Johnson Controls International, (JCI) a leading producer of HVAC and building control systems, reported strong Q3 earnings, propelled by organic growth and margin expansion – signaling a steady uptick in the smart building sector.
The company reported sales of $8.1 billion, a 6% year-over-year increase and adjusted diluted earnings per share (EPS) rose 14% to $0.81 from $ 0.71 from a year ago.
Overall the buildings segment increased organic sales by 5% across all geographies. The products sector saw a 7% boost and strong quoting activity fueled buildings field orders up 8% excluding the impact of mergers and acquisitions activity indicating steady growth in the smart building marketplace.
“Buildings service revenue growth accelerated once again in the third quarter to 5% year-over-year compared to the 3% growth we experienced in the first half. I’m extremely pleased with our execution in our service businesses across the globe, particularly given the intense focus we have had on expanding our commercial capabilities and strengthening operations while increasing our service technician capacity,” said George Oliver, CEO, and chairman of Johnson Controls, in the company’s third-quarter earnings call.
Oliver attributed a steady build-up in both buildings and power solutions sectors to a “disciplined operating approach” towards fundamentals and processes that drove the company ’s improved performance in service, pricing, orders, underlying margins and free cash flow.
Based on our year-to-date performance, the company tightened its full-year guidance range for adjusted EPS to $2.80 to $2.82.
U.S. economic fundamentals strengthen and spending in non-residential construction markets remains favorable, despite currency volatility, inflationary pressures, and trade policy concerns. A rebound in oil prices supported investments from the Middle East markets in the fire protection and suppression products sectors.
Chinese demand for HVAC boost long-term outlook
While economic growth in China, a critical component of the company’s long-term growth strategy, has slowed in recent months, China continues to remain one of the fastest growing regions flat non-residential construction starts and weakness in commercial verticals were offset by starts in the industrial and infrastructure verticals.
The company’s existing partnerships and distribution channels in Chinese markets will help to exploit the HVAC market opportunities in the future, according to Trefis, a Wall Street research firm.
By 2020, China will represent 40% of the global HVAC market, due to increasing income levels, continuing urbanization, and lower current penetration levels of HVAC equipment and Johnson control’s strong presence in China will position it well to take advantage of growth opportunities.
Global trends for energy efficiency
The growing global trend of higher energy efficiency driven by rising energy prices and efforts to slash emissions also portends a significant growth opportunity for Johnson Controls’ building market businesses.
Environmental regulations are driving a need for energy efficiency, with 50% of new construction in China expected to be green by 2020. Higher energy efficiency in buildings is growing demand for the company’s energy-related advisory services. Growth in this sector is also helped by the fact that investments by customers in building energy efficiencies are recovered over time through lower operational costs.