The paragraph is an introduction to the Johnson Controls Fourth Quarter 2024 Earnings Conference Call. The operator starts by welcoming participants and explaining the call process. Jim Lucas, Vice President of Investor Relations, then provides an introduction, mentioning that the press release and presentation are available on the company's website and introduces George Oliver, the CEO, and Marc Vandiepenbeeck, the CFO. He reminds listeners that the presentation will include forward-looking statements and references to non-GAAP financial measures. George Oliver then thanks the employees for their contributions to the strong quarterly results.

The paragraph discusses Johnson Controls' progress in transforming into a focused provider of comprehensive solutions for commercial buildings, highlighting their growth in fiscal 2024 with double-digit revenue growth, margin expansion, and a record backlog driven by data center demand. The company is enhancing efficiency and sustainability, especially in cooling solutions for data centers, and is selling its Residential & Light Commercial segment to Bosch. They are projecting fiscal 2025 guidance of $3.40 to $3.50 from continuing operations, aiming for predictable performance and long-term shareholder value. Johnson Controls is positioning itself as a leader in building solutions focused on energy efficiency and clean electrification.

Johnson Controls emphasizes its unique value proposition that benefits both customers and shareholders by delivering safe, healthy, and sustainable solutions across the building life cycle. The company's extensive branch network and integrated domain expertise enhance customer value and support sustained growth and margin expansion. By implementing a global end-to-end operating model, Johnson Controls is able to improve productivity and outcomes for its customers, particularly in fast-growing sectors like data centers, education, and healthcare. The company is focused on creating safer, more sustainable buildings while enhancing occupant experience. A strong fiscal 2024 finish and a record backlog reinforce confidence in Johnson Controls' leadership in global building solutions.

The paragraph reports on a company's strong financial performance for the quarter, driven by its end-to-end operating model. Organic revenue grew by 10%, and segment margins improved, particularly within EMEALA and Global Products. The company saw increased productivity and converted its higher-margin backlog, achieving an adjusted EPS of $1.28, which was 22% higher year-over-year. Operational efficiency was a major growth factor, compensating for increased corporate expenses. The balance sheet showed $600 million in available cash and a net debt ratio at the low end of its target. Adjusted free cash flow conversion improved significantly, with $2.4 billion in free cash flow and $2.2 billion returned to shareholders. The Global Product business achieved 8% organic sales growth, supported by positive pricing and volume growth.

The paragraph highlights the strong performance of the Building Solutions segment, driven by low double-digit growth in HVAC and offset by declines in Fire and Security and Industrial Refrigeration. The segment saw a 700 basis point increase in adjusted EBITDA margin to 28%, supported by improved operational efficiencies. Orders grew 8% overall, with notable mid-teen service growth and system orders up 5%. North America saw a 7% increase in orders, with strong service growth in Fire and Security, while EMEALA experienced 14% growth, led by a 20% rise in service. Asia Pacific saw a 6% growth in orders after recovering from earlier declines. The division benefited from strong demand in data centers, government, healthcare, and education markets, with a healthy pipeline of opportunities.

The Building Solutions segment experienced a strong quarter with a record backlog, driving 11% organic sales growth, primarily from double-digit increases in both systems and services. North American sales rose 16% due to robust HVAC and controls demand, while EMEALA saw 10% growth, led by controls, security, and industrial refrigeration. Although Asia Pacific sales declined 5%, improvement was noted due to a strong backlog and resilient services. Margins improved due to productivity, a favorable service mix, and operational efficiencies. EMEALA's EBITDA margin increased by 370 basis points to 11.5%, and APAC's margin rose by 70 basis points to 14.2%. In North America, the margin decreased by 40 basis points to 15% as systems outpaced service growth. The backlog grew 7% to $13.1 billion, and the service business is well-positioned for fiscal 2025.

In fiscal 2025, the company plans to present its financial performance on a continuing operations basis, with adjustments for the discontinued Residential & Light Commercial business. For fiscal 2024, adjusted EPS is $3.21 per share. The first quarter of fiscal 2025 is expected to show mid-single-digit organic sales growth, a 14.5% adjusted segment EBITA margin, and adjusted EPS between $0.57 and $0.60, reflecting 24% to 30% growth. Annual expectations include mid-single-digit organic sales growth, 50+ basis point EBITA margin expansion, and adjusted EPS of $3.40 to $3.50 per share (6% to 9% growth). The company aims for a free cash flow conversion rate of 85% or higher, with the goal of returning all free cash flow to shareholders. The Residential & Light Commercial divestiture is expected to complete in the fiscal fourth quarter, with no projected capital deployment from its proceeds in fiscal 2025. A multi-year restructuring plan is anticipated to save $500 million annually, with $400 million in expenses, contingent on the divestiture’s completion.

The paragraph is part of a question-and-answer session in which Nigel Coe from Wolfe Research poses a question to Marc Vandiepenbeeck about growth prospects and financial specifics. Marc responds by expressing optimism about the company's growth, emphasizing a strong growth quarter, and highlighting a record backlog of $13.1 billion. He notes the company's target of mid-single-digit growth and acknowledges the influence of timing on larger projects for quarterly growth rates. He also mentions strong tailwinds in the core vertical, and there is a reference to financial metrics and restatements for Global Products, specifically EBITA margins for fiscal years '23 and '24.

The paragraph discusses the company's growth expectations by region and product segment, noting that the APAC region is expected to grow slightly above the mid-single-digit guidance, while other regions like North America and EMEALA may be at or slightly below this growth level. The Global Product margin is anticipated to improve due to operational efficiencies and improved supply chain management, although there might be some seasonality affecting margins, with a stronger second half expected in fiscal year '25. Additionally, George Oliver addresses the CEO succession process, acknowledging its importance and ongoing interest, without providing specific updates.

The article paragraph discusses a financial update during an earnings call. Steve Tusa from JPMorgan asks about the company's first-quarter organic growth guidance, expressing confusion over the mid-single-digit growth prediction given strong current performance and easy comparisons to the previous year. Marc Vandiepenbeeck explains that the growth forecast considers the timing of large orders and typical quarter-to-quarter volatility, especially considering the strong fourth-quarter performance in sectors like decarbonization and data centers. He notes anticipated strong performance in North America but more modest growth in EMEALA, APAC, and Global Products. The query concludes with a request for information on the percentage of revenue from data centers expected in 2025.

The paragraph details a discussion about the data center sector's impact on revenue and service attachment rates. Marc Vandiepenbeeck mentions that the data center sector currently represents about 10% of their revenue and is experiencing solid double-digit growth. When addressing a question from Scott Davis, Marc explains that the service attach rate for data center installations is generally better than the rest of their portfolio. This is due to the sector's sensitivity to digital solutions and its evolving approach over the past five or six years, where customers initially preferred self-service but have since recognized the value in the company's comprehensive service capabilities.

The paragraph involves a discussion between George Oliver, Scott Davis, and Marc Vandiepenbeeck about the increasing trend in the data center segment for their business. George highlights the growth due to improved connectivity and efficiency in operations supported by technicians. He suggests that this vertical offers opportunities for proactive maintenance. Scott inquires about pricing power in this segment compared to traditional buildings. Marc explains that while some aspects are commoditized, most require specialized engineering solutions, enhancing customer partnerships and leading to better pricing and margins. Their approach to embedding engineering resources with customers helps address higher value-chain problems, resulting in differentiated solutions and potentially higher margins compared to traditional applied equipment businesses.

George Oliver discusses how the company has been proactive in reinvesting in its products, especially for the next generation of data centers, which he believes will enhance their margin profile in the future. Julian Mitchell from Barclays asks about the timing and impact of a $500 million cost-saving restructuring plan and related $400 million costs. Marc Vandiepenbeeck explains that the restructuring is tied to the divestiture of the Residential & Light Commercial segment and aims to create a more efficient operating model. However, the timing of costs and benefits depends on the transaction's closing, with restructuring costs expected to occur before the savings are realized.

The paragraph discusses the financial outlook and challenges for a company's fiscal year 2025, particularly regarding North America Building Solutions margins. It highlights pressures faced in Q4 due to a systems mix, which is expected to normalize by fiscal 2025. The company experienced rapid growth in North America due to large projects, which generally offer lower margins compared to the service business. Although there was significant service growth, it wasn't enough to offset the lower-margin effect from large projects like data centers and new energy initiatives.

The paragraph discusses a conversation between Joe Ritchie from Goldman Sachs and Marc Vandiepenbeeck about the financial performance of Global Products. Joe inquires if the high margins recently observed are due to any one-off events. Marc responds that the improved margins result from structural changes and operational efficiencies implemented over the past year, not from any singular event. He suggests a 20% margin rate as a baseline for 2024, with expectations that the business will perform above that rate in the latter half of the year, highlighting the company's improved operational focus and efficiency.

In a conference call, Jeffrey Sprague asks Marc Vandiepenbeeck about non-operating items, focusing on corporate expenses, tax rates, and stock buybacks. Vandiepenbeeck explains that corporate expenses remain flat year-on-year despite cybersecurity and IT investments. He notes that their guidance does not include proceeds from selling their residential business and that they are returning free cash flow to shareholders through regular stock buybacks. He addresses the tax rate reduction to 12%, noting that global changes initially suggested it might increase and mentions ongoing actions regarding stranded costs due to the divestiture of their Residential & Light Commercial business.

The paragraph discusses the impact of tax rates and business planning for a company. The company is facing increased tax pressures, with a 100 basis point rise in their CO tax rate from 11% in fiscal year 2024 to 12%. Future projections indicate even more pressure due to global tax reforms, potentially adding another 400-500 basis points by fiscal year 2026. This is partly due to transactions in the Residential & Commercial sectors. The conversation shifts to a Q&A, where Andrew Obin from Bank of America asks about Applied sales in North America. Marc Vandiepenbeeck responds, highlighting strong performance in key verticals like data centers, healthcare, hospitals, manufacturing, and new energy, driven by activities such as battery manufacturing re-onshoring.

The paragraph features a Q&A session where Deane Dray from RBC Capital Markets questions Marc Vandiepenbeeck about the company's free cash flow guidance for fiscal year '25. Deane inquires about the impact of removing the Residential & Light Commercial segment on working capital and its effect on achieving 85% cash flow conversion, while also noting a long-term goal of 100% conversion. Marc clarifies that the 100% target refers to free cash flow returned to shareholders, not conversion, and that they aim to improve beyond 85% despite structural headwinds. The separation from the Residential & Light Commercial business, formerly benefiting cash flow conversion, is identified as a challenge, and it's noted that the segment was part of a joint venture with Hitachi, now discontinued.

The paragraph discusses financial aspects related to a business's free cash flow and earnings. It mentions that free cash flow doesn't always align with dividend timings. On continued operations, the company faces structural challenges, including restructuring and significant capital expenditures for expanding data center capacity. The difference between cash tax rate and effective tax rate remains stable, affecting financial outlooks for 2025, particularly regarding restructuring, CapEx, and taxes. In a follow-up conversation, Steve Tusa from JPMorgan inquires about the Global Products segment's financials, clarifying that its revenue is a bit less than $5 billion. He questions the profit margin calculations for this segment, suggesting it might be higher than previously indicated.

In the paragraph, Marc Vandiepenbeeck discusses financial expectations, indicating that the first half and second half of the year will be on either side of 20%, but significantly higher overall. He confirms that leveraging volume on a pro forma base of 27-28% is feasible. When asked about data center exposure, Vandiepenbeeck clarifies that it is 10%. Nicole DeBlase from Deutsche Bank inquires about order growth and backlog for fiscal '25, asking if the backlog will decrease or remain consistent. Vandiepenbeeck expects backlog to continue improving due to strong trends and opportunities in the market, supporting revenue growth and margin strength.

The paragraph discusses the company's operating model and strategy regarding revenue mix and market segmentation. Marc Vandiepenbeeck explains that for markets where they can sell value and create a high service attach rate, they prefer using a direct channel through their branches. However, for more commoditized or less complex markets, they leverage indirect channels through distribution and sales partners. This approach targets mainly the mid to lower end of the market, avoiding larger complex segments. Additionally, Vandiepenbeeck addresses the restructuring announcement and capital deployment plan, noting it will follow a similar approach to past instances involving large divestitures to manage dilution and achieve their financial goals.

The paragraph discusses a company's approach to restructuring and divestiture. In 2019, they divested their battery power solutions business with the goal of quickly returning the proceeds. They plan to take restructuring actions early, even before completing transactions, although some actions will occur after restructuring. This makes it challenging to commit to specific timelines for cost and benefit. The company aims to improve its operating model continually, as it has in the past. During a Q&A, Noah Kaye from Oppenheimer asked about cash flow conversion and restructuring benefits, confirming that tax payments on divestitures are excluded from the guide and that the $500 million restructuring benefits are not significant to the 2025 guide. Marc Vandiepenbeeck confirmed these points and stated that the focus is on simplifying and optimizing the cost structure.

In the paragraph, the speaker discusses efforts over the past six to nine months to optimize the organization's structure and resource deployment for market opportunities, aiming to simplify operations and enhance customer experience. They highlight changes in the business portfolio and operating model that facilitate clarity and simplicity. In closing remarks, George Oliver expresses confidence in Johnson Controls’ direction as they conclude fiscal 2024 and move into fiscal 2025, citing growth in sales, service, and a strong backlog as indicators of success. The company is positioned to leverage future opportunities, supported by their leadership in Building Solutions and an integrated operating model. The call then concludes.

This summary was generated with AI and may contain some inaccuracies.