Johnson Controls International plc JCI has been experiencing strong momentum in the Building Solutions North America and Building Solutions Europe, Middle East, Africa/Latin America (EMEA/LA) segments. Solid demand for heating, ventilation and air conditioning (HVAC) platforms in data centers and strength in controls businesses are driving the Building Solutions North America segment.
Strength in control, security and industrial refrigeration businesses is supporting the Building Solutions EMEA/LA segment. The Global Products segment is benefiting from growth in commercial and residential HVAC businesses.
Investments in digital offerings, like the OpenBlue platform, which plays an integral part in meeting customer needs, are expected to drive growth. Johnson Controls expanded its suite of digital services and offerings to include connected chillers, industrial refrigeration equipment, connected controls and BAS systems. The digital integration of OpenBlue with Johnson Controls' core building systems will optimize the performance of the full HVAC system. Within the company’s OpenBlue platform, Net Zero Buildings as a Service offering, which includes a full portfolio of sustainability products tailored for various segments, boosts its long-term prospects. The company’s ambitious set of new ESG commitments—including its target to achieve net zero carbon emissions before 2040 with its new OpenBlue digital products and services— is commendable.
Johnson Controls has been strengthening its business through acquisitions. The acquisition of digital workplace management and Internet of Things (IoT) solutions provider, FM:Systems, in July 2023 expanded OpenBlue’s digital buildings offerings, adding cloud-based software as a service (SaaS) digital workplace management capabilities. In fiscal 2024, acquisitions increased the company’s revenues by $137 million. Synergies from the acquisition are expected to be accretive to its earnings and revenues in fiscal 2025 (ending September 2025).
The company’s measures to reward its shareholders are encouraging. In fiscal 2024, Johnson Controls paid a dividend worth $1 billion (up 2% year over year) to its shareholders. The company also repurchased shares worth $1.2 billion (up 99.4%) in the same period. In fiscal 2023, Johnson Controls returned $1.61 billion to shareholders through a combination of dividends ($980 million) and share repurchases ($625 million).
JCI currently carries a Zacks Rank #3 (Hold). Shares of the company have lost 57.9% compared with the industry’s 29.2% decline over the past year.
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Downsides of JCI
JCI is experiencing weakness across its Building Solutions Asia Pacific segment. In the face of challenging market conditions, the Building Solutions Asia Pacific segment witnessed continued weakness in system sales in China in the fiscal fourth quarter (ended September 2024). Johnson Controls expects economic conditions in China to remain soft throughout the remainder of fiscal 2024, which may impact the performance of the Building Solutions Asia Pacific segment in the near term.
The escalating SG&A expenses pose a threat to Johnson Controls’ bottom line. Higher insurance recovery costs are pushing up SG&A expenses. During fiscal 2024, the company witnessed a 5.1% year-over-year increase in SG&A expenses to $5.7 billion. The impact of these expenditures is evident in the rise of the SG&A expenses as a percentage of total revenues, which climbed 60 basis points to reach 24.7%. It has been incurring higher corporate costs related to additional IT investments and cybersecurity enhancement costs. High costs and expenses will negatively impact its short-term profitability.
Stocks to Consider
Some better-ranked companies are discussed below.
Louisiana-Pacific Corporation LPX currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
LPX delivered a trailing four-quarter average earnings surprise of 30.7%. In the past 60 days, the Zacks Consensus Estimate for Louisiana-Pacific’s fiscal 2025 earnings has increased 9.9%.
RBC Bearings Incorporated RBC presently carries a Zacks Rank #2 (Buy). The company delivered a trailing four-quarter average earnings surprise of 2.5%.
In the past 60 days, the consensus estimate for RBC’s fiscal 2025 earnings has increased 0.5%.
Kadant Inc. KAI presently carries a Zacks Rank of 2. It has a trailing four-quarter average earnings surprise of 17.2%.
The Zacks Consensus Estimate for KAI’s 2024 earnings has increased 1.8% in the past 60 days.
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