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Johnson Controls International plc (JCI)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 FY25 delivered $5.426B sales (+4% reported, +10% organic) and adjusted EPS of $0.64; orders grew 16% organically and Building Solutions backlog reached $13.2B (+11% organic YoY) .
  • Adjusted EPS exceeded the high end of the company’s Q1 guidance by $0.04; segment margin expanded ~200 bps to ~15% on stronger mix and execution, per CFO commentary .
  • Full-year FY25 guidance raised: adjusted EPS to $3.50–$3.60 (from $3.40–$3.50) and adjusted segment EBITA margin improvement to >80 bps (from >50 bps); Q2 FY25 guide set at EPS $0.77–$0.79 and ~16.5% adjusted segment margin .
  • Strategic catalysts: continued data center momentum, service mix improvements, and CEO succession to Joakim Weidemanis, with a focus on operational excellence and technology leverage; tariffs and FX are near-term watch items .

What Went Well and What Went Wrong

What Went Well

  • Global Products margin expansion: Segment EBITA margin rose to 30.1% (+740 bps YoY) as volumes and operational efficiencies improved; Applied HVAC grew >30% organically .
  • EMEA/LA outperformance: Adjusted segment EBITA margin expanded 240 bps to 10.1% on productivity and positive service mix; orders +6% and backlog +5% YoY .
  • Strong demand and backlog: Orders +16% organically; Building Solutions backlog hit $13.2B (+11% organic YoY). CEO emphasized “consistent and predictable performance” under the pure‑play building solutions strategy .

Selected management quotes:

  • “Organic revenue grew 10% and segment margin expanded a robust 200 basis points to 15%… Adjusted EPS of $0.64 was up nearly 40% YoY and exceeded the high end of our guidance range by $0.04.”
  • “We leverage remote monitoring by employing AI to drive utilization and efficiency… proactive repair recommendations are contributing to a larger share of our overall services growth.”

What Went Wrong

  • Reported Global Products sales declined 8% YoY (despite +15% organic), reflecting portfolio changes and FX; North America recorded ~$20M short‑term productivity drag from hiring ramp .
  • APAC still rebuilding: Segment EBITA margin up only 20 bps to 9.3% with systems softness offset by service; region remains capacity‑rich given demand recovery timing .
  • External headwinds: FX was a ~$0.05 EPS headwind and tariff uncertainty muted second‑half margin visibility; company maintains conservatism in outlook .

Financial Results

Consolidated results vs prior quarters

MetricQ3 FY2024Q4 FY2024Q1 FY2025
Net Sales ($USD Billions)$7.231 $6.248 $5.426
GAAP Diluted EPS (Total)$1.45 $0.95 $0.63
Adjusted Diluted EPS (Non-GAAP)$1.14 $1.11 (continuing ops) $0.64

Notes:

  • Q1 FY25 GAAP diluted EPS from total operations is $0.63; continuing operations diluted EPS is $0.55 (shown in segment footnotes) .

Segment breakdown (Q1 FY25 vs Q1 FY24)

SegmentSales ($USD Millions) FY25 Q1Sales FY24 Q1Segment EBITA ($USD Millions) FY25 Q1Segment EBITA FY24 Q1EBITA Margin FY25 Q1EBITA Margin FY24 Q1
Building Solutions North America$2,744 $2,487 332 285 12.1% 11.5%
Building Solutions EMEA/LA$1,073 $1,038 108 80 10.1% 7.7%
Building Solutions Asia Pacific$527 $507 49 46 9.3% 9.1%
Global Products$1,082 $1,177 326 267 30.1% 22.7%

KPIs and balance sheet

KPIQ4 FY2024Q1 FY2025
Orders Organic Growth YoY (%)+8% +16%
Building Solutions Backlog ($USD Billions)$13.1 $13.2
Cash from Operations ($USD Millions)$1,352 (cont. ops) $249 (cont. ops)
Free Cash Flow ($USD Millions)$1,318 $133
Adjusted Free Cash Flow ($USD Millions)$1,087 $603
Net Debt / Adjusted EBITDA (x)2.5x (9/30/24) 2.3x (12/31/24)
Share Repurchases5.4M shares; ~$370M 4.1M shares; $330M
Dividends Paid ($USD Millions)$247 $245

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Organic Sales GrowthFY2025Mid-single digits Mid-single digits Maintained
Adjusted Segment EBITA Margin Improvement (YoY)FY2025>50 bps >80 bps Raised
Adjusted EPS (before special items)FY2025~$3.40–$3.50 ~$3.50–$3.60 Raised
Adjusted EPS (before special items)Q2 FY2025—~$0.77–$0.79 Initiated
Adjusted Segment EBITA MarginQ2 FY2025—~16.5% Initiated
Free Cash Flow ConversionFY2025—≥90% (management target) Initiated/Updated
Capital ReturnsFY2025—Targeting 100% of FCF returned via dividends and buybacks Affirmed
Quarterly DividendNext payment—$0.37 per share payable April 17, 2025 Affirmed cadence

Earnings Call Themes & Trends

TopicPrevious Mentions (Q-2: Q3 FY24)Previous Mentions (Q-1: Q4 FY24)Current Period (Q1 FY25)Trend
AI/technology in service/ OpenBlueFocus on service growth; cyber incident remediation completed, service up mid-teens in EMEA Record backlog; transformation to pure-play; restructuring plan to remove stranded costs Expanded AI in remote monitoring and generative AI for diagnostics; productivity uplift for technicians Intensifying
Data centersApplied HVAC growth despite China weakness Backlog strength and pipeline building Orders and revenue accelerating; recognized #1 implementer in data center thermal management Strengthening
Service mix and marginService drove margin expansion in EMEA/LA Margin expansion across segments; backlog higher-margin mix Higher service mix driving margin; segment margin ~15% (+200 bps) Improving
APAC demandSystems weakness; orders -2% QoQ; margins down APAC -5% sales YoY; margin +70 bps Orders +32%; rebuilding pipeline; margin +20 bps; capacity available Stabilizing/Recovering
Tariffs/FXConstruction indicators soft; FX headwinds Initiated FY25 guide; macro watch items FX ~$0.05 EPS headwind; tariff uncertainty tempering 2H margin visibility Watch risk
Portfolio actionsAnnounced divestitures (R&LC, ADTi); pure-play focus Bosch transaction ~$6.7B proceeds for JCI; $400M restructuring to yield ~$500M savings annually R&LC classified discontinued; capital returns prioritized; stranded cost removal timing into FY26 Executing

Management Commentary

  • Strategy: “Starting 2025 with great momentum… each of our businesses contributed to robust revenue growth and significant margin expansion… transformation efforts driving consistent, predictable results.” – George Oliver .
  • Technology and AI: “We leverage remote monitoring by employing AI… proactive repair recommendations are contributing to services growth… OpenBlue can explain building equipment faults using generative AI.” – George Oliver .
  • Outlook: “We are raising our guidance… confident in our ability to maintain momentum and deliver long-term shareholder value.” – George Oliver .
  • Financial discipline: “Adjusted free cash flow of approximately $600M improved nearly $800M YoY… net debt decreased to 2.3x within our long-term target.” – Marc Vandiepenbeeck .

Q&A Highlights

  • Guidance cadence and conservatism: Management maintained mid‑single‑digit organic growth due to tougher 2H comps and tariff uncertainty; Q2 EPS guided to $0.77–$0.79 .
  • Data center acceleration: Orders and revenue accelerating; customers pulled forward orders amid macro/policy changes; momentum not slowing .
  • Tariffs/FX pass-through: Regionalized manufacturing mitigates some exposure; historical ability to pass through costs, though margin capture may vary; FX was a ~$0.05 headwind .
  • Stranded costs and corporate expense: Stranded costs shifting to corporate; meaningful reductions expected in 2H FY25 and especially FY26 post divestiture close .
  • Field productivity and staffing: Continued investment in technicians; AI tools improving diagnostics and turnaround; short‑term productivity drag (~$20M) from onboarding in North America .
  • Service attachment rates: Currently low-to-high 40s by line; long-term entitlement seen in 60–70% range, requiring operating model evolution .

Estimates Context

  • Wall Street consensus (S&P Global) was unavailable during this session due to provider limits. As a proxy, management reported adjusted EPS of $0.64, which exceeded the high end of its Q1 guidance by ~$0.04; full-year FY25 adjusted EPS guidance was raised to $3.50–$3.60 and margin improvement to >80 bps .
  • Implication: Sell-side models likely need to reflect higher FY25 margin trajectory (>80 bps) and EPS range, with Q2 margins guided to ~16.5%; tariff/FX assumptions should be tightened per management caution .

Key Takeaways for Investors

  • Strong start to FY25: Solid organic growth (+10%), margin expansion, and record backlog underpin near-term visibility; adjusted EPS beat vs company guidance provides positive surprise momentum .
  • Mix and efficiency drive margins: Service mix and higher‑margin backlog conversion, plus Global Products productivity, support sustained margin expansion; watch FX/tariffs for 2H rate pressure .
  • Secular demand intact: Data center, industrial/manufacturing and health care verticals are accelerating; APAC pipeline rebuild suggests improving run-rate into FY25/26 .
  • Portfolio/capital returns: Residential & Light Commercial remains discontinued; management reiterates returning ~100% of FCF and ≥90% FCF conversion target, with net leverage at 2.3x .
  • Leadership transition: CEO succession to Joakim Weidemanis (Danaher veteran) emphasizes operational excellence and service-oriented growth; Oliver to remain non‑exec chair through July and advisor through year-end .
  • Near-term watch items: Tariff policy developments, FX oscillation, North America onboarding productivity normalization, and APAC revenue conversion cadence .
  • Trading setup: The combination of raised FY25 EPS/margin guidance, accelerating data center and service momentum, and a credible operational playbook is supportive; monitor tariff headlines and FX to gauge subsequent estimate revisions and multiple support .