Johnson Controls International ($JCI) has initiated a search for a new Chief Executive Officer, as announced on Wednesday. This strategic decision comes hand-in-hand with the appointment of a new board member, a move that follows fruitful discussions with activist investor Elliott Investment Management.
The company, renowned for its innovation in building products, revealed that current CEO George Oliver, who has successfully held the position since 2017, will step down once a suitable replacement is found. In a sign of continuity, Oliver will remain actively engaged as the chairman of the board. In a notable development, Johnson Controls has welcomed Patrick Decker, the former CEO of water technology firm Xylem, to its board.
This appointment is part of the company’s response to the constructive dialogue with Elliott Investment Management, one of its largest stakeholders. Following this news, shares of Johnson Controls experienced a substantial increase, rising by 4.4% during midday trading. Oliver commented, "As we approach the completion of our business transformation and 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." This aligns with the company’s ongoing strategy to recalibrate its business model for enhanced growth and shareholder value.
The announcement comes shortly after Johnson Controls disclosed plans to divest its residential and light commercial heating, ventilation, and air conditioning business, a segment that contributes approximately 20% to its overall sales. Elliott Investment Management expressed an optimistic outlook regarding the leadership changes, emphasizing that they, combined with recent portfolio adjustments, will bolster operational performance and significantly enhance shareholder value creation.
Marc Steinberg, a partner at Elliott, remarked, "As one of Johnson Controls' largest investors, we believe the leadership and board actions announced today, along with the recent portfolio changes, position the company to realize the benefits of its transformation, enhance operational performance and drive significant shareholder value creation." For the fiscal third quarter, Johnson Controls reported a revenue increase to $7.23 billion, up from $7.13 billion in the same quarter of the previous year.
However, this figure fell short of the average analyst estimate of $7.34 billion, as compiled by Capital IQ. Adjusted earnings per share (EPS) saw an improvement, rising to $1.14 for the three months ended June 30, compared to $1.03 a year ago, surpassing market expectations of $1.08. Despite these mixed results, the company experienced a slight decline in product and systems revenue, which slid to $5.42 billion from $5.43 billion.
Conversely, service revenue enjoyed a positive trajectory, climbing to $1.81 billion compared to $1.7 billion in the same quarter of 2023. Notably, the backlog for building solutions surged by 10% on an organic basis, reaching an impressive $12.9 billion, which Oliver described as "record levels," suggesting strong momentum for future profitable growth.
In light of these developments, Johnson Controls has adjusted its full-year EPS guidance to a narrower range of $3.66 to $3.69, in contrast to its previous forecast of $3.60 to $3.75. The company is now projecting organic sales growth of 3%, a downgrade from its earlier prediction of mid-single-digit growth.
Analysts polled by Capital IQ are anticipating a normalized EPS of $3.58 and reported revenue of $27.67 billion for the fiscal year. Looking ahead to the fourth quarter, Johnson Controls is optimistic, expecting organic sales to rise by 7% year-over-year and adjusted EPS to fall within the range of $1.23 to $1.26.
Analysts have forecasted reported revenue and normalized EPS of $7.54 billion and $1.19, respectively, indicating a solid outlook for the company as it navigates this transition period. Stock Performance: Price: 71.96, Change: +2.93, Percent Change: +4.24 $JCI.