Johnson Controls(US:JCI)2025-08-06 14:34Part I. Financial Information Item 1. Financial Statements The company reports a 3% sales increase, details segment realignment, and classifies its R&LC HVAC business as a discontinued operation - On April 1, 2025, the company realigned its structure from four reportable segments to three: Americas, EMEA, and APAC23115 - The company entered into a definitive agreement to sell its Residential and Light Commercial (R&LC) HVAC business to Bosch Group for approximately $8.1 billion, classifying it as a discontinued operation2638 Consolidated Statements of Income Q3 net sales grew 2.6% to $6.05 billion, while net income decreased due to higher expenses; YTD net income rose significantly Consolidated Statements of Income Highlights (in millions, except EPS) | Metric | Q3 2025 | Q3 2024 | YoY Change | YTD 2025 | YTD 2024 | YoY Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Net Sales | $6,052 | $5,898 | +2.6% | $17,154 | $16,704 | +2.7% | | Gross Profit | $2,246 | $2,109 | +6.5% | $6,241 | $5,809 | +7.4% | | Income from Continuing Operations | $618 | $851 | -27.4% | $1,454 | $873 | +66.6% | | Net Income attributable to JCI | $701 | $975 | -28.1% | $1,598 | $1,072 | +49.1% | | Diluted EPS (Total) | $1.07 | $1.45 | -26.2% | $2.42 | $1.58 | +53.2% | Consolidated Statements of Financial Position Total assets and liabilities increased to $43.4 billion and $26.4 billion respectively, while total equity slightly decreased Key Balance Sheet Items (in millions) | Metric | June 30, 2025 | Sept 30, 2024 | | :--- | :--- | :--- | | Total Current Assets | $11,849 | $11,179 | | Goodwill | $16,709 | $16,725 | | Total Assets | $43,393 | $42,695 | | Total Current Liabilities | $12,350 | $11,955 | | Long-term Debt | $8,446 | $8,004 | | Total Liabilities | $26,348 | $25,334 | | Total Equity | $17,045 | $17,361 | Consolidated Statements of Cash Flows YTD operating cash flow from continuing operations increased substantially to $1.59 billion, driven by higher net income Cash Flow Summary - Continuing Operations (in millions) | Cash Flow Activity | YTD 2025 | YTD 2024 | | :--- | :--- | :--- | | Operating Activities | $1,586 | $216 | | Investing Activities | ($302) | ($286) | | Financing Activities | ($1,111) | ($190) | Notes to Consolidated Financial Statements Notes detail the ~$8.1 billion R&LC HVAC sale, a new restructuring plan, a $750 million AFFF settlement, and segment realignment - The company entered a definitive agreement to sell its R&LC HVAC business to Bosch Group for approximately $8.1 billion, with Johnson Controls' portion being ~$6.7 billion and net cash proceeds of ~$5.0 billion38 - As of June 30, 2025, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately $22.4 billion50 - In Q4 2024, the company initiated a new multi-year restructuring plan with expected costs of ~$400 million through fiscal 2027 to address stranded costs from portfolio simplification98 - On April 12, 2024, subsidiary Tyco Fire Products agreed to a $750 million settlement with a nationwide class of public water systems related to AFFF litigation151 Management's Discussion and Analysis (MD&A) Management discusses 3% sales growth, improved margins, segment performance, and a strong backlog, alongside liquidity bolstered by asset sale proceeds Results of Operations Q3 net sales grew 3% to $6.05 billion with a 130 basis point gross margin expansion, though SG&A expenses increased significantly Financial Performance Summary (in millions) | Metric | Q3 2025 | Q3 2024 | Change | YTD 2025 | YTD 2024 | Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Net Sales | $6,052 | $5,898 | +3% | $17,154 | $16,704 | +3% | | Gross Profit | $2,246 | $2,109 | +6% | $6,241 | $5,809 | +7% | | Gross Margin | 37.1% | 35.8% | +130 bps | 36.4% | 34.8% | +160 bps | | SG&A | $1,417 | $895 | +58% | $4,243 | $4,293 | -1% | - The increase in Q3 SG&A was primarily due to the unfavorable impact of prior year water systems AFFF insurance recoveries ($350 million), unfavorable earn-out adjustments ($61 million), and higher transformation costs ($45 million)199 Segment Analysis Organic sales grew across all segments in Q3, with EMEA and APAC showing strong EBITA growth, contributing to an 11% organic backlog increase Q3 2025 Net Sales by Segment (in millions) | Segment | Q3 2025 Sales | YoY Change | Organic YoY Change | | :--- | :--- | :--- | :--- | | Americas | $4,042 | 0% | +7% | | EMEA | $1,273 | +8% | +4% | | APAC | $737 | +7% | +6% | Q3 2025 Segment EBITA (in millions) | Segment | Q3 2025 EBITA | YoY Change | | :--- | :--- | :--- | | Americas | $742 | -8% | | EMEA | $177 | +15% | | APAC | $143 | +12% | Backlog and Orders (as of June 30, 2025) | Segment | Backlog (in billions) | Organic YoY Change | Q3 Orders (in billions) | Organic YoY Change | | :--- | :--- | :--- | :--- | :--- | | Americas | $10.3 | +10% | $3.4 | +5% | | EMEA | $2.6 | +9% | $1.1 | +2% | | APAC | $1.7 | +14% | $0.7 | -8% | | Total | $14.6 | +11% | $5.2 | +2% | Liquidity and Capital Resources Liquidity is strong with ~$5.0 billion in proceeds from the R&LC sale funding a $5.0 billion share repurchase program - The company received net cash proceeds of approximately $5.0 billion from the sale of its R&LC HVAC business on July 31, 2025222 - The company plans to use a portion of the sale proceeds to implement a $5.0 billion accelerated share repurchase program222 - In June 2025, the Board of Directors increased the share repurchase authorization by $9.0 billion, leaving approximately $9.8 billion available as of June 30, 2025222247 Capitalization Summary (in millions) | Metric | June 30, 2025 | Sept 30, 2024 | | :--- | :--- | :--- | | Total Debt | $10,293 | $9,493 | | Cash and Cash Equivalents | $731 | $606 | | Net Debt | $9,562 | $8,887 | | Total Equity | $15,830 | $16,098 | | Net Debt as % of Net Capitalization | 37.7% | 35.6% | Quantitative and Qualitative Disclosures About Market Risk The company reports no material adverse changes in its market risk exposures since its last annual report - No material changes in market risk exposures were reported as of June 30, 2025, compared to the fiscal year-end 2024 report231 Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal controls - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the quarter233 - No significant changes to internal control over financial reporting were identified during the third fiscal quarter of 2025234 Part II. Other Information Legal Proceedings The company provides an update on a class action lawsuit related to the 2016 merger, which is currently under appeal - In the Gumm v. Molinaroli et al. case concerning the 2016 merger, the complaint was dismissed in March 2025, but plaintiffs filed an appeal in May 2025235 - For details on environmental, asbestos, and other litigation, the company refers to Note 18, "Commitments and Contingencies"236 Risk Factors Key risks include talent retention, cybersecurity threats, and the potential impact of changing international trade policies - The company's success is dependent on attracting and retaining a high-performance, diverse workforce with skills in digital and outcome-based selling, and it faces risks from labor shortages237238 - Data privacy and cybersecurity are significant risks, highlighted by the September 2023 incident that impacted employee and applicant data239240 - Changes in foreign trade policies, including tariffs and sanctions by the U.S., China, and other countries, pose a risk to the company's supply chain, costs, and overall financial results244245 Share Repurchases and Use of Proceeds The share repurchase authorization was increased by $9.0 billion, with $9.8 billion now available and a $5.0 billion ASR planned - The Board of Directors approved a $9.0 billion increase to the share repurchase authorization in June 2025247 Share Repurchase Activity | Period | Amount Repurchased | Remaining Authorization | | :--- | :--- | :--- | | Q3 2025 (3 months) | $310 million | $9.8 billion | | YTD 2025 (9 months) | $970 million | $9.8 billion | - A $5.0 billion accelerated share repurchase program is planned, funded by proceeds from the Residential & Light Commercial business sale247 Other Information George Oliver retired as Chairman of the Board, with Mark Vergnano appointed as the new independent Chairman - George Oliver retired as Chairman of the Board of Directors effective August 1, 2025251 - Mark Vergnano has been appointed as the new independent Chairman of the Board251 Exhibits This section lists filed exhibits, including Sarbanes-Oxley certifications and iXBRL-formatted financial statements - The report includes required CEO and CFO certifications under Sections 302 and 906 of the Sarbanes-Oxley Act252