Johnson Controls Q1 report reflects tough quarter

CORK, Ireland—Johnson Controls International (JCI) cited a ransomware attack and economic slowdowns in China contributing to tough first quarter 2024 results.

From released documents Johnson Controls (JCI) revealed GAAP earnings per share (“EPS”) from continuing operations of $0.55. Excluding special items, adjusted EPS from continuing operations was $0.51. Sales in the quarter of $6.1 billion were flat compared to the prior year on an as reported basis and declined 1% organically. GAAP net income from continuing operations was $374 million. Adjusted net income from continuing operations was $350 million. 

“We continued to position Johnson Controls for the future, delivering solid first quarter results and appointing Marc Vandiepenbeeck as CFO,” said Johnson Controls Chairman and CEO George R. Oliver during JCI's earnings call. “Our value proposition of making buildings smarter, healthier and more sustainable is resonating with our customers and translating into record backlog. After managing through a temporary cyber disruption and the seasonality of the first quarter, we are entering the new calendar year with accelerating momentum.” 

Oliver continued, “The management team continues to simplify and transform the company into a comprehensive solutions provider for commercial buildings.  As part of the continuous evaluation of our portfolio, we are in the early stages of pursuing strategic alternatives of our non-commercial businesses, in line with our objective to maximize value to our shareholders.”

Of particular note in the earnings report was in the Asia Pacific building solution report, which saw sales in the quarter of $507 million, a decline of 22% versus the prior year. Organic sales declined 21% versus the prior year as mid single-digit service growth was more than offset by accelerating weakness in China, JCI wrote.

“Last year, when you look at where we were last year, we were working to recover our backlog from the second wave of COVID shutdowns in China,” Oliver told one caller during the Q & A portion of the earnings call. “As the economic environment in China has slowed, we continue to make sure that we're streamlined with our organization and aligning our resources to the market to be able to maximize what we believe is our entitlement. And then make sure that we're executing with discipline to achieve what we see to be very strong life cycle value creation with our services. This is what we played out in North America and which has been very successful for us.”

Another hit taken by the company during the quarter comes as a result of a ransomware attack experienced by the company in September 2023. Security Systems News (SSN) reported on the incident, and spoke with a company representative that said, "We have experienced disruptions in portions of our internal information technology infrastructure and applications resulting from a cybersecurity incident. Promptly after detecting the issue we began an investigation with assistance from leading external cybersecurity experts and are also coordinating with our insurers. We continue to assess what information was impacted and are executing our incident management and protection plan, including implementing remediation measures to mitigate the impact of the incident, and will continue taking additional steps as appropriate."

In its filing with the U.S. Securities and Exchange Commission (SEC) Johnson Controls confirmed the ransomware attack and assigned expenses resulting from the investigation and remediation of the incident to have cost the company $27 million. “The company expects to incur additional expenses associated with the response to, and remediation of, the incident throughout fiscal 2024, most of which the company expects to incur in the first half of the year,” JCI wrote in its SEC filing. “These expenses include third-party expenditures, including IT recovery and forensic experts and others performing professional services to investigate and remediate the incident, as well as incremental operating expenses incurred from the resulting disruption to the company’s business operations.”

The company continued, “Further, the cybersecurity incident caused disruptions to certain of the company’s billing systems, which negatively impacted cash provided from operations during the first quarter of fiscal 2024. The overall impact of the cybersecurity incident in fiscal 2024 is not expected to be material to net income, net of insurance recoveries, or cash flows from continuing operations; however, the timing of recognizing the insurance recoveries may differ from the timing of recognizing the associated expenses.”

The full earnings report is available online at investors.johnsoncontrols.com.