Johnson Controls International Q3 2025 Earnings Report

Johnson Controls International EPS Results

• Actual EPS: $1.05
• Consensus EPS: $0.99
• Beat/Miss: Beat by +$0.06
• One Year Ago EPS: N/A

Johnson Controls International Revenue Results

• Actual Revenue: $6.05 billion
• Expected Revenue: $5.99 billion
• Beat/Miss: Beat by +$65.26 million
• YoY Revenue Growth: N/A

Johnson Controls International Announcement Details

• Quarter: Q3 2025
• Date: 7/29/2025
• Time: Before Market Opens
• Conference Call Date: Tuesday, July 29, 2025
• Conference Call Time: 8:30AM ET

Johnson Controls International (NYSE:JCI) is a global diversified technology and multi-industrial leader focused on creating smart, healthy and sustainable buildings. The company offers building efficiency products and integrated infrastructure solutions designed to optimize energy usage, improve occupant comfort and enhance safety and security. Headquartered in Cork, Ireland, with its principal executive offices in Milwaukee, Wisconsin, Johnson Controls serves a broad range of commercial, industrial and institutional customers worldwide.

The company’s core offerings span heating, ventilation and air conditioning (HVAC) equipment, building automation and controls, fire detection and suppression systems, and security solutions. Through a combination of hardware, software and services, Johnson Controls delivers end-to-end building management platforms that enable real-time monitoring and predictive maintenance. Its aftermarket services include preventive maintenance, retro-commissioning, energy performance contracting and sustainability advisory, helping clients reduce operational costs and meet environmental goals.

Founded in 1885 by Warren S. Johnson with the invention of the first electric room thermostat, Johnson Controls has evolved through key milestones such as the 2005 merger with York International and the 2019 spin-off of its Power Solutions (automotive battery) business. Today, the company focuses on advanced building technologies, digital solutions and energy storage systems that support clients’ decarbonization strategies. Its global footprint spans more than 150 countries, with manufacturing facilities, R&D centers and branch offices strategically located across North America, Europe, Asia and other emerging markets.

Under the leadership of Chairman and Chief Executive Officer George Oliver, Johnson Controls continues to invest in innovation and strategic partnerships aimed at accelerating the transition to sustainable, smart buildings. With approximately 100,000 employees, the company collaborates with property owners, facility managers, architects and engineers to deliver customized solutions that drive energy efficiency, occupant well-being and long-term asset performance.

Johnson Controls International Q3 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: In Q3, Johnson Controls delivered organic sales growth of 6%, expanded segment margins by 20 bps to 17.6%, and achieved 11% adjusted EPS growth above guidance.
• Positive Sentiment: The company raised its full-year guidance to $3.65–$3.68 adjusted EPS (up 14–15%) and now expects free cash flow conversion above 100%.
• Negative Sentiment: Orders grew just 2%, driven by mid-single-digit strength in the Americas while ongoing softness in China weighed on APAC systems orders.
• Positive Sentiment: Record backlog reached $14.6 billion (up 11%), supporting visibility for future revenue across systems and services.
• Neutral Sentiment: Johnson Controls announced a Q4 closing of its residential and light commercial HVAC sale to Bosch, with most proceeds earmarked for share repurchases.

Presentation

[Operator]

Hello, everyone, and welcome to the Johnson Controls Q3 twenty twenty five Earnings Conference Call. My name is Nadia, and I'll be coordinating the call today. I will now hand the call over to Jim Lucas, Vice President, Investor Relations, to begin. Jim, please go ahead.

[Jim Lucas, VP - IR at Johnson Controls International]

Good morning, and thank you for joining our conference call to discuss Johnson Controls fiscal third quarter twenty twenty five results. Joining me on the call today are Johnson Controls' Chief Executive Officer, Joakim Weideminis and Mark van Diepenbeck, our Chief Financial Officer. Before we begin, let me remind you that during our presentation today, we will make forward looking statements that reflect our current views about our future performance and financial results. These statements are based on certain assumptions and expectations of future events that are subject to risks and uncertainties. Please refer to our SEC filings for a list of these important risk factors that could cause actual results to differ from our predictions.

[Jim Lucas, VP - IR at Johnson Controls International]

We will also reference certain non GAAP measures throughout today's presentation. Reconciliations of these non GAAP measures are contained in the schedules attached to our press release and in the appendix to this presentation, both of which can be found on the Investor Relations section of Johnson Controls' website. I will now turn the call over to Joachim.

[Joakim Weidemanis, CEO at Johnson Controls International]

Thanks, Jim, and good morning, everyone. Thank you for joining us on today's call. This morning, we announced strong third quarter results, continuing the momentum we've sustained throughout the year. Organic sales grew 6%, segment margins expanded 20 basis points to 17.6%, and adjusted EPS grew 11% and exceeded our guidance. Year to date, adjusted free cash flow has nearly doubled to $1,800,000,000 and we are on track to deliver over 100% free cash flow conversion for the year.

[Joakim Weidemanis, CEO at Johnson Controls International]

Orders grew 2% led by strength in The Americas and offset by ongoing softness in China. Our backlog grew 11% to $14,600,000,000 and remains at record levels. We continue to see strength in demand for both our systems and service solutions. We are now building an even stronger foundation for long term success by developing a business system focused on simplifying operations, accelerating growth, and scaling our impact. This includes sharpening our focus on what matters most to customers and deploying lean principles to tackle barriers to growth.

[Joakim Weidemanis, CEO at Johnson Controls International]

We're raising our full year guidance, and Mark will give more details later in the call. I now have my first quarter under my belt, and tomorrow is my hundred and fortieth day at a company celebrating a hundred and forty years of leadership. That is a hundred and forty years of winning with customers, driving innovation and supporting the advancement of human society with solutions for smart, productive, safe, and sustainable buildings. After all, the advancement of science, education, health care, and manufacturing occur in buildings. As we celebrate and reflect upon our history, we believe our best days are still ahead of us.

[Joakim Weidemanis, CEO at Johnson Controls International]

Unlocking our potential depends on placing even greater emphasis on the customer. Our goal is to deliver consistent predictable results over time and outperform our competition, enabling strong capital allocation and enhancing value for shareholders. Since joining Johnson Controls, I've had the opportunity to travel the globe, visiting our largest factories and spending time in the field with our customers and teams. I have visited well over a 100 customers, all of our major innovation centers, and walked more than 30 plants. I met with hundreds of our frontline colleagues in sales, service, r and d, and manufacturing.

[Joakim Weidemanis, CEO at Johnson Controls International]

These travels produced insights that will inform our future success as a company. First, we need to sharpen our focus on our customers while also staying ahead of the competition. Customer centricity will fuel accelerated growth by enabling us to win and retain customers more effectively through differentiated offerings and how we serve them. Second, it's essential that we enhance our investment in r and d to accelerate innovation. Our IP portfolio is strong with 8,200 patents and more on the way.

[Joakim Weidemanis, CEO at Johnson Controls International]

Our products and solutions deliver results that resonates with our customers. While we possess considerable strengths, there remain opportunities to accelerate growth within our core domains by addressing gaps in our product portfolio. Third, our field position of 40,000 frontline colleagues has been and continues to be a competitive advantage. We see clear opportunities to better equip and support them, making it easier for them to deliver for our customers. By doing so, we can get more leverage from our team and expand capacity and productivity to drive stronger results.

[Joakim Weidemanis, CEO at Johnson Controls International]

Given the importance of this effort, we recently appointed Chris Galea as executive vice president and chief human resources officer. Chris brings a unique combination of people and culture strategy, operational excellence, and a deep commitment to building high performing teams. We're excited for Chris to hit the ground running as we continue to transform Johnson Controls into a growth focused customer centric powerhouse and a magnet for talent. As we look ahead to our ongoing transformation, developing a business system and embedding it in our cultural foundation is a critical step in driving long term success, one that requires dedicated effort, discipline, and patience. My deep experience with proven business systems combined with spending meaningful time at Gemba has helped us shape a clear vision for what this could look like at Johnson Controls.

[Joakim Weidemanis, CEO at Johnson Controls International]

This business system is how we will win and run the company. It will be anchored in proven methodologies like eighty twenty and lean and augmented by digitization and AI. First, eighty twenty is a powerful operating model that sharpens our focus, cutting through complexity so we can concentrate our energy on what matters most to our customers. We simplify. Then adopting principles of lean, we convert this focus into action with a strong orientation of what matters most to our customers.

[Joakim Weidemanis, CEO at Johnson Controls International]

We eliminate waste, streamline workflows, and accelerate processes to drive speed and efficiency across the organization to better serve customers and increase our competitiveness. We accelerate. And throughout the process, we embed digitization and AI as core enablers in our process improvement. This augments our focus and speed with smarter systems and the ability to scale impact for our customers and our people. We scale.

[Joakim Weidemanis, CEO at Johnson Controls International]

So simplify, accelerate, scale. While we've made progress over the last several quarters, we know that with a strong business system in place, we can accelerate and improve our results over time. We will solve customer problems faster and more effectively by empowering our people. It will become our way of life at Johnson Controls. Our efforts are already underway.

[Joakim Weidemanis, CEO at Johnson Controls International]

Since the last earnings call, we have identified a number of growth blockers, and we are actively addressing them. In general, the growth blockers center around the speed of execution and more effectively and efficiently leveraging our existing capabilities in the field and beyond. To ensure speed in decision making and implementation, it is important to identify the root cause of these growth blockers and develop countermeasures that we can then implement into consistent repeatable processes. We have started with a narrow focus to deliver results quickly, and then we will scale more broadly. I can give you two early examples of progress.

[Joakim Weidemanis, CEO at Johnson Controls International]

The first example is in our conventional HVAC business, where we're creating value for our customers and our frontline colleagues who serve them. Our objective is to substantially increase the amount of time our sales teams can dedicate to engaging with customers by streamlining internal processes and eliminating waste that does not contribute direct value to the customer experience. Over the last four weeks, this team has identified specific countermeasures to double time with customers for our sellers. This will unlock opportunities to better leverage our enviable field position. Another focus area is improving lead times for our key chillers in North America, where we continue to see dynamic growth in the fast expanding data center vertical.

[Joakim Weidemanis, CEO at Johnson Controls International]

We have an opportunity to cut lead times in half, which will both improve our competitiveness and create additional manufacturing capacity. As we deliver substantial improvements around the growth blockers we have identified, we can replicate these successes and deploy across our global portfolio. With momentum building, our executive team has been trained on the core foundations of our future business system, and each of them have participated in at least one Kaizen. After countless kaizens throughout my career, I participated in my first Johnson Controls kaizen a couple of weeks ago. Over the next few months, we will train our top 200 leaders and ensure their participation in kaizens and our program overall.

[Joakim Weidemanis, CEO at Johnson Controls International]

As we begin to see tangible results from these early initiatives, we will expand engagement and training across the organization. While we have many opportunities to drive growth through operational improvement and ultimately more consistent predictable results, we're also continuously evaluating and refining our strategy. This has started with a fresh objective view of all our business lines and solutions. Looking ahead, we will evaluate our portfolio and make strategic decisions to ensure sustainable growth through targeted acquisitions or thoughtful exits. As we move forward, our focus will progress to a comprehensive review of our operations, including our manufacturing and back office networks to further unlock productivity and capacity.

[Joakim Weidemanis, CEO at Johnson Controls International]

In summary, we believe there are clear opportunities to optimize our portfolio, footprint, cost structure, and the way we work going forward. This is an ongoing process with continued focus on delivering shareholder value. It has been a productive four months since I started at Johnson Controls. My excitement continues to build as we become more intensely focused on the customer, the people on the front lines who serve them every day, and drive adoption of our future business system. I look forward to the journey ahead as we work together to deliver even greater value for our customers, team members, and shareholders.

[Joakim Weidemanis, CEO at Johnson Controls International]

With that, I will now turn it over to Marc.

[Marc Vandiepenbeeck, EVP & CFO at Johnson Controls International]

Thanks Joachim and good morning everyone. Turning to slide six, we delivered strong result in the fiscal third quarter. While the broader environment remains uncertain, our execution continued to drive meaningful results. Our focus on operational efficiency is helping us to deliver for our customer and reinforce our competitive edge. Our team is committed to generating consistent long term value for our shareholders.

[Marc Vandiepenbeeck, EVP & CFO at Johnson Controls International]

In the quarter, organic revenue grew 6% and segment margin expanded 20 basis points to 17.6% as we proactively mitigated the impact of tariff through strategic sourcing and cost management initiatives. Adjusted EPS of 1.05 was up 11% year over year and exceeded the high end of our guidance range. On the balance sheet, we ended the third quarter with approximately $700,000,000 in available cash. Compared to last year, net debt declined to 2.5 times, which is within our long term target range of two to 2.5 times. Year to date, adjusted free cash flow improved approximately $900,000,000 year over year to $1,800,000,000 This strong performance driven by improved cash conversion reflect our disciplined financial management and consistent operational execution.

[Marc Vandiepenbeeck, EVP & CFO at Johnson Controls International]

Let's now discuss our segment result in more details on slide seven and eight. Orders in the quarter grew 2% as growth in Americas was muted by softness in China. Customer engagement remains strong and we continue to see healthy activity across our pipeline. Additionally, the mix of order is shifting toward higher margin solutions, reinforcing our long term growth and profitability outlook. Geographically, orders in Americas increased 5% with mid single digit growth in systems.

[Marc Vandiepenbeeck, EVP & CFO at Johnson Controls International]

In EMEA, orders were up 2% against a tough comp with 6% growth in service, offsetting a 1% decline in systems. In APAC, orders were down percent as a decline in system more than offset double digit growth in service. At an enterprise level, organic sales growth was led by solid mid single digit growth in both system and service. Sales in Americas were up 7% organically with continued strength in both HVAC and controls. In EMEA, organic sales grew four percent led by 8% growth in service.

[Marc Vandiepenbeeck, EVP & CFO at Johnson Controls International]

In APAC, sales grew 6% organically with strong double digit growth from our resilient service business. We continue to maintain healthy margin through disciplined cost management and strategic pricing, ensuring profitability even in a dynamic market environment. Operationally, we have driven greater efficiency across our core processes, while improvement in our service mix have allowed us to prioritize higher value offering that enhance customer satisfaction and support long term profitable growth. By region, EMEA adjusted segment EBITDA margin expanded 100 basis points to 14.1%, driven by improved productivity and the positive mix of service growth. In APAC, adjusted margins expanded 70 basis points to 19.4% as productivity continued to improve.

[Marc Vandiepenbeeck, EVP & CFO at Johnson Controls International]

In America, adjusted margin improved 10 basis points to 18.5% as system growth outpaced service growth. Our backlog remains at record levels, growing 11% to $14,600,000,000 System backlog grew 11% and service backlog grew 8%. Let's now discuss our fiscal fourth quarter and full year guidance on slide nine. As we enter the fourth quarter, we are building on strong momentum driven by enhanced operational efficiencies and a backlog that remains at historical high levels. We anticipate organic sales growth of low single digits, adjusted segment EBITDA margin of approximately 18.6% and adjusted EPS in the range of $1.14 to $1.17 As a reminder, we have a challenging comparison due to a large one time project we successfully executed last year.

[Marc Vandiepenbeeck, EVP & CFO at Johnson Controls International]

Based on strong execution and consistent performance, we are reaffirming our full year guidance for mid single digit organic sales growth and approximately 90 basis points of adjusted segment EBITDA margin expansion. Additionally, we are raising our outlook for adjusted EPS and free cash flow conversion. We now expect adjusted EPS in the range of $3.65 to $3.68 per share, representing 14% to 15% growth. Building on our strengthened working capital position, year to date free cash flow performance reflects solid execution and financial discipline. As a result, we now anticipate achieving free cash flow conversion of greater than 100% for the full year.

[Marc Vandiepenbeeck, EVP & CFO at Johnson Controls International]

We continue to target returning 100% of our free cash flow to shareholder through dividends and share repurchases. Finally, we expect the sale of our residential and light commercial HVAC business to Bosch to close in our fiscal fourth quarter. While we anticipate returning the majority of the net proceeds to our shareholders through share repurchases, the impact on this year's share count is expected to be minimal with the benefits primarily accruing in the next fiscal year. Operator, we are now ready for questions.

[Operator]

We will now begin the question and answer session. The first question goes to Amit Mehrotra of UBS. Amit, please go ahead.

[Amit Mehrotra, MD & Head - Industrial Sector at UBS Group]

Thanks. Good morning. Jokam, I guess, as you approach five months on the job, I know that's not a lot of time or a long time, but I guess it would just be helpful nonetheless to understand your initial observation, You know, what are some of the KPIs you're focused on, you know, to kinda make sure the global organization is moving in the right direction. And, you know, importantly, how quickly you think we can see some of the tangible product, progress on the return profile of the business?

[Joakim Weidemanis, CEO at Johnson Controls International]

Yeah. Good morning, Amit. I hope you're doing well. Four months in, you know, as you heard here in in the prepared commentary, you know, I visited a lot of places around the world, you know, more than a 100 customers, walked more than 30 plants and sat with, colleagues in all of our innovation centers. And, I've I think I've gotten a really good grasp of the the the opportunity here.

[Joakim Weidemanis, CEO at Johnson Controls International]

And, as you've heard me talk about before, you know, number one is, you know, we need to sharpen our focus on the customer at every level and every function, of our company. And that's that's such a foundational point, and I'll come back to that. And and I also see opportunities to continue to drive growth through innovation, through increased investments in in r and d. I'll come back to how we're gonna fund that. And, and I see, you know, that we have, you know, really this enviable field position, you know, 40,000 colleagues in the field, you know, a capability that's been built over over decades, difficult to replicate.

[Joakim Weidemanis, CEO at Johnson Controls International]

But we have to find ways to unlock faster improvement the company, that improvement that is valued by customers and gives us room to continue to invest in, for example, innovation. And that's why I spoke about a new business system that is in formation, that we have started to deploy. And you heard a little bit about on the prepared remarks that that is anchored in eighty twenty simplification and lean, which is about acceleration. You know, speed in many ways is the ultimate competitive advantage and augmented by digitization and AI to scale. So simplify, accelerate, and scale.

[Joakim Weidemanis, CEO at Johnson Controls International]

And the notion here is that speed is one of the largest competitive advantages. And, you know, you can't, like, go too broad too quickly, so because you also want to get the buy in from your organization while you deliver value early. So so we've started already, and, we're going deep. And as you heard, I gave two examples. One commercial example, which is more growth oriented, and one operational example, which is both cost and growth oriented.

[Joakim Weidemanis, CEO at Johnson Controls International]

So the commercial example and the and this is this these examples are are examples, capabilities that we're building that we're going to deploy much broader over time. But you want to start narrow so you can really understand, you know, the root causes of why we're not able to perform better and so that you can go after the countermeasures and then build new processes and capabilities and then inspire other people in other parts of the company to do the same. So the two examples were in our HVAC conventional business in North America in one one part of the country, you know, we have a team working on, and they're fourth kaizen now actually, and where we we have a path to basically doubling the selling time that our sellers have in that part of the business by improving and removing waste from processes and improving the processes that we have. So that I'm very excited about, you know, the potential of that, you know, more broadly over time. And then, on the operations side, I gave you an example of where we're working on cutting the lead time in half.

[Joakim Weidemanis, CEO at Johnson Controls International]

And, we're in our third kaizen on that one. I was in one of those kaizens myself, actually, the other week. And, you know, cutting lead time in half is, you know, what you do to to achieve that is basically the same things, similar things you would do to reduce cost and capital tied up, working capital that is. So that effort will generate efforts beyond reducing the lead time. And of course, reducing the lead time makes us more competitive.

[Joakim Weidemanis, CEO at Johnson Controls International]

And in that case, the product lines we've started with are oriented towards the data center market where, demand is still very high and being able to deliver faster than others is an important part of our competitive advantage. So anyway, so we're starting narrow, exciting the organization, training the organization, and then we're going to deploy this more widely over time. And we have lots of opportunities here on these kinds of themes. I'm very excited about that.

[Operator]

Thank you. Moving on to the next question from Scott Davis of Melius Research. Scott, please go ahead.

[Scott Davis, Chairman, CEO & Founding Partner – Multi-Industry Research at Melius Research LLC]

Hey, good morning, guys.

[Marc Vandiepenbeeck, EVP & CFO at Johnson Controls International]

Good morning,

[Scott Davis, Chairman, CEO & Founding Partner – Multi-Industry Research at Melius Research LLC]

Scott. Appreciate the color on that question. I'm kind of going to go a slightly different direction. You've had one hundred and forty days, maybe that's not enough time to answer this perhaps. But do you have a better sense, Jokim, now of what the how you can accelerate growth in Fire and Security and how that business really how HVAC and Fire and Security can really lever off of each other?

[Scott Davis, Chairman, CEO & Founding Partner – Multi-Industry Research at Melius Research LLC]

I think historically, it's always been a question mark of whether they fit or not. But I think investors at this point are pretty open minded on on hearing your view.

[Joakim Weidemanis, CEO at Johnson Controls International]

Yeah. Yeah. Thanks for that question, Scott. Yeah. These are, as we spoke about last time with all of you, I mean, I see these are fundamentally different businesses serving a similar customer base, but different personas at different points in time.

[Joakim Weidemanis, CEO at Johnson Controls International]

And so we're calling it as it is. That doesn't mean that they don't aren't businesses that don't have potential. They have potential as well. And many of the examples I gave on the new business system here are focused on HVAC and controls because we think that those markets inherently have higher levels of growth, but there's growth in fire and security as well. And so the the approaches that I described, you know, we are gradually going to deploy into those businesses, and we think there's good potential to improve the performance there as well over time.

[Joakim Weidemanis, CEO at Johnson Controls International]

And then, like I said, you know, we are taking a dispassionate view at the portfolio. And we are two plus months into a deeper strategic review of our businesses where we're at today and looking at the future and who we would like to be. And we'll keep and the board, of course, I'm working very closely with the board. And obviously, are not things you conclude in sort of one cycle, one board meeting. So over the next couple of months you know, together with the board, we're going to start to draw conclusions on, you know, what the portfolio will look like here going forward.

[Operator]

You. The next question goes to Jeff Sprague of Vertical Research Partners. Jeff, please go ahead.

[Jeffrey Sprague, Founder & Managing Partner at Vertical Research Partners]

Thank you. Good morning, everyone. Wondering if we could shift to free cash flow. Mark, nice to see the bump here this morning. Maybe could you address and certainly Joakim love your thoughts on this also, but where the most significant opportunities are on the free cash flow side, should we view this 100% plus sort of a catch up on low hanging fruit?

[Jeffrey Sprague, Founder & Managing Partner at Vertical Research Partners]

Or is your confidence level that consistently be in that 100% ZIP code rising here?

[Marc Vandiepenbeeck, EVP & CFO at Johnson Controls International]

For sure. Well, yes, thanks for the the the comments. We had a strong start of the year in in cash flow, and and we've continued that that momentum. I think the progress we've made this year has a lot to do with our accounts receivable or collection management, and everything goes from managing order and managing customer through that that experience. That has allowed us to really continuously improve the conversion throughout the year, and and as, you know, allowed us to get to that 100 plus percent conversion. You know, almost a billion dollar of improvement year on year is a good feed, but it doesn't mean that we are done and that's all of the benefit we are going to see.

[Marc Vandiepenbeeck, EVP & CFO at Johnson Controls International]

We still have those fundamental structural headwinds we've talked about, you know, of our effective tax rate being slightly different than the cash tax rate, and we still have slightly elevated CapEx. But those two things over time will die down. There's a lot of opportunities that are gonna come from our our lean efforts and lean transformation. And I think if you think about when we start that flywheel around that lean transformation, the need for facilities will reduce over time, which will reduce CapEx, which will reduce inventory. Our ability to increase cycle time and improve, you know, customer centricity will also drive ultimately better outputs from an inventory standpoint.

[Marc Vandiepenbeeck, EVP & CFO at Johnson Controls International]

And we think that's where moving forward, the the larger opportunity is, but there's still progress to be made on on on every aspect of the the fundamental of our free cash flow conversion.

[Joakim Weidemanis, CEO at Johnson Controls International]

Yeah. I mean, I mean, I'll I'll second that. And, you know, the lead time reduction example I gave, I mean, in in principle, that means that, you know, we'll be able to get a lot more output from that facility without adding additional, physical asset space. And so that means that we're gonna sort of decouple versus historical trends, you know, the CapEx that we need for our growth. So that's that's really what that is about.

[Joakim Weidemanis, CEO at Johnson Controls International]

And, and we're also going to, by the same token, because with the approaches we're applying there, decouple the, addition of inventory dollars for the growth dollars that we have. So so that's that's really what that lead time reduction initiative is about. And like I said, we've started narrow and we'll go broader, over time. But, you know, then on the commercial side as well, you know, we have a, work stream. I think we're in our second kaizen now where we're looking at, you know, how we're performing on on billing and, you know, how fast do we bill, how accurate is our billing, and therefore, you know, how what is sort of the first pass yield on customers paying invoices.

[Joakim Weidemanis, CEO at Johnson Controls International]

You know, every comp no company in this world is perfect on invoicing. Right? There's sometimes you miss miss a few. And if if you have a couple of percent of invoicing errors that you need to redo versus less than 1%, you know, that not only impacts customer satisfaction, but of course also your cash flow. So we've seen some good opportunities in that area too.

[Joakim Weidemanis, CEO at Johnson Controls International]

So those themes give me confidence that, you know, we're going to be able to maintain, the cash conversion that we've seen so far this year.

[Operator]

The next question goes to Nigel Coe of Wolfe Research. Nigel, please go ahead.

[Nigel Coe, Managing Director at Wolfe Research, LLC]

Thanks. Good morning. Just want to follow-up on that last point. I I don't want to sound greedy, but with the intangible amortization, is there a pathway to maybe being above 100% free cash conversion based on the current reporting structure? And then maybe if we could maybe go back to the portfolio, very clear messaging there.

[Nigel Coe, Managing Director at Wolfe Research, LLC]

Are we still in the zone of 5% to 10% of the current portfolio being, I guess, with a question mark over its strategic importance?

[Marc Vandiepenbeeck, EVP & CFO at Johnson Controls International]

Yes, Nigel. I understand the question on above 100. I think it's a little early for us to commit. What I can tell you is that historically, we've said the the the algorithm was, you know, 85, 90 plus percent. I think we are comfortable that we'll be able to deliver solidly in the nineties in terms of conversion.

[Marc Vandiepenbeeck, EVP & CFO at Johnson Controls International]

And over time, as we see the the the improvement on the lean transformation yielding the result, we we we could raise from there. But at this stage, it's a little bit too early. On the portfolio, I would say the immediate actions we are taking on some of the, the assets, that we believe are non core, it it's still within that 15% range. Now there's a a broader amount of of work that's being done. Joachim alluded to that earlier, and and, you know, that could be greater than a 10% over time as we validate kind of our strategic vision with the board and and and kinda decide where we can focus and orient the company to be to be successful and and and and grow faster.

[Operator]

The next question goes to Steve Tusa of JPMorgan. Steve, please go ahead.

[Steve Tusa, Managing Director at JP Morgan]

Hi. Good morning.

[Joakim Weidemanis, CEO at Johnson Controls International]

Hey, Steve.

[Marc Vandiepenbeeck, EVP & CFO at Johnson Controls International]

Good morning, Steve.

[Steve Tusa, Managing Director at JP Morgan]

Can you maybe just the order number at low single digit was maybe a little bit lighter than I was expecting. How do you guys feel about that trending into the fourth quarter? And then secondarily, what's the timeline for when you guys provide perhaps a bit more of a longer term outlook around what all this action is going to turn into financially?

[Joakim Weidemanis, CEO at Johnson Controls International]

Very good. Yes. Orders in Americas was strong. Know, EMEA, in my view, better than perhaps what the number appears to be because of a compare. And then clearly, there's ongoing softness in China.

[Joakim Weidemanis, CEO at Johnson Controls International]

And so as you would expect, we continue to dig deep into leading indicators, our pipelines and so on. My conclusion is that our core vertical markets, they remain healthy. And, it's not just, you know, our health care verticals and our data center verticals, but, overall, there's no no change. So, so I I feel good about our pipelines. And then on China, you know, which, you know, we've talked about before as bouncing around the bottom, I guess we've called it.

[Joakim Weidemanis, CEO at Johnson Controls International]

You know, we continue to be very disciplined there around going after higher margin systems orders and then prioritizing our service business there. And, so we had healthy growth on the service side. And China is maybe a longer discussion, but I was there recently and maybe the one tidbit is that, you know, that market is gradually turning into a more mature market in the sense of that, you know, the retrofit part of the market continues to steadily increase, you know, which is different than a number of years ago when it was sort of a new construction, new build market. So it's starting to look a little bit more like, you know, some of our Western markets. But near term, short term, yes, new builds in China, as has been talked about by many players, is a challenging space to be.

[Joakim Weidemanis, CEO at Johnson Controls International]

So we need to be very diligent about what we choose to go after there and protect and manage our margins.

[Operator]

The next question goes to Joe Ritchie of Goldman Sachs. Joe, please go ahead.

[Joe Ritchie, Managing Director at Goldman Sachs]

Hey, good morning, guys.

[Joakim Weidemanis, CEO at Johnson Controls International]

Good morning.

[Marc Vandiepenbeeck, EVP & CFO at Johnson Controls International]

Good morning.

[Joe Ritchie, Managing Director at Goldman Sachs]

With the quarter ending with record backlog, Joakim, I'm curious whether there's a way for you to get to maybe just give us an initial framework for 2026. And then maybe just going back to Steve's question on the long term targets, just wondering whether you're planning an Investor Day next year as well.

[Joakim Weidemanis, CEO at Johnson Controls International]

Yeah. So I appreciate Steve, I apologize we didn't answer your question. So I will make make a note of making sure that we do that next time. We we are working on 2026 as we speak. You know, I'm a hundred and forty days in, so, of course, I wanna make sure I do a a really detailed job together with Mark there.

[Joakim Weidemanis, CEO at Johnson Controls International]

So but maybe, Mark, you could share a few words on where we're at.

[Marc Vandiepenbeeck, EVP & CFO at Johnson Controls International]

Yeah. And and we are on the the finalization of our internal plan for for '26. It's a bit early for us to comment on this. But I think overall, the long term algorithm we've been talking about was as a reminder mid single digit top line growth, looking for well over 25% incrementals and then double digit EPS growth remain remain the the the basis for now. But as we implement the new business system, as we continue to do our strategic review, it's hard to imagine not having better incrementals, for example, over time and understanding how that will influence the ultimate long term algorithm.

[Marc Vandiepenbeeck, EVP & CFO at Johnson Controls International]

I think we'll be better positioned to give you a view on that as we close the year, release the fourth quarter, and and start talking guidance for for '26 and give you a better view. As far as Investor Day, we really wanna go through that deep understanding of our strategic orientation before we we take people deeper into what the new JCI may look like and and what it would mean long term from a from an investment thesis. So give us a little bit of time there to get through that and and and sharpen our pencil on on the strategic view.

[Joakim Weidemanis, CEO at Johnson Controls International]

Yeah. And and on on the guide, you know, the what what I the two examples I've mentioned that we're working on, as vehicles to implement our new business system, just to reinforce what Mark said, you know, we're the commercial example I gave you with, increasing the amount of selling time available for our sellers, you know, that's really about decoupling, the needed investment in the field, personnel to drive growth, decouple versus, you know, how we've that algorithm has worked in the past. And then, you know, the operations example I gave is is really about decoupling, both CapEx, inventory, and cost, quite frankly, to also, drive the kind of growth that that we aspire to hear from from the cost.

[Operator]

The next question goes to Nicole DeBlase of Deutsche Bank. Nicole, please go ahead.

[Nicole Deblase, Lead Analyst at Deutsche Bank]

Yes, thanks. Good morning,

[Joakim Weidemanis, CEO at Johnson Controls International]

Good morning, Nicole.

[Nicole Deblase, Lead Analyst at Deutsche Bank]

Just wanted to ask something about short term in nature. I think typically if we look at EPS seasonality throughout the year, you historically tended to see like a low teens percentage increase in 4Q relative to 3Q. The guidance this year implies something a bit lower than that. So just want to understand, Mark, if you could kind of help with any major puts and takes between 3Q and 4Q that we should be considering? Thank you.

[Marc Vandiepenbeeck, EVP & CFO at Johnson Controls International]

Yes. Nothing in particular. There's two kind of dynamic that are happening at the same time. There's a bit of uncertainty what tariff will do full full on the bottom line. So far, we've executed very well, but we've taken some conservative view into the fourth quarter.

[Marc Vandiepenbeeck, EVP & CFO at Johnson Controls International]

And then you got to remember with the extraction of our residential and light commercial business, which was more transactional, shorter cycle business. We are now a little bit of a longer, cycle company, and and therefore, the variation you see quarter over quarter is a little bit less seasonal. Now transparently, the fourth quarter, particularly in our HVAC and Controls business, is very healthy quarter, generally from a growth and therefore absorption of our of our field team simply because of of the weather in in the Northern Hemisphere. And so it will naturally provide better tailwinds overall, but nothing vastly different if you look at the enterprise from a continued basis standpoint.

[Operator]

The next question goes to Joe O'Dea of Wells Fargo. Joe, please go ahead.

[Joseph O'Dea, Managing Director at Wells Fargo]

Good morning. Joe. Martin, in reference to your comment around the hi, just the comment around the algorithm and well over 25 incrementals. Can you touch on restructuring and the program that was announced last fall? Of the $500,000,000 what savings you anticipate achieving this year?

[Joseph O'Dea, Managing Director at Wells Fargo]

Just kind of broad strokes, what the setup would be for what you can achieve next year? And then separately and with some of the legislative developments, just anything on tax, I think you've previously outlined that, that could be up 400 or 500 bps year over year as we go into next year, but not sure of any recent developments there.

[Marc Vandiepenbeeck, EVP & CFO at Johnson Controls International]

No. So on restructuring, Joe, so 400,000,000 of restructuring costs. We've probably spent just a little over that, and we think we've gotten probably dollar for dollar restructuring saving. That's really part of the the the margin improvement story as we eliminate a lot of the stranded cost associated with the residential light commercial sale throughout the year even before the close on the transaction. And so we believe we are gonna continue to drive towards that $400,000,000 to get the full run rate $500,000,000 benefit at the exit of of '26.

[Marc Vandiepenbeeck, EVP & CFO at Johnson Controls International]

I can tell you that the early efforts around early in journey and transformation will probably have to think about how we position the restructuring the balance of the restructuring program and if we should further extend it, and potentially gain even more benefit from a a a return on those restructuring efforts. From a tax standpoint, there are some small changes at the fringe that will require kind of differentiated planning on our side. But net net, the rate headwind I've been talking about of 400 to 500 basis points on, as a reminder, percent base effective tax rate in 2025 will remain enforced. It's really around that global minimum tax and how that drives the pressure on the rate. If you recall, the interesting component there is that from a cash tax rate, it doesn't materially change the math for for '26, which is, by the way, a little bit of a tailwind from a free cash flow conversion as our cash tax rate will remain in the low 20s, high teens potentially depending on different action we take.

[Operator]

The next question goes to Andrew Obin of Bank of America. Andrew, please go ahead.

[Andrew Obin, MD - Equity Research at Bank of America Merrill Lynch]

Yes, good morning.

[Marc Vandiepenbeeck, EVP & CFO at Johnson Controls International]

Hey, Andrew.

[Joakim Weidemanis, CEO at Johnson Controls International]

Hey, Andrew.

[Andrew Obin, MD - Equity Research at Bank of America Merrill Lynch]

Hey, just a question going back to Americas orders. Could you by any chance disaggregate the orders between Fire and Security, Commercial, HVAC? And specifically, what are you seeing on data centers? Because you have such a strong market share globally in the market given the overall strength. You know, would echo the sentiment.

[Andrew Obin, MD - Equity Research at Bank of America Merrill Lynch]

I would have expected a little bit more growth, but maybe just give us a sense what's happening. Are there any specific pushouts, but, you know, by verticals? Thank you. In Americas.

[Joakim Weidemanis, CEO at Johnson Controls International]

Yep. Thanks, Andrew. Yeah. Data centers continues to be, very healthy, and, you know, it's about 10% of our our sales today, growing very nicely. And there's there's, of course, a reason why we decided to, deploy the the initial stages of our business system focused on on the operations manufacturing side of things to to to help cut lead times for a data center product line.

[Joakim Weidemanis, CEO at Johnson Controls International]

So so we see that, continuing here. Over time, we're doing well with both hyperscalers and colos. And, perhaps that's a we can have a more detailed discussion at at another point in time. So so that's that side of the business. The the HVAC and and applied side of our business in in general is doing, very well.

[Joakim Weidemanis, CEO at Johnson Controls International]

And the, the example I gave on commercial where we're deploying the business system is is in HVAC and applied, outside of data centers. And, so we're we're already growing, at a very healthy rate there. And fire and security is, we're we're growing, but at lower rate than than, HVAC. That's more in in low single digits. We we see those are shorter cycle businesses, by the way, as well.

[Joakim Weidemanis, CEO at Johnson Controls International]

I think you know that. We see plenty of opportunity to apply the principles of what we're doing on the HVAC sales side in those businesses as well. But we chose to start in HVAC because in short term, we just think there's a bigger opportunity, there. But so the h h applied HVAC and and data center, heavy is is is the story here, but but those other businesses are are still growing at, are still growing, but low single digits.

[Operator]

The next question goes to Chris Snyder of Morgan Stanley. Chris, please go ahead.

[Chris Snyder, Executive Director at Morgan Stanley]

Thank you. We look at JCI's service business, it's had really good top line growth over the long term. But if we look back at history, is there any color you could talk about or provide as to how margins have expanded or the business has driven operating leverage over the last few to several years?

[Joakim Weidemanis, CEO at Johnson Controls International]

I think the answer to that is not enough operating leverage and that now is now an opportunity for us. And I think there are, from my travels, two reasons for that. I think just just like we, the example I gave, on the HVAC sales, by applying lean principles, we're able to, remove waste in our internal processes and help accelerate the sales process just in general. I think we have the same opportunity in service so that we can gradually break the back off of the connection between, service growth and adding service cost. So I see good opportunity in that.

[Joakim Weidemanis, CEO at Johnson Controls International]

That's a body of work that we're going to be launching over the next quarter here. So there's an operational side to the story. And then I think in a couple of our businesses, the way we productize services, I think there is an opportunity to add more differentiated service products to our portfolio. And perhaps I can come back to that at some point in time in the future. But when I spoke about in the prepared commentary about wanting to increase investments in innovation, I'm not only talking about investments in systems, but also in service products.

[Joakim Weidemanis, CEO at Johnson Controls International]

And some service products might require a few tweaks and changes and additions to our systems on the installed base as well as new products. But there's also innovation opportunities on, for example, how you digitize services to be able to deliver, if I could call them, more outcome oriented service products to customers versus more sort of break fix oriented services. So I see good opportunities both operationally as well as from a product and differentiation point of view and being able to both continue the service growth. And then, like I said, break the back off of the growth and the costs so that the margin can improve over time.

[Operator]

The next question goes to Julian Mitchell of Barclays. Julian, please go ahead.

[Julian Mitchell, Equity Research Analyst - US Industrials at Barclays Investment Bank]

Hi, good morning.

[Joakim Weidemanis, CEO at Johnson Controls International]

Thanks very Hi, Julian.

[Julian Mitchell, Equity Research Analyst - US Industrials at Barclays Investment Bank]

Just wanted to ask about sort of operating margins and a couple of different questions on it. I think first off, the OMX is fairly muted year on year in the second half of this fiscal year. I understand tariffs are weighing, but is the sort of construct that that or those related headwinds last sort of through the first half of next fiscal year and then you get a larger sort of jump in the back half on margins as that tariff headwind eases? And sort of beyond the next twelve months, I guess, was intrigued, Joakim, about you sound sort of relatively muted on the margin potential in Fire and Security, perhaps the growth outlook as well. And I just wondered if that's around JCI's positioning, something around market share because certainly there are some peers out there like Honeywell or Allegion, say this past quarter or two who are putting up pretty decent numbers in various parts of FNS? Thank you.

[Joakim Weidemanis, CEO at Johnson Controls International]

Yes. Thanks. Well, I'll let Marc take the first half of the question and Yes. Then I'll add

[Marc Vandiepenbeeck, EVP & CFO at Johnson Controls International]

So on the OMX, you're right. Part of it on the rate standpoint is clearly the tariff. We've been able to recover the vast majority of that headwind, not always being able to consistently drive margin on that recovery. Some markets, have more pricing power, and we have been able to recover with margin. Some other markets, given the size of the tariff impact, it was a little bit more difficult to justify to the end customer that we ought to receive margin on that.

[Marc Vandiepenbeeck, EVP & CFO at Johnson Controls International]

And then you got to remember, there's a lot of stranded cost in our SG and A associated with the continued discontinued operation, the residential, like commercial. There is a lot of work on the way and and progress being made to actually take that that cost out. But that's muted a little bit of ability to expand margin beyond the beyond the, the the expectation. But I think moving forward, we we have opportunity. I'll pass it on to to to Joachim on the fire and security margin opportunity.

[Joakim Weidemanis, CEO at Johnson Controls International]

Yeah. Yes. So on on if we start with fire and since you mentioned Honeywell, you know, they they've done a, I think, from what I understand, a a very nice job on the product portfolio over many, many years. You know? So when I talked about us having, some product gaps in our portfolio, I was thinking about fire detection as one example.

[Joakim Weidemanis, CEO at Johnson Controls International]

So we play a little bit more on the, let's call it the premium or the more sophisticated system side of the market. We have some opportunities to go beyond that, over time. And and to and on the security side, you know, it's a market that consists of many many different kinds of solutions. So you need to be careful with, you know, the apples to apples or apples versus oranges. You may recall that I used to be on the board of ASSA ABLOY, know, Allegion's big biggest competitor.

[Joakim Weidemanis, CEO at Johnson Controls International]

Right? So I've seen that from from many different angles. So on the security side, like fire detection, there are some product gaps that we have opportunities around. Now on the service side of things, to talk about margins, as I mentioned here previously, you know, I think there's a good opportunities to to do work to to again break the back off of the service growth and and, the service margins, based on applying lean principles and how we operate, in the field on providing the services. And I also think there are some opportunities in productization of services that could drive greater differentiation.

[Joakim Weidemanis, CEO at Johnson Controls International]

I see those opportunities. Now I again, I I we do see that the opportunity in in HVAC and controls as as being one of having higher growth over time and, probably a little bit of a higher margin opportunity over time as well. It doesn't mean the other two are are bad businesses. I think we can operate those better, than over time versus how we haven't in in the past. And like I said, you know, we're we're working away at the strategic review of the portfolio diligently, thoughtfully.

[Joakim Weidemanis, CEO at Johnson Controls International]

And once we have a conclusion, will certainly let you know.

[Operator]

The next question goes to Andy Kaplowitz of Citigroup. Andy, please go ahead.

[Andrew Kaplowitz, Managing Director at Citi]

Hey, good morning everyone.

[Marc Vandiepenbeeck, EVP & CFO at Johnson Controls International]

Hey, Andy.

[Joakim Weidemanis, CEO at Johnson Controls International]

Hey, Andy.

[Andrew Kaplowitz, Managing Director at Citi]

Just wanted to follow-up on that line of conversation a little bit. You've had recently strong margin improvement, I think, in your other segments outside of The Americas. So as we think about The Americas going into 2026, obviously, you have a mix component. We've talked about tariffs and you just talked about service. Can you improve the margin there as you go into 2026?

[Andrew Kaplowitz, Managing Director at Citi]

Is there anything in the competitive environment that may be holding you back? Because I know you've shown good improvement in Europe pretty quickly. Can you do that in The Americas as well?

[Joakim Weidemanis, CEO at Johnson Controls International]

May maybe I can start, you know, with a little bit of a long term view that we've discussed a little bit more on on our previous call or a quarter ago. So based on and I still have the same view as when we spoke last, which is I really see no reason for why, from a margin point of view, we should be below our direct competitors over time. It's not a one year thing. It's not a five year thing either. And I think over time, you know, we can aspire, beyond that.

[Joakim Weidemanis, CEO at Johnson Controls International]

And, you know, how do we get there? I mean, I gave you some examples today, in the prepared remarks of how we're gonna apply and deploy a a business system, to do that. Both I gave you a commercial example and an operational example. And and, the two I gave were happened to be North America oriented examples, But they will over time, we will deploy that in other regions as well. So yes, I believe we have continued opportunity in all regions on margins.

[Marc Vandiepenbeeck, EVP & CFO at Johnson Controls International]

Yes. And in the short term, Andy, you have system that continues to update service. And so that our service business being overall a higher margin business, that will taper a little bit the mix headwind you were talking about. This quarter, we had year on year M and A headwind about 20 basis points that didn't help. But from a growth in productivity, if you exclude tariff, we had solid improvement in that margin line.

[Marc Vandiepenbeeck, EVP & CFO at Johnson Controls International]

And so I think it's more muted in the short term. And as we get through those tariff changes and we get the M and A behind us and the mix balances out to a more balanced fifty fifty between service and and system, I think in addition to the opportunity, you you have some tailwind here in in in The Americas from a margin standpoint.

[Operator]

The next question goes to Deane Dray of RBC Capital Markets. Deane, please go ahead.

[Deane Dray, Managing Director at RBC Capital Markets]

Thank you. Good morning, everyone.

[Joakim Weidemanis, CEO at Johnson Controls International]

Hey, Deane.

[Marc Vandiepenbeeck, EVP & CFO at Johnson Controls International]

Good morning, Deane.

[Deane Dray, Managing Director at RBC Capital Markets]

Hey, I wanted to circle back on free cash flow if we could. And it really wasn't very long ago where JCI was struggling at that 80% conversion with kind of tempered expectations on where and how it would be improved. And it really does feel like you've turned a corner here. Just can you give us a sense of the sustainability above to be in and around 100%? And just remind me, did the sale of resi provide any kind of structural lift to the cash conversion cycle?

[Marc Vandiepenbeeck, EVP & CFO at Johnson Controls International]

Let me start with that last one. Resi was actually a headwind. It was a higher cash flow converter because of the JV structure we had within that business. So that put about 5% to 10% headwind to our overall enterprise conversion. In terms of sustainability and and to kinda give you a sense of of the two different, we've fundamentally changed a lot of processes internally, how we bill, how we onboard supplier, how we manage our our inventory.

[Marc Vandiepenbeeck, EVP & CFO at Johnson Controls International]

And we've been a little bit more maniacal around where we deploy CapEx and the pace at which we deploy those capital expenditure. And you combine all of that together, it it it provides a solid foundation to at least perform in in the nineties or '95 plus, I would say, from a a free cash flow conversion. I don't think any of those fundamental are risk of of going backward, quite the opposite. As we are in a process of improving, they they provide short term tailwind, and I'm I'm I'm very confident that we're gonna be able to hit that that 95 plus percentage. And then over time, as the progress on lean, as I mentioned earlier, on the lean transformation that Flywheel start providing additional tailwind, I think we'll be more comfortable talking about a 100 or a 100 plus. But at this stage, I'll stick to 95.

[Joakim Weidemanis, CEO at Johnson Controls International]

Yeah. And we're early in the journey on inventory improvement. So over time, we're go make some some progress there.

[Operator]

This concludes our Q and A session. I will now hand the call back over to Joakim at Weidermanis for any closing comments.

[Joakim Weidemanis, CEO at Johnson Controls International]

Well, thank you all for your questions. We have an exciting future ahead of us here at Johnson Controls. We have a lot of work underway, as you heard, and many opportunities to unlock. With a culture centered around a growth business system, I'm confident that our increased focus on our customers will allow us to continue to win with them. I'd like to take a moment to thank our 100,000 team members around the world.

[Joakim Weidemanis, CEO at Johnson Controls International]

You are the foundation of our company, and I'm confident for what the future has in store. I look forward to continuing my conversations with all of our stakeholders. Thank you. Thank you all.

[Operator]

This now concludes today's call. Thank you all for joining. You may now disconnect your lines.

Participants

Executives

• Jim Lucas, VP - IR
• Joakim Weidemanis, CEO
• Marc Vandiepenbeeck, EVP & CFO

Analysts

• Amit Mehrotra, MD & Head - Industrial Sector at UBS Group
• Scott Davis, Chairman, CEO & Founding Partner – Multi-Industry Research at Melius Research LLC
• Jeffrey Sprague, Founder & Managing Partner at Vertical Research Partners
• Nigel Coe, Managing Director at Wolfe Research, LLC
• Steve Tusa, Managing Director at JP Morgan
• Joe Ritchie, Managing Director at Goldman Sachs
• Nicole Deblase, Lead Analyst at Deutsche Bank
• Joseph O'Dea, Managing Director at Wells Fargo
• Andrew Obin, MD - Equity Research at Bank of America Merrill Lynch
• Chris Snyder, Executive Director at Morgan Stanley
• Julian Mitchell, Equity Research Analyst - US Industrials at Barclays Investment Bank
• Andrew Kaplowitz, Managing Director at Citi
• Deane Dray, Managing Director at RBC Capital Markets