Update on the Warning Signs at Johnson Controls (JCI)
More one-time benefits and possible cookie jars
In our March 11th piece Warning Signs at Johnson Controls (JCI), we documented our reasons for believing that JCI was at risk of posting more disappointing quarters in 2024. JCI missed its 4Q23 targets (ended September) and posted in-line results in 1Q24 (December). While the company’s 2Q24 non-GAAP EPS of $0.78 beat forecasts by 3 cents, it missed on revenue and gave 3Q24 guidance of $1.05-$1.10 vs. then-consensus estimates of $1.13. Despite the company promising that accelerating growth for 4Q24 would allow it to hit annual targets, the market drove the stock down 7%. It has since recovered about half the lost ground, but we believe it is premature to sound the all-clear.
We have noticed multiple items in recent quarters that, in our opinion, are signs that the company is managing earnings. 2Q24 is no exception, as it contained multiple unusual benefits that appeared to not only allow the company to meet expectations in the quarter despite the revenue miss but also build up reserves that it may draw upon in upcoming quarters to make estimates that are already being lowered by the Street. Below, we will take a close look at the quarter and what it could mean for the future.
Let’s get behind the numbers…