JCI - Earnings call transcript Q3 2021 | Johnson Controls International plc

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Operator

Welcome to the Johnson Controls' Third Quarter 2021 Earnings Call.

Your lines have been placed on a listen-only, until the question-and-answer session. [Operator Instructions] This conference is being recorded.

If you have any objections, please disconnect at this time. I'm now going to turn over the call to Antonella Franzen, Vice President, and Chief Investor Relations and Communications Officer.

Antonella Franzen

you third our results. quarter thank discuss call and Controls' Johnson of morning for conference joining to Good fiscal XXXX press at conference related as all Investor Relations be release earlier our the The morning Web of this site found tables on well slide call issued the portion presentations johnsoncontrols.com. can as and

Financial and George Oliver; Officer, Joining the today call Executive me are our Chief Officer, Chief on Leonetti. Johnson Controls' Chairman Olivier and

the you during of like forward-looking read to press informational remind we there. we've cautionary we be today's release statements forward-looking Before I will included that call, begin, would information. you We review and course providing certain that the ask through that today's

restructuring we press adjusted you of share, our ask the EBIT sections In In that these call, release through on references are and that and to together and accompanying earnings measures cash we addition, use the measures as non-GAAP press items. integration to schedules flow are our and site. certain read posted our and will the during index special the well discussing organic attached non-GAAP the sales exclude items. with per use address presentation release, costs in free our the results of as reconciled and discussions, in Web in These metrics to EBITA, other our

year a ops continuing prior on basis. are the to comparisons all Additionally,

Now, let me call turn the George. to over

George Oliver

for morning you call everyone. joining good Thanks, Thank on and us Antonella, today. the

and review brief And results update will areas to initiatives. related with QX me Olivier forward on Let our specific kick detailed a our off update, outlook. you spotlighting few a a things provide strategic of

your to as time much as leave possible questions. take will We

on Let's three. get slide started

our ongoing back results, the businesses across in for of a encouraged comparison recover levels. strength retrofit the pre-pandemic third our healthy see with am to to to easiest solid accelerate continue markets in volume represents quarter, in of underlying the to continues most of our experienced continue sequential with Non-residential as of the expand. year, to the tied I construction by accelerating operating QX activity, first-half to many quarter solutions. but Another markets at robust building recovery led demand end demand improvement

is to the and construction inflection of also us order look longer-cycle year sets signs for and show well our beyond. businesses New beginning as project stabilization to trends in up next we

Our has business higher without been transform its service growth drive and not through we has continue our revenue an recovered, profile. recurring service challenges. strategy of business to recovery this and improved to digital levels This

through component persistent and headwinds managed to chain significant have supply disruptions, related We constraints, continued shortages, labor inflation.

have that confidence these composition over near-term, medium pressure created While we in and of continue pace growth long-term. and which on the dynamics order the will the will quarter remain revenue some track provides

like done navigating last of have effort an amount Our meeting I'd teams these and quarters. these over dedicated acknowledge excellent time and and challenges, for to our thank them needs, job particularly tremendous customer several to the

share implemented significant of coupled profitability which to a the is laser-focused is in volume which we meet That of full-year, deliver actions material were year. the the on provided decrementals. to the period, quarter, supply significant of At comparison margin As pressure. the return mitigate current able managing better the difficult driving and in boost the cost variable [Ph] of you [Lapping] in a an our to remarkable for severe led and that expansion accomplishment to gains. we continued to resulted has our said, executing on than same remain time, environment. track may the the effort actions declines year those best-in-class and and costs, in expected navigating margin constraints prior some capacity current with remain the last strategy, These during height targets impact disruptions in pandemic, recall, we

notable innovative next help Service. spend our our highlight in As of our carbon to the a discuss slide time trend past continue few to few and OpenBlue on and more our will offering Buildings under to and deliver represents accomplished this to need. the goals. our efforts as platform, will important in sustainability our enabling advance four. quarter, digital their while a This be over by renewable recently, customers turn step we the to forward our to achievement energy Net ongoing reduce Continuing transformation enhance customers' deliver the an latest I few a will through decarbonization net-zero and achievements offerings costs, launched solutions we enabled Zero slides, announcement customers minutes achieving this accelerating over commitments. we building performance as OpenBlue, outcomes Please

certificate across and at to the an now to connected and in innovations. we Partnership energy optimization will launched digital filed announced application, OpenBlue that Together throughout our leverage associate have network. Device software, have HVAC, solutions authenticate lifecycle. within aimed and industry-leading that encrypt IOT trusted College patent partnership data of ago, quarter, ensure solutions degree will the communications U.S. U.S. with About patents further services around and XXXth Johnson fire mind OpenBlue We already hardware, our We and XX building. their will securely expanding Pelion, the users, strategic received U.S. Controls' or us last advancing automation the are capabilities and and Program robust risk for security, our of and with piece programs partnership customers the in confidence Community weeks Manager users of automated building resilient cybersecurity devices, devices digital identity certificate announcement with providing expand and two systems their remain the building safely platform This which our to DigiCert a allow another management,

generation Over of technicians. to next nonprofit Controls the skilled academic million grant train community the next and support will colleges of years, trades' Johnson develop five $XX that programs in

through Johnson Controls the addition be their a In also and programs, mentorship pathway and support entry-level employment provide and student increasing internships to funding, for will volunteer employees opportunities.

Seramount. ensure we inclusive the additional by have Best Women also named Multicultural as proud our Companies demonstrating create a Lastly, to Employers for of efforts diverse to work to We Best for of our we list sustainability. European part being a to be XXXX environment, List, for as the one as Forbs Diversity, recently Leaders further the of proud well were Times Climate Financial and are received recognition commitment

solution the next our I organization, team. engineering platform. Before Officer of OpenBlue our to welcome strengthening our Vijay our Chief the I and processes, the wanted to software move is development transforming to Technology Sankaran, slide, Vijay set expanding

have having already hear impact Investor incredible And to excited Vijay onboard. at are more internally. him is He upcoming Day. We from our an will you

for update on business. a our five move Let's to trends service brief in slide

the growth, place the in to shared single-digit are underway firmly taking As drive range a you before since been mid annual well the designed the in actions strategic has Ultimately, have of we for we past over entire couple growth with service are initiative XXX which or quarters, revenues. points the would billion-plus in basis us of above-market growth pandemic. accelerating XXX $X

higher points, the revenue simultaneously expected, multifaceted, line basis has increased with three close expected, over of the XXX growth revenue all rate, digital. to digital as improved attach increasing to attachment our also our ability focusing range content is XX%, a In the attrition, approach connecting service quarter, growth in driving regions. Enabling year-to-date through and reducing installed service we Our XX%. create offerings And transforming higher recurring our time. across revenue guidance base and with now higher already for levels our rebound our our per contractual full-year. user, while compounds Order double-digit accelerated up rate achieving on

minutes evolution need customers, digital a of offerings, by this offering Zero Service the Solutions, models. in immediate this by of drive the to which were only back as our will high would deployment on buildings slide our represents pace referenced increased again as next spend Buildings an Service, four. service our I a also recurring Please slide launch. revenue smart Digital phase shift new to Not six. expect fulfill few does quarter. and highlighting thought a teens up of forward, towards We offering, And importance the continue in OpenBlue our expressed I the our it I go aided going which mid Net this as

impacts OT And in opportunity. is also Zero Service excited to combined these healthcare urgency Net Our solutions projects, net on And of and carbon OpenBlue Net broad Johnson solution, AI-driven datacenters, Controls of and schools, market-backed industrial [ESCO] their ways development guaranteed building we buildings. portfolio built is a our partner environment for level that outcomes of platform carbon models are of a helps systems high digitally engagement and our and sustainability positions zero a uniquely these includes commitments. offerings a once-in-a-generation reduce that one-source leverages extensive portfolio $XXX are in with game-changing metrics, need the the together conduced Advisor, sustainability trends. leading full and the deliver turnkey research Based solution, a IT roadmaps. renewable the as verticals. market [Ph] the to capabilities clear. and a nearly leading the operators only improved management and and emission is of to provide leading customers commercial emissions which It tracking What to reduction decarbonization facilities, provide tailored the energy the delivers and in Buildings tie expertise with to achieve their as is trusted customer well about risk software seamless role roadmap reduction reporting billion campuses, to critical sustainability up to and and enabled clear Zero building this ensure as to new

OpenBlue risk full that connected sharing end-users the models leverage flexible assets. solutions rather where tailored than also of through structures services deal pay We for outcomes offered enable suite and

through theme seven, solve to our quickly wins I slide to go each of zero. the every for. example in outcomes of Controls to providing customers examples decarbonisation in few net tied these, unique won't customer Johnson solutions the Turning but just looking is of are a

out new of partner standing relationships energy digital our are where to we're automation relationships, of these, Some or of driving reductions. OpenBlue customers systems efficiency, and driving converting sustainability energy In ecosystem, some savings we're these long initiatives. consumption, building while reducing all cost ongoing are emission existing advancing born

review patterns performance me let portfolio. our Olivier our over playing things my I saying, financial turn by to the in out I by extremely conclude encouraged detail, more opening remain to remarks across Before demand

access of may to tier project chain or activity. critical challenges manage Our downs cases, may performance From supply top and resurgence dedicated impacts, our of achieving teams short-term ability the components. remain in facing. the and confident We're lock COVID a and despite on perspective, we're materials constraints supply renewed have are to closely watching some potential not the we chain to

profitability, to both believe lead to organically and inflation, quality, buildings, we capabilities over initiatives Olivier quarters. services, we improve our turn our stretching, With smart me go Although to the next and the And and will are we're our believe conversion decarbonisation, progress the well-positioned in to let the continue to through it we air conditions We're cycles accelerate remain and strategic tremendous to couple At still inorganically. successfully program. of that, quarter. offset expect We over digital of extremely including portfolio, begin times growth productivity making time, next pricing we're the top reinvest improve cost outperform year. on same indoor to price to positive for the throughout cycle. and line details our leveraging

Olivier Leonetti

than share billion to our call. flat count. nine, field performance slide Please further cash had CapEx. from higher details Segment profitability margin global businesses markets as and expected Service commercial also accelerated. the flow benefit XX.X%. and which Thanks, and accelerating for slide and expanded free organic lower level increased XX growth well of our at in and EBITA we continue backlog of faster Conversion from was a by EBITA board activity, of turn headwind in the due install XX% anticipated our and negative to later X% The rebound more than we basis give as to a to transactional eight, residential guidance tick products higher above new last XX% products everyone. the including of execution all our leverage in across a another with from but continued $X.XX X% in our quarter, significant sales points in despite I'll both prior-year the on in pace project XX% Global line high fire Continuing segment HVAC XX%, in increased orders quarter service service security install business. the orders HVAC accelerated retrofit led field cash, versus stabilization security. service volumes, was in improving rates reversal recovered pre-pandemic XX% and businesses and end prior-year the provided Better by the the actions good as continued QX of our backlog you $XX modest strength to for SG&A include our the accelerate. Backlog in grew quarter level versus of in backlog led strength $XXX products increased benefiting reductions the up with On primarily strong costs. the George, on EPS temporary we cost headwind in and global demands morning, of offset and up up X%. conditions construction planned of strong activity. equipment price million in from year-over-year,

flow turns installed activity, quickly. given rebound backlog particularly retrofit the Our improving, a is in more which

and EPS of mix prior to me price let and prior higher our driven year on items. key $X.XX slide reversal volumes partially by favorable year, Turning touch actions. Bridge by versus mitigating offset a the cost XX, the tailwind Operations cost were on few

our over of program, Just $X.XX. COGS some with to the necessary time, temporary which increment would savings last of begin were in underlying towards the from a around XXXX. to P&L to fiscal already QX the this magnitude begun XX%. Since equated impact which our further emphasize the related benefit achieve just actions, the spoke program, we productivity taking excluding have track of impacting SG&A in on to We're actions the headwinds we

and savings We targets our are fiscal well beyond. for on 'XX track achieve to

performance Let's to organically growth by also turn revenues North X% we rebound of area our discuss refer domains Service end-market results slide prior a retrofit driven XX. Install XX impacted were supply America included the in nearly service higher grew the to our with service comparisons. our cycle segment to driven that on chain demand, business to projects, continues transactional in My by in and in disruptions segment install. detail. easier in XX%. commentary be is year both revenues short-term, sharp which slide shorter business, all addition and solid more most upgrade which was by increased to

in market, security We mid this in XX.X%. applied also quarter. quarter points and revenue infrastructure, add commercial decreased another single-digit, double-digits, HVAC a Segment is customer's to fire decarbonization domain Our position grew which XX performance basis the margin strong while grew increased double-digit low well-positioned to ESCO leading year-over-year low address which the needs. revenues, business as in

XX% in in and we declined products Global accelerated the by expected, grew actions Economic XX.X% China. service restrictions. ongoing follow temporary commercial XX% margins Controls revenue and across by orders we the with China remain short-term strength to and the mid-teens Australia, lockdown of in the mix. the with seeing by more EBITDA quarter initially parts volume year surpassing recovery conditions over cases aggregate, chain older portfolio. XX% accounts related cost HVAC for up are lockdown with XXXX revenues we the and prior grew Southeast EMEALA in infrastructure. Commercial increasing taken with renewed at fire recovery XX%. Fire HVAC more quarter incremental majority from by sequential mitigation and to run related increasing and nearly increased and and continued a experienced and grew to year-over-year nearly basis security of XXX driven and fire segment prior a in the of leverage over Latin revenues grew North XX% X% in share construction accelerated rate controls revenue security arising and energy same of for to XXX on increased security, what amount. sharply APAC reversal the strong Commercial levels led COVID mid-XXs QX quarter driven increased by benefit headwinds strong APAC the SG&A strong in restrictions increasing organic the by headwinds America furloughs XX% to mixed in outside orders of the the with costs, and low in revenue uncertainty HVAC part significant America in high margins demand as our of a benefit across growth of was Japan. in and XX% geographic action offset China the basis America XX% refrigeration than Revenue versus in growth install grew As Non-resi most to billion XXXX East grew most projects. accelerated leverage given commercial infrastructure increased prior activity. the inflected year-over-year. year verticals most despite XX% the In organically in returning declined temporary and in increased those to in Orders with points in and as of Segment XX% the related in performance Asia HVAC rollout growing year in while retrofit basis orders line All Controls and Commercial volume continue XX%, driven employee primarily an in geography on and continued double-digit Asia, and Middle expense. by driven business basis compensation increased $X.X EMEALA Japan organically vaccines. EBITDA by ongoing activity XX%. of Europe growth grew XX% points levels. and COVID supply equipment By led mid-teens in HVAC. and Industrial overhaul, single-digits. recovery further the related which actions. gain install in delays the of with than Backlog were up North

all global our mid-teens North HVAC Our a the up in with April demand, grew XX% in benefiting of residential America the and particularly in in business quarter growth was expectations resi stronger HVAC ahead slightly central strong regions. May. quarter, from

was share teens one Our led those effort in of the in high share up part as JCH HVAC to a successful markets. Taiwan residential residential business by number attain strong and gains position Japan

with benefit over up Although improved venture in our our revenue expanding joint HVAC in applied not volume offset SG&A than as XX% indirect more growth, XX% grew positive quarter. North QX, current easier year-over-year America markets. detection light business Hisense well and were Commercial key up by significantly in leverage year margin grew income Security mid leading stabilization up XX% shares of in VRF XX%, the increased over prior more and strength the reflected in China. the unitary the XX.X% revenue was XXs sales on to more our security cost significant commercial pressure. Commercial growth vertical EBITDA and points & by single-digits. fire equity XX% taken our in actions recovery suppression products cost XXX as actions led products in to temporary expanded low XX% mix the the continued and in as up up business, than which high Fire led comparisons above year-over-year price basis year

expense corporate level abnormally XX, Turning to significantly expected to year-over-year million. slide often low $XX as increased

million the of below For guide. low of million, year, the in to corporate the now $XXX the we $XXX slightly prior to expect range full be end expense

below some For modeling amortization the line reflects I would now impact our items. the out of an that included Silent-Aire. outlook point for purposes, of updated expense we have

the transaction. cash significant the other closing no XX; cash balance on to net due period in versus sheet the of sheet quarter, prior our of similar and the with Silent-Aire changes top to slide the the Turning page, than to balance the reduction starting at flow last

is working seasonality trade remains year-to-date Our quarter, X This times cash of our significant the balance all solid in improvement a the year-to-date. X.X payments. management our cash, and times. of to in healthy with million driven to normal timing X.X of by billion the still $X.X roughly flow and On compared and generated nearly sheet capital bringing been CapEx below $XXX leverage has to range targeted us we free

much the quarter, in some timing expect lower We of a fourth the conversion level given reversal benefits.

approximately For the cash flow to conversion full expect year, be we XXX%. free

us quarter, program. third year-to-date repurchased roughly more the $XXX million brings which little a During shares shares completing we for to around million, billion million X our XX than $X

Please repurchase QX. million expect updated incremental an in to a XX at slide We look $XXX guidance. our shares of for to turn

in tracking XX be point in most and of the full-year expansion high EPS of wrench, expected For growth, of $X.XX assumes to the the revenue guide, and at end to in Based full-year, points towards we on underlying $X.XX our continued most now points to segment are of EPS performance the basis of which margins now XX headwind continue EBITA our the midpoint $X.XX strong puts to the EPS raising includes guidance related adjusted Silent-Aire. sales and of to XX expect which our single-digit seeing $X.XX, on expansion. a once our digits. guidance to to high the previous again, Segment $X.XX. recent we and of organic XX end Based basis in margin range momentum EBITA This full-year, end we we target $X.XX. of organic the adjusted is growth expect the markets, basis for our are mid the year-to-date mid-single QX acquisition of are the range

host Before event we couple we to next over virtually. weeks. Day a get questions. the quick September the update the we Investor on line just the that, be Operator, can made your for into With will Registration decision open our questions, X, plan details for of available

Operator

Thank you.

question-and-answer the begin [Operator of now will Ritchie Sachs. Instructions] Joe from session. Goldman first question Our We comes

Your is line open.

Joe Ritchie

everybody. morning Thanks. Good

George Oliver

Joe. Morning,

Antonella Franzen

Joe. Morning,

Joe Ritchie

just about And the big cost XQ, how was temporary off embedded XQ headwind clearly pressures, that about furloughs talk that reversal? from we into inflation and XQ, maybe much about recognizing the as year for starting head actions what's just does into just from business pretty and that also, a this how thinking there this just cost the down step I wanted quarter. the talk maybe to So, impacted

George Oliver

and to When year some a year, I'll or ultimately built that, Yes, Joe, that take the up that the you me let at continuing color as turn and it we over and anticipating to were the set look price, way proper we of give additional you we're then Olivier the drive year-on-year making to into made sure pressures we've that our model. the well productivity, driving that sure level inflationary as basis.

so staying productivity And step capability of say this ultimately played extremely of we've period years on driving to through pricing, these our a been well we've every standpoint, out lot we've the year of ahead some strategic that of couple been offset additional time. would the from and businesses. strong last pricing headwinds. during over And has built across And I

so, done on we're the some of a But the or we created to basis in there's third be timing probably able to headwind up continue the be the knew be which second-half, the to here, with top two in of here deliver still inflationary was we've expansion through we XX challenge to that the for year. that. work And have quarter. with environment, we points that, line, that of and the has XX margin about going -- given that price And the going anticipated that flowing points to set

extremely Olivier? well. job incredible team and year has how I we've from when up, executed set first -- think an we've done where we so, the then executed; the And ultimately

Olivier Leonetti

morning, absolutely. Joe. Good No,

high we So, mentioned a this. level, at

impact EBITA Silent-Aire margin the basis for the about basis XX, had a XX points of so increase increase quarter. We in point XX So, in QX. it's of

quarter. some basis net of ongoing The our productivity elements, asked about actions of impact the specifically about of productivity. points our program through Going last is temporary the year XXX you in from

impact is in around QX If basis will the believe points. XX for you be look we positive We at second-half. the price cost in costs, price

question, QX course, impact temporary piece actions. In negative. productivity positive. be actions be OpEx net QX, points the of of from of your And would last in XX ongoing our basis about the headwind would So,

headwinds Controls. despite which in we temporary margin about are And improvement in keep are of major profitability rates good nature. improving we to positing our So Johnson ability feel the two

Joe Ritchie

helpful preview you us that my I you. too kind you if September focused to X. very could to on? organize much That's just topics color Day that what clear, of And Investor then know on the exactly don't planning and you'll give thank on maybe question. the hear follow-on But how we'll be you're want and virtual key any probably

George Oliver

a day because we're strategy unique mean is at setting capitalize we that trends end market the as core, as but we're places, lead I to healthy we in big healthy growth the communicated planet. much in and developed decarbonization, able the buildings, only out and in on we're being have how digital about combined the with very significant buildings, products in sure healthy not supporting that that all truly the be growth the that here key also on positioned vectors with portfolio we're, coming buildings, up in we healthy Joe, capitalize that only the together that's with with future healthy then Yes, people, position sure not with that line technology, of OpenBlue, thinking we've our vectors to making of to the as build as on making our capitalize services, we reinvesting

detail, programs. on the out] And extremely ultimately so we're out we're that of executing that'll acceleration there we've that And of the able really our be as X. margins about core laying made, while [cost being strategy. in far September close had on excited and growth, to all above operationally be we and then strategic priorities growth [Ph] progress that that the to supporting gap to delivers market looking on that continuing best-in-class through the deliver But of and as forward to all we're will

Joe Ritchie

Look Great, to you. forward thank it.

Operator

you. Thank

Our comes Pokrzywinski Stanley. next Josh of Morgan question from

Your line is open.

Josh Pokrzywinski

guys. morning, good Hi,

Antonella Franzen

morning, Good Josh.

Olivier Leonetti

Morning.

Josh Pokrzywinski

XQ. color it know in thanks top the a bit some target, of all I price Olivier, always on of drivers is you're the a and moving So, on margin cost for that. like there of seems getting

overall EBITA points productivity either all actions items getting So, of drop leverage. deck temporary ramping does it factor basis to productivity bottom the But leaves on based comparison to as more maybe the kind that guess the the the for net headwind XX up? just when the split those acutely, of and I or for biggest net line

Olivier Leonetti

for in fiscal by have you the productivity And QX, thank a year. your by and in So, question. in that's wide the the impact for actions QX. The full an main weight equal headwinds our And of ongoing true, margin. way, QX is

Josh Pokrzywinski

efficiency here, question pretty and kind space of whether talk is I And just you there it. a cocktail or it's IQ recovery for overall drivers of with across building heavy cyclical this demand that or some the George, of about, Got mix then, you the drivers building on like cadence of But overlap does up you cyclical actually secular think the there's bit of that momentum. the and where at secular longer? or stuff little all same you think order do kind tailwinds we stack It Like the point? see secular that. infrastructure, some those the takes maybe a seem these do get when can

George Oliver

continued to across improve, general seeing linear Olivier all that's you as not that's in this to time businesses, construction-related and regions, laid Hey, seen Josh, to say seen me why we the were as with of at conditions been back And cycle. I've true I've our I've in a recovery if all never to We're accelerate. business, although where continue look the out. fast macro that they're in the momentum with these indicators, let that beginning get as

very come we're which Dodge we now be is are to active term smaller construction And us, focused a what for filled continuing right And seeing buildings. through And that now. starts lot of that's critical they shorter-cycle projects, that's In up really we're through. projects right to in to or XX%. our the the earlier of course we're actually ramp. by how the really supported strong. in in improving is Retrofit sequentially. very seeing continue So, year. these healthy ABI And outperforming up been North backlog over that America, year-on-year on were is,

don't you fourth and out record Olivier slowdown. a a big of play see been driver any our we've were we so, up, has we as talked got we're that so backlog, And backlog, X%, up business install our when quarter, and about

we lot in come had is And here And to the nicely. of so where set as we've a 'XX. back 'XX, begin pressure that's up that

cycle, not that now You seeing cycle, with you so, I customers education, cycle can as activity the the there, some our longer we back, new with overall, new has is technologies, of take have real the only digitizing and short as ask healthcare, that looking through incredible us as for, service are new verticals create be datacenters, about outcomes services our which And well to think an we're recurring opportunity able now, ultimately coming outcomes, demand, and into existing the to this of now that revenue these given the dimension demands to before, different is when and business we're a new are good then get go now and capitalize driving estate to change a we being in on have those another to able be as positioned changes. we that more market that didn't the stream. and

Olivier Leonetti

those of some gave we statistics, additional prepared some Josh, remarks. you, in our give me Let

the It's XX years. over about is performance $XXX which what market, to the decarb of market the billion a hopefully, next good is around be believe, we right? So

pass quarter, look or between retrofit byproduct at last which and George about the up and this was altitude, XX% so stack, that clear it's if statistics quality, happening and year-to-date starting we the said you install the said build, an to we contract. indoor see in we we last growth the is XX%, was install two already, so our growing air is you business really the of really a plus that close X%, it's growing the business mentioned quarter, retrofit quarter, in getting new, quarter, This Johnson on taking the growth in of we new infrastructure at year said If some is at XX%. accelerating build this quality, inflection new see to XX%, point indicators older proxy that then which we this it's on traction. the air in business were retrofit have services, about the are last you this quarter indoor speak in is best XX a it for And Controls, performance year

Josh Pokrzywinski

for appreciate both it. all the you Thank Really color.

Operator

Thank you.

of Research. from question Nigel next Coe Wolfe Our comes

Your line open. is

Nigel Coe

to the for saying September Better to X, virtual actually morning. Milwaukee. thing looking I forward was coming Good Thanks. about

understandable, that's guess. I So

Olivier Leonetti

Nigel. We were also to looking forward it,

Nigel Coe

Then the Delta variants.

to because Olivier toughest out more understand it of curious down it there's perspective. from this kind cost mentioned So, APAC this you price seems thinking bit that as is margins of cost and feel price the cost other mix one kind price as there? you the a is but APAC like there Did comments, was, well. I is just than in primarily, temporary me growth to just of the about issue putting mix does quarter that a just hit I'm regions China call country costs, did wondering, the

Olivier Leonetti

phenomenons, the point the two read also That two impacts mix base. those One China have the of we regions on Nigel, data country improving across right, you're and those includes It's is actions for Structurally, Nigel, data to net the one-off. North you year number reduce the So to impacting one business last you difficult the of our also because took of APAC. OpEx also, quarter have America. impacting margin portfolio. APAC, profile the particularly

George Oliver

there's also. is of have bit to but the continued there there playing we little we've like, that's through see Japan and also, as region Hong volumes, back pressures beginning and across where there that's there had mix the we business Nigel, mix there, our the business kind with some Kong, come that so a of in

Nigel Coe

progressing other an we're out can services, we you that is are from And there George. on really do encouraging? call then, perspective, sense external how on to Thanks, just success measure very patent metrics the installations filings Okay. are OpenBlue, OpenBlue the here? give a on How momentum us and it cadence

George Oliver

create we're Nigel, the with And you OpenBlue it of is incorporated, let services, Yes, all now frame leveraging for our connected, me OpenBlue to installations with we're all up now being able being our you, we're of getting of forward, core it business, digital the and in Sankaran got bringing only all put to and all been doing an together data advance data, that to analytics apply of that AI not outcomes. and and the but now Vijay across critical about what building be on one all all into to take platforms, capabilities out of Vijay I incredible he's able bring as together. really we've to board, we've reputation, and coming able now architecture. then talked our that if new new them ability and done to then extract

our enhances metric we look our, deployed strong across a ultimately double-digits we revenues today, through do it when pipeline look digital and be all digital it only our you is indoor, but platforms, that accelerates at it of all our you but not segment being that services. our content good our of if in of So, now at our is everything so the digital core, don't to we're were revenues, up digital digital whether revenues,

to differentiating to value as is you way look offerings. all deploying, that's another that at across more is solutions we're with building three regions the now being so because bringing when so it significant pipeline, look our a that we're into at new built And now we much we're were content our pipeline customers digital

forward. so, well billion we've And previous in a is $X well quarters talked now about a is over going that this think I pipeline over,

deployed, call a impact decarb, of we'll kind to at what the forward-looking, those buildings have lead little as the that So the we but I it's future, being it's of how which now not on really ways autonomous amount of are is the to that all look only decarbonisation you $XX to together to more of look big the bit that. digital to said and having, solution is is it, enables able these support what be is going helping outcomes, and a content billion be Olivier buildings and $XXX now leadership to billion come market, to bring billion $XX us pieces would

we smart all as today, bit our able above core, invent be we little deploying be then we're a enhances get us But examples showed to of not that. longer-term. only our revenue will so, positions some but core, OpenBlue to And takes buildings incremental

Nigel Coe

at George. leave Thanks, there. I'll

Operator

Thank you.

of comes Our from next Sprague Jeff question Vertical Research.

is open. line Your

Jeff Sprague

morning, Good everyone. thanks. Hey,

resi resi Just little there two you characterized as could of business it actually maybe the some light of what's in and on like your your kind market a look from disruptions in or commercial in line bit was in on quarter. but drill stronger me, expectation, that going chain with kind production we supply than and

on your ability give of to have what's a So on little color there? And do volume in you maybe uncork facilities business. that at more bit us the going some

George Oliver

new the light we've continuing we're the you perform it commercial, earlier, rooftops, at launching VRF at business, so said we Jeff, look unitary When look includes when products. VRFs commercial you our not also light only it unitary well. extremely includes been and to

capacity been So this been we've of product the now with And now we've of lineup with to we've recovery the got the launches. working market. a launches, with keep strong product expanding three those up new recovery,

is with a we're in year-ago. Our very orders, orders that got that and strong we've that so launched, we're that now when you quarter, we we've XX%, here didn't was through up new during it backlog look the up pull products but about at a three space, continuing the from our what the get times

conversion, the we're for this that just of the well, capacity to we've time and cycle So, products continuing is new of a lot the expand launched.

Jeff Sprague

you you the the took business could it, maybe that customer it will you since give now response, a you customer initial globe? or of to for haven't asset? owned keys own Silent-Aire us around in anything Any on plan you And but little how long, that kind the Understood. update to the change obviously like behavior pull

George Oliver

so, comment that. I let me excited. Jeff, I Yes, on couldn't more mean, be

in excited going priorities. and Phoenix recently. And opened is As about in opportunity to how things Silent-Aire this out couple and the sites of I've be had team aligned a here have visit up, portfolio to I to couldn't our fit our also our more to

the these to It technology. It you to working capability build digital that that operators And really tremendous have a and out we And the really you each of all content so, on haven't this, to those now we space able takes the build throw but base offerings. white us way work also technology. configures opportunity datacenter how be had that. that do a is level operators. technology digital in. datacenter being look there, so with truly with where whole service didn't innovative. of they game-changer. well there's significant It top of take install when bolt-on at of the a differentiates in It's enables it's into filling And they then out becomes It able to service what increase

I as be And capability, Silent-Aire we look also couldn't this, leverage -- believe we're to capabilities, how with but able the that, more going with be so, our the I only core core datacenters at not to and excited.

we lot Now having with play to the taken pulse but really really where with any going that's nicely a the integration work, on out us. like, of team been for are, a and is and there

Olivier Leonetti

that be few question on the we additional resi, in and so North believe trajectory. few been are on adding fiscal now capacity to at our a have soon One your color for able them from at a And first America months, start going we quarters. year -- we're manufacturing capacity of standpoint as to change we very

actually. of We fair are amount a adding capacity,

Jeff Sprague

for Great. color. Thank you that

Operator

Thank you.

question next Markets. Our Capital Dray comes Deane of from RBC

line open. Your is

Deane Dray

Thank you. everyone. Good morning,

George Oliver

Deane. morning, Good

Deane Dray

talk impressive on of peers us with your when see working of this navigating the you today, through I in could of and performance quarter stands period. many overall trade moving working I just capital lots you see up $X a trade is to inventory needing trading question how a against capital where add through kind did capital but buffer was are start and The you. inventory pretty it Olivier. you're with up million,

Olivier Leonetti

for your thank Deane, you question.

remarkable ago. our in favor. performance of capital, were quarter year the playing XX% and we a about XX.X% are a same So, at actually the in working quarter, trade leavers All revenue

Let me of days. term now speak in

days structural. year-on-year is -- DSO nine So up down

good in and job our a mechanic improvement strong best game to That's reached have not a do structural We really a we have on place now here. DSO.

place in demand. we DPO our make various of If good by four have job. in strong also at DPO Johnson you to year-on-year programs look And of byproduct better Controls. again for improvement one term even structural, also last That's days, inventory about

free it's the cash some flow organization in it flow that at XXX is We days be about including is the company. generation of we would improvements, but cash said some of Deane, good XXX% XX so, structural, free restructuring. were So temporary, before, inventory total, feel we of the

So we is strong really run our in the company, cash in and generation about feel flow Deane. XXX rate

Deane Dray

was priority a capital Well, difference such in where there rankings free there. a any context, in it between quality. that's air and couple it. terms SaaS business to ago And it's feeds being the highlighting is to then, being of because comfortably just a company of let's that so of regulatory George, all it's a indoor second the in added where to just stand on the focus cash of, are years today, put stack net does XXX% each forth. ESG working congrats say, and flow for on it your you're this, industry And service team how being are management, There's question lot see obviously hear calculations come the but -- this made these put customers' a going on that's as into building above into this encouraging oversight zero to to great and

this Just here? from does all how develop

George Oliver

quality be because indoor to because double-digit healthy of air to So, here that's front and we've up $XX Deane, billion billion sized as said, I market we today as let buildings significant CAGR. center me with the And sit start that demand. $XX

within accelerate pipeline and date has to the continuing And districts, We for incredible that's over schools, been U.S. reopening got as We've working and have we and secured well to the plans K-XX. space on. a school us over X,XXX and of higher an that ed. within buildings is million well we're across healthy well because the billion position like. a across key that And $X return as $XXX X,XXX to have work

really not have to best about think healthy taken our creates a to capabilities the then combined pure only that quality. or air doing pure we that equipment you equipment building So, a indoor been the ability outcome it's -- overall, it's as be within able buildings ultimately from a upgrade,

business. has today. And you energy reducing So, been footprint. for really front contracting in focused been and consumption, the reducing When space on we've years that carbon center business with sustainability, that performance is think about our that decarbonization

to and build commitments serve we look and only pretty our have that market, we broadly and can market bring to layer not that's the today. enables think now narrow decarbonization at you we billion systems decade, then plus-billion now energy a the products when to building brought I will and that been that just And to is now efficient on that -- in achieving creates not towards it equipment which the the the now get capabilities a ultimately only you We $XXX optimize next above together, the then full have carbon $XXX over the digital OpenBlue that -- to when can the as outcome building supply. how is you the operates a with with believe net occupants required we capabilities, and and goals. as us reducing to as remaining the now that zero far bring outcome, demand, Now equipment, the with the but the building a without building into drive to get what renewables a best the this is that made you're do most looking make best solution within solution, one how ultimately emissions,

bit play for a but little space going Deane, is that attractive So to longer-term, a out us. very

Deane Dray

September on too. Thanks. about that we'll X Terrific. more I bet hear

Operator

Thank you.

of Tusa Our next Steve comes question from JPMorgan.

open. is line Your

Steve Tusa

Hi, morning. good

George Oliver

morning, Good Steve.

Steve Tusa

Hi.

do little momentum into you a events some of months? the On XX know do was also it's next think -- -- do that bit of we months, think rate the you of how there's of it about How kind kind initiatives. kind but and confluence comps growth being easier, forward? growth a -- that kind XX going of to of like your services see revenue I I of XX%, what XX

George Oliver

about taking differentiate we a as And fundamentally simple. here Yes, made look we we've that talked our billion lot progress business. pretty this, $X it's incredible can and we've then Steve; how in at business

be get uplift -- is and For a in we're to we us made improvement XXX we everything deploy capability that points attach. to big basis with our digital seeing believe going itself now that on connected, the We're that. core capability we up and when our of

data is And to so operation. the systems to the deploy, and the then type from that we contract optimize a with ultimately everything then and we of we ability attach extracted the that that differentiate the we deploy perform services overall get we

trends the those with to continue additional, healthy the as that So ability to increased of all be of now able about we've to as some basis the beyond to accelerate, I new think into deliver, above installed committed that. market. these opportunities there's think of I converge XXX XXX we our as attach, opportunity with then decarbonization, think and and And some buildings, base, points the these

achieved, And and is the they're data, lot been connection, versus of retention digital it that so, haven't mechanical of outcomes the additional historically of the a customers, service services, creating a utilizing service. because more a

Steve Tusa

in applied the What up your then, applied you orders were mentioned And it. like lot. orders quarter on for commercial up Got as just being order, the a equipment? your

George Oliver

out? technology also we're then you gaining performance of connect at so The pretty than the what's the products commercial And we've that seen. business share globally. Yes, we're a with enables much I'm seeing board. when orders look combination continue extremely preservers easily we're we've pleased us the new long-term that when this enabling to XX% we're Steve, product that is launch. the And our embedding that HVAC It's to across plays the connectivity better for within How service. that

said in was overall of three increase For I the the across that up quarter America base applied part North broad regions, all XX%. Oliver XX% think over equipment, as

able good we've And seeing go after. and play to build that we're backlog So how we really continued the we're to to pipeline about that's positioning out. feel then the going that built be

for So three was all that really within from is equipment, service think seeing only growth we're out played with at across -- we're I region connectivity, ability be of but be to base standpoint regions. a levels the positioned look Steve, to that across as going the to strength able a a single-digits, our revenue then high well. But for and has pretty much not us, we varying build the growth strategies

Steve Tusa

Right.

lot. a Thanks Okay.

Operator

Thank you.

of Research. from Our next comes Davis Melius Scott question

open. Your line is

Scott Davis

Hey, good morning, guys.

George Oliver

Good morning, Scott.

Scott Davis

by mean, or cost just Just most couple a on right that of of I been labor kind of in But about material my and to kind being when you of things. talk material, side more logistics of versus questions Is the answered. clarify and XQ. have side just price it?

George Oliver

headwinds which we is material, the mainly It's looking at. are big

you by still at you the of look up, look copper the declining. if had and lead the So at steel report time catch aluminum, analysts up, down that analyst's this reduced predicting starting XX%. is go has Steel And be soon mills important example, but to the pricing very it's for not if with steel on December some significantly. about price so to commodity, by are of should been

in that believe worst is commodity. we behind the So us

Scott Davis

security be feel know, capacity the to like Are and more the mean, I rising install. able I you Do business than HVAC ever orders here? shortages handle And there got Okay. to little labor concern a you? fire labor the intensive is bit and side you've your that

Olivier Leonetti

Yes, heat to Scott, the recovery started we were that as going and to up challenges anticipating we're recover. have

different We in work our we've with launched about more bit requires field that technicians focused light a the tell all I and would as the the call of and making we in our and for markets as solely manufacturing you done. much real fair getting attractive to what little we've work prepared my that had the pretty company. to coming key to our that labor that we've we're than that sure our be our with PMOS at programs at far in So sites, talked share, labor remarks on

but here we're I as So had growth I recovery up, projecting. the feel what although ultimately ramp where today, some able we've to a the been about pressures We've made significant progress continue we support and very had we've ramped are say the be would to good to that Scott, we up. certainly and it's

George Oliver

And stating environment. includes, our current consider obviously guide obvious, the the

Scott Davis

Good understood. Thank you. guys. now Yes, luck,

Olivier Leonetti

Thank you.

George Oliver

Scott. Thanks

Operator

Thank you.

of from come Our Barclays. will Mitchell last question Julian

open. Your line is

Julian Mitchell

Hi, morning. good

Just wanted incremental think to clarify, in the just follow-up on sort changes. about leaving the aside a margin medium-term you've wants baseline I to Olivier portfolio so of point, XX% talked

short-term So we sure trends segment of to at the just current saw just confidence wanted amidst QX in very look do as figure that hold environment, make by you when and your expect similar also, broadly in margin, to QX? cost sort we the

Olivier Leonetti

thank Julian, question. you for your

will Again, bullish We to to and able colors So, are and we impact goals. we about bullish well, talk of feel we going years, track. $XXX we slightly very is to two confident those achieve line. this now about meet some this. upon well we to the ability the ahead. feel where We still of an and profit incremental net very do And the and our next based of will have believe pleased said COGS we the are on programs as fiscal, our we're achieve labor, a of over about about on are the start our our deliver before bottom next to we on with XX% trends be productivity where goals, what SG&A, mainly ability we commodity lot are. we commodity. we are, drop gave million

mentioned despite have with in in labor. those those and commodity trends We productivity

Julian Mitchell

you're somewhat service up Thanks broad from a think different And through seen have side. on a an demerging us having build have helping significant and the the you of example. product a have business And most about business, understand peers F&S pulling do you is products George, perhaps, synergies field that product. then Maybe as or sort are help sort those sort that that very of pulling thinking strong of security from recently, much. the business substantial well? approach the for offering, field how just fire F&S sort Clearly activity revenue when to field realize JCI's view, of a services through

George Oliver

Sure, so let's in security look at fire and quarter. the

Although in then XX%. been it very back attractive up and backlog has and was our that create. It building only over a products not installs with that installed little does bit But we on field recovery service. strong base recognize the backlog, that really a the with now converting lagging, in that with new come being

aspect, and you digital overall at only go others to look this going fire smart then at do security also say question, When then the you more ultimately growth? of we aspect fire and to not installed your and strategically business. contributes very as be when this field so And our is -- how the it's much compare how look ultimately, our and contributing to billion you fire in now more revenue, we to security attractive, portfolio. think we security the and to at $X building billion. and views a I business, And it's that's base products, And the about And in our another with out be look traditional what when highest it's what one as of ultimately service would then $X our spins roughly margin forward building. but

So it of be we ability about overall about an the big is healthy going able trends. decarbonization, part on talked buildings. talked to important We these to be capitalize to now

you there compared differences. similarities there. are major others, to ours are when some look so There at And

scale, within systems to mix, enables the maturity. enables, to with be I and that you and would and as architecture go, growth think longer-term said, we together able building platform mix, now as comes then, it we should I the I But the building. to significant data to we transform. one where today at a take And step away it mix. say geographic of those into at you look to where that autonomous the product begins incremental overall I and an were all a multiple ultimately to see one if as bring are the we solution from that we future portfolio look really customer when have ability the advantage need

to space, service. capitalize as we've advantage. to trends I only see work integrated accelerating really been so, and we services become not market, what it's done above does growth the deliver enabling as that in how our truly and Being believe able be And it's well a how or on a able to competitive service being it

Julian Mitchell

Great, thank you.

George Oliver

I momentum our the very me portfolio want then this for All had outperforming. our in strategic seeing third will focus the mentioned gives to our and key coupled strong earlier, And ability that I we Operator, quarter, we've confidence as up we to morning. our call in improved joining right, are across with a verticals thank everyone high execution call. and keep close

As to you, and we that's our of September look see speaking Investor move X. on hope to coming forward, up at we Day you forward many virtually to

concludes our Operator, call. that, on So, that

Operator

conference. you in for Thank your participation today's

at may time. disconnect this You day. wonderful now a Have

Johnson Controls International (JCI) 30 Jul 212021 Q3 Earnings call transcript