What's behind JCI's revenue growth in Q3 2024?

Johnson Controls International PLC (JCI) achieved robust growth in its fiscal third quarter of 2024, with total revenue increasing by 1% year-over-year to $7.2 billion, and organic growth of 3%. Several key factors contributed to this positive performance: 1. **Strategic Divestitures**: JCI's decision to divest its Residential and Light Commercial HVAC business and Air Distribution Technologies business, which accounted for approximately 20% of current sales, was a strategic move to simplify its portfolio and focus on higher-growth areas. Although these divestitures may have led to short-term revenue and EPS dilution, they positioned the company to enhance shareholder value and concentrate on more profitable segments. 2. **Strong Organic Growth**: The company's organic sales grew by 3%, driven by robust performance across its segments, including Building Solutions North America and Global Products. This growth was supported by strong demand for JCI's solutions, as evidenced by a 10% increase in the Building Solutions backlog organically year-over-year. 3. **Margin Expansion**: Johnson Controls reported a notable improvement in segment margins, with segment EBITA margins increasing by 360 basis points to 18.0% in Building Solutions North America and by 170 basis points to 10.3% in Building Solutions EMEA/LA. This margin expansion reflects operational efficiencies and strategic initiatives. 4. **Free Cash Flow Generation**: The company generated free cash flow of over $500 million during the quarter, which was more than $500 million higher than the comparable period one year ago. This strong cash flow generation indicates the company's ability to generate liquidity and invest in growth opportunities. 5. **Positive Operational Outcomes**: Specific business areas, such as Applied Heating, Ventilation, and Air Conditioning (HVAC) & Controls in Building Solutions North America, showed strong performance, contributing to the overall revenue growth. Additionally, the Global Products segment reported a 10% increase in EBITA, up to $655 million, due to an increase in the commercial and residential HVAC businesses. In summary, Johnson Controls' revenue growth in Q3 2024 was driven by strategic divestitures, strong organic growth, margin expansion, robust free cash flow generation, and positive operational outcomes across various segments. These factors combined to support the company's financial performance and outlook for the future.