Johnson Controls International Plc Q2 FY2025 earnings call

Joakim's Initial Remarks: Joined the role ~2 months ago, thanked colleagues, highlighted strong second quarter results (organic sales +7%, segment margins up 180 bps to 16.7%, adjusted EPS +19%), orders up 5%, backlog up 12% to $14 billion. Discussed visiting 8 countries, customers, factories to understand business. Organizational Model: Reorganized into 3 geographical, customer-oriented segments supported by global functional capabilities. Goal is to be more customer-centric, improve operational performance, and accelerate innovation. Lean Initiatives: Interest in lean exists, but foundation not strong; starting with value stream mapping to improve customer focus and execution. Marc's Comments: Fiscal second quarter strong, organic revenue +7%, segment margin +180 bps to 16.7%, adjusted EPS $0.82 (up 19%), net debt down to 2.4 times, strong free cash flow.

Building Solutions: Organic sales grew 7% with high-single-digit growth in systems and service. Orders grew 5%, backlog at $14 billion (up 12%). Margins improved: EMEA/LA adjusted segment EBITDA margin expanded 410 basis points to 12.5%, APAC up 360 basis points to 14.6%, North America down 20 basis points to 13.4%. Global Products: Organic sales grew 8%, Applied HVAC grew over 20%. Adjusted segment EBITA margin expanded 600 basis points to 30.3%.

Full-Year Guidance: Maintained organic sales mid-single-digit growth. Raised guidance for adjusted segment EBITA margin to expand ~90 basis points, adjusted EPS to ~$3.60 per share (12% growth), and free cash flow conversion to ~100%. Mitigating tariff impact through strategies like local sourcing, pricing actions, and contractual right assertions.

Geopolitical Risks: Exposure to tariffs, with annualized impact ~2% of sales or 3% of COGS; strategies in place to mitigate, but geopolitical environment remains a risk factor.

Q: How do you plan to launch lean or deploy lean in an organization this large?

A: Joakim states starting with value streams, some remnants of lean exist but foundation not strong, starting with one value stream and prioritizing.

Q: Thoughts on the fire and security portfolio?

A: Joakim mentions fire and security are strong franchises, needs more learning, with strategy work ongoing to understand growth potential.

Q: Thoughts on free cash flow conversion and capital allocation?

A: Marc discusses strong first half free cash flow, sees good signs for 90%+ conversion, Joakim says capital allocation strategy under review as part of strategy work.