Johnson Controls Reports Strong Q3 Results and Emphasizes Divestitures

Johnson Controls International plc has announced strong financial results for the third quarter of 2024, highlighted by 3% organic sales growth and an expanded segment margin of 17.9%, exceeding expectations. The company has also decided to divest its Residential and Light Commercial HVAC and Air Distribution Technologies businesses, which together account for approximately 20% of its current sales.

As part of its strategic transformation, Johnson Controls aims to focus on becoming a pure-play provider of commercial building solutions, particularly in the data center market. The company has initiated a CEO succession plan, appointing Patrick Decker to the Board of Directors, and is tightening its full-year adjusted EPS guidance to a range of $3.66 to $3.69.

### Key Highlights:
– The company achieved a segment margin of 17.9% with organic sales growth of 3%.
– Johnson Controls generated over $500 million in free cash flow, with a service growth rate of 9%.
– The announced divestitures will help refocus the company on commercial building solutions.
– Adjusted EPS performance showed strength, with a backlog helping to mitigate increased corporate costs.
– For the fourth quarter, the company expects a sales growth of approximately 7%, a segment EBITA margin of around 19%, and an adjusted EPS of $1.23 to $1.26.
– Johnson Controls is prioritizing growth in its service and digital segments, expecting mid- to high-single-digit growth in services and mid-single-digit growth in systems.

### Company Outlook:
– The adjusted EPS guidance has been refined to $3.66 to $3.69 for the full year.
– Q4 sales growth is estimated at 7%, with an EBITA margin around 19%.
– The company anticipates organic sales growth of approximately 3% for the full year and expects to see an EBITA margin expansion of about 110 basis points.
– Johnson Controls aims to solidify its role as a comprehensive solution provider for commercial buildings, with a particular focus on data centers.

### Challenges:
– The Asia Pacific region has experienced a decline in sales due to weaknesses in China.
– The Fire & Security segment faces some softness, though mid-single-digit growth is projected in the medium term.

### Positive Trends:
– Strong service growth at 9%, supporting the company’s transformation efforts.
– Both the Global Products and Global Residential segments saw organic sales growth, with Asia Pacific showing mid-single-digit growth.
– Building Solutions witnessed a 5% order growth and 4% organic sales growth.

### Missed Opportunities:
– The company faced a challenging year-on-year comparison owing to strong orders in the same quarter last year.

### Q&A Highlights:
– The potential for significant data center orders in upcoming quarters was discussed.
– Johnson Controls expressed confidence in its strategic direction and leadership transition.
– The company expects free cash flow conversion to exceed 85% for the year, with a focus on long-term improvement.

In conclusion, Johnson Controls is undergoing a significant strategic shift, divesting certain business units to concentrate on core growth areas, particularly in commercial building solutions and data centers. Its strong financial results and positive outlook indicate confidence in the company’s future direction and operational strategy.