Johnson Controls International plc
Analysis
Johnson Controls turned from a fix-up story into a growth story. Data centers drove orders and backlog to records, management raised guidance at every call, and it lifted its long-term growth target — but the profit from that work still sits a year or two out. How much of the backlog growth has come from data centers?
- Demand is running ahead of anything the company has sold before.
Orders grew double digits at every call and backlog climbed from $15 billion to $21 billion, both records. Biologics and advanced manufacturing are growing too, and management now plans to grow faster than it has in years. How large is the life sciences pipeline relative to data centers?
- Raised guidance at every single call of the year.
Full-year EPS guidance went from $4.55 to $5.05 and the growth target moved from mid-single digits to about 8%. The company beat the Street every quarter, so the risk has shifted from customers not ordering to the company not shipping.
- Service, the repeatable part of the business, is the slow one.
Service revenue grew 7% while systems grew 11%, and service orders barely grew. Management said security service let price and volume drift apart — "not appropriately been managed" — and is cutting price to win work back to protect margin. How large is security within the service business?
- The backlog converts on the timeline management gave. Most of the order book turns into sales within a year, so next year's growth is already sold rather than just hoped for.
- The savings program keeps freeing up capacity. Field crews and factory lines do more without more people, so the company grows sales without growing its costs.
- The big factory spend is already behind it. The plants were paid for years ago, so each extra chiller shipped now drops through at a much better profit.
- Customers keep pushing delivery because their power is not ready. Data center sites cannot take the equipment until their power work is done, so orders sit unsold and growth slips.
- Equipment is growing faster than service. Data center gear earns less than the service around it, so a bigger data center share means less profit on each sale.
- The costs land before the savings do. Restructuring, a bigger research budget and price cuts in security land first, so profit can lag behind the order book.
| Politician | Transaction | Amount | Traded | Filed |
|---|---|---|---|---|
Donald Trump Republican · Executive | Sale | ≥$50K | Jul 23 | Sep 22 |
Donald Trump Republican · Executive | Purchase | ≥$50K | Jun 12 | Aug 22 |
Donald Trump Republican · Executive | Sale | ≥$50K | May 11 | Jul 1 |
Donald Trump Republican · Executive | Purchase | ≥$15K | Mar 25 | May 13 |
Donald Trump Republican · Executive | Purchase | ≥$15K | Mar 2 | May 13 |
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How Johnson Controls International turned $23.6B of revenue into $2.8B of operating income.
| Revenue | ||
|---|---|---|
| Building Solutions North America | $15.8B | ▲ 39.50% YoY |
| Building Solutions EMEA/LA | $5.0B | ▲ 15.64% YoY |
| Building Solutions Asia Pacific | $2.8B | ▲ 25.03% YoY |
| Total revenue | $23.6B | |
| Gross profit | $8.6B | 36.4% |
| Operating income | $2.8B | 12.0% |