Johnson Controls International NYSE: JCI reported fiscal third-quarter results marked by double-digit organic sales growth, expanding margins and record backlog, as demand for data-center and other mission-critical thermal-management systems remained strong.
Chief Executive Officer Joakim Weidemanis said the company extended momentum from the first half of the fiscal year, with order growth above 25%, revenue up 10%, adjusted EBIT margin expanding 260 basis points to 17%, and adjusted earnings per share rising 35%. Backlog increased more than 30% to a record $21 billion.
“Customer demand remained healthy across our portfolio,” Weidemanis said, citing demand for high-performance, precise and energy-efficient operating conditions in AI infrastructure, advanced manufacturing, biopharma, hospitals and universities.
Third-Quarter Growth Led by Applied HVAC
Chief Financial Officer Marc Vandiepenbeeck said organic sales increased 10% in the quarter, led by high-teens growth in Applied HVAC. Systems sales increased 11%, while service revenue grew 7%.
Adjusted segment EBITDA margin rose 220 basis points to 20%, and adjusted EBIT margin rose 260 basis points to 17%. Adjusted EPS was $1.42, an increase of 35% from the prior year and ahead of the company’s guidance, Vandiepenbeeck said.
- Orders increased 27% year over year.
- Systems orders grew 40%, while service orders rose 4%.
- Americas orders increased 37%, supported by data-center and other mission-critical demand.
- EMEA orders increased 6%, driven by high-single-digit systems growth.
- APAC orders rose 12%, with growth in Northeast Asia and India.
By region, Americas organic revenue increased 11%, including high-teens Applied HVAC growth and double-digit service growth. EMEA revenue rose 1%, with the company citing the ongoing Middle East conflict. APAC revenue increased 15%, including 20% growth in systems and continued Applied HVAC strength.
Adjusted segment EBITDA margins reached 21% in both the Americas and APAC, expanding 260 basis points and 180 basis points, respectively. EMEA margin expanded 20 basis points to 14%, as growth was largely offset by the effect of a recent divestiture.
Data Centers Drive Demand and Product Development
Management repeatedly pointed to data centers as a major contributor to growth. Vandiepenbeeck said data-center revenue is expected to represent a high-teens percentage of fiscal 2026 revenue and could account for roughly one-third of company revenue over the next three to five years.
Weidemanis said the company sees growing thermal-management needs as computing density and heat generation rise. He said Johnson Controls does not expect a meaningful reduction in chiller demand, while demand for air-handling equipment, cooling distribution units, controls and other cooling technologies is increasing.
The company introduced an AI-factory absorption chiller reference design guide that, according to Weidemanis, shows how advanced thermal management can reduce cooling electrical demand by approximately 44% by converting waste heat into cooling. He said the approach could allow customers to support additional computing capacity without adding on-site power generation.
Johnson Controls expects to begin shipping cooling distribution units, or CDUs, during the current quarter. Vandiepenbeeck said testing and validation are largely complete, though the company is continuing work on certain hyperscaler validations. The CDU pipeline has surpassed $1 billion, he said, and the company recently received an NVIDIA certification.
Weidemanis also discussed the company’s collaboration and investment in Armada, which develops modular data centers housed in shipping-container-like units. He said the market remains in an earlier stage and the company is working on meaningful opportunities, but he did not provide a market-size estimate.
Capacity, Supply Chain and Execution
Addressing supply-chain conditions, Weidemanis said supply chain remains an issue in a high-growth environment, but the company controls manufacturing and key components across five HVAC chiller subsystems. While Johnson Controls relies on outside suppliers for some inputs and can encounter occasional bottlenecks, he said management feels “very good” about supply conditions for many product lines.
The company has been ramping investments in new or expanded physical plants made about two years ago. Weidemanis said the ramp is progressing ahead of expectations and that its proprietary business system is helping create additional capacity in existing facilities while the company evaluates further capacity additions.
Management also said the business system is intended to improve execution across innovation, manufacturing, project delivery and service operations. During its June “Going to Gemba Day,” Johnson Controls highlighted efforts including a 40% reduction in time to market for a product, more than quadrupling capacity on a computer-room air-handler line without significant capital investment, and reductions in lead times, inventory and floor-space requirements.
Raised Fiscal 2026 Outlook
For the fiscal fourth quarter, Johnson Controls expects organic revenue growth of 9% to 10%, operating leverage of 45% to 50%, and adjusted EPS of approximately $1.55.
The company raised its fiscal 2026 outlook, now expecting approximately 8% organic revenue growth, compared with its prior expectation of about 6%. It maintained its expectation for 45% to 50% operating leverage and raised adjusted EPS guidance to approximately $5.05, which management said would represent roughly 35% growth and is $0.50 above the company’s original annual guidance.
Johnson Controls continues to expect adjusted free-cash-flow conversion of about 100% for the full year. Through the first nine months, adjusted free cash flow totaled $2.1 billion, while net debt declined to 1.9 times, below the company’s long-term target range.
On service, Vandiepenbeeck said the company remains focused on returning the business to mid- to high-single-digit growth. HVAC and fire service are performing within that range, while the security business has faced competitive volume pressure related to pricing and lower differentiation. Management said it has seen an early improvement and is taking targeted actions in the Americas and EMEA.
For EMEA, the company expects fourth-quarter revenue to be flat to up low single digits, reflecting continued weakness in the Middle East, which represents about 10% of the region’s business. Management said it has assumed no material improvement in conditions there during coming quarters.
About Johnson Controls International (NYSE:JCI)
Johnson Controls International plc is a global diversified technology and multi‑industrial company that develops products, services and solutions for buildings and energy storage. The company's core focus is on improving building efficiency, safety and sustainability through a combination of HVAC equipment, building controls and automation, fire and security systems, and related services. Johnson Controls traces its roots to 1885, when inventor Warren S. Johnson developed an electric room thermostat; over its long history the company has expanded from controls into a broad set of building‑related technologies and, through corporate transactions, into a global provider of integrated building solutions.
Johnson Controls' product and service portfolio includes heating, ventilation and air‑conditioning equipment, chillers, air handlers and related mechanical systems, together with building automation and control platforms that monitor and manage energy use, indoor environmental quality and security.
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