Johnson Controls International plc (NYSE:JCI)

The analysis of the annual financial data reveals several key trends in the operational performance and capital efficiency over the period from 2018 to 2023.

Net Operating Profit After Taxes (NOPAT)

The NOPAT values show significant volatility, with a notable sharp decline in 2020 to 448 million US dollars from over 2100 million in preceding years. This abrupt decrease is followed by a recovery in 2021, reaching 2084 million US dollars, although the subsequent years show a slight downward trend stabilizing around 1860 to 1892 million US dollars in 2022 and 2023. This pattern suggests an external or internal disruption in 2020, followed by a partial but incomplete recovery.

Cost of Capital

The cost of capital fluctuated moderately during the period, starting at 13.3% in 2018 and peaking at 15.06% in 2021. Thereafter, it gradually declined to 14.45% in 2023. The increased cost of capital in 2020 and 2021 may reflect heightened perceived risk or changes in market conditions, which subsequently eased slightly towards the end of the period.

Invested Capital

Invested capital declined from 35173 million US dollars in 2018 to approximately 29300 million US dollars by 2020 and then remained relatively stable through to 2023. This reduction indicates a divestment or reallocation of assets, or a strategic reduction in capital deployment that stabilized in recent years.

Economic Profit

Economic profit remained negative throughout the entire period analyzed, consistently indicating that the company’s returns were below its cost of capital. The values fluctuated from a negative 2344 million US dollars in 2019 to a more negative 3628 million in 2020, then improved slightly but remained substantially negative in subsequent years, ending at -2364 million in 2023. This persistent negative economic profit suggests ongoing challenges in generating value above the required return on capital.

In summary, the data reflects a period of operational disruption around 2020 impacting profitability substantially, followed by partial recovery. Despite stabilization in invested capital and a decrease in the cost of capital after its peak, economic profit remains negative, pointing to the need for improved efficiency or strategic adjustments to create shareholder value above the cost of capital.

The analysis of the financial data over the six-year period reveals notable fluctuations in key profitability metrics.

Net Income Attributable to Johnson Controls

This metric demonstrates a pronounced volatility throughout the period. Starting at 2,162 million US$ in 2018, it rose sharply to 5,674 million US$ in 2019, representing significant growth. However, it then experienced a steep decline to 631 million US$ in 2020, indicating a substantial downturn. In the subsequent years, net income showed recovery, increasing to 1,637 million US$ in 2021, slightly decreasing to 1,532 million US$ in 2022, and rising again to 1,849 million US$ in 2023. The pattern suggests sensitivity to external factors or business conditions impacting profitability.

Net Operating Profit After Taxes (NOPAT)

NOPAT exhibits a somewhat different trend compared to net income. It begins at 2,175 million US$ in 2018, slightly declining to 2,126 million US$ in 2019. A significant drop occurs in 2020 to 448 million US$, mirroring the decline seen in net income. However, a strong rebound is evident in 2021 with NOPAT surging to 2,084 million US$. Afterward, it shows a moderate decline to 1,860 million US$ in 2022 followed by a slight increase to 1,892 million US$ in 2023. The data indicates operational recovery after 2020 albeit with some variability in subsequent years.

Overall, both profitability measures were adversely affected in 2020, likely due to extraordinary or industry-wide challenges in that year. There was a notable recovery starting from 2021, although no return to the peak levels observed in 2019 is evident by 2023. The persistent variability suggests ongoing influences affecting business performance that merit further investigation.

The financial data reveals fluctuating trends in the taxation-related items over the analyzed periods, indicating variations in both reported tax provisions and actual cash tax payments.

Income Tax Provision (Benefit)

The income tax provision exhibits considerable volatility. Initially, there is a provision of 518 million US dollars in 2018, followed by a significant tax benefit (negative provision) of -233 million in 2019. The figure then rises to 108 million in 2020 and sharply increases to 868 million in 2021, indicating a peak in tax expenses for that year. In 2022 and 2023, the provision returns to negative figures (-13 million and -323 million respectively), reflecting tax benefits or credits in these periods. This irregular pattern suggests fluctuations in taxable income or changes in tax rates, regulations, or one-time items impacting tax expense recognition.

Cash Operating Taxes

Cash operating taxes also demonstrate a volatile trend but follow a somewhat different pattern compared to the income tax provision. In 2018, cash taxes paid amount to 1,210 million US dollars, but in 2019, there is a substantial tax refund or cash inflow reflected by a negative value of -806 million. The cash taxes paid climb back to 675 million in 2020 and increase slightly further to 861 million in 2021. This is followed by a sharp decline in 2022 to 159 million before increasing again to 395 million in 2023. These fluctuations may be attributable to timing differences in tax payments, adjustments for prior years, changes in tax obligations, or the impact of cash tax planning strategies.

Overall, both income tax provision and cash operating taxes show significant year-to-year variability rather than steady growth or decline. The divergence between accounting provisions and actual cash taxes in some years highlights different timing and recognition impacts on reported and cash tax expenses. The data indicates a tax environment with complexities that may arise from shifting legislative factors, tax planning activities, or episodic events affecting taxable income and cash flow related to taxes.

Over the six-year period, the company's total reported debt and leases showed a variable trend. Initially, a significant reduction occurred from 12,091 million US dollars in 2018 to 8,304 million in 2019, indicating substantial debt repayment or restructuring. Following this decrease, the debt levels gradually increased each year, reaching 10,252 million US dollars by 2023. Despite the rise after 2019, the total debt at the end of 2023 remained below the 2018 figure, suggesting a net decrease over the longer term.

Shareholders’ equity attributable to the company displayed a continuous downward trend from 21,164 million US dollars in 2018 to 16,545 million in 2023. The decline was most pronounced during the first three years, dropping steadily to 17,447 million in 2020. After 2020, the equity levels stabilized somewhat but continued to decrease slightly through 2022 and 2023. This consistent reduction may reflect accumulated losses, dividend payments in excess of earnings, or other equity-reducing activities.

Invested capital mirrored the trends observed in equity but showed less volatility. It decreased from 35,173 million US dollars in 2018 to a low of 29,283 million in 2020, then remained relatively stable around the 29,400 million mark through 2023. This suggests limited new investment or expansion in capital assets, or possibly asset disposals, during the period. The overall contraction in invested capital aligns with the reduction in equity and fluctuating debt levels, indicating consolidation in the company’s capital structure.

In summary, the company experienced a notable reduction in debt in 2019 followed by a gradual increase toward prior levels. Equity consistently declined throughout the period, while invested capital showed a reduction followed by stabilization. These patterns may indicate a strategic refocus on managing liabilities and capital expenditure, alongside pressures on equity value.

Economic Profit

The economic profit demonstrated a consistently negative trend across the analyzed periods, ranging from -2,504 million US dollars in 2018 to -3,628 million in 2020, which represents the lowest point within this timeframe. Following this decline, there was a partial recovery, with values improving to -2,333 million in 2021, although subsequent years saw a slight increase in the negative figure again, reaching -2,364 million in 2023. This pattern indicates persistent economic losses, with some volatility but no sustainable positive turnaround.

Invested Capital

Invested capital exhibited a decreasing trend from 35,173 million US dollars in 2018 to a lower point of 29,283 million in 2020. Post-2020, the invested capital stabilized somewhat, maintaining values around the 29,300 million mark through 2023. This decline and subsequent stabilization suggest a reduction in investment or asset base over the initial years followed by a period of relative consistency.

Economic Spread Ratio

The economic spread ratio remained negative throughout the period, indicating returns on invested capital that were below the cost of capital. The ratio experienced a notable deterioration in 2020, dropping to -12.39%, which aligns with the lowest economic profit observed. After 2020, there was a modest recovery in the spread ratio, fluctuating between approximately -7.95% and -8.51% through to 2023, showing some improvement but still reflecting unfavorable economic returns.

The financial data reveals several key trends over the six-year period under consideration. Economic profit, a measure of value creation after accounting for the cost of capital, remains consistently negative throughout the years. Although the negative economic profit fluctuates, its magnitude suggests ongoing challenges in generating surplus returns. The largest economic loss occurs in the year ending September 30, 2020, with a value of -3628 million US dollars, while the least negative economic profit is recorded in 2023 at -2364 million US dollars, indicating some improvement in value generation, albeit still below zero.

Adjusted net sales display variability over the years, with a notable decline from 31,447 million US dollars in 2018 to 22,345 million in 2020. This represents a substantial contraction during this period, followed by a recovery phase with sales increasing steadily from 2021 onwards, reaching 26,985 million in 2023. This partial recovery in sales after 2020 suggests either improved market conditions or operational adjustments that positively influenced revenue generation.

The economic profit margin, reflecting economic profit as a percentage of sales, aligns with the trend observed in economic profit. The margin is negative in all years, reaching its lowest point in 2020 at -16.24%. This indicates that the company's returns relative to sales were most adversely impacted during this year. Post-2020, the margin shows a gradual improvement, moving to -8.76% in 2023, which denotes a reduction in economic losses per sales dollar, although the margin remains firmly negative.

Overall, the data indicates that the company has experienced persistent economic losses over the examined period, with a notable nadir in 2020. Adjusted net sales contracted significantly through the 2018–2020 timeframe but have since trended upward. Improvements in both economic profit and its margin following 2020 suggest a recovery phase, though profitability challenges remain with consistent negative economic profit margins through 2023.