Johnson Controls International PLC reported robust financial results for its third quarter of 2025, marked by significant growth in organic sales and a notable increase in adjusted earnings per share (EPS). Despite the positive performance, the company’s stock saw a slight decline in aftermarket trading.

Key Takeaways

• Organic sales increased by 6%, driven by strong demand across core vertical markets.
• Adjusted EPS rose 11% to $1.05, surpassing company guidance.
• Segment margins expanded by 20 basis points to 17.6%.
• The company raised its full-year adjusted EPS guidance to $3.65-$3.68.

Company Performance

Johnson Controls demonstrated solid performance in Q3 2025, with a 6% rise in organic sales and an 11% increase in adjusted EPS, exceeding its own guidance. The company’s focus on operational efficiency and innovation, particularly in the data center and service business segments, contributed significantly to these results. The firm maintained a competitive edge by expanding its backlog by 11% to $14.6 billion and continued to explore strategic acquisitions.

Financial Highlights

• Revenue: Organic sales grew by 6%.
• Adjusted EPS: Increased by 11% to $1.05.
• Segment margins: Expanded by 20 basis points to 17.6%.
• Free cash flow: Nearly doubled year-to-date to $1.8 billion.
• Net debt: Reduced to 2.5 times, within the target range of 2-2.5x.

Market Reaction

Following the earnings announcement, Johnson Controls’ stock experienced a slight decline in aftermarket trading, with a decrease of 1.17% to $112.87. This movement comes despite the company’s positive financial results and raised guidance, suggesting a cautious market sentiment possibly due to broader market trends or investor expectations.

Outlook & Guidance

The company raised its full-year adjusted EPS guidance to a range of $3.65-$3.68, anticipating 14-15% growth. Johnson Controls expects low single-digit organic sales growth in Q4 and mid-single-digit growth for the full year. Additionally, the firm projects approximately 90 basis points of segment EBITDA margin expansion and plans to complete the sale of its residential HVAC business to Bosch in Q4.

Executive Commentary

CEO Joakim Weidemanis emphasized the company’s commitment to operational efficiency and strategic growth, stating, “Speed is one of the largest competitive advantages.” He also highlighted opportunities for portfolio optimization and cost structure improvements, aiming to deliver consistent and predictable results.

Risks and Challenges

• Supply chain disruptions could impact production and delivery timelines.
• Market saturation in certain segments may limit growth potential.
• Macroeconomic pressures, including inflation and interest rate changes, could affect overall demand.
• The transition in the China market from new construction to retrofit focus may pose challenges.
• Potential integration risks associated with strategic acquisitions or divestitures.

Q&A

During the earnings call, analysts inquired about the company’s strategy to improve service business margins and its exploration of opportunities in the fire and security segments. Executives reiterated their commitment to achieving free cash flow conversion above 95% and ongoing strategic portfolio reviews.

Full transcript - Johnson Controls International PLC (JCI) Q3 2025:

Nadia, Call Coordinator, Johnson Controls: Hello everyone and welcome to the Johnson Controls Q3 2025 earnings conference call. My name is Nadia and I’ll be coordinating the call today. If you would like to ask a question at the end of the presentation, please press star followed by one on your telephone keypad. I will now hand the call over to Jim Lucas, Vice President in Business Relations, to begin. Jim, please go ahead.

Marc van Diepenbeeck, Chief Financial Officer, Johnson Controls: Good morning and thank you for joining our conference call to discuss Johnson Controls’ fiscal third quarter 2025 results. Joining me on the call today are Johnson Controls’ Chief Executive Officer, Joakim Weidemanis, and Marc van Diepenbeeck, our Chief Financial Officer. Before we begin, let me remind you that during our presentation today, we will make forward-looking statements that reflect our current views about our future performance and financial results. These statements are based on certain assumptions and expectations of future events that are subject to risks and uncertainties. Please refer to our SEC filings for a list of these important risk factors that could cause actual results to differ from our predictions. We will also reference certain non-GAAP measures throughout today’s presentation.

Reconciliations of these non-GAAP measures are contained in the schedules attached to our press release and in the appendix to this presentation, both of which can be found on the Investor Relations section of Johnson Controls’ website. I will now turn the call over to Joakim.

Joakim Weidemanis, Chief Executive Officer, Johnson Controls: Thanks, Jim, and good morning everyone. Thank you for joining us on today’s call. This morning, we announced strong third quarter results, continuing the momentum we’ve sustained throughout the year. Organic sales grew 6%. Segment margins expanded 20 basis points to 17.6%, and adjusted EPS grew 11% and exceeded our guidance. Year-to-date, adjusted free cash flow has nearly doubled to $1.8 billion, and we are on track to deliver over 100% free cash flow conversion for the year. Orders grew 2%, led by strength in the Americas and offset by ongoing softness in China. Our backlog grew 11% to $14.6 billion and remains at record levels. We continue to see strength in demand for both our systems and service solutions. We are now building an even stronger foundation for long-term success by developing a business system focused on simplifying operations, accelerating growth, and scaling our impact.

This includes sharpening our focus on what matters most to customers and deploying lean principles to tackle barriers to growth. We’re raising our full-year guidance, and Marc will give more details later in the call. I now have my first quarter under my belt, and tomorrow is my 140th day at a company celebrating 140 years of leadership. That is 140 years of winning with customers, driving innovation, and supporting the advancement of human society with solutions for smart, productive, safe, and sustainable buildings. After all, the advancement of science, education, healthcare, and manufacturing occur in buildings. As we celebrate and reflect upon our history, we believe our best days are still ahead of us. Unlocking our potential depends on placing even greater emphasis on the customer. Our goal is to deliver consistent, predictable results over time and outperform our competition, enabling strong capital allocation and enhancing value for shareholders.

Since joining Johnson Controls, I’ve had the opportunity to travel the globe, visiting our largest factories and spending time in the field with our customers and teams. I have visited well over 100 customers, all of our major innovation centers, and walked more than 30 plants. I met with hundreds of our frontline colleagues in sales, service, R&D, and manufacturing. These travels produced insights that will inform our future success as a company. First, we need to sharpen our focus on our customers while also staying ahead of the competition. Customer centricity will fuel accelerated growth by enabling us to win and retain customers more effectively through differentiated offerings and how we serve them. Second, it’s essential that we enhance our investment in R&D to accelerate innovation. Our IP portfolio is strong, with 8,200 patents and more on the way.

Our products and solutions deliver results that resonate with our customers. While we possess considerable strengths, there remain opportunities to accelerate growth within our core domains by addressing gaps in our product portfolio. Third, our field position of 40,000 frontline colleagues has been and continues to be a competitive advantage. We see clear opportunities to better equip and support them, making it easier for them to deliver for our customers. By doing so, we can get more leverage from our team and expand capacity and productivity to drive stronger results. Given the importance of this effort, we recently appointed Chris Scalia as Executive Vice President and Chief Human Resources Officer. Chris brings a unique combination of people and culture strategy, operational excellence, and a deep commitment to building high-performing teams.

We’re excited for Chris to hit the ground running as we continue to transform Johnson Controls into a growth-focused, customer-centric powerhouse and a magnet for talent. As we look ahead to our ongoing transformation, developing a business system and embedding it in our cultural foundation is a critical step in driving long-term success, one that requires dedicated effort, discipline, and patience. My deep experience with proven business systems, combined with spending meaningful time at Gemba, has helped us shape a clear vision for what this could look like at Johnson Controls. This business system is how we will win and run the company. It will be anchored in proven methodologies like 80/20 and lean and augmented by digitization and AI. First, 80/20 is a powerful operating model that sharpens our focus, cutting through complexity so we can concentrate our energy on what matters most to our customers. We simplify.

Adopting principles of lean, we convert this focus into action with a strong orientation on what matters most to our customers. We eliminate waste, streamline workflows, and accelerate processes to drive speed and efficiency across the organization to better serve customers and increase our competitiveness. We accelerate. Throughout the process, we embed digitization and AI as core enablers in our process improvement. This augments our focus and speed with smarter systems and the ability to scale impact for our customers and our people. We scale. Simplify. Accelerate, scale. While we’ve made progress over the last several quarters, we know that with a strong business system in place, we can accelerate and improve our results over time. We will solve customer problems faster and more effectively by empowering our people. It will become our way of life at Johnson Controls. Our efforts are already underway.

Since the last earnings call, we have identified a number of growth blockers, and we are actively addressing them. In general, the growth blockers center around the speed of execution and more effectively and efficiently leveraging our existing capabilities in the field and beyond. To ensure speed in decision-making and implementation, it is important to identify the root cause of these growth blockers and develop countermeasures that we can then implement into consistent, repeatable processes. We have started with a narrow focus to deliver results quickly, and then we will scale more broadly. I can give you two early examples of progress. The first example is in our conventional HVAC business, where we’re creating value for our customers and our frontline colleagues who serve them.

Our objective is to substantially increase the amount of time our sales teams can dedicate to engaging with customers by streamlining internal processes and eliminating waste that does not contribute direct value to the customer experience. Over the last four weeks, this team has identified specific countermeasures to double time with customers for our sellers. This will unlock opportunities to better leverage our enviable field position. Another focus area is improving lead times for our key chillers in North America, where we continue to see dynamic growth in the fast-expanding data center vertical. We have an opportunity to cut lead times in half, which will both improve our competitiveness and create additional manufacturing capacity. As we deliver substantial improvements around the growth blockers we have identified, we can replicate these successes and deploy across our global portfolio.

With momentum building, our executive team has been trained on the core foundations of our future business system, and each of them has participated in at least one Kaizen. After countless Kaizens throughout my career, I participated in my first Johnson Controls Kaizen a couple of weeks ago. Over the next few months, we will train our top 200 leaders and ensure their participation in Kaizens and our program overall. As we begin to see tangible results from these early initiatives, we will expand engagement and training across the organization. While we have many opportunities to drive growth through operational improvement and ultimately more consistent, predictable results, we’re also continuously evaluating and refining our strategy. This has started with a fresh, objective view of all our business lines and solutions.

Looking ahead, we will evaluate our portfolio and make strategic decisions to ensure sustainable growth through targeted acquisitions or thoughtful exits. As we move forward, our focus will progress to a comprehensive review of our operations, including our manufacturing and back-office networks, to further unlock productivity and capacity. In summary, we believe there are clear opportunities to optimize our portfolio, footprint, cost structure, and the way we work going forward. This is an ongoing process with continued focus on delivering shareholder value. It has been a productive four months since I started at Johnson Controls. My excitement continues to build as we become more intensely focused on the customer, the people on the frontlines who serve them every day, and drive adoption of our future business system. I look forward to the journey ahead as we work together to deliver even greater value for our customers, team members, and shareholders.

With that, I will now turn it over to Marc.

Marc van Diepenbeeck, Chief Financial Officer, Johnson Controls: Thanks, Joakim. Good morning, everyone. Turning to slide six, we deliver strong results in the fiscal third quarter. While the broader environment remains uncertain, our execution continues to drive meaningful results. Our focus on operational efficiency is helping us to deliver for our customers and reinforce our competitive edge. Our team is committed to generating consistent, long-term value for our shareholders. In the quarter, organic revenue grew 6%, and segment margin expanded 20 basis points to 17.6% as we proactively mitigated the impact of tariffs through strategic sourcing and cost management initiatives. Adjusted EPS of $1.05 was up 11% year-over-year and exceeded the high end of our guidance range. On the balance sheet, we ended the third quarter with approximately $700 million in available cash. Compared to last year, net debt declined to 2.5 times, which is within our long-term target range of 2-2.5 times.

Year-to-date, adjusted free cash flow improved approximately $900 million year-over-year to $1.8 billion. The strong performance, driven by improved cash conversion, reflects our disciplined financial management and consistent operational execution. Let’s now discuss our segment results in more detail on slides seven and eight. Orders in the quarter grew 2% as growth in the Americas was muted by softness in China. Customer engagement remains strong, and we continue to see healthy activity across our pipeline. Additionally, the mix of orders is shifting toward higher-margin solutions, reinforcing our long-term growth and profitability outlook. Geographically, orders in the Americas increased 5%, with mid-single-digit growth in systems. In EMEA, orders were up 2% against a tough comp with 6% growth in service, offsetting a 1% decline in systems. In APAC, orders were down 8% as a decline in systems more than offset double-digit growth in service.

At an enterprise level, organic sales growth was led by solid mid-single-digit growth in both systems and service. Sales in the Americas were up 7% organically, with continued strength in both HVAC and controls. In EMEA, organic sales grew 4%, led by 8% growth in service. In APAC, sales grew 6% organically, with strong double-digit growth from our resilient service business. We continue to maintain healthy margins through disciplined cost management and strategic pricing, ensuring profitability even in a dynamic market environment. Operationally, we have driven greater efficiency across our core processes, while improvements in our service mix have allowed us to prioritize higher-value offerings that enhance customer satisfaction and support long-term profitable growth. By region, EMEA adjusted segment EBITDA margin expanded 100 basis points to 14.1%, driven by improved productivity and a positive mix of service growth.

In APAC, adjusted margins expanded 70 basis points to 19.4% as productivity continued to improve. In Americas, adjusted margin improved 10 basis points to 18.5% as system growth outpaced service growth. Our backlog remains at record levels, growing 11% to $14.6 billion. System backlog grew 11%, and service backlog grew 8%. Let’s now discuss our fiscal fourth quarter and full-year guidance on slide nine. As we enter the fourth quarter, we are building on strong momentum driven by enhanced operational efficiencies and a backlog that remains at historical high levels. We anticipate organic sales growth of low single digits, adjusted segment EBITDA margin of approximately 18.6%, and adjusted EPS in the range of $1.14-$1.17. As a reminder, we have a challenging comparison due to a large one-time project we successfully executed last year.

Based on strong execution and consistent performance, we are reaffirming our full-year guidance for mid-single-digit organic sales growth and approximately 90 basis points of adjusted segment EBITDA margin expansion. Additionally, we are raising our outlook for adjusted EPS and free cash flow conversion. We now expect adjusted EPS in the range of $3.65-$3.68 per share, representing 14%-15% growth. Building on our strengthened working capital position, year-to-date free cash flow performance reflects solid execution and financial discipline. As a result, we now anticipate achieving free cash flow conversion of greater than 100% for the full year. We continue to target returning 100% of our free cash flow to shareholders through dividends and share repurchases. Finally, we expect the sale of our residential and light commercial HVAC business to Bosch to close in our fiscal fourth quarter.

While we anticipate returning the majority of the net proceeds to our shareholders through share repurchases, the impact on this year’s share count is expected to be minimal, with the benefits primarily accruing in the next fiscal year. Operator, we are now ready for questions.

Nadia, Call Coordinator, Johnson Controls: We will now begin the question and answer session. If you would like to ask a question, please press star followed by one on your telephone keypad. If you would like to remove your question, please press star followed by two. When we’re preparing to ask your question, please ensure your phone is muted locally. We ask you please limit yourselves to one question and one follow-up. The first question goes to Amit Mehrotra of UBS. Amit, please go ahead.

Various Analysts, Questioners, Various (UBS, Wells Fargo, etc.): Thanks. Good morning. Joakim, I guess as you approach five months on the job, I know that’s not a lot of time or a long time, but I guess it would just be helpful nonetheless to understand your initial observations. What are some of the KPIs you’re focused on to kind of make sure the global organization is moving in the right direction? And importantly, how quickly you think we can see some of the tangible progress on the return profile of the business?

Joakim Weidemanis, Chief Executive Officer, Johnson Controls: Yeah. Good morning, Amit. I hope you’re doing well. Four months in, as you heard here in the prepared commentary, I visited a lot of places around the world, more than 100 customers, walked more than 30 plants, and sat with colleagues in all of our innovation centers. I think I’ve gotten a really good grasp of the opportunity here. As you’ve heard me talk about before, number one is we need to sharpen our focus on the customer at every level and every function of our company. That’s such a foundational point. I’ll come back to that. I also see opportunities to continue to drive growth through innovation, through increased investments in R&D. I’ll come back to how we’re going to fund that. I see that we have really this enviable field position, 40,000 colleagues in the field, a capability that’s been built over decades, difficult to replicate.

We have to find ways to unlock faster improvement in the company, that improvement that is valued by customers and gives us room to continue to invest in, for example, innovation. That’s why I spoke about a new business system that is in formation, that we have started to deploy. You heard a little bit about on the prepared remarks that that is anchored in 80/20 simplification and lean, which is about acceleration, speed in many ways as the ultimate competitive advantage, and augmented by digitization and AI to scale. Simplify, accelerate, and scale. The notion here is that speed is one of the largest competitive advantages. You can’t go too broad too quickly because you also want to get the buy-in from your organization while you deliver value early. We’ve started already, and we’re going deep.

As you heard, I gave two examples, one commercial example, which is more growth-oriented, and one operational example, which is both cost and growth-oriented. The commercial example, and these examples are examples, capabilities that we’re building that we’re going to deploy much broader over time. You want to start narrow so you can really understand the root causes of why we’re not able to perform better and so that you can go after the countermeasures and then build new processes and capabilities and then inspire other people in other parts of the company to do the same. The two examples were in our HVAC conventional business in North America and one part of the country.

We have a team working on, and they’re fourth Kaizen now, actually, where we have a path to basically doubling the selling time that our sellers have in that part of the business by removing waste from processes and improving the processes that we have. I’m very excited about the potential of that more broadly over time. On the operation side, I gave you an example of where we’re working on cutting the lead time in half. We’re in our third Kaizen on that one. I was in one of those Kaizens myself, actually, the other week. Cutting lead time in half is what you do to achieve that. It is basically the same things, similar things you would do to reduce cost and capital tied up, working capital, that is. That effort will generate efforts beyond reducing the lead time.

Of course, reducing the lead time makes us more competitive. In that case, the product lines we’ve started with are oriented towards the data center market, where demand is still very high, and being able to deliver faster than others is an important part of our competitive advantage. Anyway, we’re starting narrow, exciting the organization, training the organization, and then we’re going to deploy this more widely over time. We have lots of opportunities here on these kinds of themes. I’m very excited about that.

Nadia, Call Coordinator, Johnson Controls: Thank you. Moving on to the next question from Scott Davis of Melius Research. Scott, please go ahead.

Hey, good morning, guys.

Various Analysts, Questioners, Various (UBS, Wells Fargo, etc.): Morning, Scott.

Appreciate the color on that question. I’m kind of going to go a slightly different direction. You’ve had 140 days. Maybe that’s not enough time to answer this, perhaps. Do you have a better sense, Joakim, now of how you can accelerate growth in fire and security and how that business really, how HVAC and fire and security can really lever off of each other? I think historically, it’s always been a question mark of whether they fit or not. I think investors at this point are pretty open-minded on hearing your view.

Joakim Weidemanis, Chief Executive Officer, Johnson Controls: Yeah. Yeah. Thanks for that question, Scott. Yeah. These are, as we spoke about last time. With all of you, I mean, I see these are fundamentally different businesses serving a similar customer base, but different personas at different points in time. We are calling it as it is. That does not mean that they are not businesses that do not have potential. They have potential as well. Many of the examples I gave on the new business system here are focused on HVAC and controls because we think that those markets inherently have higher levels of growth, but there is growth in fire and security as well. The approaches that I described, we are gradually going to deploy into those businesses, and we think there is good potential to improve the performance there as well over time. Like I said, we are taking a dispassionate view of the portfolio.

We are two-plus months into a deeper strategic review of our businesses, where we are at today and looking at the future and who we would like to be. The board, of course, I am working very closely with the board. Obviously, these are not things you conclude in sort of one cycle, one board meeting. Over the next couple of months, together with the board, we are going to start to draw conclusions on what the portfolio will look like here going forward.

Nadia, Call Coordinator, Johnson Controls: Thank you. The next question goes to Jeff Sprague of Vertical Research Partners. Jeff, please go ahead.

Joakim Weidemanis, Chief Executive Officer, Johnson Controls: Thank you. Good morning, everyone. Wondering if we could shift to free cash flow. Marc, nice to see the bump here this morning. Maybe could you address, and certainly, Joakim, your thoughts on this also, but where the most significant opportunities are on the free cash flow side. Should we view this 100% plus sort of a catch-up on low-hanging fruit, or is your confidence level that the company can kind of consistently be in that 100% zip code rising here?

Marc van Diepenbeeck, Chief Financial Officer, Johnson Controls: For sure. Jeff, thanks for the comments. We had a strong start of the year in cash flow, and we’ve continued that momentum. I think the progress we’ve made this year has a lot to do with our accounts receivable, our collection management, and everything goes from managing order and managing customer through that experience. That has allowed us to really continuously improve the conversion throughout the year. That allowed us to get to that 100-plus % conversion. Almost $1 billion of improvement year on year is a good feat, but it does not mean that we are done and that is all of the benefit we are going to see. We still have those fundamental structural headwinds we have talked about, of our effective tax rate being slightly different than the cash tax rate, and we still have slightly elevated CapEx.

Those two things over time will die down. There are a lot of opportunities that are going to come from our lean efforts and lean transformation. I think if you think about when we start that flywheel around that lean transformation, the need for facilities will reduce over time, which will reduce CapEx, which will reduce inventory. Our ability to increase cycle time and improve customer centricity will also drive ultimately better outputs from an inventory standpoint. We think that is where moving forward the larger opportunity is. There is still progress to be made on every aspect of the fundamental of our free cash flow conversion.

Joakim Weidemanis, Chief Executive Officer, Johnson Controls: Yeah. I mean, I’ll second that. The lead time reduction example I gave, I mean, in principle, that means that we’ll be able to get a lot more output from that facility without adding additional physical asset space. That means that we’re going to sort of decouple versus historical trends, the CapEx that we need for our growth. That’s really what that is about. We’re also going to, by the same token, because with the approaches we’re applying there, decouple the addition of inventory dollars for the growth dollars that we have. That’s really what that lead time reduction initiative is about. Like I said, we’ve started narrow and we’ll go broader over time. On the commercial side as well, we have a workstream.

I think we’re in our second Kaizen now, where we’re looking at how we’re performing on billing and how fast do we bill, how accurate is our billing, and therefore what is sort of the first pass yield on customers paying invoices. No company in this world is perfect on invoicing, right? Sometimes you miss a few. If you have a couple of percent of invoicing errors that you need to redo versus less than 1%, that not only impacts customer satisfaction, but of course, also your cash flow. We’ve seen some good opportunities in that area too. Those themes give me confidence that we’re going to be able to maintain the cash conversion that we’ve seen so far this year.

Nadia, Call Coordinator, Johnson Controls: The next question goes to Nigel Coe of Wolf Research. Nigel, please go ahead.

Joakim Weidemanis, Chief Executive Officer, Johnson Controls: Thanks. Good morning. Just want to follow up on that last point. I do not want to sound greedy, but with the intangible amortization, is there a pathway to maybe being above 100% free cash conversion based on the current reporting structure? If we could maybe go back to the portfolio. Very clear messaging there. Are we still in the zone of 5-10% of the current portfolio being, I guess, with a question mark over its strategic importance?

Marc van Diepenbeeck, Chief Financial Officer, Johnson Controls: Yeah, Nigel. I understand. The question on above 100, I think it’s a little early for us to commit. What I can tell you is that historically, we’ve said the algorithm was 85, 90-plus %. I think we are comfortable that we’ll be able to deliver solidly in the 90s in terms of conversion. And over time, as we see the improvement on the lean transformation yielding the result, we could raise from there. At this stage, it’s a little bit too early. On the portfolio, I would say the immediate actions we’re taking on some of the assets that we believe are non-core, it’s still within the 10-15% range. Now, there’s a broader amount of work that’s being done. Joakim alluded to that earlier.

That could be greater than that 10% over time as we validate kind of our strategic vision with the board and kind of decide where we can focus and orient the company to be successful and grow faster.

Nadia, Call Coordinator, Johnson Controls: The next question goes to Steve Toussaint of JPMorgan. Steve, please go ahead.

Joakim Weidemanis, Chief Executive Officer, Johnson Controls: Hi, good morning.

Various Analysts, Questioners, Various (UBS, Wells Fargo, etc.): Hey, Steve.

Joakim Weidemanis, Chief Executive Officer, Johnson Controls: Good morning, Steve.

Can you maybe just the order. Number and low single digit was maybe a little bit lighter than I was expecting. How do you guys feel about that trending into the fourth quarter? And then secondarily. What’s the timeline for when you guys provide perhaps a bit more of a longer-term outlook around what all this action is going to turn into financially?

Very good. Yes. Orders in Americas were strong. EMEA, in my view, was better than perhaps what the number appears to be because of a compare. Clearly, there is ongoing softness in China. As you would expect, we have continued to dig deep into leading indicators, our pipelines, and so on. My conclusion is that our core vertical markets remain healthy. It is not just our healthcare verticals and our data center verticals, but overall, there is no change. I feel good about our pipelines. On China, which we have talked about before as bouncing around the bottom, I guess we have called it, we continue to be very disciplined there around going after higher margin systems orders and then prioritizing our service business there. We had healthy growth on the service side. China is maybe a longer discussion, but I was there recently.

Maybe the one tidbit is that market is gradually turning into a more mature market in the sense that the retrofit part of the market continues to steadily increase, which is different than a number of years ago when it was sort of a new construction, new build market. It is starting to look a little bit more like some of our Western markets. Near term, short term, yes, new builds in China, as has been talked about by many players, is a challenging space to be. We need to be very diligent about what we choose to go after there and protect and manage our margins.

Nadia, Call Coordinator, Johnson Controls: The next question goes to Joe Ritchie of Goldman Sachs. Joe, please go ahead.

Hey, good morning, guys.

Joakim Weidemanis, Chief Executive Officer, Johnson Controls: Good morning.

Good morning. Yeah. With the quarter ending with record backlog, Joakim, I’m curious whether there’s a way for you to maybe just give us an initial framework for 2026. Then maybe just going back to Steve’s question on the long-term targets, just wondering whether you’re planning an investor day next year as well.

Yeah. I appreciate it, Steve, I apologize. We did not answer your question. I will make a note of making sure that we do that next time. We are working on 2026 as we speak. I am 140 days in. Of course, I want to make sure I do a really detailed job together with Mark there. Maybe Mark, you could share a few words on where we are at.

Marc van Diepenbeeck, Chief Financial Officer, Johnson Controls: Yeah. We are on the finalization of our internal plan for 2026. It is a bit early for us to comment on this. I think overall, the long-term algorithm we have been talking about was, as a reminder, mid-single digit top-line growth, looking for well over 25% incrementals, and then double-digit EPS growth remain the basis for now. As we implement the new business system, as we continue to do our strategic review, it is hard to imagine not having better incrementals, for example, over time, and understanding how that will influence the ultimate long-term algorithm. I think we will be better positioned to give you a view on that as we close the year, release the fourth quarter, and start talking guidance for 2026 and give you a better view.

As far as investor day, we really want to go through that deep understanding of our strategic orientation before we take people deeper into what the new JCI may look like and what it would mean long-term from an investment thesis. Give us a little bit of time there to get through that and sharpen our pencil on the strategic view.

Joakim Weidemanis, Chief Executive Officer, Johnson Controls: Yeah. On the guide, the two examples I’ve mentioned that we’re working on as vehicles to implement our new business system, just to reinforce what Mark said, the commercial example I gave you with increasing the amount of selling time available for our sellers, that’s really about decoupling the needed investment in the field personnel to drive growth, decouple versus how that algorithm has worked in the past. The operations example I gave is really about decoupling both CapEx, inventory, and cost, quite frankly, to also drive the kind of growth that we aspire to here from the cost.

Nadia, Call Coordinator, Johnson Controls: The next question goes to Nicole De Blaise of Deutsche Bank. Nicole, please go ahead.

Yeah, thanks. Good morning, guys.

Good morning, Nicole.

Just wanted to ask something. Hello. Just wanted to ask something a bit short-term in nature. I think typically, if we look at EPS seasonality throughout the year, you’ve historically tended to see a low teens % increase in 4Q relative to 3Q. The guidance this year implies something a bit lower than that. Just want to understand, Marc, if you could kind of help with any major puts and takes between 3Q and 4Q that we should be considering. Thank you.

Marc van Diepenbeeck, Chief Financial Officer, Johnson Controls: Yeah. Nothing in particular. There are two kind of dynamics that are happening at the same time. There is a bit of uncertainty on what tariff will do full-force on the bottom line. So far, we have executed very well, but we have taken some conservative view into the fourth quarter. You have to remember with the extraction of our residential and light commercial business, which was more transactional, shorter cycle business, we are now a little bit of a longer cycle company. Therefore, the variation you see quarter over quarter is a little bit less seasonal. Now, transparently, the fourth quarter, particularly in our HVAC and controls business, is a very healthy quarter, generally from a growth and therefore absorption of our field team, simply because of the weather in the Northern Hemisphere.

It will naturally provide better tailwinds overall, but nothing vastly different if you look at the enterprise from a continued basis standpoint.

Nadia, Call Coordinator, Johnson Controls: The next question goes to Joe O’Dea of Wells Fargo. Joe, please go ahead.

Joakim Weidemanis, Chief Executive Officer, Johnson Controls: Hi, good morning.

Marc van Diepenbeeck, Chief Financial Officer, Johnson Controls: Hey, Joe.

Joakim Weidemanis, Chief Executive Officer, Johnson Controls: Mark, in reference to your comment around the, hi, just the comment around the algorithm and well over 25% incrementals, can you touch on restructuring and the program that was announced last fall of the $500 million, what savings you anticipate achieving this year, just kind of broad strokes, what the setup would be for what you can achieve next year. Then separately, and with some of the legislative developments, just anything on tax, I think you’ve previously outlined that that could be up 400 or 500 basis points year over year as we go into next year, but not sure of any recent developments there.

Marc van Diepenbeeck, Chief Financial Officer, Johnson Controls: No. So on restructuring, Joe, $400 million of restructuring costs, we’ve probably spent just a little over that. We think we’ve gotten probably dollar-for-dollar restructuring saving. That’s really part of the margin improvement story as we eliminate a lot of the stranded costs associated with the residential and light commercial throughout the year, even before the close on the transaction. We believe we’re going to continue to drive towards that $400 million to get the full run rate, $500 million benefit at the exit of 2026. I can tell you that the early efforts around our lean journey and transformation will probably have to think about how we position the restructuring, the balance of the restructuring program, and if we should further extend it and potentially gain even more benefit from a return on those restructuring efforts.

From a tax standpoint, there are some small changes at the fringe that will require kind of differentiated planning on our side. Net, net, the rate headwind I’ve been talking about of 400-500 basis points on, as a reminder, 12% base effective tax rate in 2025 will remain in force. It’s really around that global minimum tax and how that drives the pressure on the rate. If you recall, the interesting component there is that from a cash tax rate, it does not materially change the math for 2026, which is, by the way, a little bit of a tailwind from a free cash flow conversion, as our cash tax rate will remain in the low 20s, high teens, potentially depending on different action we take.

Nadia, Call Coordinator, Johnson Controls: The next question goes to Andrew Obin of Bank of America. Andrew, please go ahead.

Hi, guys. Good morning.

Various Analysts, Questioners, Various (UBS, Wells Fargo, etc.): Hey, Andrew.

Hi, Andrew.

Nadia, Call Coordinator, Johnson Controls: Hey. Just a question going back to America’s orders. Could you, by any chance, disaggregate the orders between fire and security, commercial, HVAC, and specifically, what are you seeing on data centers? Because you have such a strong market share globally in the market, given the overall strength. I would echo the sentiment I would have expected a little bit more growth, but maybe just give us a sense of what’s happening. Are there any specific push-outs by verticals? Thank you. In America’s.

Joakim Weidemanis, Chief Executive Officer, Johnson Controls: Yeah. Thanks, Andrew. Yeah. Data centers continue to be very healthy. It is about 10% of our sales today, growing very nicely. There is, of course, a reason why we decided to deploy the initial stages of our business system focused on the operations, manufacturing side of things to help cut lead times for a data center product line. We see that continuing here. Over time, we are doing well with both hyperscalers and colos. Perhaps we can have a more detailed discussion at another point in time. That is that side of the business. The HVAC and applied side of our business in general is doing very well. The example I gave on commercial, where we are deploying the business system, is in HVAC and applied, outside of data centers. We are already growing at a very healthy rate there.

Fire and security, we are growing, but at a lower rate than HVAC. That is more in low single digits. We see those are shorter cycle businesses, by the way, as well. I think you know that. We see plenty of opportunity to apply the principles of what we are doing on the HVAC sale side in those businesses as well. We chose to start in HVAC because short-term, we just think there is a bigger opportunity there. Applied HVAC and data center heavy is the story here. Those other businesses are still growing, but low single digits.

Nadia, Call Coordinator, Johnson Controls: The next question goes to Chris Snyder of Morgan Stanley. Chris, please go ahead.

Thank you. If we look at JCI service business, it’s had really good top-line growth over the long term. If we look back at history, is there any color you could kind of talk about or provide as to how margins have expanded or the business has kind of driven operating leverage over the last few to several years?

Joakim Weidemanis, Chief Executive Officer, Johnson Controls: I think the answer to that is not enough operating leverage. That is now an opportunity for us. I think there are, from my travels, two reasons for that. I think just like the example I gave on the HVAC sales, by applying lean principles, we’re able to remove waste in our internal processes and help accelerate the sales process just in general. I think we have the same opportunity in service so that we can gradually break the back off of the connection between service growth and adding service cost. I see good opportunity in that. That’s a body of work that we’re going to be launching over the next quarter here. There’s an operational side to the story. I think in a couple of our businesses, the way we productize services, I think there is an opportunity to add more differentiated service products to our portfolio.

Perhaps I can come back to that at some point in time in the future. When I spoke about, in the prepared commentary, about wanting to increase investments in innovation, I’m not only talking about investments in systems but also in service products. Some service products might require a few tweaks and changes and additions to our systems on the installed base as well as new products. There’s also innovation opportunities on, for example, how you digitize services to be able to deliver, if I could call them, more outcome-oriented service products to customers versus more sort of break-fix-oriented services. I see good opportunities both operationally as well as from a product and differentiation point of view, and being able to both continue the service growth and then, like I said, break the back off of the growth and the cost so that the margin can improve over time.

Nadia, Call Coordinator, Johnson Controls: The next question goes to Julian Mitchell of Barclays. Julian, please go ahead.

Joakim Weidemanis, Chief Executive Officer, Johnson Controls: Hi, good morning. Thanks very much.

Hi, good morning.

Just wanted to ask about sort of operating margins and a couple of different questions on it. I think first off, the OMX is fairly muted year on year in the second half of this fiscal year. I understand tariffs are weighing. Is the sort of construct that those related headwinds last through the first half of next fiscal year, and then you get a larger sort of jump in the back half on margins as that tariff headwind eases? Beyond the next 12 months, I guess I was intrigued, Joakim, about you sound sort of relatively muted on the margin potential in fire and security, perhaps the growth outlook as well.

I just wondered if that’s around JCI’s positioning, something around market share, because certainly there are some peers out there like Honeywell or Allegion, say, this past quarter or two, who are putting out pretty decent numbers in various parts of F&S. Thank you.

Yeah. Thanks. I’ll let Marc take the first half of the question, and then I’ll add on.

Marc van Diepenbeeck, Chief Financial Officer, Johnson Controls: Yeah. On the OMX, you’re right. Part of it on the rate standpoint is clearly the tariff. We’ve been able to recover the vast majority of that headwind, not always being able to consistently drive margin on that recovery. Some markets, we have more pricing power, and we have been able to recover with margin. Some other markets, given the size of the tariff impact, it was a little bit more difficult to justify to the end customer that we ought to receive margin on that. You have to remember, there’s a lot of stranded cost in our SG&A associated with the continued discontinued operation, the residential, light commercial. There is a lot of work on the way and progress being made to actually take that cost out. That’s muted a little bit our ability to expand margin beyond the expectation. I think moving forward, we have opportunity.

I’ll pass it on to Joakim on the fire and security margin opportunity.

Joakim Weidemanis, Chief Executive Officer, Johnson Controls: Yeah. Yeah. If we start with fire, and since you mentioned Honeywell, they’ve done, I think, from what I understand, a very nice job on the product portfolio over many, many years. When I talked about us having some product gaps in our portfolio, I was thinking about fire detection as one example. We play a little bit more on the, let’s call it the premium or the more sophisticated system side of the market. We have some opportunities to go beyond that over time. On the security side, it’s a market that consists of many, many different kinds of solutions. You need to be careful with the apples to apples or apples versus oranges. You may recall that I used to be on the board of Assa Abloy, Allegion’s biggest competitor, right? I’ve seen that from many different angles.

On the security side, like fire detection, there are some product gaps that we have opportunities around. Now, on the service side of things, to talk about margins, as I mentioned here previously, I think there’s good opportunities to do work to, again, break the back off of the service growth and the service margins based on applying lean principles and how we operate in the field on providing the services. I also think there are some opportunities in productization of services that could drive greater differentiation. I see those opportunities. Now, again, we do see the opportunity in HVAC and controls as being one of having higher growth over time and probably a little bit of a higher margin opportunity over time as well. It doesn’t mean the other two are bad businesses. I think we can operate those better over time versus how we have in the past.

Like I said, we’re working away at the strategic review of the portfolio diligently, thoughtfully. Once we have a conclusion, we will certainly let you know.

Nadia, Call Coordinator, Johnson Controls: The next question goes to Andy Kaplowitz of Citigroup. Andy, please go ahead.

Joakim Weidemanis, Chief Executive Officer, Johnson Controls: Hey, good morning, everyone.

Various Analysts, Questioners, Various (UBS, Wells Fargo, etc.): Hey, Andy.

Hey, Andy.

Joakim Weidemanis, Chief Executive Officer, Johnson Controls: Just wanted to follow up on that line of conversation a little bit. You’ve had recently strong margin improvement, I think, in your other segment