Johnson Controls at 18th Annual Global Transportation: Strategic Insights

On Wednesday, 21 May 2025, Johnson Controls International PLC (NYSE:JCI) participated in the 18th Annual Global Transportation & Industrials Conference. The discussion, led by CEO Joachim Weidermannus and Mark Van Diepenbeek, revolved around the company’s strategic positioning, operational enhancements, and future outlook. While the company expressed confidence in its market-leading franchises and operational improvements, challenges remain in aligning internal processes and optimizing pricing strategies.

Key Takeaways

• Johnson Controls is focusing on its HVAC and controls market, leveraging its extensive field presence of 40,000 skilled individuals.
• The Danaher Business System is fully applicable to JCI, aiming to streamline operations and enhance competitiveness.
• Pricing strategies are being refined to focus on high-value market segments, with clear visibility on pricing and margin demands.
• Organizational realignment is underway, shifting from four to three segments for improved decision-making and efficiency.
• JCI is exploring portfolio strategies to enhance margin performance and align with market demands.

Operational Updates

CEO Joachim Weidermannus, who joined JCI nine weeks ago from Danaher, emphasized the company’s strong market position in HVAC and controls. He highlighted the importance of customer and competitor orientation and the need to optimize internal processes to empower the frontline team.

• Weidermannus has visited numerous countries and customers to better understand market dynamics and opportunities.
• JCI is leveraging its unique technological capabilities to drive growth and innovation in high-performance chiller HVAC product lines.
• The company is implementing the Danaher Business System to improve quality and competitiveness through lean principles.

Pricing Strategy

Mark Van Diepenbeek discussed pricing strategies, emphasizing the complexity in the Solutions business compared to pure product pricing.

• JCI focuses on attractive market segments with higher service attachment to enhance value and pricing power.
• Efforts are underway to improve pricing processes in Europe, with significant progress anticipated.
• Clear visibility on pricing and margin demands is now achievable in most markets.

Organizational Realignment

JCI is restructuring from four segments to three, aiming for a more commercial realignment and efficient decision-making.

• The new structure integrates indirect sales channels with the field team, focusing on the entire customer journey.
• The geographical segments are Americas, EMEA, and APAC, each responsible for products and solutions.
• A foundational group is being established to define and develop best practices and continuous improvement.

Future Outlook

JCI is evaluating its portfolio strategy, considering a more focused approach on HVAC and controls or leveraging its diversified portfolio.

• The company aims to enhance margin performance to match direct competitors over time.
• JCI is analyzing installation practices to optimize project decisions and improve margins.
• The trading environment remains stable, with a healthy pipeline and order pace despite some market softness.

Q&A Highlights

• The trading environment was discussed, with a focus on vertical markets and growth opportunities.
• Margin improvements are expected to be gradual, targeting competitiveness over time.

For more details, readers are encouraged to refer to the full transcript below.

Full transcript - 18th Annual Global Transportation & Industrials Conference:

Nigel Coe, Analyst, Wolf Research: And welcome to day two of the Wolf Industrials and Transverse Conference. My name is Nigel Coe and I cover the multi industry sector here at Wolf Research. Today is unusually normally the first day is the busiest day. Today is actually the busiest day. We’ve got I think 40 companies across the spectrum and we’ve got 18 multi industrials.

So it’s going to be pretty hot and heavy today. It’s going to be a bit busier around the floor. And obviously the priority is to make sure the coffee doesn’t run dry. So that’s the big priority today. Look, it’s early days, but I think the feedback I’m getting is it doesn’t feel like demand has fallen off a cliff.

It feels like things are hanging in pretty well. And also pricing seems to be kind of going through and despite the pullback in China tariffs. So it might be setting up for a decent second quarter. Second half too early to tell, but that’s sort of the feedback that we’re getting so far. My coverage is round trip back to the pre Liberation Day highs.

The three best performing stocks year to date are GivaNova, JCI and three ms. You probably wouldn’t have made that call twelve months ago by the way, but I think it does speak to the power of self help. And in my experience of covering the sector for twenty years, the genuine self help stories tend to be the best within the multis. Companies that go from average to good, good to great tend to be the best. And when you have a CEO change that becomes potentially very powerful multiyear story.

So maybe we can start the webcast. I certainly think that JCI ticks that box. The benefits of webcast, just want to say welcome to the day two of the Wolf Transport and Industrial Conference. I’m going to kick off the day with the JCI team. Very happy to welcome to the stage Joachim Weidermannus.

Weidermannus. And Mark Van Diepenpeek. I’m sorry for

Joachim Weidermannus, CEO, JCI: Win the prize

Nigel Coe, Analyst, Wolf Research: of the most complicated names. I’m so sorry for hacking Hold on, Nigel. But I wasn’t practicing all night for that, by the way. But thank you very much, gentlemen. And maybe we can kick off firesides.

But maybe Jochen, maybe some opening remarks and we’ll get into Q and A.

Joachim Weidermannus, CEO, JCI: Yes, sure. Three Europeans on stage.

Nigel Coe, Analyst, Wolf Research: Yes.

Joachim Weidermannus, CEO, JCI: Yes. But as we were chatting, we both lived here for decades. So I joined nine weeks ago from a company called Danaher. Maybe some of you are familiar with Danaher. And I joined the company for a number of different reasons.

I I had looked at a lot of different things. But what impressed me was, the market leading franchises that we have, not only on the high performance, York chiller HVAC product lines and the Metasys controls platforms, but also our, what I would call, enviable field position. You know, we have 40,000 people in the field and, built over decades, and these are not high school grads who joined us yesterday. These are highly technically skilled individuals who are also, from a human point of view, skilled at dealing with customers and complex situations. So, when you have that kind of capability, both strong technology capabilities as well as an enviable field position that takes, like I said, decades to build, you really have something very compelling to work with.

And then we can discuss how well, you know, we’ve productized our technological capabilities and how much leverage we’re getting out of our field teams at this point in time. But so I saw that as, really compelling, advantages of this company. And and and then, of course, the mission. I should have started with a mission, but, you know, the mission, what we do when you think about it, when human society advances, it it really happens in in buildings and not any kind of buildings, but where more, intellectual, more sophisticated work is done. Of course, the the latest and and biggest growth vector in in this space, needless to say, is is the are the manufacturing sites of intelligence, aka data centers.

Right? But you also have medical advances that take place in in buildings, advanced health care, advanced manufacturing of pharmaceuticals are based on biologics. All of those buildings require mission critical indoor climates. And and that’s really something that plays to some of the strengths of of our franchises here. So so I think all of those things were were really compelling reasons for me to to join.

And then the fact that I’ve spent most of my career, improving businesses, and we can chat a little bit about my Danaher background. So, of course, here, I saw an opportunity to to join a team and leverage all the things I’ve learned over the years, and one plus one equals much more than two over time. So those are some of the reasons, Nigel. Thank you.

Nigel Coe, Analyst, Wolf Research: That’s great. I was going to kick off with the question about why JCI? Because I’m sure during your career you’ve had plenty of opportunities to move and be CEO of a company. You talked about some of the great things about JCI, but in your first two months on the job, what would you say are the areas to sort of add muscle or maybe areas to improve?

Joachim Weidermannus, CEO, JCI: Yes. So in addition to being excited about the strengths, you know, I’m also equally excited about, you know, the work ahead here. And, you know, I talked about it in in the investor call, you were with us, Nigel, is about in terms of how we overall, as a company, just simply need to be become much more oriented towards customers and competitors, you know, versus internally oriented. And, you know, that’s that’s sort of sound like a nice theoretical thing to say. But when you break that down in in practical things and you look at and I’ve spent a lot of time in the field.

As I said, I’m still fairly new, so, you know, nine weeks in. But I’ve been in nine countries, I think, by now. I have visited, I think, well beyond a hundred customers. I’ve sat with hundreds of our our frontline colleagues, frontline as in sales, service, r and d, as well as manufacturing. I’ve walked 17 18 plants heading to my twentieth will be 20 plants by the end of this week.

So I’m I’m really getting a flavor for what’s needed here. But in in terms of the customer orientation, what what I mean is when you look at, you know, your field team and and you see how much time they’re spending on things that are really nonvalue added things. And, of course, everybody and every company needs to do their expense report, so that’s not what I’m talking about. Yes. Unfortunately, you know, me too.

But but there are just internal processes that are not optimized yet, that would enable us to free up time for the the people build capacity in the field without hiring more people. And that’s, you know, that’s not gonna happen without leadership at different levels being customer oriented and being obsessed with trying to help our frontline people, with serving customers and giving them back more capacity. So it’s a very just a very practical example of when I say, you know, we wanna we need to be more customer and more competitor oriented. Right? So so I see that as an opportunity.

I I do see I alluded to it here before with with some of the unique technological capabilities we have. Like I said, not only, but in particular on the high performance chiller HVAC product lines. There we have unique skills, and a chiller is really five subsystems. For those of you who follow automotive, I’m sure you’ve heard automotive companies talk about a car as being a number of subsystems, and then there’s the overall subsystem. We have unique capabilities in all of the five subsystems that make up the an HVAC chiller.

I do believe humbly that, you know, we we have more skills in a a number of the module subsystems that some some of our competitors don’t. So we have degrees of freedom and innovation how we can turn those into more differentiated products, typically more vertically differentiated products. So I’m I’m super excited about, you know, bringing that into how we plan future product portfolio. So those are just a couple of examples about how you would turn this notion of being more customer oriented into something that both creates more growth and and leverage from the assets you have in place and the field teams that I started with here.

Nigel Coe, Analyst, Wolf Research: Great. Thanks. You’re definitely doing the GEMBA, that’s for sure. Yes. So the question we get a lot is how applicable I mean, I think we’ve all heard of Danaher.

I think got a lot of admirers of the Danaher Business System here. How applicable do you think the Danaher Business System is to JCI? And I’m thinking not just in the manufacturing side, but also in the service side as well.

Joachim Weidermannus, CEO, JCI: Yes. Well, 100%. I mean, I could have said 200, but, you know, that’s not possible. Right? Yeah.

So let let me just walk you back. You know, I started at Danaher fourteen years ago. I met the individual who ran Danaher at the time before that, and we connected on on the on the topic of how you build unbeatable execution engines. And I had done a lot of work in a prior company that maybe some of you know called Metler Toledo, and our business system was called Spinnaker. So, I spent six years there, you know, building out Spinnaker on the commercial side of things.

So we were really trying to accelerate organic growth. And, and we were really way we did it, you know, there’s some fundamentals for how you drive continuous improvement, you know, how we captured and defined best practices so that you can train people all over the world. One point o in year one. Next year, you do two point o, and then you do three point o. And, you know, our our the unique skill we really built was deploying capability at scale to the front lines.

And the notion was, you know, whoever has the most capable front lines wins. And and that that proved I mean, I learned I mean, that was a little while ago. Right? But but one or two of you in here, I think, followed that company at that point in time too. And that’s that’s played out year over year over year in METLORZOLEDO, as you know.

And, but the fundamentals were built at at that point in time. So I met the the gentleman who ran, Danaher at the time. You know, Danaher was very strong at at Lean, more in the factories, a little less so elsewhere. And, we sort of aligned on on the simple truth that, you know, you can apply the Lean principles in commercial as well. And some of the approaches I had learned at Netlurch Lido in in the commercial could be brought to Danaher.

And and so I joined Danaher, with the team there, we evolved the Danaher business system to be far beyond factories. So over the last fourteen years in Danaher, and I’m sure you’ve seen that investor presentations, how much, we, at the time, they now, talk about what we did on sales, on marketing, on service, on on how to accelerate innovation and and so on. All of those things are a % applicable at Johnson Controls. So and and think about it this way. You know, we have about 35,000 people in our factories, maybe just a little bit more than that.

We have 40,000 or more people in the field. And so and it’s not really about the cost, although, of course, we always look after the cost. It’s what leverage can you get out of these capable people. And the lean principle what’s lean? For those of you who don’t know it, it’s really a way of running companies.

And what you do it’s not a manufacturing thing. It used to be in the seventies and so on. But it’s a way to align an entire organization around your customers, and then you engage all of your employees over time, of course, not day one, in hunting for waste and and thereby improving processes, creating flow, being able to do things faster, because you get rid of obstacles, quality rework, waiting time, things like that. And, by being able to do things faster at better quality, you’re able to be much more competitive. And whether that’s respond on time delivery or lead times from factories or whether that’s response time from your service team that you can you can be there in three hours or six hours versus your competitor who can be there in eighteen hours, you know.

The principles all apply in in in all these these functions. So so that’s that’s a little bit probably more context than you wanted, but that’s No.

Nigel Coe, Analyst, Wolf Research: That that’s why. And by the way, we can go with 200%. Two hundred % is a thing. So we’ll go with that.

Joachim Weidermannus, CEO, JCI: Just want to I’m quite quantitative, so

Nigel Coe, Analyst, Wolf Research: Look, you you said you’re not ready to come out with sort of, you know, a strategy update on JCI. I’m not going to press on that. But I do wonder on pricing. Now under Mark leadership, you’ve made some great strides on sort of pricing, in Europe and Latin America. I’m just wondering, especially on the Solutions side, because there’s no single product to price there.

So I’m just wondering any conclusions you’ve made so far on the ability to optimize price and price better for value?

Joachim Weidermannus, CEO, JCI: Yes, you want to take that one?

Mark Van Diepenbeek, JCI: Yes, sure. So first of all, the dynamic of pricing the Solutions business, as you alluded to, is a little bit more complicated than our pure product, right? You can compare a product, 20 and the next, and you can easily say, I’ve improved price x percent year on year. On the solutions because the scope of the job and the different things becomes a little bit more complicated. But I’ll tell you two things.

The first one is we do a whole lot less installed than what people really believe. So as part of our portfolio of systems, there’s a big component of products and we’ve been able dynamically to really improve our pricing processes to be able to command more price and sell more value. How you do that is you orient the commercial teams, and Europe is a great example, towards the parts of the market that are more attractive. One of the benefits JCI has is we operate in extremely broad and wide market with a ton of opportunity. And when that happens, you have a tendency to have a commercial team if you let them go the way they want to focus on everything and anything instead of laser focusing on parts of the market where you have a higher service attached, it’s easier to sell value, your product can actually become differentiated and you can actually command price on the differentiated technology we provide instead of chasing the more transactional parts of the market.

And so our ability to command price in those markets has been around focusing the teams, again, the sub segments of the market that are operating better. Now there’s a whole lot more work to do. Europe is in the early stage of that improvement, and there’s more improvement to come. And we got to continually look at where and how we find the teams on system and how do we improve our entitlement on attachment rate, and that will get that flywheel of pricing accelerating much faster. But the days that you’re alluding to where we had more challenges on commanding price and matching price are far behind us.

We are able to now have a clear visibility on cost of pricing and our ability to attain our full pricing demand and margin demand on most of the market.

Nigel Coe, Analyst, Wolf Research: Okay. That’s great. And then maybe just think about the reorganization that’s underway right now, the new segmentation. I don’t want to talk about segmentation as it sounds like a very dry, but you are moving from four segments to three segments. It does feel like more of a commercial realignment than just a simple rejigging of the reporting.

I’m just wondering how this changes the customer facing part of the organization and making just more efficient decisions and streamlining the organization.

Joachim Weidermannus, CEO, JCI: Yeah. Yeah. I mean, first of all, it’s super logical. And quite frankly, most companies have had that org model for quite some time. So it’s good that we did that.

I mean, this work was all done before I I joined or the preparation for it was all done when I joined. And I had the pleasure of three days in to announce it to the organization. But and you could say, wow. How about that? But you know what?

It’s it was just logical, and it’s a model I’m super familiar with. And I mean, so what was it about? I mean, in the past, we had a separate team, commercial team, that that covered all of our indirect sales channels. They were separate from the people who you know, the 40,000 people in the field were separate. And, you know, it doesn’t matter what the logic of of that was, but, of course, there there was some at the time.

And what what we simply did was to say, hey. Look. Whoever’s responsible for Germany or whoever’s responsible for the Midwest in The United States, you know, that individual, that team should be responsible for the whole market and for for the entire customer journey and experience and meaning all channels, all work done. And so, of course, as you can imagine, when you move from two silos to one team, you do look at the market more holistically. Right?

So makes sense. And, you know, some of this the side benefits of that, the little anecdote, and this is work that’s on was started quite some time ago, and it’s continuing. But when when you start to look at the market not in silos like that, of course, you see that, oh, combined, you know, maybe we don’t have the market share that we aspire to. And and you know what? Different customer segments, prefer to buy in different ways that maybe depending on where they are at in their journey.

So it’s not necessarily so that one business is only direct or it’s only indirect. Right? So you need to you need to look at the customer’s buying journey. And and so we’re seeing already the some of the early benefits of this where where we have teams saying, hey. You know what?

We probably could add a little bit more indirect channel here. Or you know what? We probably shouldn’t go indirect for these and these kinds of solutions because for a number of different reasons, you know, the life cycle opportunity is is much bigger here, so we wanna be much closer to that opportunity, upfront. So from a commercial point of view, it it just made made total sense. And then the other than the three, geographical, segments, Americas, EMEA, APAC, you know, we’ve got two groups of of teams.

One group is basically the group that’s let’s call them responsible for the products and the solutions. So these are these are the innovation well, start with product management, product strategy planning, things like that. And then, and they’re leveraging the the innovation centers, the innovation capabilities that we have, and then they they turn that into products that we then manufacture. And, of course, some of our manufacture some of our products, some are standardized, and some are more configured to order. So, when you’re in a little bit of a configured to order business, it’s not bad to have innovation or some parts of r and d have have good ties to manufacturing.

Right? So it makes a lot of sense to have have that kind of grouping. And then what was created was what will be the foundational, group for, whatever we choose to call it over time, but our operating system, our business system. And and that’s a group that’s really responsible for very much akin to what what I did at Metler’s Leader or at Danner or what basically defining developing best practices, having some continuous improvement, capabilities, and then deployment capabilities to help the regions, become more capable, but also in the factories, of course. Now that’s nascent, but we we have created a group like that.

And so very exciting. I’m very excited about that to not have to start from scratch on that coming in.

Nigel Coe, Analyst, Wolf Research: I’m take two more questions and then I’m going to throw it open to the audience. I would just I want to sort of like maybe address two urban myths about JCI. One would be that foreign security is a solid business, but maybe not the highest multiple, highest growth. There’s a perception that it’s lower margin that it leads down your margin. So maybe just take a crack at that one.

But also, if I can just throw in as well, you do too much installations, too much labor. Is there an opportunity to optimize that part of the business? So maybe just those two.

Joachim Weidermannus, CEO, JCI: Sure. So let’s let’s cover installation first. So like Mark said, we do not do installation of everything we do. That’s some let’s take that out of the equation right away. Now for the installation that we do today, should should we be doing all of that?

I don’t know. You know, prob probably not. But the the I’m I’m a practical guy. I grew up in the field. I’m not some ex consultant.

I’ve been a general manager since I was 28 years old, and, I’ve had full scope businesses since I was 28 years old. And, so the way you approach such a problem is you look at, for example, the last 300 projects that you did, and then you see, did we do installation or not? And then you ask yourself the question, did that improve our win rate? Yes or no? Of course, you look at the scope of installation and so you develop an opinion on whether it help you improve your win rate.

Then you look at your margins. You look at what you assumed when you quoted, and then you look at how you’re able to execute. And then you you can answer the question, were those were those margins good enough for us? Or when you see if there’s a delta to execute it, it could be up or down, by the way. But you you typically study the ones where you’re down versus what you quoted.

And you say, why is that? You know, and or or why is it not down in certain cases? So you’ll develop an understanding for what we’re capable of doing and where. And by the way, our capabilities are not uniform everywhere for every business line or or in every country or every region for that matter. Right?

And then you look at because in this this business, as you know, the life cycle services business, the what happens after the initial installation is an important part, not just of our revenue profile, but our margin profile, and later on to to, earn the repeat business. So you look at what’s the service contract attached, you know, is is there a correlation between if you did installation or not? And and you know what? We’re doing that work right now. My hypothesis is that our conclusion is gonna be that under these and these circumstances, we absolutely want to do the installation because it makes sense along the parameters I talked about.

But we’re only capable of doing this kind of work, this level of complexity in certain parts of the organization. So this kind of goes back to lean principles, you know, develop standard work and be clear on where you have the capabilities, give people the tools, and so on. And then we’ll also conclude that under these these circumstances, we will no longer do installation. And and, to preempt that question, I don’t think that’s gonna be like a a revolution that suddenly we’re gonna have a downtick in sales that you’re gonna notice. Really not.

You know, this is kind of a a gradual thing. So that’s the answer on the installation side. So we’re we’re doing that work right now. By the way, little reminder, you know, our gross margins, that’s the installation cost is in the gross margin. Right?

And if you compare our gross margins to our competitors, it is it is actually better than most of our peers. Right? Not not all of them, but but the the the closest in peers. Then on the the portfolio, and I promise I won’t play this this card anymore after this quarter, but I am nine weeks in. So I I will I will play it when I can because, you know, it’s just simply the the truth.

Right? But so it’s it’s too early. It would be presumptuous of me to start drawing conclusions on the portfolio. But what I can tell you is that we’re we’re approaching this the way I was brought up to do it is you start with strategy, then you get to portfolio. And whether that’s acquisitions or exits, you have to start with a strategy.

And strategy starts with markets just good old fashioned. I mean, most of you went to business school. Market segmentations. What are the customer segments? What are what do they need?

How do they buy? Who are the competitors? Where are we positioned today? What does a winner look like? And then you say, okay.

What’s the gap? Where are we versus what a winner should look like? And then you look at the gap and you say, man, that’s, big or no. It’s not that big. And then you have to make capital allocation decisions on internal capital.

Right? So which ones are the which gaps are the most worthwhile to to go after? And so that’s we’re doing that work right now, and that’s not something you complete in a quarter. Know, that you know, obviously, not only my decision, we will have to go to the board. And so over the next couple of quarters, we’re gonna be doing that work.

And at the appropriate time, you know, we’ll come back and tell you what the conclusion is. My hypothesis, I mean, there could be two scenarios, and I’m really not drawing conclusion now at all. There could be two scenarios. Scenario one, which doesn’t mean I’m ranking these now, by the way. They’re just simply two scenarios.

Scenario one is, you know, we could choose to become a little bit more focused in our portfolio. And and most likely in that scenario, mean, you could you could imagine that possibly being, you know, HVAC and controls. And in that scenario, the natural choice would be you don’t need to go to business school to come up with this, but is that you you choose to become a little bit more vertically oriented, specialized. Right? In particular, if you have these unique technological skills that I was talking about.

And, and you would you would double down on higher growth verticals, verticals with a higher life cycle services, content, more pricing potential because of your degrees of innovation. When you choose such a strategy, you have many examples of that out in the market. You know, that’s the theory behind that one. But scenario two, and and at this point, I think it’s just as likely, is just simply that if you think about Danaher, you know, when I left Danaher, you know, we were broadly in health care tech or or or buy tools for biotech. And but the the three groups of businesses in Danaher, there were very few synergies between those three groups.

But they were great businesses, all of them, serving, you know, the general, or a part of the health care market that had good macro, characteristics. Now each one of those businesses were great businesses, but they did not all have the same growth potential, short or medium term. They had different margin profiles, and they had different cash conversion profiles. And if you take a step back, and if you look at the portfolio we have today, I mean, excluding the 10% that we’re going to exit that I think Mark has talked to you about in the past, I mean, you could you could see that, you know, look. These businesses were serving the same general macro or similar macro trends.

And, and then if and here comes the big if. If we we develop conviction that we can just simply run these businesses much better, then, you know, we could we could lift the performance of this corporation. And and I I think, all of us would be, you know, quite pleased if if we could, as a starting point, you know, catch up to the types of margin levels, EBIT levels that that some of our near end competitors have and over time, you know, do a little bit better. And so we’re validating all of that work right now, but I’m sure you’re going to ask me the margin question, so I’ll park that one until you get to that one. I was going to It’s the logical one.

Yeah. No. But of course.

Nigel Coe, Analyst, Wolf Research: We’re very short of time, but I want to make sure I offer up the mic to the room. Any questions? No. So, okay, back to that margin question.

Joachim Weidermannus, CEO, JCI: Yes.

Nigel Coe, Analyst, Wolf Research: Before we get there

Joachim Weidermannus, CEO, JCI: It’s the one I asked before I joined. So, I mean, it’s clear.

Nigel Coe, Analyst, Wolf Research: Before we get there, I just do want to touch on the sort of trading environment. We had a very weak ABI print overnight, 41 of weakest I’ve seen in a while. So just disconnect between what you’re seeing on solutions orders versus some of the macro data. Just want to make sure we’re not missing sort of a wall here in terms of are we going to see a negative number anytime soon?

Mark Van Diepenbeek, JCI: Yes. So our guide of mid single digit in Q3 and arithmetically very close to that in Q4 embed some pressure we’re seeing in the back end. But very transparently, you look at the shape of our pipeline, the pace of orders and the health of our pipeline, we don’t see yet very strong signal of softness in the market. Now we are longer cycle than most, right? So a lot of the time it takes for us between approaching something in the pipeline and booking it is longer because we approach customer very early on in the either decision making process or construction phase, depending on the segments of the market you look at.

But we continuously see healthy enough momentum to be able to meet our commitment. If you look geographically at that mid single digit, EMEALA still see much better growth than the rest, and that’s really on the basis of the fundamentals of the megatrends we’ve seen in Europe. But also the repivoting of that commercial structure I talked about earlier is really starting to yield a lot of goodness. APAC is okay. It’s within that company guidance of mid single digit.

And North America is probably just there or right under there, depending on how you look at it. But the core vertical markets that have driven our growth and continue to drive our growth remain very healthy. Of course, data center, but you have manufacturing remains pretty healthy. Healthcare, if you exclude Life Science from there, it’s still pretty good. And then the commercial real estate, still pretty good.

I mean the Class A offices, it’s still one of our greatest market. And anything below that is very, very soft and probably not growing at all. So yes, there is we see the same data you see. We have the same angst. There’s some concern more for us in 2026 and what it will do for demand more than what we see for the balance of 2025 to be honest.

Nigel Coe, Analyst, Wolf Research: And then, maybe another one for you would be on the sorry.

Joachim Weidermannus, CEO, JCI: Yes. I wanted to understand, this is a multi vertical This I’ve I’ve lived in multi vertical businesses my my whole career. So I’ll give you a little more context than maybe you’re looking for, but it’s important. I think it’s important for you when you look at different companies. So when you when you’re in businesses that cover multiple verticals, you know, you always have this dilemma.

Like, you you can’t just choose a few too few verticals because then you can’t get scale. But if you choose too many, you spread yourself too thin and you can’t I’ll use the word productize. I don’t only mean hardware products now. Productize your your capabilities and and make enough progress because you go too broad. And so I wanted to understand if if there was a a scenario where there are few many higher growth verticals, is there an op was there an opportunity to really focus a company to become a little bit more differentiated than might perceive that some of the players in this industry, not just us, perhaps have been today?

So because that’s about long term growth opportunities. And by the way, when you dig into verticals and so on, of course, you ask yourself questions not just about growth. You ask about how import how mission critical is what we do for them, what kind of margin differentiation is, or what kind of life cycle service opportunities, and so on. So I asked I asked a series of questions around long term growth fundamentals. And and then, of course, as you can imagine, I asked a lot of questions around current capabilities, not just team, but also in terms of where are we on the journey of of our execution journey on, for example, the margin question.

I’m trying to help you here, Nigel. And, you know, so what’s what’s the opportunity here? And, of course, there, I’m because, you know, what what has been fun for me over my career has been many, many different things, but I I really do enjoy helping make sure we all win shareholders. I’m a shareholder as well. So, of course, I’m I was asking about, like, what kind of shareholder value creation opportunity is there with with those two big questions.

Nigel Coe, Analyst, Wolf Research: So we’re a minute over budget. Yeah. But I do wanna get this margin question. Yes. It’s the elephant in the room.

Yes. Maybe just you’ve talked about gross margins being above peers and that’s certainly true, train or like a carrier. Right. So therefore, closeness gap, is it primarily an SG and A productivity?

Joachim Weidermannus, CEO, JCI: Yeah. I I don’t think so. I think I think, you know, there are a number of buckets. And at a later point in time, I’ll after I’ve worked here for more than nine weeks, I’ll be able to dimensionalize it more precisely. But I but I’ll tell you a little bit so so you can understand why I’m so confident to say what I say.

There are, the margin buckets, would say, number one is how we run our factories, you know, and applying lean principles. You know, we’ll be able to not just eliminate waste, speed up, you know, how we run the factories, but when you do that, you invariably take out cost and and not just cost as in COGS, but also capital. So there’s a you know, with 40 plus factories around the world, you know, we’re gonna have some fun here, and we’ve already gotten started. And and then you have the 40,000 people in the field, and, you know, some some many of these people are, conservatively, spending 15% of their time doing stuff that over time they shouldn’t do. So is it easier to grow if, you cut that in half?

You’re trying to grow we grew seven last quarter. Right? What if you take the 15, cut it in half, you give them back 7%. Is it easier to grow 7% if you get I think so. Or that’s what I’ve seen during my career.

So so there, it’s more about leverage, and that’s both service gross margin as well as s, the s cost and s g and a. Then you have the the installation example that we talked about. And and then on g and a, there’s just you know, with the exit of residential, of course, we’ve Mark, already announced the restructuring previously, but there’s just lean opportunities in G and A in general, and then there’s also a restructuring opportunity beyond what we’ve talked about, which we’re trying to dimensionalize at this point in time. So all those things, I mean, there’s enough to go at, and that’s why I’m I’m really excited to to to say that, you know, I I think we we cannot just catch up to some of our direct competitors, but over time and, of course, they’re cape very capable, so so they won’t stand still. But but over time, we’re gonna be very competitive on on margins here.

Now that’s not a one year thing, but it’s not a five year thing either. I’ll just have to work here for a few more weeks to come back and be a little more specific.

Nigel Coe, Analyst, Wolf Research: We’ll call it three years. Okay, that’s great. We better stop there. Otherwise, I’ll get you trouble. But Jochen, Mark, thank you very much for the discussion.

That was great.

Joachim Weidermannus, CEO, JCI: Thanks, Nigel. Appreciate it.

Nigel Coe, Analyst, Wolf Research: Thank you. That’s great.

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