Johnson Controls' Growing Service Business Is a Margin Expansion Opportunity

Sector Director

Brian Bernard

Revenue segments as reported by the company.

Building Solutions North America

Building Solutions EMEA/LA

Building Solutions Asia Pacific

Global Products

Revenue Segments

Gross Profit, Operating Income, and Net Income as a percentage of Revenue

Gross Margin

Operating Margin

Profit Margin

Margins

An operating expense is an expense a business incurs through its normal business operations. Often abbreviated as OPEX.

Selling, general and administrative

Restructuring and impairment costs

Net financing charges

Equity income

Operating Expenses

Year over year growth in Revenue and Operating Expenses.

Revenue Y/Y

OpEx Y/Y

Growth

Shares outstanding refer to a company's stock currently held by all its shareholders, including share blocks held by institutional investors and restricted shares owned by the company's officers and insiders.

Outstanding Shares

Market Cap

Also known as Price/Sales Ratio. Calculated using Average market cap for the quarter / Annualized quarterly revenue.

Revenue Multiple

Before 2016, the market had mostly viewed Johnson Controls as an automotive-parts company because about two thirds of its sales came from automakers. However, after merging with Tyco and spinning off its automotive seating business, now known as Adient, in late 2016, Johnson Controls has become a more profitable and less cyclical pure-play building technology firm that manufactures HVAC systems and controls, fire and security products, and building automation solutions. 

In early 2019, Johnson Controls sold its power solutions business to a consortium of investors for $11.6 billion of net proceeds, which it used to pay down debt and repurchase shares. We believe Johnson Controls' prudent capital allocation strategy in tandem with its simplified business model supports shareholder value creation. 

As a pure-play building technologies and solutions business, Johnson Controls stands to benefit from secular trends in global urbanization and increased demand for energy-efficient and smart building products and solutions. We also believe the COVID-19 pandemic has expanded the market opportunity for healthy building solutions, such as air filtration and touchless access controls. These secular tailwinds should allow Johnson Controls to grow faster than the economies it serves. Indeed, over the next couple of years (through fiscal 2024), the firm is targeting revenue growth at a 6%-7% compound annual rate, compared with expectations of 4%-5% market growth. Key levers behind Johnson Controls' targeted outperformance include continued product innovation (supporting market share gains and pricing), increased service penetration (a higher-margin opportunity), and participation in meaningful growth themes (for example, energy efficiency, smart buildings, and indoor air quality solutions).

Business Strategy & Outlook

We think Johnson Controls benefits from durable competitive advantages that should support economic profits for at least the next 10 years. As such, we assign it a narrow economic moat rating. 

Johnson Controls’ building technologies and solutions business holds a strong position in commercial HVAC equipment, building automation and controls, and fire and security. 

In our view, a strong track record in offering customers durable, well-engineered, and reliable equipment cannot be achieved without technological know-how. We believe that Johnson Controls' technological know-how is a key differentiator, especially for large, complex commercial building system projects. Indeed, there are only a handful of competitors than compete in that specific piece of the market.

Johnson Controls' installed HVAC, building automation, and fire and security systems are important assets that generate a lucrative stream of recurring revenue over the lifetime of the system. Given the mission-critical nature of commercial HVAC systems, maintenance, service, and aftermarket parts are needed to avoid disruptive and costly system breakdowns. Johnson Controls' installed base of Metasys and OpenBlue, the firm's building automation platforms, generates recurring software upgrade and subscription-based revenue. Software updates improve system functionality and guard against new cybersecurity threats. With the Tyco merger in 2016, Johnson Controls added a large installed base of fire and security systems that generate a significant amount of recurring maintenance and monitoring revenue. During Tyco's final analyst day before the merger (November 2014), the company said approximately 25% of its top line was recurring service revenue. Service revenue currently accounts for roughly one third of Johnson Controls' consolidated revenue with approximately half recurring. 

New commercial HVAC, building automation, and fire and security systems are a large investment that can require lengthy installation time. As such, we believe building operators would be reluctant to completely replace entire HVAC, building automation, and fire and security systems and instead prefer to upgrade, retrofit, or reconfigure existing systems to adapt to changing technology, regulatory standards, and user requirements. This is a favorable dynamic for Johnson Controls, which is well positioned to capture upgrade, retrofit, and reconfiguration spending from its installed base.

In terms of service revenue, Johnson Controls' ability to capture future HVAC maintenance and service revenue from its installed base is not always guaranteed. Third-party service companies and competing manufacturers are generally able to service many of Johnson Controls' products, and some customers have internal engineers that can service systems to a certain extent. A competing manufacturer that wins a service contract on a Johnson Controls system can slowly replace components of that system with its own equipment over time. However, there are only a handful of companies that can challenge Johnson Controls' commercial HVAC position, including Carrier, Trane Technologies, Daikin, and to a much lesser extent Lennox (which only competes in light commercial applications). Of course, Johnson Controls has the same opportunity to win service contracts on competing HVAC systems as well.

We don't believe that Johnson Controls' switching cost advantage extends to the residential HVAC market because residential replacement costs are comparatively low, and the service market is far more fragmented and competitive. However, residential HVAC sales account for less than 10% of Johnson Controls' consolidated revenue.

With regard to Johnson Controls' fire and security monitoring services, we believe in many cases it's more cost-effective for a customer to outsource these monitoring services to Johnson Controls rather than use an in-house monitoring staff.

Few of Johnson Controls' competitors offer such a comprehensive suite of commercial building systems and related services. As such, there are few alternatives for building operators that value Johnson Controls' one-stop-shop approach and prefer to use one firm's equipment and services for its key building systems.

Johnson Controls operates an extensive branch network to provide installation and services for its customers around the globe. While myriad HVAC and fire and security service providers exist, few have the revenue base to support a similar-size branch network. As such, Johnson Controls is much better positioned to directly service customers that have multiple locations across the U.S. and the world compared with local and regional competitors that don't have the scale to profitably service customers with national or multinational footprints. Furthermore, we believe Johnson Controls' branch density results in better service quality.

Narrow

Economic Moat

Johnson Controls

Johnson Controls International Plc engages in the provision of building products, energy solutions, integrated infrastructure and next generation transportation systems. Its technology and service capabilities include fire, security, HVAC, power solutions and energy storage to serve various end markets including large institutions, commercial buildings, retail, industrial, small business and residential. The company was established in 1885 and is headquartered in Cork, Ireland.

Earnings data Q3 2021

Earnings data Q4 2021

Earnings data Q1 2022

Earnings data Q2 2022

Earnings data Q3 2022

Earnings data Q4 2022

Earnings data Q1 2023

Earnings data Q2 2023

Earnings data Q3 2023

Earnings data Q4 2023

Earnings data Q1 2024

Earnings data Q2 2024

Earnings data Q3 2024

Johnson Controls (JCI) reports strong Q2 performance and raises full-year guidance

Johnson Controls (JCI) delivered robust Q2 results, raising full-year guidance and demonstrating strength in service orders and margin expansion. While facing challenges in certain regions and sectors, the company is focused on leveraging opportunities in HVAC, sustainability, and healthy buildings to drive future growth.

Johnson Controls (JCI) reports robust Q3 performance and eyes fiscal 2024 expansion

Johnson Controls reported strong Q3 performance, highlighted by organic sales growth, margin expansion, and increased EPS. While facing challenges related to de-stocking and margin headwinds, the company is focused on leveraging opportunities for continued momentum and margin expansion in fiscal 2024.

Johnson Controls reports strong fiscal year 2023 despite cyber incident

Johnson Controls had a strong fiscal year in 2023, despite the impact of a cyber incident. The company anticipates challenges in the first quarter of 2024 due to the cyber incident and weakness in China. However, it remains confident in the momentum of its Building Solutions business and expects opportunities for growth in the second half of 2024. The company is focused on stabilizing Global Products and improving margin through various initiatives.

Johnson Controls adjusts guidance due to China headwinds and cyber disruption impact

Johnson Controls' Q4 2023 Earnings Call highlighted the impact of a cyber disruption, updated fiscal 2024 guidance, and a reduction in the full year adjusted EPS range due to growing headwinds in China. The company expressed confidence in its future, introduced a new CFO, and emphasized the focus on simplifying the portfolio, driving margin expansion, and delivering consistent cash flow. Despite challenges, JCI is focused on recovery, improved pricing power, and leveraging opportunities for growth.

Revenue

Cost of revenue

Gross profit

Operating expenses

SG&A

Other

Operating income

EBITDA

Net income

Earnings per share

Total assets

Current assets

Cash & equivalents

Receivables

Inventory

Non-current assets

Net PPE

Intangibles

Total liabilities

Current liabilities

Short term debt

Income tax payable

Non-current liabilities

Long-term debt

Total equity

Stockholders equity

Minority interest

Total liabilities & equity

Total debt

Net debt

Book value per share

Cash from operations

Funds from operations

Change in working capital

Cash from investing

Capital expenditure

Purchase/sale of investments

Purchase/sale of business

Other sources

Cash from financing

Change in stock

Change in debt

Cash dividends paid

Cash from other sources

Net change in cash

Free cash flow

Johnson Controls International Plc engages in the provision of building products, energy solutions, integrated infrastructure and next generation transportation systems. Its products and solutions include fire detection and suppression, security, HVAC equipment, building automation and controls, digital, industrial refrigeration, residential and smart home, retail, distributed energy storage, and batteries. The company was established in 1885 and is headquartered in Cork, Ireland.

CORK, Ireland, Feb. 23, 2021 /PRNewswire/ -- Johnson Controls (NYSE: JCI), the global leader for smart, healthy and sustainable buildings, today was named a Clarivate Top 100 Global Innovator™ 2021 for the sixth straight year. The tenth edition of the annual report from Clarivate Plc, a...

Johnson Controls named a Clarivate Top 100 Global Innovator 2021

MILWAUKEE, Feb. 18, 2021 /PRNewswire/ -- Johnson Controls (NYSE: JCI), the global leader for smart, healthy and sustainable buildings, the National Urban League and the Milwaukee Urban League today announced a partnership to help the organizations expand their initiatives supporting...

Johnson Controls Partners with Urban League to Enhance Mission of Racial Equity

Johnson Controls International PLC said Wednesday it will take a $240 million charge, most of which will be recorded in 2021, as a result of cost-cutting actions aimed at generating annual savings of $300 million by the end of fiscal 2023. The building products and transportation systems company said the cash impact of the cost-cutting actions is expected to be $200 million.

Johnson Controls to take $240 million in charges, lifts profit outlook as a result of cost-cutting actions

CORK, Ireland, Feb. 17, 2021 /PRNewswire/ -- Johnson Controls (NYSE: JCI), the global leader for smart, healthy and sustainable buildings, today details multi-year SG&A actions designed to further optimize the overall cost structure, enhance operational efficiency and deliver meaningful...

Johnson Controls Details SG&A Cost Reductions to Further Optimize Cost Structure and Updates FY21 Guidance

CORK, Ireland, Feb. 17, 2021 /PRNewswire/ -- Johnson Controls (NYSE: JCI), the global leader for smart, healthy and sustainable buildings, today announced it has joined The Climate Pledge, a commitment co-founded by Amazon and Global Optimism. Signatories of the Pledge commit to reaching...

Johnson Controls Joins The Climate Pledge, co-founded by Amazon and Global Optimism to Support Accelerated Net-Zero Carbon Ambition

CORK, Ireland, Feb. 8, 2021 /PRNewswire/ -- Johnson Controls International plc (NYSE: JCI) Chairman and Chief Executive Officer George Oliver, and Executive Vice President and Chief Financial Officer Olivier Leonetti, will speak at Citi's 2021 Global Industrials Virtual Conference on...

Johnson Controls to present at Citi's 2021 Global Industrial Virtual Conference

Johnson Controls International's (JCI) CEO George Oliver on Q1 2021 Results - Earnings Call Transcript

For fiscal 2021, Johnson Controls International (JCI) envisions adjusted EPS in the band of $2.45-$2.55 per share, indicating 9-14% increase on a year-over-year basis.

Johnson Controls (JCI) Q1 Earnings Beat, Prospects Bright

Johnson Controls (JCI) delivered earnings and revenue surprises of 7.50% and 1.08%, respectively, for the quarter ended December 2020. Do the numbers hold clues to what lies ahead for the stock?

Johnson Controls (JCI) Q1 Earnings and Revenues Top Estimates

Shares of Johnson Controls Intl (NYSE:JCI) rose 0.1% in pre-market trading after the company reported Q1 results. Quarterly Results Earnings per share were up 7.50% year over year to $0.43, which beat the estimate of $0.40.

Recap: Johnson Controls Intl Q1 Earnings

Johnson Controls International PLC reported Friday fiscal first-quarter profit that rose above expectations, while sales declined to reflect the impact of the COVID-19 pandemic but still beat forecasts. The building products company's stock was still inactive in premarket trading.

Johnson Controls beats profit and sales expectations, provides in-line outlook

CORK, Ireland, Jan. 29, 2021 /PRNewswire/ -- Johnson Controls (NYSE: JCI), the global leader for smart, healthy and sustainable buildings, today announced new environmental, social and governance (ESG) commitments, science-based targets as well as a net zero carbon pledge to support a...

Johnson Controls Unveils Ambitious Sustainability Commitments, Accelerates Vision for a Healthy, Sustainable Planet

CORK, Ireland, Jan. 29, 2021 /PRNewswire/ -- Johnson Controls International plc (NYSE: JCI), the global leader for smart, healthy and sustainable buildings, today reported fiscal first quarter 2021 GAAP earnings per share ("EPS") from continuing operations, including special items, of...

Johnson Controls Reports Strong Start to Fiscal Year; Provides Fiscal 2021 Full Year and Q2 Guidance

Johnson Controls will have growth momentum for the next 2 to 3 years. However, the stock price is reflecting the potential quick recovery due to the January 2021 price rally.

Johnson Controls Is A Good Long-Term Investment, But Wait For A Better Entry Point

Investors project an earnings beat for Johnson Controls (JCI) in first-quarter fiscal 2021 as the stock carries a favorable Zacks Rank and Earnings ESP.

What Awaits Johnson Controls (JCI) This Earnings Season?

Johnson Controls is scheduled to report its Q1 fiscal 2021 results on Friday, January 29. We expect Johnson Controls to likely post revenue and earnings slightly above the consensus estimates, driven by a rebound in demand for building solutions, and new product launches.

What To Expect From Johnson Controls Stock Q1 FY2021 Results?

Johnson Controls (JCI) is seeing favorable earnings estimate revision activity and has a positive Zacks Earnings ESP heading into earnings season.

Why Johnson Controls (JCI) Might Surprise This Earnings Season

DUBAI, UAE, Jan. 28, 2021 /PRNewswire/ -- Johnson Controls (NYSE: JCI), the global leader for smart, healthy and sustainable buildings, today announced results of independent surveys of 800+ building decision makers showing a clear shift to increased investment in healthy building trends...

Johnson Controls Customers Prioritize New Integrated Technologies for Healthy Buildings; Solutions Must Deliver for Healthy People, Healthy Places and a Healthy Planet

Johnson Controls has seen a solid rebound in its business, and has maintained steady margins. It's set to ride the wave of energy conservation trends in a climate-conscious world, and its digital offerings show promise.

3 Reasons You Should Consider Johnson Controls

Abbott Labs

Danaher

ServiceNow

Stanley Black & Decker

It's not easy to beat every quarter on earnings for five years, including during a global pandemic. These companies have done it.

5 Incredible Perfect Earnings Charts

Johnson Controls (JCI) possesses the right combination of the two key ingredients for a likely earnings beat in its upcoming report. Get prepared with the key expectations.

Johnson Controls (JCI) Expected to Beat Earnings Estimates: What to Know Ahead of Q1 Release

Adobe

Fidelity National Information

JELD-WEN Hld

Johnson & Johnson

McDonald's

MercadoLibre

NextEra Energy

Otis Worldwide

SVB Financial Group

Teladoc

It's time to start considering some of the best stocks to buy for 2021. However, these 12 selections come with a bit of a twist.

The 12 Best Stocks to Buy for a Whole New Year of Returns in 2021

Johnson Controls (JCI) reported earnings 30 days ago. What's next for the stock?

Johnson Controls (JCI) Up 9.8% Since Last Earnings Report: Can It Continue?

CORK, Ireland, Dec. 2, 2020 /PRNewswire/ -- Johnson Controls (NYSE: JCI), the global leader for smart and sustainable buildings, released the findings of its annual Energy Efficiency Indicator survey, which found that more than half of organizations plan to increase investment in energy...

Johnson Controls Releases 2020 Energy Efficiency Indicator Survey Results

CORK, Ireland, Nov. 23, 2020 /PRNewswire/ -- Johnson Controls International plc (NYSE: JCI) Chairman and Chief Executive Officer, George Oliver and Executive Vice President and Chief Financial Officer, Olivier Leonetti will speak at the Credit Suisse 8th Annual Virtual Industrials...

News for Johnson Controls Stock (JCI)