Johnson Controls International (JCI) 3 Nov 222022 Q4 Earnings call transcript

Welcome to the Johnson Controls Fourth Quarter 2022 Earnings Call.

Your lines have been placed on listen-only until the question-and-answer session. [Operator Instructions] This conference is being recorded.

If you have any objections, you may disconnect at this time. I will turn the call over to Michael Gates, Senior Director, Investor Relations. you. Thank

issued thank fourth our The call quarter and at related and discuss call press slide for as johnsoncontrols.com. portion all Controls’ morning, of found Johnson fiscal tables Investor presentation you can morning, the on conference joining to release well be Good as this the conference Relations earlier XXXX website results. our

Officer, and Olivier on call our today Chief Chairman Executive the Controls and Officer, me Joining Chief Johnson Financial Leonetti. Oliver; George are

reminder, information. a during today’s course that As we’ve through we before the that there. be review statements read included of begin, will we the providing today’s informational forward-looking press you We call, release and certain cautionary forward-looking ask

as in you release items. ask made our discussions items. and in to the free In earnings website. the other the slide posted are attached we together of the in results addition, are and excluding during measures per read share, release our references press the call, measures that other sections that of address press discussing non-GAAP metrics our special these to in presentation use are specified will use reconciled These as flow and sales, measures cash schedules organic the and our with In appendix non-GAAP EBIT, our adjusted and through we to restructuring well EBITDA certain presentation the on

a year on call prior to continuing basis. George. all Additionally, turn the I are the With ops comparisons over to that, will

look provide review our you strategic progress fiscal XXXX and off with our the priorities. our you back joining fourth results to on start today. of everyone. across Olivier call I Thank morning, good quarter quote year on will detailed guidance. will and of XXXX fiscal and a our for Mike, Thanks, update a us

we take questions. always, remainder to of call your leave the will the As

macroeconomic the We’ve year-over-year which continue drive us another suppliers that with mitigate of is This to our top-line Let’s our guide. and plan backdrop disruptions. the year, supply begin margin for year Compared $XXX shown products in solid XXXX, levels, organically exceeding as prior grew industry. our million deliver fiscal had field our significant continued inflation sales progress billion record secular we we by full meeting unprecedented growth The our increased and year. working headwinds for mission-critical closely XX% the that’s updated up exchange and with trends out outlook or total to that a achieved to of $XX we over chain demand high year. backlog closed our savings our chain XX% significantly organically, up for value our X% execute quarter the the proposition also strong further fiscal X, supply environment challenging the Slide to and foreign also target year continued year disruptions, of throughout exceeding supported results year-over-year. the We’ve year. grew out unique the highlights made impact as rounded savings reported end approximately cost orders, services the fiscal demand and strong productivity line in to we strength robust X% with maintain Despite approximately

XXXX. building into impacts work our in sequential year the increasing and fiscal to allowing momentum our fundamentals our vectors improving solutions way our Across of digital capitalize to half continue our teams deliver during fiscal the and has higher material organization, we our partnerships and a strong as year through margin our Overall, continued backlog significant improvement competitive helped capitalize drive leading With our on have margin Lastly, technologies connected approach us cycle key Johnson to continued disciplined enhancing Controls as this to exchange to execution, positions to offsetting focus in the on we pricing year. in invest XXXX year the growth operations foreign heading on second capabilities, of serve. foster was and for we edge smart we

have market across services commercial We our and fire industrial driven global gain products also by continued to HVAC, and refrigeration share detection.

We for confident expand, great capabilities, through which the the benefits transformative continues differentiated a strength realize in buildings to needs of platform. serve a our healthy digital to our are customers. in and And trends of the I position our am offerings as of sustainable our to the service continue

macro the world, with fiscal backlog is within into demand government with faced heat and pump tailwinds our seeing Lastly, us strength business. year the provide Favorable while heading will global uncertainties, we XXXX. additional are across market momentum incentives continued

comes Now for services significantly suite expanded of of blueprint breadth the refrigeration of devices for suite the customers turning that interface AI trust gives vital a of mind connected progress provides connected across the equipment. zero insights. our have of our OpenBlue operational This continues equipment can levels XXXX, benefits a chillers, This in smart play seamlessly added expand with through our future to we of spanning enhanced stack. digital With solutions solutions the with building and connectivity we customers’ X. of to OpenBlue monitor also and the meeting offerings actionable at to and devices systems. industrial integrating chillers XX,XXX the the year in buildings. customers that exclusively with the added Bridge. made It representing provides range our of OpenBlue In the the the BAS role fiscal we improve tailored advancing of solution this edge. needs laying year-over-year. and latest Slide devices addition almost to connectivity XXX% with significant with reduce controls OpenBlue of existing We’ve cybersecurity them performance of connected and complexity have peace from Today a

Along decarbonization, management use specific enterprise also with expanding. added covering is from expand these standing footprint comprehensive capabilities, customer our safety. Software-as-a-solution offerings to cases enterprise Our and health continue to occupant

into expansion the to quarter, year. upcoming with building are as our building we of smart and launched environment During disrupting are the we our to recently AliCloud lies Management fourth announce solutions the China. ahead to OpenBlue look Solution Enterprise The we excited OpenBlue future supporting proud continue for

Slide Moving X. on to

tailwinds energy initiatives. including for to representing continues uniquely Inflation Controls Johnson sustainability renewable favorable Europe are up revenues X, be in our X% to of Act pump turning HVAC and service growing X% OpenBlue year-over-year. $XXX While XXXX, recent Slide usage orders we By positioned we our Reduction billion. of growth as low from the to alternatives. emission of anticipate XX% advantage we market mature, service orders growth our opportunities accelerated fiscal the pump strategies sales. and continue actionable and full to continues credits is to with year an On shift growth heat quarter than Heat digital offerings. to we service share $X momentum independence strength take for business offerings have a the realizing revenue towards our field In during additional and driver XXXX, push demand core and million through over increased fourth core total quarter more of to have gained successfully our the service vectors market

uptime. Microsoft and in Campus partnership Our is results driving their West Beijing’s helping with improve reduce emissions

our campus. digitize reached It Colorado achieve year our work help net University with throughout relationship. the helped customers deploy solutions net has transform addition, XX electricity to State zero. and zero In We design,

impending continuously an and expanding Decarbonization we risk, We as poses build energy is buildings to zero are our among our climate net efficient out change secure customers OpenBlue solutions. offerings. a and priority continue

quarter historical largest secured the orders, growing about our which had over of million year-over-year. year XX% in billion for we QX, orders led of During to $XXX $X full

remains as employee healthy health, managed our customers Slide market and buildings environments. X, Turning wellness benefits unlocking invest associated strong indoor with opportunity to the productivity well in

customers trend manage as positioned air coming are OpenBlue some through in service challenges indoor to a capture quality We wins our this exciting help with QX. and

we in delivered achieve In our promising XXXX, and into Notably, way buildings XX% linkage decarbonization increased year healthy results. simultaneously. during research Additionally, the fiscal solutions leading are and between advancing the we helping quarter, year-over-year. new outcomes both customers orders the

and of leverage more Our buildings billion quality. we represents continued $X.X growth healthy value environmental in customers revenue indoor as expect pipeline improved the over order

turn commitment sustainability. to We we X. our to consistently Slide demonstrate Now

quarter, zero XXXX. of of the quarter. buildings. net the for recognized World Controls the that to Change very named I The over go call through now OpenBlue to Forbes List the Johnson in details turn XXXX service going One we and During am proud Olivier Best been Fortune’s our Employers am I OpenBlue financial also Solutions of to offerings have World’s

Thanks, morning, everyone. George, and good

with anticipated. product high guidance price XX%. XX% global end portfolio Sales line on Let with the with of We X. to XX% nearly saw X% we across me growth at the strong originally in points, summary organically shorter-cycle X our start our performance what of the in quarter contributing up were up Slide

Our and longer-cycle of increased further performed incremental to and expanding Better leverage XX.X%. field in Segment well, improving with ongoing SG&A EPS was chain higher and also up XX%, higher basis the EBITDA on favorable businesses both X% XX growth our points store. in service margins volumes, with mix XX% share achieving benefiting and guidance as of price supply lower at midpoint from continued $X.XX count. profitability COGS programs, constraints well the increased as cost. our more and year-over-year, of will than but benefits offset

year $X.XX we of free versus supply two the flow FX over up conversion as we result last was the guide. quarter, demands. additional customer meet During chain a cash disruptions inventory have the build of our prior Full to absorbed XX% headwinds of the the an years,

$X.XX productivity XX. year. quarter, our $X.XX for headwind. including Turning savings Overall, helping our Slide targeted was operations exceed to benefit EPS from versus on year, SG&A and contributed COGS to the our In FX the bridge the prior $X.XX program, a a

higher a XX. increased with for count. in Slide our HVAC continued were to X% financing non-controlling aggregate, orders demand and and businesses install systems. Orders offset double-digits net in addition, quarter charges Please the by interest lower applied controls increased low impacts turn field for In share

strength business EMEA/LA in at remaining growing XX% increase We record quarter-over-quarter. growth $XX.X prior up our a versus remains driven with year and levels, Field by APAC. $X.X billion, orders the service X% flat are to also backlog seeing while billion double-digit in both continued

more Global than XX% and Lastly, grew $X.X to continues backlog Products strength. by billion to show our

up the X% North and growth were with results discuss Let’s Slides organically broad-based Sales our across in more in portfolio. detail segment XX America on XX.

our the with revenue & declined with of transactional X% install EBITDA Asia and X% Applied HVAC our projects our grew and XXX platforms with HVAC up growth North platform. grew grew in and growth America from Service QX our in billion, with year-over-year, $XX business low-single-digit Latin more retrofit services, orders Orders in Fire by sales HVAC America was America were up basis shipments, declined business solutions Fire projects of increased in America geography, benefit platform. in region FX the result million high-single-digits. benefiting margins increased XX% margin in America, growing EBITDA increased of quarter, low-double-digits a up China. & equipment in year-over-year. and Controls Our than cost China volumes driven continued as lower Orders aggregate data equipment North result strong the grew X% and Total Overall, EMEALA quarter sales backlog with volume growth. as our another in upgrade realization. driven parts leverage respectively. cycle XX% up basis contributing install Fire unfavorable X.X% headwind HVAC within low-double-digits over HVAC center Sustainability was savings were grew flat direct in were in continued in nearly and and low-double-digits to disruptions. Backlog Security while the high continued and the for sequential declined to year. in basis both from resonate of led in was driven of price single-digits by with year-over-year. Orders continue supply global and up the by billion respectively. to aggregate. chain Fire billion. benefiting growth mix were impacted and the chain mid-single-digits Segment volume sales EMELA both Overall, In of implemented after a XX% positive Outside HVAC Infrastructure shorter strong improved and mid-single-digits orders orders HVAC realization a a continued X% Segment growth customers. mid-teens at and year-over-year. HVAC construction our our by price new shorter decrease driven increased strong in Security earlier up points business of strength decarbonization business quarter in XX% X% up term which Sales savings. offset based book-to-margin high Controls Commercial benefiting XX backlog low-double-digit a pricing to and light in with which business during to orders high-single-digits low-single-digits. declined by Overall, our by XX%. with $X from in rates quarter XX%. cost up low-double-digit solid our XX.X%, Industrial North strength increased quarter. points in Applied had our the XX% XX% up were end-markets. were QX, Europe headwinds, demand up of project supply XX% organically $X.X XX%. HVAC be X% X% in grew and of cost price due controls partially increased mix, products East. improvement Sales offsetting growth points global an $X.X growth FX residential XXX execution to by and Sales offset margins profile, broad ended quarter Segment in driven were & remained with Pacific and North Middle Security in high discipline by to benefit XXX Resi high-teens points growth & the the XX% leverage which quarter headwinds in of decline aggregate Security By Refrigeration, strength commercial basis the unfavorable business, was along favorable the product in

Our EBITDA and Control our aggregate of benefit growth led products Hitachi in by strong grew low-double-digits growth strong by high-single-digits our Access HVAC actions, to for the and driven by Resi business productivity Japan. continued and demand our strong EMELA Video HVAC driven grew in expanded higher by for heat grew XXX Europe, in by volume Fire demand pumps. APAC at low-double-digits double-digits sales favorable margin in Security residential Solutions & leverage led products. America Detection business our and points mix. North basis XX.X% Fire led

available times than ended times which and to QX balance our with net XX, and Slide at X cash of to $X Turning billion sheet in X.X range debt flow target on X.X we times. lower our cash is

however mentioned, demand. it up previously to temporarily improve expand investments make we flow was efficiency free As to CapEx selective cash by as impacted declined increased QX, In building inventory the year to capabilities. XX%, and customer X% spend for continue meet

fighting of compounds. to a the reserves, special wanted in environmental the foam Before charge where we facility I our year’s containing quarter. guidance, provide for into million contamination $XXX items next fire to in recorded Marinette, related exist get commentary to on We recorded some related use and Wisconsin, increase the remediation our primarily PFAS

our of treatment last and including our made completing extraction and team a activities groundwater the in remediation years, significant has progress construction investigation three Over system.

years. of based of work, resulted to information a actions the currently able over to in period that As us up XX a perform an a on to-date. reasonable analysis estimate the we to This available expect remediation were estimated we of known perform cost to associated long-term with result refresh

strength XXXX. fiscal year the Currently demand our Slide seeing discuss fiscal into let’s on quarter Now we in XXXX XX. are of continued guidance first heading year

anticipate organic and which remain margin wide that XXX across EPS our XX%. the contributing potentially proposition macroeconomic of basis levels into are low-double-digit expected impact expected full On to range a QX customers. could approach continued year-over-year XXX is basis, XX%. low-double Our of the at the providing expected with resonate reflect points of $X.XX, with continues growth with balance and momentum expand in to growth prudent with uncertainty is our organic adjusted ending a is year. backlog, build to price continue fiscal a growth revenue end-markets. We we to Segment year along value XX% $X.XX the taking to range Orders EBITDA to which to as strong digit historical our represents

global XX% of our signifies adjusted a This services The book which low downside The for growth, potential existing commercial continued our range additional end full scenario. of X% of this reflecting potential EPS offset scenario quartile a Our market scenario. growth, cost respectively. for by case $X.XX degradation range to our year GDP range of and resident guidance growth a presence, our actions. mitigation $X.XX believe represent $X.XX top normalized provide rate acceleration we vector will and along be end of with This GDP, accounts to base backlog. accounts conversion

low-double-digits resonate book continue XX% we cash margin improvements growth high-single-digits throughout continue and XXX of anticipate EBITDA improve our continue the expected further basis with our management Operationally, segment We reduction XX% and fiscal to inventories our top-line, anticipate is execute capital we flow the On to to be between Full gradual XX%. price to of from expansion about working offering supply our higher customers. backlog as normalizes. chain to with year organic year. as points the we to representing margin expect XX our

initiatives. look fiscal year, to our strategic our we forward accelerating close we As

improvements, We our structure minimize have productivity improved to cost aligned potential business through enhancements. operational and headwinds enhanced

XXXX, invest digital we that offering momentum for advancing the please our questions. of With across trends. strong. order We year fiscal as remains fundamentals service optimistic in businesses. secular while and continue our The and on operator are capitalizing products backlog customers, our growth look to and resonate lines our strong continue open to our resiliency into services Heading our given the with velocity

Obin, America. first question Andrew Our Bank from of Instructions] [Operator comes

now open. line Your is

guys. morning. Hi Good

Good morning.

Good morning, Andrew.

next just and could terms was confidence I pricing outlook of backlog if be question terms to gives achievable you nice in into pricing as year? a just some color wondering kind will that the in this pricing next very looks year. us give so, Yeah, what of you what of

XX% of next modeling So, guide about much about higher the XX%. X% you pricing and with volume we the be will are price about in X% indeed, In look our if at year of QX, growth. volume

it’s relative today, QX you we growing remarks, prepared accelerating our which includes actually today, look in actually is healthy discounted QX at very as If still velocity said our and in being is pricing order to QX. order

So backlog we believe resonating. of Andrew. our command value pricing, can and we we kind The is proposition the offerings strong believe are that this of

Thank the investors you. good from actually your guide question we’ve next a of just questions next And margin, pretty regarding got year, top-line couple for good. pretty

of see guide low I are items that if are line to below to of consensus, if any the end sort sort just you think just the wanting to look the try versus there of than of the looks because as the EPS up very street, impacting much midpoint better being Thank below. in the guide and I ends top-line but you. line margins said, sort the

in would quartile indicated of is the One, which for macro we range Few to base a that. EPS add an of $X.XX. economy facing we top are to it’s we prepared scenarios macro Why likely base from the what growing. the guide. level, we range do is still at believe scenario? is the the That believe scenario remarks, equate wider $X.XX reasons to most what standpoint, our be the be two is the So, which that a will case

XX%. the U.S. take you at PMI ABI is strong. XX% about If still

have is we what QX. today order that two, numbers slow for velocity and were mentioned indication for one and number number those very a strong we That’s down. no still So our

Europe. incentive various have the programs the in world U.S., We around

backlog. We have a strong

commercial We strong service have exposure. a resilient and a very business

quartile believe guide. we base that is case the top So a

we is into we slowdown believe CEO you GDP a that economies, we reference. translate you and wanted of that’s also based case there the listening how some would today, book we GDP. not terms are a slow that a to a estimates out would from have have scenario to give have we growth could and hence slowdown we in what happening down We Andrew, X% next year. of case economies Now, zero to mentioning what of facing, major are perform in some top-quartile the worst the standpoint But of a

Thanks. great explanation. Perfect. for Thanks so the much

Thank you.

Steve from next question Our comes Tusa.

open. line is Your

you? morning, are good guys. Hi, How

Good morning, Steve.

Thanks. from And Can stands the you the anything savings guess, then, a anything or from little color can just cost various on you give of this residual that on by the year segments? that detail guidance on recovery out, a bridge the inefficiencies bridge? more and I just guys EPS

course. Of

So, if to today of elements business the see we you at the services be for the strong. guide, look

and already, positive cost service our and business global the expect business to products was give of would to indeed We Price in or XX% grow be it so be in take course, be low-double-digits the mid-teens. to Steve, though regarding inflation guide, still be next we the is price year. That have facing. Steve. the the as be covering fully year The the cost equation been main to going are we realizing dilutive points will not

you. Thank

Our Jeff next from Vertical Partners. Sprague Research question comes with

now Your open. line is

morning, Good everyone. Thanks.

the guide, any, And on there you're Just deployment and that? much, your What capital guide. one it look active pipeline? including an M&A in is around more the thoughts doesn't like are if

have embedded So we our cash going are flow that regarding free increase in was you're a guide M&A. in capex modest right, to

We have very active pipeline. a

particularly will careful for how digital at we Jeff. global in deploy going the looking IP are and about M&A. products, and we cash, invest climate to We're We our in our current tuck-in be acquisitions mainly

And on Great. about, to right, but topical talk PFAS, just fun today. always

to us of to any through kind idea on pivoting give defense work in recent if your wonder way settlement a the Just just government is, ruling you or you of like. the here. kind kind the update changes of approach posture more if of MDL strategy a or could and contract your how trying the what I this against

litigation defense, a including strong reserve have our is believe Jeff. The ongoing, include litigation The not change. we contractor government does defense, and recovery. No we

we is estimable. you coverage. this point, And have, not also our as We probable company at any impact that know, on insurance believe and/or financial

particular this So not item. we reserved have for

Thank Great. you.

Deutsche with from DeBlase next Nicole Bank. Our comes question

is line Your open. now

morning, guys. Yeah. Good Thanks.

Hi, Nicole.

is clarifying any in to question want of in you Number $XX million items a cost there the embedded constraints versus two, ask in a few one, guidance. Number SG&A chain three-part outlook the savings. XQ? the kind supply just I realized

guys You that fiscal you executed mentioned 'XX. over in

curious guidance Thank the you fiscal much And that you. 'XX? you're just – include how Just does buybacks? does getting it confirm number not could in any three,

our expect chain, chain now That's to we supply to guide. terms supply you, for midyear. half the We of savings, in is actually in productivity more It's free On state we fiscal dividend as point believe that embedded we guide And the normalize said we and through a our buyback. expect sequentially number buyback, we to two, in to still quarters, to to going of flow cash deliver included that one. the 'XX. we and number want Nicole. gave is be deploy are number improving Point year have normal XXX% until but back on of now SG&A, and

be We Nicole, about buyback, earnings our in expect in buyback, be grow in and that billion would the $X dividend with embedded to balance guide. to

you. Thank

Suisse. with Walsh Our next John question comes from Credit

Your line open. is now

Good morning. Hi.

John. Hi,

I wanted up to capability little U.S. ask capex But the you, recent took you've I your in guess, obviously, is increase. about residential. a bit this

done been Just the in of the new the there reception product. curious and if you're how market with has kind production expanding

that, I'll take Yeah, John.

conversion the order formally What remaining DOE plan. And before on relates place requirements, XXXX customers than orders been launched. before well required the are of customers – prebuy is already and target the they're the everything providing and of the DOE meeting half products cutover, the you we're dates. we've going on more portfolio it look actually to and seen can we're opportunity which at As XXXX our the are launched the products residential portfolio launched. for pieces that have launch when going to is to – is And we

been seamless ensure Now we've working inventory a existing transition. through and backlog the to

year. are the working the schedule of balance XXX% set Commercial products the year-end. about on in in through to cutover on calendar are the Cutover and done. South, and the north by is complete launch We we're

been think place, And lot track. feel to requirements executing And required a so that investment we're overall, that. and I to the we're way about good of into we meet has be was on very the those that on able put

will transitions, provide as think tailwind this that a I us. for

As do backlog transition as timing converting We've the we on you only had with a products. get know, go higher been launch appropriately residential get we've in year. new forward, feel, the this price new We've backlog. of this that large improve we residential. And But been now we the not to not rates pickup products. be we with as take reduce see now able backlog, the in capacity in ability better, our on to launch, to be run then we expansion our with orders the new our able but significant only

backlog Great. just next backlog guidance, forward at much current can how year? the the color next any looking And then on into maybe the year will about how conversion ship provide of you or just we think should

the We that to would year. a also of guide. billion. again, best large should case about $XX convert had is of that conversation It's additional backlog. the for will next we our bespoke terms back our resilient. coverage. This our very the give projects, capital So associated And is which on EPS a top proportion quartile The in us believe backlog comment customers. going That's why about An very a are backlog have nice tied with range. be backlog

want be them. they delivered to that to So

at global to chain that we've up year, step QX. we a the pretty And XXXX. seasonality our improve and here half first in pace with played half significant me supply When add then our had we our low you through to as we had how of get maintain a let continued into first the that. some product businesses certainly, on and John, look out that color

recovery nice seen in And we've a units. so our

lot chain said with addressed I bit it applied our constraint DOE We've us that of the first of in through being the As in recover now our rate first for and a system through a far that capacity ramp as up suppliers little within got that third residential, the earlier, recovery, run our is across all a in a but recovery now of the rate We've gets building as has positioned had our the on as expansion a XXXX. seasonality the management in XXXX supply half half our backlog quarter. we supports products. conversion been to to

So we've lot progress. made a of

Our feel normal working supply back done lead through by teams of end this, to we'll that heck the of backlogs get a confident and times and have XXXX. normal a chain job

along. pass I'll you. Thank Great.

next Our Julian with Barclays. Mitchell question from comes

is line open. now Your

Hi. to guidance. the wanted Good back I just circle to morning.

in higher? I that, embeds volume points wouldn't price backlog tied this goes think volume on. the is you're said year supply But to chain growth just and year in get chain your easing, several margin and I early if got guide as X% even growth that cost the supply though big than fiscal 'XX. the you'd only balance be the assuming wondered expansion faster you've And easier maybe why

Is the back price So, offsetting just there tailwind? assumed and the that. something the half down of trying kind pulling for mix, something or understand margin to guide on supply which in cost chain is volume and the

is You're a right. assumption. This prudent

volume would we at of points If to the back be historical where which have more QX, is three actually you visibility, look growth, average.

second in being us is lower the best for level upon prudent. And the as year, guide of planning the We half also well volume the a in in case. based that reflected prudence are

better we fourth we the pick some the of up of the on the we're We're we're go we get a that trying And backlog the on get – first comment part leverage first first that to Julian, compare, we've seasonally. do given second me much then and on quarter. in progress – the let year-on-year take the half, to that. the in trying down leverage here that. made In on backlog in and third year. Certainly, quarter, Typically, also. we're

our to get then working rate And I think anywhere so, business, supply – to XX to turns, we're in normal it chain to in turn projects. last months, – projects field-based in and we've from the ability our turn back two our with over month a our where disruption this

the So we improving that see of course during the year.

some of businesses. our as first units of with see well product-based our you'll half acceleration in the recovery So as our that

that are playing some those the are – out And so of – numbers. fundamentals in some think I of those the that's

to financial That's of a very you. more Thank items. helpful. earlier the below sort about And line question. back question fiddly then, And a going maybe

thing the in financing underestimated was I that one charges think maybe people 'XX.

at about was million. you're $XX QX those guiding about So $XXX million.

variable kind assumed through? debt? on that kind in is the just year? if Is just year around rates more wondered interest anything there's gross impact any up in XXXX P&L flowing So And the of pension step of

about right are all You of those.

of in by-product rising. So that's rate terms interest interest, of the the

of We indeed significant decline. in factoring going debt pension is assumption. the to any increase and level the That's income are not

Great. you. Thank

you much, Thank Julian. very

UBS. with Snyder Chris from comes question next Our

open. Your line is now

Thank you.

clearly and even into momentum, given fourth order the shortening should strong here times? backlog the think to XXXX? on moderate, stabilizing, this outlook pretty the orders fiscal we I What's At So quarter. through lead just point what expect potentially

currently say that. pipelines in strong. I'll say the and – direct to I'd Well, indirect I'd working that take both we're on, be continue

with a convert orders. rates here at we've second in actually that continue year. very QX to of been strong this We projecting the We're the half

now the that so And in market we'll is space, we closely. watching peak what play the one going we're area the this and we're watch think that to given is out at of there. residential The

been constrained for disruptions, with the And been the because could capacity. not we we convert rate at it's we to Now have us, chain supply if that we've our with had the able capacity.

go-forward with on launching. more take recovery, so with we'll new to the there basis be And our now orders able we're that on product a

across closely. momentum the we businesses. And But so I we we're still see net-net, think obviously, good watching – it see

you initiatives. for for of my side share pricing ask from market around what on just a that. type then for service there's Thank digital follow-up, provide And And feel can the get anything we seeing benefits so to we're wanted the service. kind Thank on of if you could just I you.

enhancing OpenBlue Yeah, applications. been more of the know, connectivity as and and disciplined we've you on we very software have with services. pricing not traditional services But with the mechanical our only with with services and been new

we service of where on to to And add the cost now mix capabilities. Overall, a able higher we more as segments. all of been those have than we've you the offset that's so across as start get

we've rate. the to I expanding, mix we're proposition on services, real on so for as margin a start a mix value while that a been that service we've accretion obviously, we'll we're connectivity, we to get our disciplined pricing But And on of getting higher of customers. see been think we've providing – basis, go-forward software very higher the

that. Thank Appreciate you.

Research. question comes Our next with from Melius Davis Scott

Your open. line now is

guys. Good morning, Hey.

Scott. Hey,

couple tad A of a the better? heat to other on it small kind nits margin the is of the product lines structure comparable here. Is pumps at or of average scale

Yeah.

pretty at all pumps, look our you platforms. We're XX% portfolio, you pumps – spans HVAC Scott. we're heat – of the to heat about of when about and much look got of mix that the So

because new and we're creating new as value we're higher certainly, around products. a margin launching propositions Now decarbonization these pickup in these demand there's of a there's units, these as electrification

And refrigeration will the of Hitachi actually, high good pickup are products has continue pumps. so and We're across pumps, business. big to launched. as with Even improve those globe, a being growth well our strength our We've Europe business in that that heat industrial the mix in but heat seen Europe. mix a we're new putting good as in seeing

as we're and that as increasing because the so the a value we're signals result. incremental the demand bring decarbonization, getting margins these proposition And investments are sustainability and making where of

XXXX? follow-up and the if But a just will on average will service prior then close XX%, on purpose. or install explicit the average to And and think that in question is you that's – because – Helpful. you the be guide average service perhaps price price the X% OK. company side weren't is on

the we our price we're of to No. aggressive, cycles, where been sure were the that look very of book-and-build global at costs margins When – the pricing in and Scott, we've we've segments, recovering. been ramp-up you get making to through obviously, going we're across products, back and recovered With the to our inflation. shorter all business we've previous

businesses years didn't we when projecting under factor install we were were – inflation ago the project-based you services, we experienced. you and costing two was back know, that cost, business, go level we On of – the with – as when we the we in within have field-based projects because

field costs the fixed the see was the the put the the Now – a project-based result and you that some place of business, right, all as even as that coming mix now very pricing in strong, ago. is all experiencing. year that's through – And with disruption been now, costs of account of taking was into a that we're

the So recovering previously the project-based on. high, very short were businesses margin are that we

services provide. the business, the mix we of maintain amount of seen comes through On we that because it's service-based the the inflation we and proposition, haven't value that our lower

that so value proposition offsetting again, value bring but cost. we to we Scott. digital And offerings, then propositions, – the And in we're then with with addition the with those that margin with OpenBlue accrete

to mix cost. it's a than just of the the going higher of get now lower services. additive So But price pure X% we're because

luck Thank Yeah, super pass is color that helpful. it 'XX. guys. I'll in you, Best on. of

Thank you, Scott.

Thank you, Scott.

Thank you.

with Our next Joe Goldman question from comes Sachs. Ritchie

Your line open. is now

Thanks. Good morning, guys.

Good morning.

like I'd start that again, chain. mentioned you this quarter. to chain Olivier, Once on I So destructions $XX roughly supply think, million supply were

they last million think quarter. $XX roughly I were

seen component this you seeing Like curious, labor I'm bit you where have better. So better? And where seeing issue? are get little on the what a But – this – this just still are constraints? a issue? you a still margin, it got Is Is

last a and done this the and across down that of times not aligned all do done Yeah, of only we we short we've really getting months components lot term, because microchips get then good of the incredible of that out us growth ultimately Joe, disruption. XX the result components and We've our but need take strategic position what recovery commodities. impacted done more And being critical lead all is than all I'll the in initially got lead volumes and upside as going forward. work of obviously, and when as much a one the a the the our around with over And commonize suppliers times started supporting turned that. the that lined all work that, double was we're we've semiconductor how And materials, now forward. and we go fully good that our pretty on extended of

as are into we run basis, seeing, on a we're And rate QX. so improvement good heading

growth would I been the we this And now of We've to as our at in so to ultimately proactive. rates as being getting able been, that down very bring – positioned we're now, been and reduce can that to firm we run these backlog we're commitments we've meet achieve say suppliers aligned our we've look getting run backlog, XXXX. achieve rates and

has great team job. done chain a Our supply

$XX fourth. materials. have of $XX went million in while this we the production the quarter recovery million sites manufacturing keeping Our been And continuing to in going third we're from

that the do. third very lined so positioned in half a to take ability have We our year. expect – the we've positioned only – able now quarters, in to everyone the times to but recovered high not recovery be is to to competitive with positioned fourth, first be do lead in that volume second which as we for And reduced on of well what again second be to our additional But are backlog, we're be we're that that's is out we going here quarter, quarter. to position rate got for to our and this seasonal

a that in So headwinds we've to months offset with and even are are offsetting still pricing. we're doing achieve. been overall, we in bit our some go-forward the to the COGS the from I lean is additional from with today, out and that though tell then SG&A might But have six headwinds different we you disruption, disruption spot. much little additional we the any we headwind a company would of we're that of And work pricing where where ago

on not – And the That's the I maybe then XXXX guess or bridge. maybe other but George. Got margin just super one the margin, it, question helpful.

Are so at it, any just else dollar have look think as like there we're we a look perspective the we thinking key would from think cost as you adjusted of recognize positive. or expecting items originally that to like I sounds those the in through to what kind in price kind like items guys XXXX EBITA key And It are volume through call that's were through be out like you costout. should like low other to a think the segment? is as XXXX. that try million versus I incrementals expectation. of you should $XXX there But really anything

No, you're right.

modeling If be the X disruption – the at year at of and including XX expect next we X, at next basis the about are look year, incremental look of disruptions, to net disruptions. incrementals, you points impact the before you that the on I XX% about if

Excluding should them, we be words, other over Joe. XX%, in at

Got it.

you. helpful. Okay, Thank

Welcome.

Pokrzywinski Josh with from Morgan comes Stanley. question next Our

Your line open. now is

Good Hey. morning, guys.

Just up follow to supply on chain. that want

morning. Good

Good morning.

chain easing of kind the and Just backlog on supply conversion.

second During these do a think function like high, sort much pull to the wouldn't it in have in we extra this be but quarter, seasonally kind of backlog they slower you how in you sort period, maybe maybe quarters or hey, of, normally buffer demand as supply and aware we they'll that's whenever of chain were first it. quarter, of backlog-driven you of normalization quarter, is be able first George, take get especially that should some driven? can There mentioned,

Yeah.

one to we on are that – doing we're meaning there's we we're more these that businesses, well that actually rate, go growth later can of unconstrained, and markets here and pretty if year. to backlog can trying run commit cycle the volume So fill we we in of the when our lower. even actually are at times the that achieving in across after because look product these positioned additional run that that We're rates backlog we're at look our first quarter through each

level we're is, quarter. days less in we're what the rates maintain of you we to so And doing sites had that our quarter, at across targeting fourth all first to in run same but the the do try have our

continue. good made. able track your point, we've the gives achieve to forecast – ability we to it us give QX, that so us we to that not an And the to And will believe be then ability achieve that as only does that, in

where first improvement stage, this about we we of see and we are feel get the at good So do year. through half as we continued the

And know that the revenue of price a Olivier. in point in on Got sort Okay. talking quarter, last orders, I it. versus was then big price

of revenue i.e., this like price shipping price Just that order or the phenomenon book the getting coming getting today? sequential backlog What higher was more that that in are quarter, and is than uptick. out and you still

is book, for it QX pricing order was orders higher field X.X to level of than the it has our price In points and The business. about relative into of QX in in increased QX. the level

than So orders. in pricing more mid-teens we're in the

So strong pricing I say, strength upon would of the based Josh. proposition, our value

Best it. Appreciate of luck. helpful. That's it. Got

Take care.

comes question RBC. Dray next from Deane with Our

Your line is now open.

Thank everyone. you. Good morning,

Good morning.

XX% I was to supply is the chain normalizes? target? free cash working on free flow as the XX%. hoping to the any flow guide context the more get you some Or cash for that a 'XX, on Are drawdown potential capital assuming to upside

is steady XX% into guide this. we two There going are XX%. a at we to grow going be That our pace. capital. is point, So using One, to are to your working elements – growing are to

be DPO, number same. but yet. item fiscal the to We DIO the not year conversion been the improve, at look improve the in go we will you days, elements cash theme has improving. Deane. of to now of the for a improve. 'XX, all cycle a level DSO believe will quarters, If going our back That 'XX keep will it's will to of number financial

anything helpful. conversion then like any That's margin, Look Europe? of you that Okay. fairly the at would change orders, color was any And the but on frontlog just that strong, highlight?

order to if it's we where the and go look as want in versus it the Europe. growth in that but QX, So to we see the profile in at it be, we case sequentially improved we you well. orders QX And of expect be still is It see strong forward. Actually, Europe, we still has improving as QX, margin not improving.

So would far I in say, Deane. Europe, so good,

you. Thank Great.

with comes Our next Khanna from question Gautam Cowen.

now is line Your open.

Hey, guys. Gautam for is today. Ayers This morning. Good on Jack

Good morning.

morning. Good

investor of covered day long-term just fall. know the guide been Good obviously 'XX kind at morning. I last has ask the provided here. But the targets about to wanted

getting chain, had any things incrementally know there. I are supply Just like seems some with better. but it headwinds we've color

I the has XXX those expansion? supply margin to about we in there XXX-basis-point regards targets? really how to what to Just do happen think meet guess, And chain to

year, Inflation, those we to I mean, is you need But our be going more EPS which base were what put going Jack, this supply margin for If not war expansion not to still FX, I'm were zero macro the harder, within you – need our slowdown clearly, we lot going one you year variable, within the in case, environment from part It's do if of you and When a will was different. very next is to the still If reach were if need which and a of is be depend, not squeeze, guide. our GP standpoint. Jack. our state to meet are here, guide, expansion do expectation. all we Europe, COVID, as A we to chain, the happened target obvious a the reach. XXXX on and guide but revenue a to the the difficult. have reach.

trends What would entire I are the the we see I'd decarbonization of the demand Jack, – are underway, the lot there these Jack say, relative add when some that are that provided. being recessional you and at that that a incentives of look with secular to

of we playing different business the going that's with help that parts out And of pumps and now that. a to and from heat lot benefiting see Services. there's that's so

customers, be the but also our to achieve that of able think being are net goals. only not to I proposition this value we're services more to during providing help attractive to even period going operationally time, zero of because their aligned

customers. is some when on is the going there we're proposition now you growth completely vectors, can having now the very we're confident timing see we bring is to what that that's of lot really that we're so and that look and the our and But the this how because more to recurring get technologies, we which whole be incredible to an fundamentals is build that our autonomous decarbonization, and the a product be value sustainability, healthy confident in buildings attractive these around strategy to with in that that, of we we to buildings do combined way that of attack – create matter those at And have fundamentals. ability impact revenue space able we're an outlined of It's to OpenBlue here is a services just right we environmental accelerating, events us. what

these with factors some So one weighing timing It's bit. that we're that hasn't of changed in. matter of a environmental just

That's great. color. appreciate Thanks, the guys. I

with the operator, don't we So Q&A. close that, why

continue we Johnson our of we strategic I'm very continued Controls and encouraged As say showcase position We're your very strong continue worldwide to like progress. every to colleagues carry leadership to out a by for thank in needs, expanding. support our day see our mission-critical our I'd to our execute, efforts. I'd initiatives, that customers' and

all for we healthier, enter you, next build and continuing to customers their ongoing year of and XXXX. the safer better, future as Our fiscal and a support in

soon. that forward with all joining. you our I Operator, you many thank look So speaking for of concludes to call.

for That concludes you participating. conference. today’s Thank all

disconnect this at may You time.