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    JCI
    Earnings call· Mar 2026(Q2 FY26)

    Johnson Controls International plc JCI

    May 6, 2026 Source

    Executive summary

    Johnson Controls Q2 FY26 — Strong Orders and Record Backlog Drive Raised Full-Year Guidance

    Johnson Controls delivered a strong Q2 FY26, driven by robust demand in data centers and effective operational execution, leading to significant margin expansion and a record backlog. The company is leveraging its proprietary business system to enhance innovation and efficiency, while strategically managing its portfolio to maximize shareholder value.

    Highlights

    5

    • Orders increased 30% this quarter, building on nearly 40% growth last quarter.

    • Adjusted EBIT margin expanded 310 basis points to 15.5%.

    • Adjusted EPS was up 45% to $1.19, exceeding guidance.

    • Backlog grew 26% to a record $20 billion.

    • Full-year adjusted EPS guidance raised to $4.85, up $0.30 from original.

    Concerns

    3

    • Service orders were softer, particularly in security, due to rebalancing between volume and price.

    • Middle East conflicts impacted EMEA sales by delaying about one-third of the business in the region.

    • Backlog conversion beyond 12 months is challenged by power/electrical infrastructure for data centers.

    Guidance & targets

    7
    CategoryTargetConfidence
    Organic sales growth
    approximately 6%
    medium materiality
    High
    Operating leverage
    approximately 45%
    medium materiality
    High
    Adjusted EPS
    approximately $1.28
    high materiality
    High
    Organic sales growth
    approximately 6%
    high materiality
    High
    Operating leverage
    approximately 50%
    medium materiality
    High
    Adjusted EPS
    approximately $4.85
    high materiality
    High
    Adjusted free cash flow conversion
    approximately 100%
    medium materiality
    High

    Segment performance

    3
    SegmentRevenueYoYQoQMargin
    Americas
    Organic revenue growth led by applied HVAC and solid double-digit growth in service. Orders driven by large-scale data center projects. Margin improvement driven by higher volume and price realization, despite a short-term productivity headwind from capacity ramp-up.
    Orders growth: 40%Systems orders growth: nearly 60%Adjusted segment EBITDA margin improvement: 100 bps
    		7% organic growth7%—19.5%
    EMEA
    Sales growth was achieved as systems growth offset disruption from Middle East conflicts and lower service volumes. Orders were led by strong growth in data center-related projects. Margin expansion reflects productivity gains and improved leverage on higher revenue.
    Orders growth: 11%Adjusted segment EBITDA margin expansion: 370 bps
    		1% sales increase1%—14.9%
    APAC
    Revenue growth led by strong performance in applied HVAC. Orders grew 4% on an easy compare, indicating the region has bottomed out. Margin expansion driven by improved volumes and productivity gains, with a significant uplift from productivity.
    Orders growth: 4%Applied HVAC growth: over 20%Adjusted segment EBITDA margin expansion: 350 bps
    		13% growth13%—19.8%

    Operational metrics

    12
    Adjusted EBIT margin
    15.5%expanded 310 basis points
    Q2 FY26

    Expanded due to better operating leverage and productivity improvements.

    Adjusted EPS
    $1.19up 45%
    Q2 FY26

    Exceeded guidance for the quarter.

    Operating leverage
    45%year-on-year
    Q3 FY26

    Anticipated for Q3, reflecting continued progress in cost management and productivity.

    Operating leverage
    50%
    Full-year FY26

    Expected for the full year, reflecting continued progress in cost management and productivity.

    Adjusted free cash flow conversion
    100%
    Full-year FY26

    Expected for the full year, demonstrating improved profitability translating directly into cash.

    Net debt
    2xdeclined
    Q2 FY26 end

    Remained within long-term target range.

    Available cash
    $700 million
    Q2 FY26 end

    Total liquidity remained strong.

    Service revenue as % of total revenue
    1/3
    Q2 FY26

    Service revenue does not include retrofit.

    Middle East revenue as % of total revenue
    2-3%
    Q2 FY26

    Represents 2-3% of overall company revenue.

    Middle East revenue as % of EMEA revenue
    10%
    Q2 FY26

    Represents almost 10% or a little more than 10% of EMEA revenue.

    Productivity uplift
    $20 million
    Q2 FY26

    Very material uplift for the APAC segment.

    CDU business revenue
    $100 million
    FY26

    Expected worth of business this year, with a large pipeline, as customers pilot and test before placing big orders.

    Industry KPIs

    7
    MetricValueDetails
    Price costnot material impact
    Order backlog$20 billionUSD
    Data center hvac exposure$100 millionUSD
    Organic operating leverage45%%
    Service aftermarket attach1/3
    Order lead times placement horizonearlier
    Orders bookings growth by vertical30%%

    Orderbook & backlog

    1
    Total backlog$20 billionQ2 FY26 end

    up 26% YoY

    Approximately 70% expected to convert into revenue over the next 12 months; the balance is challenged by power/electrical infrastructure constraints for data center customers.

    Product announcements

    1
    ProductTypeDetails
    Second AI factory reference design guide (air-cooled chiller architectures)launch

    Deals & partnerships

    1
    Alloy EnterprisesAcquisition bringing unique, highly proprietary thermal management capabilities anchored in Material Sciences and manufacturing.

    The technology will be applied in heat transfer areas for chillers, CDUs, and eventually cold plates, strengthening JCI's positioning in these areas.

    Risks & headwinds

    4
    Middle East conflictsQ2 FY26, not anticipating full return in Q3, hoping for normalization in Q4.

    Impacted approximately one-third of the Middle East business (which is ~10% of EMEA revenue) in Q2.

    Mitigation: Prioritizing safety and well-being of 2,500 colleagues; continuing mission-critical services.

    Power/electrical infrastructure constraints for data center customersBeyond 12 months.

    Limits conversion of approximately 30% of backlog beyond 12 months.

    Mitigation: Customers are placing orders earlier to account for these delays.

    Productivity headwind in Americas due to capacity ramp-upProbably for the balance of the year.

    Impacted Q2 margins in Americas segment.

    Mitigation: Training and onboarding new people, processes getting practiced over time as capacity continues to accelerate and ramp.

    Softer service orders, particularly in securityQ2 FY26.

    Security service was down in Q2.

    Mitigation: Rebalancing between price and volume in the security service business to find a better balance and improve margins.

    What to watch in Q3 FY26

    5

    Service orders in security

    next quarter (Q3 FY26)
    Currentdown in security service in the quarter
    TargetImprovement in volume/growth while maintaining margin

    Why it matters

    Indicates success of rebalancing strategy and overall service business health.

    So during the -- and it's also, by the way, the part of our service business that's a little less differentiated. HVAC applied being the most differentiated. So we're rebalancing in the security service business between price and volume. So as a result of that, we were down in security service in the quarter. Margin-wise, we were up.

    Q&A highlights

    6

    Why are service orders sluggish, particularly in security, and when is a pickup expected?

    Service fundamentals are solid in HVAC, but security service was weaker due to a strategic rebalancing of volume and price. Security is a less differentiated part of the service business, and the focus is on improving margins, which were up despite lower volume.

    “Our service fundamentals remain solid and particularly in HVAC, where we continue to perform very well, but it was offset in the quarter by weaker performance, particularly in security. And we have, over the last couple of quarters, been digging into our security business as a service business deeper and have found that over the years, the balance between volume and price probably hasn't been appropriately been managed.”

    asked by Scott Davis · answered by Joakim Weidemanis

    2 min read5 chapters

    Detailed Narrative

    01

    Data Center Leadership & Innovation

    Johnson Controls maintains a leading position in the data center market, driven by strong demand for high-performance cooling and energy-efficient solutions. The company recently released its second AI factory reference design guide, focusing on air-cooled chiller architectures, to provide globally repeatable blueprints for cooling gigawatt-scale AI factories. This initiative builds upon an earlier water-cooled guide, offering clear design parameters to enable efficient operation as customers scale AI infrastructure.

    02

    Proprietary Business System Implementation

    The company is actively implementing its proprietary business system, structured around the principles of 'simplify, accelerate, and amplify,' to enhance execution, productivity, and speed of innovation. Over 1,400 colleagues are engaged, and 1,000 leaders have been trained. Early successes include a cross-functional team in West Florida redesigning service engagement processes, leading to a tripling of service agreements immediately following new chiller commissioning, demonstrating the system's potential for significant performance improvement.

    03

    Chiller Subsystem Differentiation

    Johnson Controls differentiates its high-performance York chillers through the ownership and integration of five core subsystems: compressor design (over 270 patents), power electronics (VSDs, over 220 patents), oil-free compression/magnetic bearings (over 65 patents), thermal transfer (over 260 patents), and embedded intelligent chiller controls (over 300 patents). This integrated approach allows for application-specific performance, enhanced reliability, energy efficiency, and structural cost advantages, enabling faster innovation and optimized system performance.

    04

    Portfolio Review and Strategic Direction

    Management is continuously reviewing its portfolio with the goal of maximizing shareholder value. The company views different parts of its business as playing distinct roles, such as 'offense' for high-growth areas like Applied HVAC and 'defense' for segments contributing strongly to profitability and cash flow. This ongoing strategic assessment aims to strengthen the overall portfolio, with updates to be provided as progress is made.

    05

    Capacity and Backlog Conversion Dynamics

    Johnson Controls has sufficient manufacturing capacity to meet demand for the next 12-18 months, supported by prior investments in hard capacity and ongoing productivity improvements. While approximately 70% of the record $20 billion backlog is expected to convert to revenue within the next 12 months, the remaining portion faces challenges related to power and electrical infrastructure constraints for data center customers, leading to customers placing orders earlier than in previous periods.

    AI-generated summary of the company’s earnings call. Not investment advice.