• Organic Revenue Growth: 10% increase.
• Segment Margin Expansion: 200 basis points to 15%.
• Adjusted EPS: $0.64, up nearly 40% year over year.
• Available Cash: $1.2 billion at the end of the first quarter.
• Net Debt: Decreased to 2.3 times.
• Adjusted Free Cash Flow: Approximately $600 million, improved nearly $800 million year-over-year.
• Global Products Organic Sales Growth: 15% increase.
• Applied HVAC Growth: More than 30% increase.
• Adjusted Segment EBITDA Margin for Global Products: Expanded 740 basis points to 30.1%.
• Building Solutions Orders Growth: 16% increase.
• Building Solutions Organic Sales Growth: 8% increase.
• Building Solutions Backlog: Record levels, growing 11% to $13.2 billion.
• Service Backlog Growth: 8% increase.
• System Backlog Growth: 12% increase.
• Fiscal Second Quarter Guidance - Organic Sales Growth: Mid-single digits.
• Fiscal Second Quarter Guidance - Adjusted EBITDA Margin: Expansion over 150 basis points to approximately 16.5%.
• Fiscal Second Quarter Guidance - Adjusted EPS: $0.77 to $0.79, representing 12% to 14% growth.
• Full-Year Guidance - Organic Sales Growth: Mid-single digits.
• Full-Year Guidance - Adjusted Segment EBITDA Margin Expansion: Over 80 basis points.
• Full-Year Guidance - Adjusted EPS: $3.50 to $3.60 per share, representing 9% to 12% growth.
• Full-Year Guidance - Free Cash Flow Conversion: 90% or greater.

• Warning! GuruFocus has detected 4 Warning Sign with RXO.

Release Date: February 05, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Johnson Controls International PLC (NYSE:JCI) reported strong first-quarter results with robust revenue growth and significant margin expansion across all business segments.
• The company experienced a 16% growth in orders, driven by double-digit growth in both Systems and Service, indicating sustained demand for its engineered solutions.
• JCI raised its full-year guidance for both margin and adjusted EPS, reflecting confidence in its operational strength and strategic initiatives.
• The company achieved record backlog levels, providing visibility into future revenue and enabling consistent and predictable financial results.
• JCI's focus on innovation, including the use of AI for remote monitoring and proactive repair recommendations, is contributing to growth in its services business.

Negative Points

• The company faces uncertainty regarding tariffs, which could impact margins and necessitate price adjustments.
• Despite strong order growth, there is caution about potential slowing in the second half of the year due to tougher year-over-year comparisons.
• The North America Building Solutions segment experienced a $20 million productivity drag due to investments in incremental resources.
• There is ongoing pressure from foreign exchange rates, with a noted impact on margins due to the strengthening dollar.
• The core real estate market, including offices, is not showing significant growth, which could affect certain product lines.

Q & A Highlights

Q: George, as Chairman of the Board, what sort of mandates are you delivering to Joakim as he comes in as CEO? A: George Oliver, Chairman and CEO, explained that Joakim Weidemanis was selected through a rigorous succession planning process. Joakim's extensive experience at Danaher, particularly in scaling global companies with a focus on customer orientation, innovation, and efficiency, aligns well with Johnson Controls' current value creation journey. The strategy developed under George's leadership has built significant momentum, and Joakim's operational and strategic expertise is expected to capitalize on the company's growth potential.

Q: On the free cash conversion of 90% plus for the full year, how much does that include cash restructuring payments? A: Marc Vandiepenbeeck, CFO, stated that the 90% conversion includes $250 million of restructuring cash. The company is focusing on its operating system fundamentals, such as job selection and billing processes, to improve free cash flow. The global products team has also improved inventory management, contributing to better cash conversion.

Q: Your orders are comping up 16%, yet you held the mid-single-digit guide. Are there any concerns for the next few quarters? A: Marc Vandiepenbeeck, CFO, noted that while the second half of the year presents tougher comps, particularly in Q4, the company expects all businesses to grow at mid-single digits. The guidance reflects caution due to potential tariff impacts and the need for more clarity on APAC's rebound.

Q: Do you expect an acceleration in data center-related business sales for '25 versus '24? A: Marc Vandiepenbeeck, CFO, confirmed that both orders and revenue in the data center segment are accelerating. The strong order growth, particularly in North America, is driven by customers' increased visibility on cooling demand and efforts to get ahead of leadership changes in the country.

Q: How has the order book changed over time in terms of duration and lead times? A: Marc Vandiepenbeeck, CFO, explained that there is a shift towards longer-cycle businesses, driven by strategic focus on high-margin system jobs with long service tails. This approach builds stronger customer relationships and results in earlier order placements compared to historical trends.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.