Johnson Controls International plc (JCI) Q1 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call highlights strong financial performance, particularly in data centers and life sciences, with record orders and backlog. Margins have improved, and there is optimism about future growth driven by new product developments and market expansion, especially in Asia-Pacific. The Q&A section reinforces positive sentiment with insights on margin improvements, strategic focus, and operational efficiencies. Despite some management vagueness, the overall outlook and guidance are optimistic, suggesting a positive stock price movement.
Key Financial Performance
Orders Increased nearly 40%, building on a very strong 16% last year compare. This reflects strong demand, particularly in data center projects and mission-critical solutions.
Revenue Grew 6% year-over-year. This growth was driven by broad-based contributions across the portfolio and strong execution.
Adjusted EBIT Margins Expanded 190 basis points to 12.4%. This improvement was due to benefits from productivity, price realization, and improvement in cost structure.
Adjusted EPS Increased nearly 40% year-over-year to $0.89. This was driven by strong operating performance, pricing, and cost control.
Segment Margins Increased 70 basis points to 15.7%. This reflects benefits from productivity, price realization, and cost structure improvements.
Backlog Grew 20% to $18 billion. This highlights the continued strength of the pipeline and accelerated revenue conversion.
Americas Adjusted Segment EBITA Margins Improved 20 basis points to 16.4%. This was supported by productivity gains and improved mix.
EMEA Adjusted Segment EBITA Margins Expanded 120 basis points to 13%. This was due to favorable pricing and productivity gains.
APAC Adjusted Segment EBITA Margins Expanded 290 basis points to 16.9%. This was driven by increased volumes and improved factory absorption.
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Operating Highlights
New Chiller Platforms: Johnson Controls announced two new chiller platforms: the YDAM, which delivers up to 3.5 megawatts of cooling with 20% higher capacity density, and the YK-HT, which supports waterless heat reduction, eliminating up to 9 million gallons of cooling-tower water annually.
Smart Ready Chiller: Introduced a digital service capability providing 10x the insights over standard remote connected chillers, enabling proactive recurring service relationships.
Data Center Expansion: Strong demand from existing and new customers in data centers, supported by partnerships like NVIDIA and new thermal management solutions for AI compute environments.
APAC Market: Appointed Susan Hughes as APAC President to accelerate progress and strengthen execution in the region.
Operational Efficiency: Implemented a proprietary business system focusing on simplifying, accelerating, and amplifying processes using lean methodologies and AI, resulting in improved on-time delivery and reduced service repair times.
Margin Expansion: Adjusted EBIT margins expanded by 190 basis points to 12.4%, driven by productivity, price realization, and cost structure improvements.
Enterprise Strategy Alignment: Introduced a focused set of enterprise-wide metrics to align goals across the organization, emphasizing customer acquisition and operational efficiency.
Focus on Energy Efficiency and Decarbonization: Targeting sectors like data centers, advanced manufacturing, and research campuses to address energy efficiency and carbon footprint reduction.
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Risk or Challenges
Market Conditions: The company highlighted the increasing energy costs and the pressure on customers to manage energy more productively and reduce their carbon footprint. This could impact demand for Johnson Controls' solutions if customers face financial constraints.
Competitive Pressures: The company is focusing on differentiating its solutions in the data center and mission-critical sectors. However, competitive pressures in these high-demand markets could challenge its ability to maintain or grow market share.
Regulatory Hurdles: No explicit mention of regulatory hurdles was made in the transcript.
Supply Chain Disruptions: No explicit mention of supply chain disruptions was made in the transcript.
Economic Uncertainties: The transcript did not explicitly discuss economic uncertainties, but the focus on disciplined execution and cost control suggests an awareness of potential economic challenges.
Strategic Execution Risks: The company is in the early stages of deploying its proprietary business system and aligning its global teams. The success of this strategy depends on effective execution, which could pose risks if not managed well.
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Guidance & Outlook
Full Year Guidance: Johnson Controls is raising its full-year adjusted EPS guidance to approximately $4.70 per share, reflecting roughly 25% growth. The company expects mid-single-digit organic sales growth and operating leverage of approximately 50%, which is above the long-term algorithm. Free cash flow conversion is expected to be approximately 100% for the year.
Second Quarter Guidance: For the fiscal second quarter, Johnson Controls anticipates organic sales growth of approximately 5%, operating leverage of approximately 45%, and adjusted EPS of approximately $1.11.
Data Center Market: The company sees strong demand in the data center market, driven by the need for energy-efficient and precise operating conditions. Johnson Controls is focusing on thermal and energy management solutions for AI and high-density compute environments. Recent product launches include two new chiller platforms and expanded digital service capabilities, which are expected to drive growth in this segment.
Regional Performance: The Americas region is expected to continue benefiting from large-scale data center projects. EMEA and APAC regions are also showing growth, with APAC seeing double-digit growth in systems and high single-digit growth in service.
Backlog and Demand: The company has a record backlog of $18 billion, which grew 20% year-over-year, providing strong visibility and reinforcing the demand environment.
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Shareholder Return Plan
The selected topic was not discussed during the call.
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Key Q&A
Q:What is driving the record orders and backlog for the company?
A:The record orders and backlog are driven by strong performance in data centers and life sciences. Data centers showed strength across chillers, air handling units, and CDUs. Life sciences benefited from innovation in biologics-based therapies, requiring advanced thermal management solutions for new pharmaceutical manufacturing plants.
Q:Why is there a discrepancy between the backlog increase and organic growth?
A:The backlog increase includes larger orders, particularly in life sciences and data centers, which are not necessarily shippable within the next 9 months. Organic growth is expected to strengthen over time, but the current guide reflects this year's outlook.
Q:How much of the order strength is market-driven versus company-driven?
A:The order strength is broad-based, with growth in data centers across different regions and applications. The company has also focused on expanding its presence in Europe and Asia and has seen growth in life sciences due to biologics-based therapies.
Q:What are the drivers of the second-half incremental margin improvement?
A:The second-half incremental margin improvement is driven by backlog margin visibility, margin expansion, and cost trends. The company expects operating leverage to remain at 50% for the year, with potential for higher leverage if top-line growth accelerates.
Q:Why were North America margins slightly lighter this quarter?
A:North America margins were slightly lighter due to a $15 million headwind from periodic product liability adjustments. However, strong system and service growth in the region is expected to improve margins in the second half.
Q:What is the company's approach to the CDU market?
A:The company sees opportunities for both standalone CDU sales and bundled solutions. It aims to lead in thermal architecture for data centers and adapt to evolving customer needs.
Q:What is the outlook for the Asia-Pacific region?
A:The company sees stabilization in China, with growth opportunities in Southeast Asia and India. Investments in healthcare, hospitals, and pharmaceutical manufacturing are key growth drivers in the region.
Q:What is the company's strategy for improving gross margins and SG&A?
A:The company plans to improve gross margins through footprint consolidation, better productivity, and leveraging its connected installed base. SG&A improvements include cost reductions, better sales productivity, and increased R&D spending.
Q:How is the company addressing labor availability in the service business?
A:The company is focusing on making its existing field force more productive through process improvements and leveraging its connected installed base. It also plans to launch new service product offerings.
Q:What is the company's approach to new product development in data centers?
A:The company collaborates with customers to develop next-generation designs and has a significant product roadmap. Recent launches are expected to drive future order growth.
Q:What is the status of the company's portfolio review?
A:The company is conducting a thorough strategic review of its portfolio to improve execution and explore potential alternative futures. It recently closed the disposition of a residential monitoring security system.
Q:What is the longer-term margin opportunity for the company?
A:The company aims to achieve and potentially exceed the segment EBIT margins of its best-performing peers. It sees opportunities in gross margin improvement, SG&A cost reduction, and increased R&D spending.
Q:How is the company managing capacity and lead times?
A:The company has tripled its physical capacity and is improving lead times through lean principles. It aims to be a reliable and flexible partner for customers, which is a competitive advantage.
Q:What is the impact of new product introductions on orders?
A:The impact of new product introductions on orders is expected to ramp up in the current quarter. These products are designed based on customer collaboration and address specific market needs.
Q:What is the company's outlook for Fire & Security markets?
A:The company is focusing on improving execution and targeting attractive market segments. It sees no material changes in the markets but aims to enhance operational performance.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the portfolio review process, including the status of the retail business disposition. Additionally, they did not comment on specific product launches or provide detailed timelines for new product impacts on orders.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Gemba
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JCI Transcript
Johnson Controls International plc (JCI) Q1 2026 Earnings Call Transcript
Positive2-4
The earnings call highlights strong financial performance, particularly in data centers and life sciences, with record orders and backlog. Margins have improved, and there is optimism about future growth driven by new product developments and market expansion, especially in Asia-Pacific. The Q&A section reinforces positive sentiment with insights on margin improvements, strategic focus, and operational efficiencies. Despite some management vagueness, the overall outlook and guidance are optimistic, suggesting a positive stock price movement.
Johnson Controls International plc (JCI) Q4 2025 Earnings Call Transcript
Positive11-5
The earnings call summary and Q&A indicate a positive outlook. While the financial performance and guidance are stable, the reaffirmed guidance and record backlog suggest strong future growth. The company's strategic investments, operational efficiency, and shareholder return plans further boost sentiment. The Q&A reveals management's confidence in maintaining market share and improving margins, despite some unclear responses. Overall, the combination of optimistic guidance, strategic initiatives, and shareholder returns is likely to result in a positive stock price movement over the next two weeks.
Johnson Controls International plc (JCI) Q3 2025 Earnings Call Transcript
Positive7-29
The earnings call highlights strong financial performance with margin improvements across regions and optimistic guidance for organic sales and EPS growth. The Q&A section reinforces this with a focus on innovation, operational efficiency, and cash flow improvements. Management's proactive strategies, including lean methodologies and customer engagement, indicate potential for continued growth. Although there are uncertainties regarding tariff impacts and strategic review outcomes, the overall sentiment is positive, driven by strong order performance and future growth plans.
Johnson Controls International plc (JCI) Q2 2025 Earnings Call Transcript
Positive5-7
The earnings call reveals strong financial performance with a 19% increase in adjusted EPS and a 7% growth in organic sales. The company exceeded guidance, indicating strong execution. The backlog growth of 12% and strong free cash flow conversion are positive indicators. However, management's vague responses on strategic questions and lack of specific details on future margin expansion introduce some uncertainty. Overall, the positive financial metrics and optimistic guidance outweigh the concerns, leading to a likely positive stock price movement in the short term.
JCI Report
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