JCI - Earnings call transcript Q3 2022 | Johnson Controls International plc

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Operator

Welcome to Johnson Controls Third Quarter 2022 Earnings Call.

Your lines have been placed on 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 will turn the call over to Michael Gates, Senior Director, Investor Relations.

Michael Gates

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

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

forward-looking before we read we’ll begin, during We of review course you call, certain cautionary through informational and reminder, the be statements included today’s today’s providing that a information. forward-looking release that ask we’ve As press there. the

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

prior Additionally, George. continuing ops all will on are call the comparisons to over basis. turn to a year With the that, I

George Oliver

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

Slide with begin X. Let’s

as with quarter. increased organically resilient $X.X top record Reported for backlog and stack the compared pipeline. third X% growth, to year-over-year. our strong with a increasing out remains closed demand line continued XX% quarter grow, a continues year up XX% year-over-year in the pace organically, orders field organically backdrop expectations prior two-year billion The on for delivering we XX% the our total overall we backlog and X% grew robust the to sales and to line As our of supported by quarter, solid order

inflection operationally, point, from have throughout done an and excellent executing environment was quarter job the fiscal the and we faced teams despite macro an third The perspective both of challenging sales year. our a have

speed North focus supply can substantial cycle beginning business, disruptions which at our America longer backlog, reduced While supply our Solutions in to primarily have chain management our enhanced chain convert results. on produce is the we

teams and headwinds Our done by a with the materials building supply suppliers the I and confident in of have are managing chain utilization. great beyond. critical mitigate improve to working securing fundamentals job sites and we fiscal XXXX impact facility remain for production to

operations long-term we headwinds growth Given deliver advancements prudent to approach simultaneously on withstand I key targets. managing and vectors, across believe fluctuating to our are our positioned and these

We’ve and on focus mission-critical meeting Our million remain on taken to realizing priorities. year-to-date. in buildings savings, million business across savings achieve deliver smart, remain productivity most also for our connected markets top on and customer over strides track cost demand of great $XXX $XXX strategic reaching in our strong and initiatives fundamentals quarter healthy our goal vertical the the to

to further rollout additional our ERP drive are functionalization, simplification levers utilizing efforts. in We productivity also through our

In addition in this are optimization our benefits which to price/cost, we cost positive time year. the the from efforts, margin first for seeing inflected improvements

of absorption higher which come. field be backlog, in cost the be project to to converted additional realized quarters expect We margin our consists in book to

technologies of further in in partnerships. and our we we ability during reached year-to-date, smart technology our transformation in strategic strategy, achieve the our digital accelerate building quarter fostering solutions growth As of confident significant becoming the platform, executing investing advancing leader. our vision OpenBlue to our our on efforts, milestones Through commitment we are best-in-class

several healthy in capitalize M&A priority key to indoor fostering as air lead to across and we usage for look secular another installed base our strengthen our the way to customers proposition. and strategic value and emerging further transform service vast our ability with environments efforts the the portfolio. remains standpoint, Our on $X clean will over and our trends energy allocation objectives in billion billion we and a have growth in share capital From our cash million year-to-date, advancements deployed actionable across pipeline in to opportunities dividends. further including synergies that our repurchases support allow technological nearly $XXX over in us capital $X.X

improving our capabilities objectives strategic reaching Our through and execution all digital supply while meaningful our of this quarter organization. chain our enhanced commercial excellence continuously defines to the of diversity management, approach

of in to We recent and place Chief who role Officer; with and and Rathninde appointments for the teams challenges VP to pride innovation are Chain the future ourselves Commercial VP while Officer. President We fostering Huppertz, of Chief Clark as of leadership to Asia-Pacific; culture the organization strengthening our of on committed Anu Susan leading having and across Rodney way our as industry. today’s high-performance Supply continued the address our drive a assumed

until of stabilize contingency have chain signs normalize, realize supply encouraging While we we of improvement, and benefits chain-related long as management there go to implemented our year. throughout helping the operational a disruptions seen challenges still the is programs to supply way

Now turning to Slide X.

digital in of an integration of year-over-year. the which We was cybersecurity, and we connectivity control represents platform, enabler upon equipment of the enablement launched Last digital digital remains OpenBlue and in medicines have providing XX% platform chillers our to connectivity which OpenBlue continue first we OpenBlue with a significant and accelerating great OpenBlue milestones the twin over date, of a enhanced off key the dynamic customers. launch to offerings. quarter, To step is also ahead latest to ability increase connected our step fully the OpenBlue, connected competition. The our service built legacy with Through our our capabilities, to industry start. our deliver platform, a critical the needs X,XXX have of AI the a of through representing integrated solve lead Gateway,

us will As for to value mentioned intelligently energy of efficiency customers that automate as transform quality, as proposition. last and carbon our as air well quarter, the into a our optimization to allow get solution we buildings reduction our need significantly view to next level this service disruptive

integration with for This technology customers outlets flexibility availability providing with the to of to a capabilities. data forward look our ability seamlessly of while added various and data from customers. multi-cloud we insights ensuring addition, data gives customers high OpenBlue hosted integrate In

Lastly, OpenBlue to industry-leading the M&A will to and the to on This critical zero implementation the stack. create equipment, that the trust for our enhance This and we exciting for zero trust front, network. Networks, proprietary and our are strategy FogHorn networks, technology we in growing about announced our similar our another trust system the air resonating devices security Tempered a excited QX. enhances the purpose-built best-in-class to of we with wall acquisition the This technology further Bridge embedded into be pipeline focused customers, is Tempered welcome data cybersecure OpenBlue Tempered’s edge security security announced seamlessly acquisition which technology transaction of Controls. already team leverages simplifies to greatly AI-enabled edge customers. think as with connectivity are importance strongly of connected including and Johnson technology

moving Slide Next, X. to

on to early year-over-year and the XX% and in as on while flexibility and Our a solutions capitalize customers. up our orders respectively, during two-year differentiated offered and direct start quarter delivering XX%, benefited and we stages best-in-class maturing services stack. are the channel Core to with services, revenues X% results and the over still digital X%

points XX rate bringing target quarter, overall run our rate increased Our closer another on attach the to service basis in a us basis.

Slide X. along to Moving

partnership drive and both Turning a an to our global for business zero recognizing our growth customers’ commitment globally, deliver increasingly pose goal At our significant to continuing we address our assessment vectors. role helping collaboration is towards taken have risk, in and decarbonization to have maturity nationally Forrester, our strides and to change play in proprietary sectors. public net zero. is in our us climate on tool, With net their private growing customers with by decarbonization an there goals. we great Controls, sustainability commissioned forward ecosystem imminent Johnson best-in-class the Through

partnership AI-enabled have system, centers, accelerate services building which with the and our Accenture, and control Johnson further innovation products deliver new our development together We a of will helping of Controls OpenBlue deployment strengthened development two to over sustainability orders we fiscal deliver has a and of solutions. from XX% digital full booked orders, in portfolio billion million Year-to-date, increase on $X representing over XXXX, to of our year track $XXX remain infrastructure year-over-year. business

XXX health In over addition, $X.X with spanning active of our consisting large beverage care, across remains hospitality, multi-national customers opportunities industrial. from healthy pipeline billion end markets and numerous

advanced global to air productivity. proactive during to to long-term service. The XX% Slide government support safety a market remains Turning turnkey Healthy to continued standards health gain We quality technology trend OpenBlue the have compliance traction, meet leveraging investments air manage results. uniquely OpenBlue while This orders with positioned challenges Buildings a with rise. through Notably, strong indoor on customers quarter, offering customers for providing help our year-over-year. and capture the strong has quality shifting X, to costs optimize this our increased ever-changing remain opportunity and indoor delivered Year-to-date, increase Healthy as and we a to Buildings. stack the approach

in Our executives remarks, one our billion corporate and continue our team future our Slide communities. recently year-over-year. named X, the and honored be Resources To the Most prepared we was my and our on recognize demonstrate for how privacy am efforts. close who positioned future And over to like sustainable represents has influential we we customers finally, more holds Healthy black $X.X world. Officer, Human notably, about are most towards for sustainability, leadership to lead Buildings I pipeline to data way and of Sullivan, a would to and our diversity, and Marlon confident out what the XX% as XXXX’s recognized grown own is

sectors across are and financial temporary the while macro Despite a through on our resilient you key managed progress great we on that, execute walk initiatives. to and and the and remains quarter going demand backlog executing navigate turn our made bright, update our difficult in headwinds, I’m With our have call position environment the you beyond. XXXX strategic outlook. to our a over through path growth Olivier forward to the to perfect details Olivier? We in to have

Olivier Leonetti

Thanks, morning, everyone. George, and good

we midpoint with originally original quarter product global with points, saw portfolio for performance organically at high growth what X%. me on price X. X summary contributing the Slide the strong guidance line Let start up of shorter-cycle in across Sales our We up anticipated. were the our in with nearly single-digit X%

up service absorbed and a also cost to supply from price/cost down and lower chain-related EBITDA in ongoing Segment FX cash Our both X%, our longer-cycle price growth and meet to as increased with field and margins basis Free were by Favorable EPS as our $X.XX continue in XXX down the with basis and headwind store. points benefit share of headwind declined demands. X% quarter challenges. versus further margin volumes COGS programs SG&A XX.X%. $X.XX positive assumptions. was offset chain in of businesses disruptions performed well, points we manage from customer flow benefiting in well to count order guide the year-over-year, as lower supply X% XXX

with Slide segment $X.XX including EPS Overall, our were challenges. XX. the Slide increased by XX% for year-over-year. HVAC COGS controls operations stack orders SG&A business, grew low benefit and field project-based orders on prior Orders to in $X.XX $XX.X in basis. to primarily two-year $X.X aggregate lower year versus Turning we bridge million momentum continue programs, led Please increased contributed $X.XX a systems. Underlying earnings from high growth up work. billion driven helped prior a which XX. the increase supply quarter, year, billion, our teens productivity our backlog In businesses by versus higher-margin were offset turn sequentially. volumes the field and to to in demand a with for backlog headwind $XXX to continued XX% net applied Install on our below our chain transactional shorter-term double and Field digits Service business. and

favorable, subside, Our becomes our expect quarter we come. supply chain disruptions the margin mix to and more in accretion

by billion to backlog and strength. more to Products XX% $X.X continues grew show Global our than Lastly,

grew Sales up portfolio, XX. led North XX% strength discuss digits. in across business, detail the low in results Slide single primarily Fire digits. organically more in Security with double up growth Let’s America on and by our our broad-based applied & segment high were XX

head and and increased in booked orders headwind was America in offset increased on HVAC of HVAC continued than benefiting projects driven double Sustainability price/cost to XX strong continued HVAC data grew result backlog in headwinds as increase Security due declined like X% X%, grew our sales pipeline business strong Segment product in in QX. billion by high up months Orders grew led key at America, respectively. care. strong infrastructure and health realization benefit shorter-cycle Infrastructure The specialty by mid-teens Asia by continued Backlog aggregate, in QX, of in savings, Underlying part in industrial Applied products single by China our multiple to in more stack high in point North the led and was business, X% XX% of mid-single led Refrigeration. X%, strength Europe growth momentum to headwinds health specifically in our of growth positive higher with sales semiconductor, business in in aggregate. we by the with of up and of North Industrial and vertical Orders single-digit supply basis $X.X absorption APAC which delays in in were in in price Overall, growth points digits, this grew China. were a the a driven and direct digits Fire the basis up across up XX as result global continued in than both growth XX% in UK mid-single were lockdowns to ended in and with site due China. XXX basis. growth led driven for India. the the into two-year Our strength resi up XX.X%, teens were rate lockdowns growth a heat America year-over-year. our growth in volumes QX. residential equipment of Outside verticals. more X% well petrochemical lower the up which margin with declined decreased million at the platform. X%, from high business chain growth low of North chain benefit direct result up by America, quarter, Hitachi region. about and our HVAC savings, with center of cost volumes. of applied, $XX low Pacific strong positive performance single EMEALA, demand X% was Global the in Orders and quarter by XX price in declined and saw digits constraints. demand by Europe strong & $X.X up & to double-digit by the XX%, from driven Security XX% grew Fire the strong XX% was benefiting a to VRF. applied, APAC. improve driven by primarily offset $X.X care within HVAC equipment digits up HVAC XX% up was continued from our in customer double-digit Volumes strength lower up Commercial our by In increased mix billion, HVAC as backlog we in investment cost and price/cost strong Residential COVID supply sales mid-single data Refrigeration X%, XX%. products pumps. XX% primarily in realization. digits offset driven year-over-year. was verticals business, Resi and sales driven North by primarily the aggregate light growth growth acceleration XX%, Sales and in resi chain products lockdowns. COVID conversion Security digits in Industrial growth high and prior of & billion. high China single-digit by readiness, single X% of were but Europe, and Fire digits supply commercial Sales to pace with Overall, low by declined were from rest Fire X% cost Asia margin margin expect Security Backlog chain we lower a a of and supply ago & centers,

orders mid-single in points not headwinds benefit than XX.X% chain third-party XXX disruptions. organically productivity from backlog, up order backlog the billion. more expanded official and our EBITDA to digits basis Products of Although $X exceeded Global actions favorable offset and margins were field recorded mix our supply as

our We target to X cash range to on Turning XX. the Slide ended times, and flow our in balance times. sheet net X.X with $X.X of debt billion low QX at cash end at and X.X of available still

previously flow our year. cash recovery working another X million the I we we capital. us by gradual chain normalizes, repurchased approximately billion of shares free for To million carrying bringing are higher inventory the disruptions. our was customer $XXX As expect We $X.X to supply and impacted quarter, mentioned, levels supply in third demand, for trade chain meet

on trends our to Now grow, seen the of pace Slide of discuss our growth let’s all XX. and refined year-to-date. by demand Underlying we have guidance across most I’m businesses the encouraged continue

from commitments on continued We FX. meet pace are our pressure to despite

are our $X.XX of to headwinds. XX% range We growth expected $X.XX $X.XX, to EPS year XX% full is FX year-over-year. refining adjusted to EPS of absorbing

On the with fully points organically. offsetting expect top X% additional prior X% we contribute expected line, X is inflation. line to to expectations, in Price our grow to

with to XX now impact margin disruptions price/cost. minimum line come chain price in bid For on factors drawdown. our to points to Segment XXX free actions headwind headwind conversion nearly not XX% mitigate is inventory create $XXX on million basis the with still for expected mix nearly seasonal pressure slightly be to taken cash now related combined Full year the as prior impacts, to basis backlog conversion North is the are expected year, with we and the full top margin supply in associated be we minus versus the America. positive supply points, to first minus the contribution chain flow guidance. Due to the account additional expect inventory year. reflecting anticipating slower the prior a the half the These to XX typical

be which a to FX organic to offsetting assumes the is to revenue EPS XX of $X.XX $X, to range margin expected basis XX points, of of in Turning and $X.XX to improvement segment QX. headwind. growth X% XX%

meet chain empower environment. a continue rates, While challenging to commitments in supply we disruptions near-term backlog conversion still our

headwinds. seen efforts positive run We optimization and have in rate improvements our cost price/cost

in confident that, move backlog recovery Looking our operator, sequential forward, for With long-term targets. towards as questions. convert realize our open ability to XXXX margin the are please we and we in up lines

Operator

question [Operator you. first with from Khanna Instructions] Our Thank today Cowen. comes Gautam

Your now line is open.

Gautam Khanna

Yes. two questions. I have

year I if you you that? up still if First, you. Thank described catch Last could quarter, fiscal guidance? Because next Do to street for lost was confident about the NCI plus look that, talk this could variance on in when mentioned growth. the you feel just just year. we looking you we’re opine that. which of your secondly, on And view might – that get at numbers, XXXX. wanted XX% earnings you you

Olivier Leonetti

I will morning. good hope take for Thank the take your the first you George questions. one will and you’re Gautam, I well. second one.

that NCI, particularly to the joint experienced In this margin case we’re planning due mainly and a And largely particularly to this are this residential, due QX we of catching the had as the to underperformance miss terms our be well. venture in slight in at the is up miss, EBITDA quarter segment where in Japan if in you look slowdown NCI, with Hitachi. of the we is have we and

George Oliver

of positive this, at as we indicate relates to profile What potential recessionary margin order our and say, really for headwinds doesn’t XXXX. look book a our strengthen environment. signs materialize planned order is and continues to and to are the Gautam, is, I’d as we continuing it XXXX, velocity

into the those projects margins booked we look a a much higher resilient $XX into billion last we’ve as billion. Global booked. backlog obviously, have the looking That’s you field at account got If in our we’ve year, taken we’ve that as accreted up inflation as as And level strong, about, and of been $X $XX of made Olivier billion over projects well backlog, that’s the over Products. talked in of over

go-forward on very go as so attractive in And third we we’ve forward. we’ve a basis, inflected quarter, to going play here a out got that’s margin as rate

then And that the so have, last talked about in is we we third as that other ramped the quarter. opportunity quarter, we up

to third So made supporting and we third, we the pickup quarter. progress increase I’m with have a pleased in very that seasonal from volume in second

the Now a we recovery, didn’t do step a of because we were lot seasonality. of in because up

with output Now that of going QX with the we’ve level done sustain materials suppliers, in work we’ve at fourth as will all quarter this line we sight continue forward, got QX. of and to that our and look

to the then the be how course project-based higher-margin our are out and year. coming a new would through get base our And to then to services to important then and able installed going say with I with doing whole we energy in in addition, really of pumps take our progress space services of the through think some of requiring our we’re being times a the trends the period, services improve offering really that’s That’s it’s projects now level continue secular that and well turn resonating now requiring focused the recessionary demand hold. in see heat is good that reduction which that what we we’re the attractive, do So like. with I on feel if especially very on and And with of about we digital and into the OpenBlue. we business, legislation take layer as ultimately and starting in the regulations playing with customers our as

of And we’re so aware risk. fully the

the go what playbook able to if as that’s that sure and we’ll were pipeline in be it our during – – a playbook we similar ready we’ve going here be navigate have through I to would pandemic. a think we’ll is so we to to we very did XXXX, well very a building playing been we strong pipeline, a into make downturn,

can executing update about strategy, our Certainly, more focused give we’re you we’re through QX we and control. we’re we’ll and what as go XXXX. certainly, how layout So excited we on

Operator

you. Thank

Steve Our JPMorgan. next question Tusa with comes from

is line Your now open.

Steve Tusa

Hi, good morning.

of hoped in you be could the I the pushed Is messaging addressed but what forward? you’re next year considered there earnings Sorry, some on of not perspective, I missed intro, maybe a necessarily missing an cash lost kind from year. into pushed what that late. change have this – what is guys any and that’s

Olivier Leonetti

And Steve, we largely morning. resulting disruptions have from covered that. taken cash not look our level and DIO manage is due meet Steve, drive Good inventory demands. standpoint, is experiencing cycle, free DPO our better year-on-year. what trend. for a That’s if to today of inventory increased days you to chain have at at or in cash From days year-on-year, an we’re flow days year-on-year. DSO moment the flow in cash improving customer free the an we actions improving the we have seven industry KPI seven supply favorable conversion we’re up the

upon guide go able our about year to down, mainly the fundamentals. we the cash have convinced result, will and the cash are conversion about based if back to point, to XX%, Steve, the committed you and to XXX% to you of said, flow had a This go will and we George inventory investors. target as we a be what no your change in flow be expect, XX%, We that just we for free free totally remember,

Steve Tusa

front the on earnings that Yes. side. just following guess, on up And I

is seasonal go last seasonal next talking should to into supply. seasonal supply I you year and level having an revenues and usually, seasonally see that than whether you’d mentioned more see But better constraint of is rate like mean as I be guess, this expected think, heading but XQ, cash run – a push or you XQ had in perspective. and and I forward? a visibility earnings still that above to to know down kind revenue given on quarter, consistent performance a about you sense you’re related, You don’t not. the earnings these of

I answered of guess. cash kind question, You the

George Oliver

log the address relates supply with on our just What as to it Steve, we’ve I’d quarter. going achieve up very challenge XXXX. supporting had to third that been the progress being able in Gautam a up. with standpoint, full chain step ramp pleased from able is, that, to into quarter a to we the working typical be I’m to we third the do made

a level that as as we we’ve on elevated go we we position go next then typically maintain of the in down first for and pick Now the half supply down. and of of first we forward, QX basis at year. begin because up can as output well this again. the seasonality go quarter to through Typically, to forward-looking so second been remain as working the component We

and And we so the that be significant of to going that have holds turn that’s and time be that’s of growth begin that level able in be then able the and elevated in standpoint it because to sustain to be said the relative half faster price projects in to the to our through today to accelerate to output, a still to the to true turn backlog backlog first last backlog. get this working able of as we’re turn the projects we have ability

Steve Tusa

Right.

in above So be a seasonal guess, expect the first above in is question. simple half? the seasonal it I Do to first you half?

George Oliver

historical, from in – the that we what be We’ll be historically, – will half. be above – first we’ve will we from seen rate

Steve Tusa

Thank Okay, you. great.

Olivier Leonetti

year-on-year. the is backlog cycle, than Global XX% business. in the record look that’s about at $XX backlog businesses high Steve, we shorter $X And billion, Products field our the XX% up have our at is yes, Backlog at today, in more up two you a if for billion.

the flow first So through half in of as That better. George year. our gets the indicated, chain should supply

Steve Tusa

Great, thanks.

Operator

Sprague Vertical Research. Our with next from question comes Jeff

open. now is line Your

Jeff Sprague

morning. good you, Thank

kind right, of been just Just a back fair that on on supply a different sites, chain, but crews, maybe construction of job Also a of wrinkle. amount just issues thing. sort

going level like sounds your into up is kind factories. even on your it materials, inbound So confidence though of

a higher function address wonder to kind to of of rate the of the you up kind in and of that? this the confidence outside control step could that Just as fourth revenue of your if other quarter side equation. What’s

George Oliver

Yes.

we’ve it’s you So Jeff. in is convergence the biggest look where supply America of and great North question, it’s impact at When really our chains. the a business, had three

North what we So especially we only to it’s our ultimately, supply built. project-based customers management business what OEs to business, that controls, not buy America other we are what from our contribute the doing, and around then building

And we building America content been significantly what systems of provide North turn – I the three in management we’ve What the so seen all our quarter, to and our we have third digital our that improved challenged. have business.

deliveries OEs well begins their think to then to everyone cycle, subside. continuing during that I think, And improvements We’re this sustain of beginning has I forward. pressures to labor sight the in labor work seeing deliveries are the had as with the line with as to subside, to as and those other deal going

So think execute projects the relative customer I that that ability the being – to on for to not impact the are the customer broader would what more completed. plan

will as So get through lower drive million got projects America. net on will improve I the was And think QX, are North We as those $XX we said, result back. our about that We’ve That success. then I elements to that continue average. on go in reduced. quarter we’re basis, a in going go-forward three to the see absorption a in be

two months been and We’re getting it’s really to It’s to months. reduced about see taken that we’re going start historically. – turn turning we’ve two back where that to longer

have be, working confidence but things hard it’s across we’re and to all be factors going that are to going of precisely improving, those I it’s faster. turn able Jeff, so what to And say to

out and additional get through the well to able look that play us. especially pretty be to as volumes we at of for first going half XXXX, here, We’re should

Jeff Sprague

the is then little follow-up, I in part a is other what’s of QX In from the about businesses. here margin embedded key into obviously think of in this see We your particular wonder margin backlog, that of just a through quarter. I us we basis. a the if rate our give North forecast sense aggregate, could natural some question. in dynamic you the of America regions, the margin of and right, catching how for lot margin question a guess, the And kind Great. up as of lag maybe given the working price

Olivier Leonetti

Jeff, in QX point. year we we the in you by inflection first were as being at So believe look time – $XX see We margin million. for if the an price/cost our positive today,

$XX million the in in in for expect and price/cost be to QX We year. positive price/cost positive

in that we that but And orders booked that’s backlog expectation. to by the backlog. is our margin we’re the are and as just of points realize the months, bill to as of said, as X that remarks, improving our today turn communicated about starting for haven’t our indicated, to P&L We we flow have going end observing QX, two margin George is be prepared our in the

higher So you have at margin faster. turning higher backlog

So we going believe that margin business. going forward be for our tailwind to is a

most challenges, North those impacted which an Going back quickly QX by has inflection point. to was see, chain been supply our America, you again,

America margin an anticipating increase the to of We America clearly business be North around, in are QX to margin North over close about in X.X Jeff. and QX turning points

Jeff Sprague

Great. Thank you.

Operator

Barclays. comes Our Mitchell from next Julian question with

open. now is line Your

Julian Mitchell

morning. Hi, good

to back margin the circle wanted kind to construct. fourth of quarter sort Just of

the you up growth, down QX, growth sort X% QX, XXX XX% organic the saying XX and X%, margin bps. bps. in you’re So had of organic margin

ask to more you detail. trying little to unpack a perhaps just that So in swing bit

I chain you’re X QX think assuming one maybe I growth there labor of was and QX. no volume growth in in think, Price/cost, was or volume and I’m help element the to QX. moving in tailwind not points turn that headwind sure understand X us just in is is, was QX. bps a Maybe pieces that’s XX there around. those if of driving margin some a supply

Olivier Leonetti

a mix going equation. the on margin in have you So now

If at adjusted in period. We the to back we and quickly this. correctly job inflationary didn’t jobs we start you – priced, we business, inflation anticipate we the of go obviously, this the field price our

go sequentially, Julian, the X.X EBITDA see so over well. margin booked QX to is we price/cost margin and and the start points QX backlog accelerate QX, where and delta see you positive going business statistics about in in field to in are margin. the the America best also higher it this we That’s mainly see bill margin you through expect quoted increase will were we example to you that in be between margin forward. said, a – And Now The in QX also segment for P&L. why in North as significant

by points. than being one higher other X So the

George Oliver

Let me Julian, just too. add,

The other is mix. the

has the management a electronic then because and our As system, big we into multiple our our that impact it serviced there systems behind go business. there’s building on a set, got certainly, gets that as solution installed within

to as during our getting that so and historically recovery significant revenue saw a And building accelerating we where We with had a drives with we standpoint mix management very as electronic were back the third from content. that just quarter. well strong our systems, July

So contributor. that’s another

about what to the said Olivier addition pricing. In

experienced, cost, a was understand not this we until level contracts. that it with this that higher year in fully on been of a year our above working a the those then environment level the additional the much Just inflation to recovered. over and booking hyperinflation to going business, very much of claw it booking period, we cost when last were but pricing because attractive be anticipated demand. the and back to it’s get been beyond ago and Obviously, a in difficult higher we’ve We’ve at to in field-based up dynamic of inflationary but margins

what so that mix those and beginning with you’ll now through the the margin the come helping projects content is mix of said of rate. see Olivier higher seeing to is And what

Olivier Leonetti

complement talking field we points just we been X business points one aggregate statistic. P&L, about Julian, QX, in have Pricing in to In QX. it be in in to analytics the X the about. the expect

Operator

Thank you.

comes Josh with question next Morgan Our Stanley. Pokrzywinski from

open. Your now line is

Josh Pokrzywinski

guys. morning, good Hi,

George Oliver

Good morning.

Josh Pokrzywinski

price scarcity energy like some to whispers has that Fire But George, seeing you the a in be guys price demand & uptick EMEA market are EMEA of some the up It looks Europe? Security. the orders of held wonder retrofit there might we you in of maybe any of have it match been well slowdown? that could been And or pretty holding really start elsewhere – What energy just themes noted on there that if on doesn’t have pretty quarterly, good. seem off like, that?

George Oliver

Yes.

offerings. to this & broadly of – incorporating and not been have look you really offering, just necessarily building Security, at Fire into our not when Certainly, systems we domain. so by So more other look but more at Fire We’ve & Security then of able out. back attractive is the of after And service part services. to upgrade more itself perform services we’re with be domain then as going connectivity the the installed spin to very we that to able be and base because our

So what you’re is that out. seeing playing

installed demand creating base. the we’re with So

upgrading. We’re

We’re there connecting, we’re and on are ultimately, is for new projects market. then the that through what coming capitalizing

think is team output very I I an that, seeing of the executing well. think And so you’re and

that of than constrained have the teams of to really with a semiconductor were with line that the what working is our achieving. rates been in Josh, thing, other manufacturers job now The sight much higher all we semiconductor with have done And materials. semiconductor run we are nice our

to has And real on of be our some convert, been a ability the advantage and then so especially cycle sell to for us. able shorter projects

And And importantly, so service. the those set. more I executing Fire also on a And the actually across not the that of the product we & then think base total saw Security in it’s solution the only combination the doing with with we’re we’re that elements. in attractive very but our way installed board level, work

Josh Pokrzywinski

it a we Got That’s catching of And other helpful. up on in sort end. of of looks but on covered then ground it. like what I’m inflation, on pricing, terms lot wondering just the

field of So price the being go math. I more Is it to distant the the about harder like how line? rather of deflationary a becomes Like with point jobs jobs bidded bidded hold guys list of inflationary or some you those maintaining up than raw pricing, on down business, which some guess. price do the like there maybe inputs the some at

George Oliver

Yes.

core is increased doing the value. So we’re creating what to

type serve so result most that of demand we’re into into solutions verticals. really the high-quality we And backlog we’re you OpenBlue, high been leveraging attractive a putting when we’ve And to we’re of the high-quality solutions that, our look as at getting providing, that – projects differentiating and the backlog.

you And if period, our funded that how execute is in we on all pretty and up the so holds relative projects. started to no and historically, ultimately, look sticky price backlog typically when we a – get into recessionary they’re matter because

go on back a it services base we’re on – then only solutions, getting which think we to this and but go-forward us it’s And an sticky. have basis, installed strategy and that the our connected, services on value installed putting we’re installed solution that a additional apply set build that base digital suite the of that not makes returns so to really ultimately, enables that the proposition, then content with our I that building base and focus the into

disciplined. the accelerated, we and there assure up. inflation we’re a booking. are to going those this that transitory, extremely would was ago all we’ve into ramp wasn’t be tell were over I the baseline. going fundamentals you be was summer So view of you, last And booking been that how to it go-forward that significant When a the year I on can really a basis, when

a tied the Now you’ll the a to of overall coming they’re third quarter. projects you proposition a costed higher ultimately you to the through go the that of point fully as third ultimately in are older higher prior that and inflection obviously, key that have is pricing. what forward, But mix then was projects in these quarter saw newer of value element

Josh Pokrzywinski

I’ve That’s helpful. had. That’s it. all Got

Operator

Joe Ritchie from with comes question Sachs. next Goldman Our

open. is now Your line

Joe Ritchie

morning, guys. Good the Thanks. details. Yes. Appreciate all

George Oliver

morning, Good Joe.

Joe Ritchie

Yes.

maybe and also start guidance? supply XQ? impact guidance expected But just want may from And is still your this, margins, XQ. in very missed EMEALA chain make North I to the helpful in what’s I on have the understand America. on the margin to embedded the embedded do an what’s then commentary just the chain for in I I EMEALA So there – sure supply mean on

George Oliver

to second third good Olivier a production to we’re to progress. sequential made I’d And EMEALA on quarter, seasonality, in would in to normal supply the we’ve level basis. and visibility ask be noticeable big able say, a seen But quarter. be then much then materials on a our first I going I’ll from a for with sustain our chain, and we supplier go-forward basis, is And better to overall, recover building significantly say suppliers we’re the we our that that resiliency improvement of margins. weren’t to was, comment chain. on the on able what the go-forward getting in knew going take be said go-forward because was we working basis. What that ramp quarter I on I’ll to And there a of supply

volumes. our rates when materials critical our any line HVAC of or Fire at one basis domains good our one now sustains on a whether sight – of look run or any a domains to have pretty the So run it’s Security, that we we of rate &

our look volume that external an volumes, you at we’re level. least at both If at the Products, and we have, elevated in Global internal

the continue a is to level maybe set sequentially at QX. bit or to So little the to And up goal supply continue next our sustain into better we’re of chain year. we’re we the going at for first half as

plan. that’s So the

that ultimately And talk now was that structure comes think the through, some Olivier of how especially margin around and can question I the about EMEALA.

Olivier Leonetti

Yes.

headwind half QX, of is – QX expected $XX still to two be to have planning So in we to supply chain. for about give chain, just number, some want we if number, Joe, comments. of in on you supply the a One, had due disruption million use disruption. to the a About to you a a give what

In EMEALA, out played North largely what have EMEALA is terms QX in we in what discussed of for America.

be margin to were directionally margin flat similar a America to If well. should for EMEALA to look North be as you trend flat we’re year-on-year what where at expecting we expect QX, very year-on-year, the

Joe Ritchie

That’s super both. you, helpful. Thank

George Oliver

Okay.

Operator

Davis Scott from comes Melius question next with Our Research.

Your open. line is now

Scott Davis

me morning, hear good Hey, everybody. okay? Can you

George Oliver

yes. Hey Scott,

Scott Davis

can these expect out of George, kind Are the of – the you Healthy they color about little on a and talk bit out? what just orders? bid Buildings these? of Are profitability you competitively

George Oliver

Yes.

So to what really out and strengths, been playing it’s would this it’s really say, attractive. called our is I

above government the And $XX funding. IAQ. stimulus even billion the the from we converging on on lot sustainability. or and by is relief at been focused a playing start, $XX U.S. out buoyed There’s sized are last two focus that CAGR. this That’s other It’s I with actually to with a or global programs be think of maybe that. the double-digit over billion it years

see XXXX, million $XXX over look at year So we’re strong over the last that continuing. customers when budgeting have our up to you our was orders, a and relative up upgrades. in that’s these doing year, year-to-date that We XX%, and

pipeline I so billion it quality aspect, differentiates energy incurred service, able level what returns. is, be – to obviously take outcome air the a the we very question while doing the that that air actually a solutions get cost just highest are Healthy patenting higher returns think attractive it’s for of about forward but the we’ve relative is also to our the conserve And your account here one ability indoor what is basis. our to the with of balancing you’re to at delivering you where the customer. the energy actually outcome for building isn’t right be combination we’re into the takes the Scott, equipment, therefore, I on go now not to a additional to think energy, which domain, us, OpenBlue and what And quality the $X.X as not consume elevate just with And been And delivers the with our do optimization just developing Buildings able that what enabling aspect ultimately and use customers, digital that we the indoor deliver.

advance to portfolio. continuing our we’re so And

launched solutions supporting I last think new over new had XX products the two – effort. years, we’ve products, this

serving the we’re we’re very feel the on solutions profile good we getting margin think continued I customers growth that our that with. rate these about and

Scott Davis

reconcile And about are That’s growth I connection those trying and to in X%. a revenue look growth rising George. Or connected revenue total those at I’m connected? then And you? X,XXX, forward How expect rate talked chiller of for Slide separately, up going devices we revenues would you really is XX%. X, Yes. chiller from match connections, helpful, up. to numbers how start then generate just then connections if Meaning, short as those kind

George Oliver

Yes.

we mine – for it’s our really last making pleased services back services. – getting the providing connection, of We been equipment we that back and additional going getting were assessed – entire the more we’re base. get of base went say, installed and the optimizes general, connected, the the looked then chiller. our with today So installed services I’m back data use last – to going it’s the with And developing that once data year, we’re progress flywheel, where you what the older that in use at services the over the offerings ultimately really what and ultimately very we mechanical did of would and – we’re I with what have and doing

getting And that. take able new been as on of our only them and it’s then and services not the connected with being contract to existing the part existing to contracts, add all so

some been of So you but base more also that it’s serving. been the installed per we mining able reason hadn’t installed be that to revenue get to whatever customer, pick up base

so up the Scott is And OpenBlue. we’re – that, of enabler

So have go a very gateway to a we result, launched use immediate that, connect with the get And it is to we very as accelerated and efficient allows connect. us has OpenBlue how very – the that efficient can our in of back and data. ability

X,XXX, XX% going go-forward over up on basis. We’re to a that’s accelerate year-on-year, to only up and

our helping it’s attach so And rate.

getting go able on when you with a be out through capabilities go-forward you in serve of some a well two whether Vibrational that of Chiller, a go manage we’ve that – that that it our services existing And there’s Analysis, created new equipment once Energy OpenBlue in to us makes PSA, as go be base. enables service attachment, added put an can more warranty it other piece value much piece it’s you you Those equipment a lot launched, added as installed much that or lot then how get it more sticky efficiently. combined there’s are a And with basis. when and in of forward, the to to Advisory, that that renewals connection, and you equipment, new more so higher

the we’re So those with are the date. elements encouraged progress that come very we’ve to together, but made

Scott Davis

helpful hear Good That’s Okay. guys. luck to you you, really Thank that. George. to

George Oliver

Scott. Thank you,

Operator

Wolfe Research. question Our comes next Nigel with from Coe

Your now line open. is

Nigel Coe

of morning, here. everyone. ground couple Good A Thanks.

Just…

George Oliver

morning. Good

Nigel Coe

to I XQ and about plus these you’ve pointed today, talked America. versus to talked X supply to points XX% margins in what’s better book and also built chain improvements. margins, the you think that back EMEALA just wanted I XX% in improvement, morning. good about backlog and Hi, When go you look we North being Olivier, at sequential

wondering, we we out of on cost that getting I’m assuming when X And of supply just price So costs? go how XQ better using XQ those making inflation much is from this chain in it maybe costs? to just Are is improvements. there? points assumption future Are what then on versus metric current backlog improved we segments, two you’re margin, some the

Olivier Leonetti

turn-in inflation, In The of is orders in improvement margin the due XX backlog. the margin, mainly improvement the due to many orders questions were the it’s billing but of to improvement Nigel. be in largely ago see here, at the level pronounced realizing in the year. lower X, is now backlog at QX, of the P&L it’s realization booked the us starting, rate now and which assumption. months in our to mainly high So our going about That’s the turn those the of less to next you

order have cost strong. high-single orders business in order high-single saw are so we actually of flow future won digit flow our today future inflation, terms cost, in this And The and that based inflation the upon is Nigel. assuming with realizing for In digits. business very our was we inflation, the you been

Nigel Coe

Okay.

actually questions efficiently. about answered you it Now since there, very I five asked

that. Japan? It’s you just of maybe about Maybe for of many bit business. George, then is Hitachi address the obviously thanks how for China, that? maybe, So then the European talk address And a we how well-positioned pump box of major just and how some as heat of opportunity international into us. you’re territories viewing residential – kind a black go maybe the for XXXX, And

George Oliver

Yes.

actually have strong to working and that’s bit softer rest So – Japan residential very share, business, But footprint and our as a if been from the Japan the performing expanding come has our were we’ve back. during well. much presence you JCH back offering. has been Taiwan Taiwan. we’ve where look relates it India a has COVID we to at soft where the they gain been been very coming obviously, pretty little whole world, cycle, pretty the doing well. of in

in portfolio. pump of the the offering within We’re heat seeing and JCH portfolio the nice growth that Europe because strong have we

growth, presence we even a We’re But seeing to and have here Europe, nice continue to small America. expand work our high in in pickup I overall, North base. mean, we to it’s though

got pumps we from So that had new on new we’ve standpoint, high good it coming – feel the basis. go-forward products, and lot We’ve a overall, reinvestment are a about heat reinvestment. very we’ve been of market, into a

Olivier Leonetti

Let and what the was me second – part, Nigel?

Nigel Coe

is about heat pump opportunity. the It European

addressed I that. think you

that... within So

George Oliver

then get to as by EU-level net what I look is well important strategy what’s say which think Well, on solid is law, would because zero I decarbonizing that the efficiency legislation, you energy directive as to deal, happening underpinned the underpinned at there. trend with is performance is it which in green Europe, the And When XXXX. by climate of energy by Buildings. it’s

must by be have worst-performing of zero – to to new to think going then this require fossil is then by there’s get repower directive, create to you performance what see certificate. an XXXX. energy by and obligation happened so And going this The from XX% upgraded, which emission to buildings with an buildings Russian is public I it’s XXXX, be EU independence be fuels the stock

play get to offering with been what we the you the entire that low the reducing our into at given applications to consumed our we’ve to HVAC for energy when strengths So doing out, bring portfolio, same that market. time, our play does across Nigel, GWP, that it

about that. feel good we very so And

Olivier Leonetti

statistic, through not quarter only the additional $X for Nigel, it portfolio, heat in pump resi in was terms only. And of an QX, to billion the close revenue in

Nigel Coe

portfolio? whole the across that’s And

Olivier Leonetti

indeed. is It

Nigel Coe

Olivier. Great. Thanks,

George Oliver

Thanks, take question. more Nigel. We’ll one

Operator

question comes Dray with final Markets. RBC Capital Our from Deane

Your open. now line is

Deane Dray

morning, Thank everyone. you. Good

George Oliver

Deane. Good morning,

Deane Dray

on with the of start the supply Just clarification chain sizing off disruptions. impact a

to quarter, improving You in said the million quarter. a impact $XX million $XX fourth this

change lower including was to what said, the are absorption make to got other including this you I like want from you in it you’re the field related in sure initially orders, expediting, understand you that million service million? Just it Is When all but all delayed, sounded where that. included that factory, freight inefficiencies, $XX $XX improving project disruption. component in insulation shortages, gets

Olivier Leonetti

So the let QX. $XX of disruption million level clarify. in me is

expect half QX. We of in that it be to

Absorption take, is $XX an this all million. give to indeed. inclusive So right, or you’re And our other number. and disruptions business

So all-in it’s an number.

Deane Dray

from time one, and [indiscernible] hear this that really rollout, every prior helpful. And makes just then I me really That’s right. about ERP is and nervous. maybe All last

So receivable the risk, Olivier, but does rollout the Typically, modules that are installation where the just what are stand? on? you biggest had modules ones P&L that

Olivier Leonetti

two So we five or are two years project. in years

we an at we with when are now. So confidence where speak issue, the is have this can about start. Usually, you

And so been far, meeting milestones. we really have our

that we line way impact. from top the having question this, but the with business, SAP. pleased our Cloud. to our only for launch teams one about will our also of productivity ERP have and organization Deane. benefit have it, Oracle And executed for we manufacturing on are part a will No We’re mainly field the across with And global going business, use very we

Deane Dray

to hear. That’s good you. Thank

George Oliver

And why joining to here want thank take call I today. for a Thanks, Deane. our I minute everyone to wrap don’t up.

and While with have reduction the I’m performance service in to close strong confident an our year measures as and leveraging significant we business platform. outlook, we fiscal margins. see a continue our while initiatives a capitalize the to working this, out the and can and customers the never the shareholders, soon demand going been to progress next with record was you are backlog XXXX forward we’ve and to headwind with our and much forward very heading do position book operational continue of for momentum, value now many cost higher strong better communities I fundamentals over significant digital see say, been drive through to look our few of optimal We’ve and on we our into speaking in look days. disruptive as continued order that I and XXXX, made

today. So operator, our that concludes call

Operator

today’s participating. conference. concludes all for Thank you That

disconnect at may You this time.

Johnson Controls International (JCI) 4 Aug 222022 Q3 Earnings call transcript