Johnson Controls — Q4 FY26 Earnings Summary

Financial Performance:

• Q4 sales increased 10% year-over-year to $7.1 billion, with organic sales growing 12%.
• GAAP EPS for Q4 was $1.60; Adjusted EPS was $1.66.
• GAAP net income from continuing operations was $967 million; Adjusted net income was $1.0 billion.
• Cash provided by operating activities was $1.3 billion.
• Free cash flow was $1.1 billion; Adjusted free cash flow was $1.1 billion.
• Operating cash flow conversion for the quarter was 134%.
• Free cash flow conversion from net income was 111%.
• Net debt to adjusted EBITDA (non-GAAP) was 1.8x as of September 30, 2026, down from 2.4x in the prior year period.
• Total debt was $9.3 billion; cash and cash equivalents were $618 million.
• Deferred revenue was $3.37 billion as of September 30, 2026, up from $2.47 billion in the prior year.

Guidance and Future Outlook:

• Initiated Fiscal 2027 Q1 guidance: Organic sales growth of 12% to 14%, operating leverage of 30% to 35%, and Adjusted EPS of $1.15 to $1.20.
• Initiated Fiscal 2027 full-year guidance: Organic sales growth of 11% to 12%, operating leverage of 30%+, Adjusted EPS of $6.15 to $6.30, and Adjusted free cash flow conversion of approximately 95%.
• Management expressed confidence in continuing to create value for customers and shareholders due to record backlog and sustained demand.

Business Segments and Product Lines:

• Americas: Sales increased 14% to $4.93 billion; organic sales grew 14%. Segment EBIT margin increased 250 bps to 20.1%. Orders increased 58% organically; backlog grew 54% to $17.8 billion.
• EMEA: Sales decreased 2% to $1.31 billion; organic sales grew 3%. Segment EBIT margin increased 100 bps to 15.1%. Orders increased 12% organically; backlog grew 18% to $3.1 billion.
• APAC: Sales increased 12% to $871 million; organic sales grew 13%. Segment EBIT margin increased 120 bps to 18.6%. Orders increased 11% organically; backlog grew 12% to $2.1 billion.
• Corporate: Adjusted corporate expense decreased 35% year-over-year to $80 million.
• Product/Service Mix: In Q4, Products and Systems sales increased 16% organically, while Services sales increased 10% organically.

Market and Competitive Landscape:

• Sustained demand was observed in data centers and mission-critical segments.
• The company cited its differentiated technological capabilities, field presence, and proprietary business system as competitive advantages.
• EMEA sales faced pressure due to conflicts in the Middle East.

Risks and Challenges:

• Risks include macroeconomic volatility, geopolitical events (including conflicts in the Middle East and Russia-Ukraine), supply chain disruptions, and currency exchange fluctuations.
• Potential risks involve the ability to execute business system improvements, manage cybersecurity risks, and adapt to climate change regulations.
• Risks associated with the conversion of backlog to revenue and customer concentration were noted.

Management Commentary and Tone:

• CEO Joakim Weidemanis stated the company finished fiscal 2026 with "significant momentum," delivering double-digit adjusted EPS growth and strong free cash flow conversion.
• Management attributed margin expansion to operating leverage on higher revenue and favorable business mix.
• The tone was confident, highlighting record backlog and the strength of the company's technology and field organization.

Other Key Points:

• The company paid dividends of $242 million in the quarter.
• Total backlog reached $23.0 billion, an increase of 43% organically year-over-year.
• The Residential and Light Commercial HVAC business was sold in July 2025 and is classified as a discontinued operation.
• The company excluded transformation costs, transaction/separation costs, and restructuring costs from non-GAAP measures.
• The effective tax rate for continuing operations was approximately 17% for the quarter and year-to-date 2026.