Johnson Controls International plc Price & Performance (JCI)

Our next question comes from Steve Volkmann from Jefferies. Please go ahead. Hi, good morning everybody. Thanks for taking my question. A couple of questions, I guess, on sort of where you are relative to capacity. So on applied and I guess large chiller specifically, I'm guessing things are fairly tight. Is there some color you can give us on that? And then should we be expecting some capacity additions at some point?

I would regionalize that answer a little bit. In North America, we have a little bit of capacity, but we are very close to to be at capacity. We see obviously a very strong backlog and a continued backlog, so we have great visibility there. In Emila, we have capacity. We need to probably expand a little bit capacity to be able to follow the trend we see in data center as well as heat pump. And then in Asia Pacific, we still have quite, quite a bit of capacity [indiscernible] hasn't rebounded yet. And so our factories in Asia have the ability to drive a whole lot more growth in the future.

Okay, all right, great. And then maybe also on the same thread here. I think Mark you just said something about adding some additional field engineers, I guess, in systems and service. But where are you on sort of utilizing these folks Is there still upside to that? Do you Do you really need more people in order to grow that business more?

So our operating model really drives very high level of productivity within our field technician. We are continuously working on tools to make them more productive. We George talked about it in his opening comments. AI is not just a great opportunity for us from a cooling and top line growth standpoint. [indiscernible] that much more productive. Either it's helping them figuring out what the problem is with a particular system or having them standing ready a little faster when it comes to the type of product or services that they need to deliver that particular day. Therefore making their day more enjoyable, but also much more productive and keeping the customer kind of happy as we come in and out of those facilities quicker. We continue to invest in our field labor because it's a critical element of our service growth, our ability to continuously drive service is critical. And as you see us growing services mid to high single digit, productivity will help us rely less on labor but there's still going to be a labor component and we're going to continuously be searching for the next great talent there.

Our next question comes from Andy Kaplowitz from Citigroup.

Good morning, everyone. [indiscernible] So APAC order growth, as you said, was actually quite strong. I know you're still probably a bit cautious about calling the all clear there, but can you call a definitive turn in that market with the understanding that it's still a fluid environment given the tariff situation? Yes, Andy, as we saw early signs of the softness in the region, this goes back over the last eighteen months, we the increased counterparty risk. And though as we rebuilt pipeline, we've now seen very strong rebound here with orders at 32% in the quarter. We believe that we found the bottom and with the current run rate, which is in line with the slower market demand, And so I think based on what we've seen we've seen real stabilization in the business and now we're really returning to growth, not only in building the backlog, but the way that we're going to convert going forward. I think Andy, what's most important is the way that we continue to build services in spite of some of the pressure on the new systems. Services continues to be strong. We'll continue to help maintain a healthy segment EBITDA margin as well as continuing while we're continuing to rebuild the systems business.

So I think we'll see continued growth within Asia Pac. Not only recovery in China, but across the overall Asia Pac region.

This is George. And obviously, there's a lot of questions questions on data centers, which makes sense. But you obviously have a lot of applied verticals and it seems like you're still getting leadership out of healthcare or edge education, but maybe you can opine on some of these verticals and the visibility that you have. Are you seeing improvement in office, for example, like what seeing across the verticals?

Yes, we great question. So we continue to see strong double digit on data center as well as healthcare and some other vertical. We still don't see any acceleration in what I would call real estate, which is offices and mixed buildings would fall into that category for us. You still have owners that are trying to figure out what they're going to do with their current asset and you still see some hesitation in making certain it's just not growing at the pace of the other. We have great solutions and product to address that particular vertical as it rebounds, but but it's not where we are seeing the most growth. Infrastructure, is seeing still some good tailwind from prior commitment from a construction standpoint, and we're still seeing some positive side there. And then everything from a semiconductor manufacturing or clean room biomed manufacturing still globally sees a a great tailwind and I don't think we are going to see a stop to that to that trend anytime soon.

The next question comes from Joe O'Dea from Wells Fargo. Please go ahead.

Hi.

Sorry about that earlier. Thanks for getting me back in queue.

Restructuring and progressed over the course of the quarter.

Just revisit kind of how you're thinking about the cost impact in 2025, the savings impact whether anything is trending kind of ahead or behind the plans there?

Our expectation hasn't changed from a cost of or timing of it. What I'll tell you is embedded in our guide in the second half we've seen early signs of progress of the benefits. We started addressing very early on the stranded costs we saw as we were getting close to closing the transactionable divestiture of the ADTI business as well as the residential and light commercial. And that gave us a little bit of a a leg up on our ability to drive some of cost out earlier on. I think you're going to see some good sign in in the second half of the year from a cost standpoint. But the vast majority of the benefit will really be yielded in fiscal year twenty twenty six as we close the transaction in Q4 It will give us an opportunity to really address the vast majority of that stranded costs. In the fourth quarter into the first quarter of fiscal year twenty twenty five.

Great. That's helpful color. And then just wanted to come back to an earlier comment and about pricing going into backlog and talking about sort of selling value to the customer and just to understand your evaluation [indiscernible] goes into kind of evaluating the value you're delivering and to what degree do you think you're being appropriately compensated for that?

Well, it varies on all the different vertical we play. But what I'll tell you is our ability to drive outcome for customer allows us to not have to go into deep detail into what is the actual pricing of each component of the offering we present to them. It's a full solution, it's package and it allows us within our organization to drive best costing and maintain margin at all times. Obviously, things change. Whether it's tariff or otherwise, and we have contractual ways to actually address that to change orders with customer. As we actually go and implement those system, the application varies out and most of our contract have an ability for us to address that through a process that is very defined. And allows us to most of the time recover not only our costs, but as well the margin and sometimes drive even better value for the cost This concludes our question and answer session. I would like to turn the conference any closing remarks.

Yes, thanks. I'll wrap up the call today. This quarter, Jones Controls achieved record record setting backlog, double digit organic sales growth and broad based strength across our portfolio. Our strong start to fiscal 2025 is a testament to Johns Controls' talented hardworking team as well as our unwavering commitment to innovation and operational excellence. And I am confident that Yochem is well suited to lead Johns Controls next chapter of growth we build on the strong momentum underway to unlock enhanced value for our stakeholders.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.