'We will be a simpler, higher-growth company' - Johnson Controls divests businesses as Oliver bows out

CORK, Ireland — Johnson Controls’ sales in the third quarter were steady as the company continues to transform its business, including through divestitures, to better fit a leaner and more competitive industrial market. 

The company reported sales of $7.2 billion, a 1% increase year over year. GAAP net income was $975 million. Adjusted net income was $769 million. The company also reported 10% growth to its backlog in the quarter, which Chairman and CEO George Oliver said increases the company’s confidence in delivering sustainable long-term growth. 

A tale of two sales 

In line with what it called its ongoing transformation, Johnson Controls has divested its residential and light commercial HVAC businesses and Air Distribution Technologies business. The pair of transactions represented around 20% of current sales. 

“Following completion of the two divestitures, we will be a simpler, higher growth company focused almost exclusively on our Engineered solutions offerings,” Oliver told investors during the webcast. 

The divestiture of the residential and light commercial HVAC businesses includes the North America ducted business and global residential joint venture with Hitachi, of which Johnson Controls owns 60% and Hitachi owns 40%. The total transaction is valued at $8.1 billion, with Johnson Controls’ consideration about $6.7 billion. 

Air Distribution Technologies was acquired by Truelink Capital on Aug. 1, 2024. Doug Schuster will continue to lead the company. Financial terms were not disclosed. 

Passing the torch   

Perhaps the biggest discussion during the webcast, however, was Oliver’s intention to step down from his position, informing the board that it was time to initiate its CEO succession plan. 

“Following recent significant milestones in our portfolio transformation and as we move to the next phase of growth, I believe that now is the right time to begin the process of identifying the next leader of the new Johnson Controls,” Oliver said. “I am confident in our position as Johnson Controls enters this next chapter and I remain committed to supporting the full team as we work to ensure Johnson Controls realizes its full potential.” 

Oliver will remain chairman of the board of directors to guide the transition. Additionally, following talks with activist investor group Elliot Management, Patrick Decker, who previously served as president and CEO of Xylem before his retirement, has been appointed to the company’s board of directors. 

“Patrick brings experience to our board, and having led a transformation of his prior company, his appointment reflects our commitment to continuously refreshing our board to ensure the skills and experiences of our directors appropriately reflect our ongoing transformation,” Oliver said. 

The full third quarter financial release can be found online at investors.johnsoncontrols.com.