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    Johnson Controls International PLC (JCI)

    Board Change

    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 .

    1. 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 .
    2. 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 .
    3. Building Solutions EMEA/LA - Provides similar offerings as the North America segment, focusing on the Europe, Middle East, Africa, and Latin America regions .
    4. Building Solutions Asia Pacific - Offers the same range of products and services as other regional segments, tailored for the Asia Pacific market .

    Q4 2024 Summary

    Initial Price$66.78June 30, 2024
    Final Price$77.61September 30, 2024
    Price Change$10.83
    % Change+16.22%

    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

    1. 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.

    2. 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.

    3. 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.

    4. 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.

    5. 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.

    6. 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.

    7. 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.

    8. 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.

    9. 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.

    10. 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.

    11. 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.

    12. 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.

    13. 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.

    14. 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.

    15. 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.

    16. 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

    View all financials →
    Revenue by Segment - in Millions of USDQ1 2014Q2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024Q4 2024FY 2024
    Building Solutions North America2,6652,77810,3302,4872,7392,8993,22311,348
    - Products & Systems-------1,483
    - Services-------754
    Building Solutions EMEA/LA1,0451,0454,0961,0381,0641,0811,1134,296
    Building Solutions Asia Pacific7366972,7465074915756642,237
    Global Products2,6872,3869,6212,0622,4052,676-2,0725,071
    - HVAC1,9731,656,8201,4181,6831,971-2,7922,280
    - Fire & Security6266272,4465476076016152,370
    - Industrial Refrigeration8810935597115104105421
    - 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 Revenue7,1336,90626,7936,0946,6997,2312,92822,952
    Revenue by Geography - in Millions of USDQ1 2014Q2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024Q4 2024FY 2024
    Building Solutions North America2,665--2,4872,7392,8995,04613,171
    Building Solutions EMEA/LA1,045--1,0381,0641,0811,3034,486
    Building Solutions Asia Pacific736--5074915751,2832,856
    Global Products2,687--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 Revenue7,1336,90626,7936,0946,6997,2312,92822,952

    Executive Team

    NamePositionStart DateShort Bio
    George R. OliverChairman and Chief Executive OfficerSeptember 2017George R. Oliver has been serving as the Chairman and CEO of JCI since September 2017. Previously, he was the President and COO following the merger of Johnson Controls and Tyco in September 2016 .
    Marc VandiepenbeeckExecutive Vice President and Chief Financial OfficerJanuary 2024Marc Vandiepenbeeck has served as EVP and CFO of JCI since January 2024. He previously held the position of VP and President, Building Solutions, EMEA and Latin America from August 2023 until November 2024 .
    John DonofrioExecutive Vice President and General CounselNovember 2017John Donofrio has served as EVP and General Counsel of JCI since November 2017. Before joining JCI, he was VP, General Counsel, and Secretary of Mars, Incorporated from October 2013 to November 2017 .
    Marlon SullivanExecutive Vice President and Chief Human Resources OfficerSeptember 2021Marlon Sullivan has served as EVP and CHRO at JCI since September 2021. Before joining JCI, he was the SVP of Human Resources at Delta Airlines from January 2021 to September 2021 .
    Lei Zhang SchlitzVice President and President, Global ProductsNovember 2022Lei Zhang Schlitz has served as VP and President, Global Products at JCI since November 2022. Before joining JCI, she was the EVP, Automotive OEM at Illinois Tool Works Inc. from 2019 until October 2022 .
    Julie BrandtVice President and President, Building Solutions North AmericaApril 10, 2023Julie Brandt has served as VP and President, Building Solutions North America at JCI since April 10, 2023. Before joining JCI, she was the EVP and General Manager, North America Western Region at Otis Worldwide Corp .
    Richard LekVice President and President, Building Solutions, EMEA and Latin AmericaNovember 2024Richard Lek has served as VP and President, Building Solutions, EMEA and Latin America at JCI since November 2024. He has been with JCI since 2002, holding various roles of increasing responsibility .
    Nathan ManningVice President and Chief Operations Officer, Global Field OperationsDecember 2022Nathan Manning has served as VP and COO, Global Field Operations at JCI since December 2022. Prior to this role, he was the VP and President of Building Solutions, North America from October 2020 until March 2023 .
    Daniel C. "Skip" McConeghyVice President, Chief Accounting and Tax OfficerJune 2022Daniel C. "Skip" McConeghy has served as VP, Chief Accounting and Tax Officer at JCI since June 2022. Prior to this role, he was VP, Global Tax from October 2020 until June 2022 .
    Anu RathnindeVice President and President, Building Solutions, Asia PacificMay 2022Anu Rathninde has served as VP and President, Building Solutions, Asia Pacific at JCI since May 2022. Prior to joining JCI, he held various leadership roles at Aptiv plc .

    Questions to Ask Management

    1. 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?
    2. 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?
    3. 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?
    4. 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?
    5. 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 ?

    Share Repurchase Program

    Program DetailsProgram 1
    Approval DateMarch 2021
    End Date/DurationNo expiration date
    Total additional amountN/A
    Remaining authorization amount$1.7 billion
    DetailsMay be amended or terminated by the Board of Directors at any time without prior notice

    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 .

    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% .

    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% .

    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

      ·
      4 days ago

      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

      ·
      Dec 12, 2024, 9:44 PM

      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

      ·
      Sep 9, 2016, 12:00 AM

      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 .