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    JCI
    Earnings call· Sep 2025(Q4 FY25)

    Johnson Controls International plc JCI

    Nov 5, 2025 Source

    Executive summary

    Johnson Controls Q4 FY25 — Record Backlog and Strong Operating Leverage Drive Outlook

    Johnson Controls concluded FY25 with strong results, driven by record backlog growth and robust free cash flow conversion. The company is leveraging its proprietary business system to enhance operational efficiency and customer engagement, particularly in high-growth verticals like data centers. Management is confident in its long-term growth algorithm, projecting mid-single-digit organic revenue growth and double-digit adjusted EPS growth, supported by continued demand for decarbonization and mission-critical solutions.

    Highlights

    5

    • Full-year sales grew 6%, segment margins expanded by 100 basis points, and adjusted EPS increased 17%.

    • Free cash flow conversion reached 102% for the full year, reflecting disciplined execution.

    • Orders grew 7% for the year, and backlog expanded 13% to a record $15 billion.

    • Q4 adjusted EPS of $1.26 increased 14% year-over-year and exceeded the high end of guidance.

    • On-time delivery for key chillers in North America improved to over 95%, with lead times on track to be cut in half.

    Concerns

    2

    • APAC sales declined 3% organically in Q4 due to lower volumes in China, leading to a 190 basis point margin decline in the region.

    • Orders in APAC saw a small decline of 1% in Q4, with decreases in systems offsetting mid-single-digit service growth.

    Guidance & targets

    11
    CategoryTargetConfidence
    Full-year 2026 Organic Sales Growth
    mid-single digits
    high materiality
    High
    Full-year 2026 Adjusted EPS
    approximately $4.55 per share
    high materiality
    High
    Full-year 2026 Operating Leverage
    approximately 50%
    high materiality
    High
    Full-year 2026 Free Cash Flow Conversion
    approximately 100%
    high materiality
    High
    Q1 FY26 Organic Sales Growth
    approximately 3%
    medium materiality
    High
    Q1 FY26 Operating Leverage
    approximately 55%
    medium materiality
    High
    Q1 FY26 Adjusted EPS
    approximately $0.83
    medium materiality
    High
    Long-term Organic Revenue Growth
    mid-single-digit
    high materiality
    High
    Long-term Operating Leverage
    30% or better
    high materiality
    High
    Long-term Adjusted EPS Growth
    double-digit
    high materiality
    High
    Long-term Free Cash Flow Conversion
    approximately 100%
    high materiality
    High

    Segment performance

    3
    SegmentRevenueYoYQoQMargin
    Americas
    Sales growth supported by continued strength in HVAC and Controls, despite a tough comparison. Adjusted segment EBITDA margins improved 50 basis points, supported by productivity gains and operational efficiency.
    Orders growth: 9%
    		—3% organic—almost 20%
    EMEA
    Orders increased despite a challenging prior-year comparison (14% growth in prior year). Margin expanded by 30 basis points, reflecting positive operating leverage from top-line growth.
    Orders growth: 3%Service orders growth: double-digitSystem organic growth: strong double-digitService organic growth: high single-digit
    		—9% organic—15.6%
    APAC
    Sales decline primarily due to lower volumes in China. Margins declined 190 basis points due to pressure on factory absorption from lower volumes.
    Orders decline: 1%Service orders growth: mid-single-digit
    		—declined 3% organically—17.8%

    Operational metrics

    30
    Sales Growth
    6%
    FY25

    Company-wide sales growth for the full fiscal year.

    Segment Margin Expansion
    100
    FY25

    Company-wide segment margin expansion for the full fiscal year.

    Adjusted EPS Growth
    17%
    FY25

    Company-wide adjusted EPS growth for the full fiscal year.

    Free Cash Flow Conversion
    102%
    FY25

    Exceeded target, reflecting disciplined execution and financial strength.

    Orders Growth
    7%
    FY25

    Company-wide orders growth for the full fiscal year.

    Organic Revenue Growth
    4%
    Q4 FY25

    Company-wide organic revenue growth for the fourth quarter.

    Segment Margin Expansion
    20
    Q4 FY25

    Company-wide segment margin expansion for the fourth quarter, driven by cost discipline, favorable mix, and productivity programs.

    Adjusted EPS
    $1.26increased 14% YoY
    Q4 FY25

    Exceeded the high end of guidance range.

    Orders Growth
    6%
    Q4 FY25

    Company-wide orders growth for the fourth quarter.

    Net Debt Leverage Ratio
    2.4xcompared to prior year
    Q4 FY25 end

    Remained within the long-term target range.

    Adjusted Segment EBITDA Margin Improvement
    50
    Q4 FY25

    Supported by productivity gains and operational efficiency.

    Adjusted Segment EBITDA Margin Expansion
    30
    Q4 FY25

    Reflecting positive operating leverage from top-line growth.

    Adjusted Segment EBITDA Margin Decline
    190
    Q4 FY25

    Due to lower volumes in China creating pressure on factory absorption.

    Restructuring Program Spend
    about $200 million
    FY25

    Part of a larger $500 million restructuring program, spent ahead of anticipation.

    Restructuring Program Run Rate Benefit
    close to $350 million to $450 million
    FY25 exit

    Reflected in FY25 upside results and printed into FY26 guidance.

    Company-wide Segment EBITDA Margin
    17.1%
    Prior Year

    Used by analyst as a baseline for calculating FY26 operating leverage implications.

    Customer Engagement Time Increase
    over 60%
    Current

    Achieved through the proprietary business system.

    On-Time Delivery
    over 95%
    Current

    Dramatically improved from inconsistent levels, with lead times on track to be cut in half.

    Customer Energy Cost Reduction
    50%
    2024

    Enabled by Johnson Controls' heat pumps.

    Customer Emissions Reduction
    60%
    2024

    Enabled by Johnson Controls' heat pumps.

    Non-IT Energy Consumption Reduction
    more than 50%
    Current

    Delivering substantial energy savings for data centers.

    Colleagues Engaged in Business System
    More than 700
    Current

    Actively engaged across several priority areas.

    Kaizens Conducted
    over 50
    To date

    Conducted as part of the business system implementation.

    Leaders Trained
    200
    To date

    Trained worldwide through activation boot camps.

    Available Cash
    approximately $400 million
    Q4 FY25 end

    Cash balance at the end of the quarter.

    Operating Leverage from Segments
    solidly in the 30s
    FY26

    Traditional operating leverage expected from segments, before additional benefits from restructuring and transformation.

    Organic Growth
    mid-single digit
    FY26

    Expected to be at the enterprise level for these regions.

    Organic Growth
    slightly above average
    FY26

    Expected to be slightly above the company's overall mid-single-digit organic growth.

    Organic Growth
    probably a little faster than the mid-single digits
    FY26

    Expected growth for Applied and HVAC business.

    Organic Growth
    probably on the lower end of that enterprise guide
    FY26

    Expected growth for Fire & Security business.

    Industry KPIs

    7
    MetricValueDetails
    Price cost—
    Order backlog$15 billionUSD
    Data center hvac exposureover 95%%
    Organic operating leverage50%%
    Service aftermarket attach—
    Order lead times placement horizonon the way of being cut in half
    Orders bookings growth by vertical7%%

    Orderbook & backlog

    3
    Total Backlog$15 billionQ4 FY25 end

    up 13% YoY

    Record level, providing good visibility for the upcoming fiscal year.

    System BacklognullQ4 FY25 end

    grew 14%

    Service BacklognullQ4 FY25 end

    grew 9%

    Product announcements

    1
    ProductTypeDetails
    Coolant Distribution Unit (CDU) Offeringlaunch

    Deals & partnerships

    2
    AccelsiusStrategic investment in a 2-phase cold plate technology platform.

    Aims to anticipate future cooling solutions needed for next-generation AI chips (4-5 years out). Focuses on technology and product integration for long-term strategic advantage.

    City of ZurichProvide green heat through a landmark waste incineration project.

    Utilizes advanced heat pump technology with zero GWP ammonia refrigerant to recover energy from flue gases and feed it into the district heating network, supplying heat to approximately 15,000 homes (15% of city's total district heating demand).

    Capital programs

    1
    Multi-year Restructuring Programunderway$500 million
    Period spend: about $200 million
    Spent to date: about $200 million

    Benefit: Run rate benefit of $350 million to $450 million

    Program launched to drive operational efficiency and cost reductions. $200 million spent in FY25, ahead of anticipation, yielding a significant run rate benefit reflected in FY26 guidance.

    Risks & headwinds

    2
    Lower volumes in ChinaQ4 FY25

    APAC sales declined 3% organically; APAC margins declined 190 bps to 17.8%

    Mitigation: Focus on business system deployment and growth opportunities in other verticals/regions.

    Challenging prior-year comparisonsQ4 FY25, Q1 FY26

    EMEA orders increased 3% despite 14% growth in prior year; Americas sales up 3% organically on a tough compare.

    Mitigation: Company expects to navigate through this with strong pipeline and focus on high-growth areas.

    What to watch in Q1 FY26

    5

    Q1 FY26 Organic Sales Growth

    Q1 FY26
    Current4% (Q4 FY25)
    Targetapproximately 3%

    Why it matters

    Verifies the company's ability to meet its short-term revenue targets amidst challenging comparisons and the impact of its business system.

    We anticipate organic sales growth of approximately 3%, operating leverage of approximately 55% and adjusted EPS of approximately $0.83.

    Q&A highlights

    5

    Clarification on the 50% operating leverage target for FY26 and its implication for segment EBITDA margins, specifically asking if it implies 90 basis points of expansion from a 17.1% baseline.

    Marc confirmed the analyst's math was "pretty close" and stated that EMEA and APAC would be the main drivers of margin improvement, with Americas also contributing.

    “Yes, you're pretty close on margin. I would say by segment, EMEA and APAC will be the main driver of margin improvement this year. Not that Americas will not contribute, but if you look at that incremental, they've shown a decent improvement this year and the level of ramp year-on-year will be probably a little bit more muted than the other segment. But overall, we feel very comfortable that our operating leverage will be in the 50s or above.”

    asked by Amit Mehrotra · answered by Marc Vandiepenbeeck

    2 min read6 chapters

    Detailed Narrative

    01

    Proprietary Business System Implementation

    Johnson Controls is implementing a proprietary business system based on 80/20 and lean principles, augmented by digital and AI. This system aims to simplify processes, accelerate execution, and scale impact across the enterprise. Over 700 colleagues are engaged, conducting 50+ kaizens, and 200 leaders have been trained, with early successes including a 60% increase in customer engagement time for HVAC sellers and over 95% on-time delivery for key chiller plants.

    02

    Data Center Thermal Management Leadership

    The company is strengthening its leadership in advanced thermal management for data centers, driven by AI demand. It launched a coolant distribution unit (CDU) offering, critical for liquid cooling, and made a strategic investment in Accelsius for future cooling technologies. These initiatives, combined with existing chiller solutions, position Johnson Controls to address the full thermal management spectrum from chip to ambient, with cooling technologies reducing non-IT energy consumption by over 50% in most North American hubs.

    03

    Decarbonization and Heat Pump Solutions

    Johnson Controls is a leader in decarbonization, exemplified by a landmark project in Zurich to provide green heat from waste incineration. This project, utilizing advanced heat pump technology with zero GWP ammonia refrigerant, will supply heat to approximately 15,000 homes (15% of the city's district heating demand). In 2024, the company's heat pumps enabled customers to cut energy costs by 50% and emissions by 60%, highlighting significant opportunities in the European energy transition.

    04

    Service Model as a Differentiator

    The company emphasizes its strong service model, combining customer intimacy, technical depth, and global reach with over 40,000 field personnel. This is a unique differentiator, especially for hyperscale customers requiring consistent, high-quality support across global footprints to maintain reliability and avoid costly downtime in mission-critical environments like data centers, advanced manufacturing, and life science facilities.

    05

    Strategic Talent and Portfolio Management

    Recent leadership appointments, including a new Americas segment leader and a global manufacturing leader, aim to strengthen capabilities and align talent with strategic priorities. The company continues to evaluate its portfolio, with approximately 10% of the portfolio under review for alternatives and better ownership, guided by the principle of creating shareholder value. M&A strategy is disciplined, focusing on organic growth, capital returns, and selective acquisitions.

    06

    FY25 Performance Highlights

    Fiscal year 2025 saw strong execution, with sales growing 6%, segment margins expanding 100 basis points, and adjusted EPS increasing 17%. The company achieved 102% free cash flow conversion, offsetting dilution from the residential and light commercial divestiture a year ahead of schedule. Orders grew 7% for the year, contributing to a record $15 billion backlog, demonstrating sustained demand and portfolio strength.

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