Chairman and Chief Executive Officer at Johnson Controls International
Thanks, Ryan. And good morning, everyone. Thank you for joining us on the call today.
I'm going to get started with a brief overview on Slide 3. Our results in the second quarter reflect solid top line execution as we delivered strong sales orders and backlog growth in line with our expectations and at the high end of the guidance we provided demand for digitally enabled equipment and services that solve for sustainability and energy efficiency, remains robust and our sales teams are doing an outstanding job capitalizing on that demand. The reinvestments we have made to develop industry leading products and solutions are delivering results. Digitization is at the center of our strategic vision for the company and we continue to advance those strategies every day.
OpenBlue is accelerating the digital enablement of our solutions, allowing us to deliver increasingly differentiated offerings and capitalize on emerging secular trends. We're also seeing the benefit of the discipline we've instilled in our pricing capabilities over the last two plus years, price realization continues to accelerate, contributing nearly six points to overall organic revenue in the quarter. You see that most clearly in our shorter cycle global products business but it's also accelerating in our longer cycle of field businesses. We also continue to gain traction on our key vectors of growth. Global efforts to decarbonize economy and ensure the health of indoor environments are accelerating; both supported by the adoption of new policies by governments and industry associations.
At the same time, we continue to accelerate actions to optimize the efficiency of our cost structure. And we remain on track to deliver $230 million in productivity savings this year. We have deployed over $1.5 billion in capital year-to-date, including over $1 billion in share repurchase and more than $400 million in cash dividends.
Our M&A pipeline continues to build with a number of active opportunities that would allow us to support our vectors of growth.
I'm incredibly proud of the progress we have made towards achieving our strategic objectives year-to-date. As we have said in the past, we truly believe we are among the best-in-class when it comes to the ability to deliver fully integrated solutions designed to address the challenges associated with the global secular trends, developing across our industry. We are operating in a very dynamic environment with heightened supply chain disruptions. Second quarter profit under reformed, relative to our expectations. And while the anticipated supply chain improvement is happening, it is happening at a slower pace.
Let's turn to Slide 4 for more detail on what we're seeing in the North America segment. Demand remains strong with orders up 13%. Our backlog grew 14% to a record $6.9 billion. Just as in other parts of the organization, we are advancing our strategic priorities to accelerate growth by addressing the sustainability and healthy building needs of our customers.
Going into the quarter, we anticipated continued challenges related to supply chain disruptions and material availability. More specifically, inadequate supply of semiconductor chips and components but controls products. The margin under performance relative to our expectations can largely be explained by the pace and mix of backlog conversion resulting in lower absorption on our cost base. As we described to you on our last call in any given quarter we are typically executing on about 40,000 projects across install and service. Each of these projects requires a significant amount of coordination. In the current environment, managing through our own material shortages, in addition to our suppliers and customer supply chain and labor constraints magnifies any slippage.
Additionally, given the pace of orders, we have seen and the backlog we have been building, we have maintained our investment in sales headcount and service technicians. With revenue conversion and mix below our plan, we were not able to fully cover the higher cost of reinvestment in the quarter.
The last point I would make on this is on timing. Our initial forecast in late January assumed a modest recovery in supply chain conditions as we progress through Q2. Although there were some improvements in the quarter, the recovery was slower to materialize which coincided with the seasonal ramp into our peak season during the month of March. Net-net, these two issues accounted for a $40 million profit impact in North America. We expect a slower pace of improvement to continue throughout the second half which is the primary contributor to our lower outlook for the year. Despite these challenges, we are confident the backlog is turning, driving higher revenue growth with more accretive margins as we think ahead to 2023.
Please turn to Slide 5. OpenBlue remains the core of our strategy to digitize our portfolio to enable differentiated outcome-based solutions. During the quarter, we commercialized several exciting new offerings, including the OpenBlue Gateway, a cost-effective, easy-to-install device that will serve as a key enabler to accelerate the connection of our installed base. OpenBlue Net Zero Advisor will be launching within the next several weeks and will help customers manage Scope 1 and Scope 2 emissions in their journey to achieve net zero.
Lastly, OpenBlue Connected Controls will be the first full integration of OpenBlue into our legacy Metasys systems which we believe will be a disruptive offering that will fundamentally change how building automation systems operate, increasing the intelligence of building controls by infusing AI. Importantly, this offering will allow us to extend our reach further into the mid-market with a compelling plug-and-play solution.
Let's turn to Slide 6. We continue to make progress in the digital transformation of our service business, leveraging OpenBlue to further differentiate our capabilities. We're on a path to drive higher attach rates on our installed base, increase the level of connectivity of those assets and then, as a result of differentiated service offerings, drive higher revenue per customer and lower our attrition rates. This service growth flywheel is a clear algorithm that helps us achieve above-market levels of growth expected to generate over $2 billion in sales through 2024. Although we are still in the early stages of this process, our core service business, augmented by early results from digital services, performed well in the quarter. Sales were up 8% overall, with orders up 10%. Our attach rate improved another 130 basis points in the quarter, bringing us to over 200 basis points year-to-date, well on track to achieve our 400 basis points to 500 basis point target for the full year. Digital Services increased 7% in the quarter.
Turning now to Slide 7. The global commitment to decarbonize economies continues to gain momentum, both in the public and private sectors. There was also increased recognition that economies cannot truly decarbonize without decarbonizing buildings which contribute 40% of the planet's greenhouse gas emissions. Rising energy prices and the potential risk of supply shocks are forcing many governments to reconsider sources and uses of fuel. The combination of higher energy prices and security risks are making paybacks much more attractive. We continue to see policy moves and commitments from corporations that support the carbon reduction of buildings. Our deep understanding of the building ecosystem uniquely positions us to capitalize on these trends.
During the quarter, we completed the full commercialization of our net zero capabilities. Our Performance Infrastructure business has evolved into a global organization we now refer to as Sustainability Infrastructure, backed by decades of experience delivering guaranteed savings and an extensive network of subject matter experts. The breadth of our installed base, the depths of our field presence, supported by an industry-leading portfolio of digital products and solutions, delivers a holistic solution for customers to achieve net zero. We continue to make progress. Year-to-date, our Sustainability Infrastructure business has booked over $450 million in orders and our unfactored pipeline now exceeds $7 billion.
Continuing with our vectors of growth on Slide 8, healthy buildings. We were encouraged by the recent initiative launched by the White House and the EPA. Both customers and government agencies increasingly see the long-term value of investing in improvements in building health and resiliency. And it is not just focused on K-12, nor is it only related to COVID response. We are strategically well positioned to capitalize on the adoption of healthy building trends. We continue to develop and deploy new offerings with a focus on shifting the value proposition to longer term, more strategic asset management. During the quarter, our healthy buildings orders were up more than 30% to $150 million and our pipelines continue to build.
Finally, on Slide 9. We continue to demonstrate our leadership in sustainability and ESG. We are perhaps most proud of our own Chief Sustainability Officer, Katie McGinty, recently being named as the Top Woman in Sustainability in the corporate world.
To close out my prepared remarks I remain extremely excited about the continued advancements we have made relative to our key growth vectors. And I couldn't be more pleased with the way our teams are executing in such a difficult environment. We remain laser focused on our strategic commitments into delivering the outcomes our customers need on the path to a healthy and more sustainable future. Although we are navigating through a more challenging environment with increased uncertainty regarding the macro backdrop, I am confident in our path forward. Momentum within our short cycle products business is solid. Our backlog is strong and the margin profile is inflecting as [indecipherable] year order intake. All of which sets us up well for 2023 and beyond.
With that I am going to turn the call over to Olivier to walk you through the financial details in the quarter and update you on our outlook. Olivier?