that for mix in -- the Asia, suboptimal your the cash are something That’s It working flow, cash just in better the seems not growth best since cash year if just of be, that more obviously is free

Brian Stief

it the investments think impact making. I right looking in Target’s Buildings the a going globally. way we’re don’t Power about to and that’s way. I guess we’re around XX% business about growth the Solutions free now with is today big is think cash this flow, to at XX%

talked you’re of the Power, some through XX% this don’t -- still on that growth But work investments we referring where got moving is about be the that as to I call headed. think target XXXX, at in I think that’s -- the the to we’ve we’ve mix a toward significant I in we’re way. that is mix you’re referring think impact going going any geographic to

Antonella Franzen

closing like comments. I’d the turn to over Operator, call Oliver to just some George for

George Oliver

Thanks, again, everyone, joining call thanks, And for this our Antonella. morning.

opportunity and over earlier, the of here As more coming look I beyond I’m mentioned with the even weeks. about you certainly excited engaging future and as forward many at next we to look XXXX

today. So, that concludes call operator, our

Operator

your participation. you conference. today’s concludes That for Thank

disconnect. now may You

Johnson Controls International (JCI) 11 Nov 172017 Q4 Earnings call transcript