Yahoo Finance Johnson Controls (JCI) Boasts Strong Prospects Despite Headwinds
Johnson Controls International plc JCI is benefiting from strong momentum in the Building Solutions North America and Building Solutions Europe, Middle East, Africa/Latin America (EMEA/LA) segments. Solid demand for heating, ventilation and air conditioning (“HVAC”) platform in data centers & strength in controls businesses are driving the Building Solutions North America segment. The increase in demand for HVAC platforms across Latin America and Middle East regions, and strength in industrial refrigeration and service businesses are supporting the Building Solutions EMEA/LA segment.
Investments in digital offerings, like the OpenBlue platform, which plays an integral part in meeting customer needs, are expected to drive growth. Johnson Controls expanded its suite of digital services and offerings to include connected chillers, industrial refrigeration equipment, connected controls and BAS systems. The digital integration of OpenBlue with Johnson Controls' core building systems will optimize the performance of the full HVAC system.
Within the OpenBlue platform, Net Zero Buildings as a Service offering, which includes a full portfolio of sustainability products tailored for various segments, boosts the company’s long-term prospects. JCI’s ambitious set of new ESG commitments—including its target to achieve net zero carbon emissions before 2040 with its new OpenBlue digital products and services— are commendable.
The company has been strengthening its business through acquisitions. The acquisition of digital workplace management and Internet of Things (IoT) solutions provider, FM:Systems, in July 2023 expanded OpenBlue’s digital buildings offerings, adding cloud-based software as a service digital workplace management capabilities.
The company is experiencing weakness across its Global Products and Building Solutions Asia Pacific segments. A decrease in demand for global residential HVAC platforms and softness in the fire and security, and global ducted residential businesses have been weighing on the Global Products segment. Declining fire suppression product sales are also ailing the segment’s performance. Weakness in the Install business, due to challenging market conditions in the China region, is affecting the Building Solutions Asia Pacific segment’s performance.
The escalating cost of sales poses a threat to Johnson Controls’ bottom line. Increased material cost inflation is pushing up the cost of sales. During the fiscal second quarter (ended March 2024), the company witnessed a 1.6% year-over-year increase in the cost of sales to $4.5 billion. The impact of these expenditures is evident in the rise of the cost of sales as a percentage of total revenues, which climbed 20 basis points to reach 69.4%. This upward trajectory follows a pattern of expense growth in the preceding two quarters, with increases of 3% and 5.1%, respectively. High costs and expenses incurred will negatively impact the company’s short-term profitability.
In the year-to-date period, this Zacks Rank #3 (Hold) company’s shares have gained 18.3% compared with the industry’s 9.7% growth.
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Stocks to Consider
Some better-ranked companies from the Industrial Products sector are discussed below:
Belden Inc. BDC presently carries a Zacks Rank #2 (Buy) and has a trailing four-quarter earnings surprise of 14.7%, on average. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for BDC’s 2024 earnings has increased 8.3% in the past 60 days. Shares of Belden have gained 23.1% in the year-to-date period.
Applied Industrial Technologies, Inc. AIT presently carries a Zacks Rank of 2. It has a trailing four-quarter average earnings surprise of 8.2%.
The consensus estimate for AIT’s fiscal 2024 earnings has improved 1.4% in the past 60 days. The stock has risen 9.2% in the year-to-date period.
Crane Company CR presently carries a Zacks Rank of 2. CR delivered a trailing four-quarter earnings surprise of 15.2%, on average.
The Zacks Consensus Estimate for CR’s 2024 earnings has increased 4.2% in the past 60 days. Its shares have gained 22.4% in the year-to-date period.
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Johnson Controls International plc (JCI) : Free Stock Analysis Report
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