Dive Brief:
- Johnson Controls reported a 4% organic year-over-year increase in full year sales and 10% organic growth in sales in the fourth fiscal quarter of 2024, according to its earnings report Wednesday.
- The company recorded $7.4 billion in fourth-quarter sales, driven by $3.2 billion in revenue for its building solutions business in North America, organically up 16% from the prior year. The business was boosted by more than 20% growth in applied HVAC and controls in the region. Orders in the segment increased 7% year over year in the fourth quarter, while backlog grew 10% to $9.1 billion, excluding M&A and adjusted for foreign currency, according to Johnson Controls’ earnings release.
- “Johnson Controls is entering fiscal 2025 with momentum. Backlog is at record levels and we are well positioned to deliver continued profitable top line growth,” Chairman and CEO George Oliver said in a statement. “Importantly, the actions taken during the year to simplify our portfolio are allowing us to focus our resources on expanding Johnson Controls as a leading pureplay building solutions provider.”
Dive Insight:
The company’s overarching building solutions backlog organically rose 7% year-over-year to $13.1 billion. Its backlog growth in North America was fueled by 6% and 11% year-over-year increases in service and systems in the fourth fiscal quarter, according to its earnings presentation.
Service orders in Johnson Controls’ North America building solutions business grew about 15%, while service sales in the region climbed 8% year over year in the fourth quarter. Products and systems revenue in North America grew 21% year over year, compared with a modest 3% bump in systems orders during that time. Orders in North America increased 7% in the fourth quarter, with low-teen growth in service, led by strength in fire and security, CFO Marc Vandiepenbeeck said on an earnings call.
Globally, organic sales climbed 8% year over year in the fourth quarter, with growth in commercial and residential HVAC sales offsetting declines in industrial refrigeration and fire and security, the company reported. Strong growth in applied HVAC sales in North America was primarily supported by data centers, with “a strong pickup” in hospitals and healthcare, activity associated with manufacturing and new energy, and opportunities in commercial real estate as the result of office portfolio reallocation, Vandiepenbeeck said.
While some parts of Johnson Controls’ applied commercial HVAC segment include commoditized products, most of it involves custom-engineered solutions that require strong partnerships with customers and allow the firm to deliver value to customers with good pricing, Vandiepenbeeck said. By leveraging its engineering resources, the firm is able to address higher value chain problems that data center customers are trying to solve for as it relates to heating and cooling, controls, fire and security of their building, resulting in a differentiated solution that “allows us to command a little bit more price,” Vandiepenbeeck noted.
Looking forward, management expects mid-single-digit revenue growth for the first quarter of fiscal year 2025, with North America expected to perform slighter higher than that, according to Vandiepenbeeck. This tempered growth is due to timing factors related to large orders, especially major decarbonization and data center projects, which saw a robust performance in the fourth quarter — typically the busiest time for the company’s service business, Vandiepenbeeck said. “While that's probably sustainable over the long term, there is some quarter-to-quarter volatility to that,” Vandiepenbeeck said.
Vandiepenbeeck noted that data center exposure is about 10% of Johnson Controls’ revenue and “continues to grow faster than the rest of the portfolio with very solid double-digit growth sequentially at least for the foreseeable future.” While service attachments at data centers perform slightly better than its overall portfolio, the vertical “is very sensitive to digital solutions and very cautious about how they deploy it,” he explained. “There are some customers that [are] more cutting edge than others. … Some others would like to manage that on their own. But the service attach rate for that business is very, very strong and better than the rest of the portfolio.
Johnson Controls said it expects to complete the sale of its residential and light commercial business to Bosch Group for approximately $8.1 billion in cash during the fourth fiscal quarter of 2025. The deal includes Johnson Controls’ North America Ducted businesses and 60% of a global joint venture with Hitachi Global Life Solutions, per the earnings release.
