Johnson’s 4Q Sales Drop As Covid-19 Hurts Building Solutions Demand

Johnson Controls International reported a year-over-year decline in both its top and bottom line as the coronavirus pandemic took a toll on demand for building solutions. The building technology and solutions provider’s 4Q sales fell 5% to $5.95 billion year-on-year. However, quarterly revenues surpassed analysts’ expectations of $5.67 billion and were above management’s prior forecast of a 9%-11% decline.

The company said that orders for building solutions, excluding M&A and adjusted for foreign currency, dropped 9% year-on-year, reflecting “lower demand due to the COVID-19 pandemic,” while sales were also negatively affected by a decline in project installations.

Johnson Controls’ (JCI) adjusted EPS declined 3% to $0.76 but exceeded the Street estimates $0.73 per share. The company’s CEO George Oliver said, “In the fourth quarter, we performed very well across all of our end markets delivering revenue and EBIT above our prior guidance, with best in class decrementals. This is a result of continued strong execution on our cost-out initiatives, while maintaining strong reinvestment into our growth platforms.”

For 1Q, Johnson predicts revenues to decline by 5% to 7%. Adjusted EPS is forecast at between $0.39 and $0.41 in the quarter. (See JCI stock analysis on TipRanks).

Following the earnings release, Oppenheimer analyst Noah Kaye reiterated his Buy rating and the price target of $48 (8.6% upside potential). In a note to investors, Kaye wrote, “We believe JCI is demonstrating improved execution on organic growth and FCF generation and is building a more resilient business around healthier, connected buildings that will generate multiple expansion over time. We see significant flexibility for increased return of capital to shareholders or disciplined M&A (Merger & Acquisitions) that could serve as a catalyst for the shares.”

Currently, the Street has a bullish outlook on the stock. The Strong Buy analyst consensus is based on 6 Buys and 2 Holds. With shares up 8.6% year-to-date, the average price target of $45.88 implies further upside potential of about 3.8% to current levels.