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Johnson Controls International plc (JCI)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 2025 delivered solid top-line and margin execution: revenue $6.05B (+3% y/y; +6% organic), GAAP EPS $0.94 and adjusted EPS $1.05; orders grew +2% organically and backlog reached a record $14.6B (+11% organic) .
  • Guidance raised: FY25 adjusted EPS to $3.65–$3.68 (from ~$3.60) and adjusted free cash flow conversion to >100% (from ~100%); Q4 outlook set at adjusted EPS $1.14–$1.17 and ~18.6% adjusted segment margin .
  • Segment mix resilient: EMEA margins expanded on productivity and service mix; APAC margins improved with double-digit service; Americas organic growth +7% but reported margin compressed on divestitures/prior-year earn-outs .
  • Strategic/tactical themes: CEO emphasized a “business system” (simplify, accelerate, scale) using lean and digitization/AI; near-term actions include halving NA chiller lead times (data center vertical ~10% of sales) and doubling seller customer time in HVAC .
  • Additional Q3 capital return: $243M dividends and $310M buybacks; separately in June, Board approved an additional $9B share repurchase authorization (incremental to ~$1.1B remaining as of Q2) .

What Went Well and What Went Wrong

What Went Well

  • Backlog and orders: Systems and Services backlog hit $14.6B (+11% organic) with orders +2% organic; management underscores robust pipelines and healthy core verticals (data centers, healthcare, industrial) .
  • Margin expansion outside Americas: EMEA adjusted margin +100 bps to 14.1% and APAC +70 bps to 19.4% on productivity and service mix; improved service growth (EMEA +8% organic; APAC double-digit) .
  • Free cash flow inflection: Cash from ops $787M; FCF $693M; adjusted FCF $725M; adjusted FCF conversion 106%; management confidence in sustaining ~95%+ conversion with potential to reach 100%+ over time .

Quote: “We believe implementing the right business system will allow us to accelerate performance, drive consistency, and deliver sustained long-term value for our shareholders.” — CEO Joakim Weidemanis .

What Went Wrong

  • Americas margin compression: Segment EBITA margin fell 150 bps y/y (19.9% → 18.4%) due to divestitures and prior-year earn-out adjustments; adjusted margin only +10 bps to 18.5% despite +7% organic sales .
  • APAC orders softness: APAC orders declined 8% (systems weakness) even as service growth remained strong; China remains challenging (focus on higher-margin systems and service) .
  • Tariff and mix headwinds: Management applied conservatism to H2/Q4 margins due to tariff uncertainty and system vs service mix; some recovery is $1-for-$1 pass-through without margin .

Financial Results

MetricQ1 FY25Q2 FY25Q3 FY25
Revenue ($USD Billions)$5.43B $5.68B $6.05B
GAAP Diluted EPS – Continuing Ops ($)$0.55 $0.71 $0.94
Adjusted EPS ($)$0.64 $0.82 $1.05
Adjusted Segment EBITA Margin % (enterprise)15.0% 16.7% 17.6%

Segment breakdown (Q3 FY25):

SegmentSales ($USD Billions)GAAP EBITA ($USD Millions)Adjusted EBITA ($USD Millions)GAAP Margin %Adjusted Margin %Sales y/y
Americas$4.04B $742 $746 18.4% 18.5% Flat; +7% organic
EMEA$1.27B $177 $179 13.9% 14.1% +8%
APAC$0.74B $143 $143 19.4% 19.4% +7%

KPIs (Q3 FY25):

KPIValue
Orders (organic y/y)+2%
Systems & Services Backlog$14.6B (+11% organic y/y)
Cash from Operations$787M
Free Cash Flow$693M
Adjusted Free Cash Flow$725M
Adjusted FCF Conversion106%
Dividends Paid$243M
Share Repurchases$310M
Net Debt$9,562M
Net Debt / Adjusted EBITDA2.5x

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Organic Sales GrowthFY25Mid-single digits Mid-single digits Maintained
Adjusted Segment EBITA Margin ImprovementFY25~90 bps y/y (previously >80 bps) ~90 bps y/y Maintained
Adjusted EPSFY25~$3.60 $3.65–$3.68 Raised
Adjusted FCF ConversionFY25~100% >100% Raised
Adjusted EPS (Q4)Q4 FY25N/A$1.14–$1.17 Initiated
Adjusted Segment EBITA Margin (Q4)Q4 FY25N/A~18.6% Initiated
Organic Sales Growth (Q4)Q4 FY25N/ALow single digits Initiated
Share Repurchase AuthorizationN/A$1.1B remaining as of Q2’25 +$9B incremental authorization Increased

Earnings Call Themes & Trends

TopicQ1 FY25Q2 FY25Q3 FY25Trend
AI/Technology initiativesOpenBlue added generative AI for fault explanation and energy/carbon analytics; technicians supported by AI/remote monitoring Continued digital/AI enablement to improve productivity and margin mix Business system embeds digitization/AI to scale impact; simplify/accelerate/scale Expanding AI from product to operating system
Supply chain/tariffs/macroEarly tariff planning; exposure quantified (~2% of sales/3% COGS before mitigation) Price actions/change orders; local sourcing and in-region manufacturing Conservative Q4 margin view; some pass-through $1-for-$1 without margin Managing but dampening near-term margin rate
Product performanceApplied HVAC >30% in Q1 Global Products; strong NA/EMEA Applied HVAC >20% ex-divestitures; GP margins +600 bps Americas applied/controls strong; data center ~10% of sales; targeting halved chiller lead times Sustained applied HVAC momentum; capacity actions
Regional trendsEMEA/LA margins +240 bps; APAC orders +32% (rebuild pipeline) APAC orders flat; service double-digit; China disciplined APAC orders −8%; service double-digit; EMEA service-led margin expansion APAC mixed; EMEA improving
Service & attachmentTargeting higher service attach (industry benchmarks 60–70%) Margin mix improving with service growth CEO aims to double seller customer time, improve billing accuracy; service leverage focus Building structural service leverage
Portfolio/restructuringTransformation and resegmentation; divesting Resi/Lite Commercial; restructuring underway Raising EPS, margins; restructuring benefits flowing; sale closing in Q4 Dispassionate portfolio review; restructuring savings path to $500M run-rate by exit FY26 Ongoing portfolio and cost optimization
Free cash flowRaised to ~90%+; strong YTD $600M adjusted FCF Raised to ~100%; ~$1.1B YTD improvement >100% for FY25; Q3 adjusted FCF conversion 106% Sustained improvement; lean flywheel to support

Management Commentary

  • Strategic priorities: “Simplify, accelerate, scale… anchored in proven methodologies like eighty twenty and lean and augmented by digitization and AI.” — CEO Weidemanis .
  • Execution examples: “We have an opportunity to cut lead times in half [for key chillers], which will improve competitiveness and create additional manufacturing capacity.” — CEO .
  • Outlook and capital returns: “We are raising our outlook for adjusted EPS and free cash flow conversion… anticipate achieving free cash flow conversion of greater than 100% for the full year.” — CFO Vandiepenbeeck .

Q&A Highlights

  • Orders trajectory and Q4 setup: Management views core verticals healthy; Americas strong; EMEA better than headline given comps; China remains selective with service focus .
  • Fire & Security positioning: CEO acknowledges product gaps (e.g., fire detection), sees portfolio optimization opportunities; service margin improvement via lean/productized services .
  • Free cash flow sustainability: CFO targets solid ~95%+ conversion with structural improvements (billing, inventory, capex discipline) and lean flywheel; sale of resi JV was a headwind to conversion historically .
  • Long-term algorithm: Mid-single-digit top-line, well over 25% incrementals, double-digit EPS growth; potential for higher incrementals as business system scales; Investor Day timing post strategic review .
  • Data center competitive edge: YORK high-performance chiller platform with wide operating range and proprietary modules; strong partnerships with hyperscalers/colos; demand accelerating globally .

Estimates Context

  • Wall Street consensus (S&P Global) for Q3 2025 EPS and revenue was unavailable via our data pull; comparisons to estimates could not be made at this time (Values retrieved from S&P Global).

Key Takeaways for Investors

  • Quality of growth: Service-led margin expansion in EMEA/APAC and record backlog underpin visibility; Americas organic growth robust despite reported margin compression from divestiture/prior-year items .
  • Guidance credibility: Raised FY25 adjusted EPS to $3.65–$3.68 and >100% FCF conversion, with Q4 EPS $1.14–$1.17 and ~18.6% margin indicating confidence despite tariff conservatism .
  • Structural improvements: Lean/business system initiatives (lead-time halving, seller time doubling, billing accuracy) should support margin and cash conversion durability into FY26 .
  • Data center tailwind: With ~10% of sales tied to data centers and targeted capacity/lead-time improvements, JCI is positioned to capture ongoing AI infrastructure demand globally .
  • Capital deployment: Continued 100% FCF return via dividends/buybacks; incremental $9B repurchase authorization provides flexibility for sustained capital returns .
  • Watchpoints: Tariff pass-through may be $1-for-$1 without margin; APAC systems orders remain soft; Americas margin mix (systems vs service) and stranded cost elimination pacing into FY26 are key monitors .