Business Description
Johnson Controls International plc (JCI) is a global leader in smart, healthy, and sustainable building solutions, serving customers in over 150 countries. The company operates through four business segments, providing a range of services including the design, sale, installation, and servicing of HVAC systems, controls, building management, refrigeration, integrated electronic security, and fire-detection and suppression systems . JCI also offers energy-efficiency solutions and technical services, leveraging its extensive product portfolio and digital capabilities through its OpenBlue platform to deliver integrated and customizable solutions .
- Global Products - Designs, manufactures, and sells HVAC equipment, controls software and services, refrigeration equipment and controls, fire protection and suppression systems, and security products such as intrusion security, anti-theft devices, access control, and video surveillance systems .
- Building Solutions North America - Designs, sells, installs, and services HVAC systems, controls, building management, refrigeration, integrated electronic security, and integrated fire-detection and suppression systems .
- Building Solutions EMEA/LA - Provides similar offerings as the North America segment, focusing on the Europe, Middle East, Africa, and Latin America regions .
- Building Solutions Asia Pacific - Offers the same range of products and services as other regional segments, tailored for the Asia Pacific market .
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Q4 2024 Summary
What went well
- Strong Data Center Demand Driving Growth: Johnson Controls is experiencing significant growth in data center demand, with data center orders more than doubling the sales delivered. Key customers are placing multiyear orders in the hundreds of millions of dollars for cooling solutions, contributing to a record backlog of $13.1 billion.
- Higher Service Attach Rates Enhancing Margins: The service attach rate in the data center vertical is very strong and better than the rest of the portfolio. Customers are increasingly relying on Johnson Controls' capabilities, leading to higher recurring revenue and margin improvement.
- Momentum in Key Verticals Beyond Data Centers: Johnson Controls is seeing strong growth in other key verticals such as health care, hospitals, manufacturing, and new energy sectors like battery manufacturing, which are contributing positively to applied sales and supporting overall growth.
What went wrong
- Upcoming increase in effective tax rate from 12% in fiscal 2025 to potentially 16%-17% in fiscal 2026 due to global tax reforms, leading to higher tax expenses and reduced net income.
- Structural headwinds to free cash flow conversion, including substantial restructuring costs, increased capital expenditures, and pressures from a higher effective tax rate, which may limit the company's ability to generate and convert free cash flow.
- Stranded costs related to the divestiture of the residential and light commercial business, along with significant investments in cybersecurity and IT infrastructure, may result in elevated corporate expenses and impact profitability.
Q&A Summary
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Global Products Margins Sustainability
Q: Are high Global Products margins sustainable into FY2025?
A: Management affirms that the elevated margins in Global Products are sustainable, resulting from structural operational efficiencies achieved over the past year. They expect margins to be around 20% in the first half of FY2025 and significantly higher in the second half, with continuous performance at this level or better. Importantly, there were no one-off items contributing to these margins. -
Restructuring Costs and Savings Impact
Q: How will restructuring costs and savings affect FY2025 results?
A: The company plans to incur $400 million in restructuring costs ahead of realizing $500 million in savings. Approximately half of these costs are included in the FY2025 free cash flow guidance, representing a structural headwind for the year. The timing of costs and benefits is linked to the divestiture of the residential and light commercial business, making precise predictions challenging. -
Tax Rate Outlook
Q: What is driving changes in the effective tax rate?
A: The effective tax rate is increasing from about 11% in FY2024 to 12% in FY2025 due to strategic planning around the residential business divestiture, allowing better tax rate management. However, global tax reforms are expected to pressure the rate upward by 400 to 500 basis points in FY2026 and beyond. -
Data Center Growth and Margins
Q: What is the outlook for data center business and its impact on margins?
A: Data centers constitute about 10% of revenue and are experiencing solid double-digit growth. The service attach rate in this vertical is strong and improving, enhancing margins. Data center projects command slightly higher margins due to differentiated solutions and integrated engineering efforts with customers. -
North America Building Solutions Margins
Q: How will margins in North America Building Solutions evolve with changing mix?
A: The mix headwinds from large Systems projects, which have slightly lower margins than the Service business, are expected to diminish. As service revenues from these projects increase, margins should improve throughout FY2025. -
Free Cash Flow Conversion Guidance
Q: What supports the 85% free cash flow conversion guidance, and how will it improve?
A: The 85% conversion rate reflects headwinds from restructuring costs, increased CapEx investments in data center capacity, and the gap between effective and cash tax rates. Improvements are expected from better trade working capital management. Over time, the company aims to exceed the 85% conversion rate. -
First Quarter Growth Expectations
Q: Why is Q1 organic growth guided at mid-single digits despite strong orders?
A: Due to the timing of large orders and strong Q4 performance in data centers and decarbonization projects, Q1 growth is expected at mid-single digits. North America may perform slightly above this, while EMEA/LA, APAC, and Global Products will be in line or slightly lower. -
CEO Succession Plan
Q: What is the status of the CEO succession process?
A: The Board is actively considering an impressive list of internal and external candidates to succeed the CEO. An update is expected in the first half of calendar year 2025. -
Applied Sales in Other Verticals
Q: What trends are observed in applied sales beyond data centers?
A: Strong growth is seen in health care, hospitals, manufacturing, and new energy sectors like battery manufacturing. Opportunities also arise from repurposing commercial real estate spaces post-pandemic. -
Corporate Expenses and Share Buybacks
Q: How are corporate expenses and share repurchases expected to change?
A: Corporate expenses remain flat year-over-year at around $430 million, with investments in cybersecurity and IT offsetting cost reductions. Share buybacks will continue as usual, returning 100% of free cash flow to shareholders, without assuming deployment of proceeds from the residential business sale in the FY2025 guidance. -
Indirect Revenue Mix and Market Exposure
Q: What is the composition of indirect revenue and its market exposure?
A: The company utilizes indirect channels to address mid- to low-end market segments where direct value selling is less feasible. This approach complements their direct efforts, ensuring full market share entitlement across all segments. -
Backlog Expectations and Order Growth
Q: Will backlog levels decrease or remain consistent through FY2025?
A: Backlog is expected to continue growing, supported by a robust pipeline of opportunities, particularly in data centers. This underpins confidence in achieving mid-single-digit revenue growth, drawing revenue from this strong backlog. -
Clarification on Global Products Revenues and Margins
Q: What are the underlying revenues and margins for Global Products?
A: The Global Products segment has revenues slightly less than $5 billion, with margins in the high 20% range on a pro forma basis. Management expects to leverage volume further to enhance margins. -
Service Attachment Rate in Data Centers
Q: How does the service attachment rate in data centers compare to traditional buildings?
A: The service attachment rate in data centers is strong and slightly better than in the overall portfolio. This improvement is due to increased complexity and customers recognizing the value of comprehensive service offerings, leading to better margins. -
Pricing Power in Data Centers
Q: How does pricing power in data centers compare to traditional segments?
A: Pricing power in data centers is slightly higher owing to the complexity and engineered solutions required. By embedding their engineering teams with customers to address higher-value challenges, the company can command better pricing and margins than in traditional applied equipment. -
Details on Free Cash Flow
Q: Does the free cash flow guidance include tax payments on divestitures, and what changes are expected?
A: The free cash flow conversion guidance does not include tax payments on divestitures. The restructuring benefits are not expected to be material to the FY2025 guidance. The cost-out program focuses on simplifying operations and improving customer experience, with ongoing updates as changes are implemented.
Key Metrics
Revenue by Segment - in Millions of USD | Q1 2014 | Q2 2014 | Q3 2014 | Q4 2014 | FY 2014 | Q1 2015 | Q2 2015 | Q3 2015 | Q4 2015 | FY 2015 | Q1 2016 | Q2 2016 | Q3 2016 | Q4 2016 | FY 2016 | Q1 2017 | Q2 2017 | Q3 2017 | Q4 2017 | FY 2017 | Q1 2018 | Q2 2018 | Q3 2018 | Q4 2018 | FY 2018 | Q1 2019 | Q2 2019 | Q3 2019 | Q4 2019 | FY 2019 | Q1 2020 | Q2 2020 | Q3 2020 | Q4 2020 | FY 2020 | Q1 2021 | Q2 2021 | Q3 2021 | Q4 2021 | FY 2021 | Q1 2022 | Q2 2022 | Q3 2022 | Q4 2022 | FY 2022 | Q1 2023 | Q2 2023 | Q3 2023 | Q4 2023 | FY 2023 | Q1 2024 | Q2 2024 | Q3 2024 | Q4 2024 | FY 2024 |
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Building Solutions North America | 2,665 | 2,778 | 10,330 | 2,487 | 2,739 | 2,899 | 3,223 | 11,348 | |||||||||||||||||||||||||||||||||||||||||||||||
- Products & Systems | - | - | - | - | - | - | - | 1,483 | |||||||||||||||||||||||||||||||||||||||||||||||
- Services | - | - | - | - | - | - | - | 754 | |||||||||||||||||||||||||||||||||||||||||||||||
Building Solutions EMEA/LA | 1,045 | 1,045 | 4,096 | 1,038 | 1,064 | 1,081 | 1,113 | 4,296 | |||||||||||||||||||||||||||||||||||||||||||||||
Building Solutions Asia Pacific | 736 | 697 | 2,746 | 507 | 491 | 575 | 664 | 2,237 | |||||||||||||||||||||||||||||||||||||||||||||||
Global Products | 2,687 | 2,386 | 9,621 | 2,062 | 2,405 | 2,676 | -2,072 | 5,071 | |||||||||||||||||||||||||||||||||||||||||||||||
- HVAC | 1,973 | 1,65 | 6,820 | 1,418 | 1,683 | 1,971 | -2,792 | 2,280 | |||||||||||||||||||||||||||||||||||||||||||||||
- Fire & Security | 626 | 627 | 2,446 | 547 | 607 | 601 | 615 | 2,370 | |||||||||||||||||||||||||||||||||||||||||||||||
- Industrial Refrigeration | 88 | 109 | 355 | 97 | 115 | 104 | 105 | 421 | |||||||||||||||||||||||||||||||||||||||||||||||
- Building Management Systems | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||
- Specialty Products | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||
Power Solutions | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||
Products and Systems | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||
Services | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||
NA Integrated Solutions & Services | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||
ROW Integrated Solutions & Services | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||
NA Installation & Services | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||
ROW Installation & Services | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||
Total Revenue | 7,133 | 6,906 | 26,793 | 6,094 | 6,699 | 7,231 | 2,928 | 22,952 | |||||||||||||||||||||||||||||||||||||||||||||||
Revenue by Geography - in Millions of USD | Q1 2014 | Q2 2014 | Q3 2014 | Q4 2014 | FY 2014 | Q1 2015 | Q2 2015 | Q3 2015 | Q4 2015 | FY 2015 | Q1 2016 | Q2 2016 | Q3 2016 | Q4 2016 | FY 2016 | Q1 2017 | Q2 2017 | Q3 2017 | Q4 2017 | FY 2017 | Q1 2018 | Q2 2018 | Q3 2018 | Q4 2018 | FY 2018 | Q1 2019 | Q2 2019 | Q3 2019 | Q4 2019 | FY 2019 | Q1 2020 | Q2 2020 | Q3 2020 | Q4 2020 | FY 2020 | Q1 2021 | Q2 2021 | Q3 2021 | Q4 2021 | FY 2021 | Q1 2022 | Q2 2022 | Q3 2022 | Q4 2022 | FY 2022 | Q1 2023 | Q2 2023 | Q3 2023 | Q4 2023 | FY 2023 | Q1 2024 | Q2 2024 | Q3 2024 | Q4 2024 | FY 2024 |
Building Solutions North America | 2,665 | - | - | 2,487 | 2,739 | 2,899 | 5,046 | 13,171 | |||||||||||||||||||||||||||||||||||||||||||||||
Building Solutions EMEA/LA | 1,045 | - | - | 1,038 | 1,064 | 1,081 | 1,303 | 4,486 | |||||||||||||||||||||||||||||||||||||||||||||||
Building Solutions Asia Pacific | 736 | - | - | 507 | 491 | 575 | 1,283 | 2,856 | |||||||||||||||||||||||||||||||||||||||||||||||
Global Products | 2,687 | - | - | 2,062 | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||
Other Non-U.S. | - | - | 2,312 | - | - | - | - | 2,439 | |||||||||||||||||||||||||||||||||||||||||||||||
- United States | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||
- Europe | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||
- Asia Pacific | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||
- China | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||
- Japan | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||
- Germany | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||
- United Kingdom | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||
- Taiwan | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||
- Other European countries | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||
North America | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||
Asia | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||
Rest of World | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||
Total Revenue | 7,133 | 6,906 | 26,793 | 6,094 | 6,699 | 7,231 | 2,928 | 22,952 |
Executive Team
Questions to Ask Management
- The Global Products business reported an adjusted segment EBITDA margin expansion of 700 basis points to 28% in Q4 ; were there any one-time factors or mix effects contributing to this, and how sustainable are these margin levels going forward?
- With the announced restructuring plan expected to deliver $500 million of benefits over time , can you provide more detail on the specific areas targeted for cost reductions, and explain how and when these benefits will be reflected in your financials?
- You indicated that the effective tax rate is expected to increase by 400 to 500 basis points in fiscal 2026 due to global tax reforms ; what specific changes are driving this increase, and what strategies are you considering to mitigate its impact on net earnings?
- Given your record backlog of $13.1 billion at the end of fiscal 2024 driven by data center demand , do you expect backlog levels to remain consistent, decline, or grow in fiscal 2025, especially considering potential fluctuations in key verticals?
- Aside from data centers, can you elaborate on the performance of applied sales in North America across other key verticals such as health care, manufacturing, and commercial real estate, and highlight any positive or negative trends affecting these sectors ?
Past Guidance
Q4 2024 Earnings Call
- Issued Period: Q4 2024
- Guided Period: FY 2025
- Guidance:
- Adjusted EPS: $3.40 to $3.50 per share, growth of 6% to 9% from fiscal 2024 .
- Organic Sales Growth: Mid-single digits for both Q1 and the full year .
- Adjusted Segment Margins: Expand over 50 basis points for the full year .
- Free Cash Flow Conversion: 85% or greater .
- First Quarter Guidance:
- Organic Sales Growth: Mid-single digits .
- Adjusted Segment Margin Expansion: Over 100 basis points to approximately 14.5% .
- Adjusted EPS: $0.57 to $0.60, growth of 24% to 30% .
- Capital Deployment: Excludes capital deployment from divestiture proceeds .
- Restructuring Plan: $400 million in expenses over three years, $500 million in annual cost savings .
Q3 2024 Earnings Call
- Issued Period: Q3 2024
- Guided Period: Q4 2024 and FY 2024
- Guidance:
- Fourth Quarter 2024:
- Sales Growth: Approximately 7% .
- Segment EBITA Margin: Approximately 19% .
- Adjusted EPS: $1.23 to $1.26 .
- Full Year 2024:
- Adjusted EPS: $3.66 to $3.69 .
- Organic Sales Growth: Approximately 3% .
- Segment EBITA Margin Expansion: Approximately 110 basis points .
- Adjusted Free Cash Flow Conversion: Approximately 85% or better .
- Fourth Quarter 2024:
Q2 2024 Earnings Call
- Issued Period: Q2 2024
- Guided Period: Q3 2024 and FY 2024
- Guidance:
- Third Quarter 2024:
- Sales Growth: Low single-digit growth .
- Segment EBITDA Margin: Approximately 17% .
- Adjusted EPS: $1.05 to $1.10 .
- Full Year 2024:
- Sales Growth: Mid-single-digit growth .
- Segment Margins: Expand by 50 to 75 basis points .
- Adjusted EPS: $3.60 to $3.75 .
- Adjusted Free Cash Flow Conversion: Approximately 85% .
- Third Quarter 2024:
Q1 2024 Earnings Call
- Issued Period: Q1 2024
- Guided Period: Q2 2024 and FY 2024
- Guidance:
- Second Quarter 2024:
- Sales: Approximately flat year-on-year .
- Segment EBITA Margin: Approximately 14.5% .
- Adjusted EPS: $0.74 to $0.78 .
- Full Year 2024:
- Top Line Growth: Mid-single digit growth .
- Segment EBITA Margin Expansion: 50 to 75 basis points .
- Adjusted EPS: $3.60 to $3.75 .
- Adjusted Free Cash Flow Conversion: Approximately 85% .
- Second Quarter 2024:
Competitors
Competitors mentioned in the company's latest 10K filing.
- Honeywell International, Inc.
- Siemens Smart Infrastructure, an operating group of Siemens AG
- Schneider Electric SA
- Carrier Global Corporation
- Trane Technologies plc
- Daikin Industries, Ltd.
- Lennox International, Inc.
- GC Midea Holding Co, Ltd.
- Gree Electric Appliances, Inc.
These companies are mentioned as competitors in the HVAC equipment, security, fire-detection, fire suppression, and controls markets in both residential and non-residential sectors .
Latest news
Recent developments and announcements about JCI.
Corporate Leadership
Leadership Change
Julie Brandt is leaving her role as Vice President and President, Building Solutions North America, to become Vice President and President, Global Field Operations. Nathan Manning is stepping up to take over her previous position as Vice President and President, Building Solutions North America. This transition is part of the company's initiatives to drive simplification and growth and is effective immediately.
Board Change
Simone Menne has notified the Board of Directors of Johnson Controls International plc that she will not seek re-election and will retire from the Board at the 2025 Annual General Meeting of Shareholders scheduled for March 12, 2025. Her retirement will be effective on that date .
Financial Reporting
Auditor Changes
JCI Auditor Change
On September 8, 2016, JCI's audit committee approved the dismissal of Deloitte & Touche LLP as the company's independent registered public accounting firm. The dismissal was effective as of September 2, 2016. Subsequently, JCI engaged PricewaterhouseCoopers (PwC) as its new independent registered public accounting firm, also effective from September 2, 2016. There were no disagreements or reportable events with Deloitte during the fiscal years leading up to this change .