Olivier Leonetti
Executive Vice President and Chief Financial Officer at Johnson Controls International
Thanks, George, and good morning, everyone. Continuing on Slide 8. Organic sales accelerated in Q3, up 15% overall, in line with the guidance we provided last quarter as growth in Global Products and our field businesses accelerated. The strength in Global Products was across the board from continued high level of demand in residential end markets, including both our global HVAC equipment and security products to the anticipated rebound in commercial HVAC and Fire & Security.
Segment EBITA increased 21% versus the prior year and segment EBITA margin expanded 30 basis points to 16.2%. Better leverage on higher volumes, the benefit of our SG&A actions and strong execution more than offset the significant headwind from the reversal of temporary cost reductions and a modest headwind from negative price cost.
EPS of $0.83 increased 24%, benefiting from higher profitability as well as a lower share count. On cash, we had another strong quarter. Free cash flow in the quarter was $735 million, flat versus the prior year despite the planned uptick in capex. I will review further details of our performance later in the call.
Please turn to Slide 9. Orders for our field businesses increased 18% year-over-year, accelerating at a faster pace than expected, led by continued strength in retrofit project activity, which we include in install, but also stabilization in new construction activity.
Service orders recovered above pre-pandemic level, up 13%, led primarily by improving conditions for our transactional service business. Backlog grew 7% to $10 billion with service backlog up 5% and installed backlog up 7%. Conversion rates in our service backlog continued to accelerate. Our installed backlog flow is improving, particularly given the rebound in retrofit activity, which turns more quickly.
Turning to our EPS bridge on Slide 10. Let me touch on a few key items. Operations were a $0.16 tailwind versus the prior year, driven by higher volumes and favorable mix, partially offset by price cost and the reversal of prior year mitigating cost actions. Just to further emphasize the magnitude of the headwinds from the temporary actions. Excluding this impact, underlying incrementals in Q3 were just over 30%.
We're on track with our SG&A productivity program, which equated to a benefit of around $0.03. Since we spoke last time, we have already begun taking some of the necessary actions to achieve the savings related to our COGS program, which will begin impacting the P&L in fiscal 2022. We are well on-track to achieve our savings targets for fiscal '21 and beyond.
Let's turn to Slide 11 to discuss our segment results in more detail. My commentary will also refer to the segment end market performance included on Slide 12. North America revenues grew 8% organically with solid growth in both service and install. Service revenues were higher in all domain, driven by a sharp rebound in our transactional service business, which increased nearly 30%.
Installed demand, which is the area of our business that was most impacted by supply chain disruptions, continues to be driven by shorter cycle retrofit and upgrade projects in addition to easier prior year comparisons.
By domain, commercial applied HVAC revenue grew mid-single digits, while Fire & Security increased low double digits in the quarter. We had another strong quarter in performance infrastructure, which also grew revenues low double digits. This business has a leading position in the ESCO market, which is well positioned to address customers' decarbonization needs.
Segment margin decreased 70 basis points year-over-year to 14.7% as North America experienced the most headwinds from the reversal of temporary cost given the majority of the action in the prior year related to furloughs and other employee compensation-related expense.
Orders in North America accelerated on a sequential basis and grew 18% versus the prior year with mid-teens growth in Fire & Security and performance infrastructure. Commercial HVAC orders were up over 20% overall, driven by strong retrofit activity with equipment orders up over 50%. Backlog to $6.2 billion increased 6% year-over-year.
Revenue in EMEALA increased 17% organically, led by strong recovery in installed activity. Non-resi construction grew more than 25% in the quarter, with most verticals returning to 2019 levels, led by increased demand for energy-related infrastructure projects.
Fire & Security, which accounts for nearly 60% of segment revenues inflected sharply, growing at a mid-20s rate in Q3 and surfacing 2019 levels. Industrial refrigeration grew 20% and commercial HVAC and controls grew high single digits.
By geography, revenue growth in Europe accelerated to nearly 25%, while the Middle East declined low double digits and Latin America increased 10%. Segment EBITA margins increased 250 basis points, driven by volume leverage and the benefit of SG&A actions.
Orders in EMEALA accelerated further, increasing 22% in the quarter with strong growth in Fire & Security and Commercial HVAC. APAC revenues increased 14% organically with install and service increasing by the same amount.
Commercial HVAC and controls revenue grew mid-teens, primarily driven by the ongoing recovery we are seeing in China. EBITA margins declined 380 basis points year-over-year to 11.8% as the benefit of volume leverage was more than offset by the significant temporary cost mitigation actions taken in the prior year and geographic mix.
APAC orders grew 14%, driven by continued strength in Commercial HVAC in China and recovery in controls business in Japan. Economic conditions outside of China remain mixed with uncertainty increasing as ongoing and renewed lockdown restrictions across parts of Southeast Asia, Australia and part of Japan following rise in COVID cases and continued delays in the rollout of vaccines.
Global Products revenue grew 21% on an organic basis in the quarter, in line with what we initially expected despite incremental headwinds related to COVID lockdown in Asia and the short-term supply chain restrictions.
In aggregate, we continue to gain share across most of our portfolio. Our global Residential HVAC business was up 16% in the quarter, with strong growth in all regions. North America resi HVAC grew mid-teens in the quarter, slightly ahead of our expectations, benefiting from a stronger sell-through demand, particularly in April and May.
Our JCH Residential HVAC business was up high teens, led by strong share gains in Japan and Taiwan as part of a successful effort to attain the number-one residential share position in those markets. Although not reflected in our revenue growth, our iSense joint venture grew revenue 44% year-over-year in Q3, expanding our leading shares in China.
Commercial HVAC sales improved significantly up more than 20% with our indirect applied business up more 25%. Light commercial industry up over 20%, led by the recovery in North America and VRF up high single digits.
Fire & Security products growth was above 30%, led by continued strength in our security business, which grew over 40% in the quarter. Commercial fire detection and suppression products were up low to mid-20s on easier year comparisons and the stabilization in key vertical markets.
EBITDA margin expanded 140 basis points year-over-year to 20.9% as volume leverage, positive mix increased equity income and the benefit of SG&A actions more than offset the significant temporary cost actions taken in the prior year as well as current price cost pressure.
Turning to Slide 13. As expected, corporate expense increased significantly year-over-year of an abnormally low level to $70 million. For the full year, we now expect corporate expense to be in the range of $280 million to $285 million, slightly below the low end of the prior guide.
For modeling purposes, we have included an updated outlook for some of our below-the-line items. I would point out that amortization expense now reflects the impact of Silent-Aire.
Turning to our balance sheet and cash flow on Slide 14, starting with the balance sheet at the top of the page. Similar to last quarter, no significant changes versus the prior period other than the net reduction in cash due to the closing of the Silent-Aire transaction. Our balance sheet remains healthy with leverage of roughly 1.8 times, still below our targeted range of 2 times to 2.5 times.
On cash, we generated $735 million in free cash flow in the quarter, bringing us to nearly $1.7 billion year-to-date. This is a significant improvement compared to our normal year-to-date seasonality and has been driven by solid trade working capital management and the timing of capex and order payments.
We expect a much lower conversion level in the fourth quarter given the reversal of some timing benefits. For the full year, we expect free cash flow conversion to be approximately 105%.
During the third quarter, we repurchased a little more than 5 million shares for roughly $340 million, which brings us to around 19 million shares year-to-date, completing our $1 billion program. We expect to repurchase an incremental $350 million of shares in Q4.
Please turn to Slide 15, for a look at our updated guidance. For the full year, we're raising our guidance once again and now target adjusted EPS in the range of $2.64 to $2.66. This puts the midpoint at the high end of our previous EPS guidance of $2.58 to $2.65.
Based on our strong performance year-to-date and the continued underlying momentum we are seeing in most of our end markets, we continue to expect organic sales growth in the mid-single digits. Segment EBITA margins are tracking towards the high end of our most recent range, and we now expect 80 to 90 basis points of expansion for the full year, which includes a 10-basis point headwind related to the acquisition of Silent-Aire.
Based on the full year guide, Q4 adjusted EPS is expected to be in the range of $0.86 to $0.88, which assumes mid-single-digit organic revenue growth and 30 basis points of segment EBITA margin expansion.
Before we get into your questions, just a quick update on our Investor Day plan for September 8. We made the decision to host the event virtually. Registration details will be available over the next couple of weeks.
With that, operator, we can open the line for questions.