Johnson Controls International plc (NYSE:JCI)

Net Operating Profit After Taxes (NOPAT)

The NOPAT experienced a significant decline in the fiscal year ending September 30, 2020, dropping sharply from 2,126 million USD in 2019 to 448 million USD. However, this was followed by a substantial recovery to 2,084 million USD in 2021. Since then, NOPAT has slightly decreased and stabilized, recording 1,860 million USD in 2022 and a modest increase to 1,892 million USD in 2023.

Cost of Capital

The cost of capital shows moderate fluctuations over the period analyzed. It peaked at 15.2% in 2021, which corresponds with the year of significant NOPAT recovery, and has slightly decreased thereafter to 14.96% in 2022 and 14.58% in 2023. The range of cost of capital remained between 13.42% and 15.2%, indicating a relatively stable capital cost environment with some volatility around the middle of the period.

Invested Capital

Invested capital decreased notably from 35,173 million USD in 2018 to 29,283 million USD in 2020. Post-2020, the invested capital remained relatively stable, fluctuating slightly around 29,300 million USD through 2023. This suggests an initial divestment or capital optimization phase followed by a period of capital stability.

Economic Profit

Economic profit consistently remained negative throughout the entire period, ranging from approximately -2,380 million USD to -3,670 million USD. The largest economic loss occurred in 2020, coinciding with the sharp decline in NOPAT. While losses somewhat improved after 2020, economic profit still reflects a persistent failure to generate returns above the cost of capital, indicating value destruction despite operational recovery. The decline in invested capital did not translate into positive economic profit.

Overall Financial Trends and Insights

There is evidence of operational volatility, particularly in 2020, likely due to external or internal disruptions, with a marked recovery in operating profit afterward. Despite this recovery, the company struggled to generate economic profit, impacted by sustained high costs of capital and significant invested capital. The persistent negative economic profit points to an inefficiency in capital deployment or an unfavorable return environment, underscoring the need for strategic focus on enhancing operational returns or optimizing capital structure to achieve value creation.

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 has consistently been negative throughout the observed period, ranging from -3666 million US dollars in 2020 to -2375 million US dollars in 2021. The lowest negative value occurred in 2020, indicating a significant dip in that year. Although slight improvements are seen after 2020, the figures remain deeply negative, suggesting persistent challenges in generating economic value beyond the cost of capital.

Invested Capital

Invested capital shows a downward trend from approximately 35,173 million US dollars in 2018 to around 29,464 million US dollars in 2023. This reduction indicates a strategic decrease or divestment of capital investments over the six-year span. The decline is fairly sharp between 2018 and 2020, after which the invested capital stabilizes around the 29,000 million US dollars mark.

Economic Spread Ratio

The economic spread ratio is negative across all years, falling between -7.24% to -12.52%. The worst performance was recorded in 2020 at -12.52%, which aligns with the lowest economic profit observed in the same year. Post-2020, the spread ratio partially recovers yet remains significantly below zero, indicating that the returns on invested capital have consistently fallen short of the company's cost of capital.

Overall Trends and Insights

The financial indicators collectively reveal a challenging environment, particularly peaking in 2020, which may reflect external economic or operational difficulties. The persistent negative economic profit paired with a declining invested capital suggests efforts to reduce resource allocation in response to underperformance. Meanwhile, the consistently negative economic spread ratio reinforces the impression that the company has struggled to generate returns exceeding its capital costs throughout the period.

Adjusted Net Sales

The adjusted net sales exhibited a declining trend from 2018 to 2020, dropping from 31,447 million USD to 22,345 million USD. In the subsequent years, there was a recovery in sales figures, increasing to 23,870 million USD in 2021, further to 25,430 million USD in 2022, and reaching 26,985 million USD in 2023. This pattern reflects an initial contraction followed by a progressive recovery and growth over the latter part of the period.

Economic Profit

The economic profit was consistently negative throughout the period, indicating economic losses each year. The largest loss was recorded in 2020 at -3,666 million USD. Prior to this, losses decreased from -2,547 million USD in 2018 to -2,386 million USD in 2019. Post-2020, economic losses reduced substantially but remained significant, approaching approximately -2,400 million USD by 2023.

Economic Profit Margin

The economic profit margin, expressed as a percentage, followed a trend similar to economic profit. It worsened to a low of -16.41% in 2020 before improving slightly in subsequent years, reaching -8.91% in 2023. The data indicate a period of deepening economic inefficiency in 2020 followed by moderate recovery, although profitability has not returned to positive territory.

Overall Analysis

The company experienced a contraction in adjusted net sales and a considerable deterioration in economic profit and its margin during the period surrounding 2020, likely reflecting challenging market conditions or internal operational difficulties. From 2021 onwards, there are signs of gradual recovery in sales and profitability margins; however, economic profit remains negative, suggesting persistent challenges in generating economic value above costs. The trends imply an ongoing focus on improving operational efficiency and profitability is necessary for financial sustainability.