What happened
Johnson Controls International (JCI -0.14%) delivered quarterly results that were in line with expectations, but with the stock up about 40% since Oct. 1, investors were apparently expecting more. The stock price fell by as much as 7% on Wednesday morning as bulls adjusted to the realities of a difficult operating environment that is impacting many of the company's markets.
So what
Johnson Controls manufactures heating, ventilation, and air conditioning (HVAC) products and other building automation equipment for residential and commercial properties. It is considered a well-run company with a solid product line, as well as decent business and geographic diversity, and its stock has been a popular choice in recent months for investors seeking relative safe havens in a volatile market.
The company's results did not disappoint. In its fiscal 2023 first quarter, which ended Dec. 31, Johnson Controls earned $0.67 per share on revenue of $6.1 billion, basically in line with analysts' consensus expectations for $0.67 per share in earnings on sales of $6.2 billion. Revenue grew by 4% year over year, though the company said it did take a foreign exchange hit of about $300 million due to the strong U.S. dollar.
Adjusted net income from continuing operations came in at $463 million, up 22% year over year, and the company's adjusted EBIT margin was 10.6%, an improvement of 140 basis points year over year.
"Our earnings results came in at the high end of our guidance as we executed on our higher margin backlog, delivered on our productivity initiatives and improved our operational execution," Chief Financial Officer Olivier Leonetti said in a statement. "Our pipeline remains robust, and we are well positioned to capture tailwinds across our vectors of growth and deliver strong financial performance."
But there were some reasons for concern. North American residential HVAC sales fell 20% year over year, a potential indicator that the broader slowdown in the housing market was taking a toll. In a market where investors had high expectations, simply matching estimates proved insufficient to propel the stock higher.
Now what
Guidance from Johnson Controls could hint at some issues in the months to come, but optimism over the longer term. The company forecast that its fiscal second-quarter revenue growth would be about 10% year over year, with earnings coming in at between $0.72 per share and $0.74 per share. Wall Street is expecting $0.74 per share.
For fiscal 2023, the company anticipates margin improvement of between 90 and 120 basis points will fuel a 10% to 20% growth in earnings, giving it between $3.30 per share and $3.60 per share in earnings. That's an improvement over the previous forecast range of $3.20 per share to $3.60 per share.
Johnson Controls is a top operator, but it has historically been a cyclical company, and its stock hardly ever just goes straight up. For long-term investors, there is still a lot to like about Johnson Controls.
