Johnson Controls CEO Emphasizes Smart Building, Decarbonization, Sustainability Momentum

Johnson Controls continues to bet its business on smart building technologies that promote sustainable, healthy environments, CEO George Oliver (pictured, top of page) emphasized during the company's quarterly earnings call on August 2, 2023.

"I do believe we're at the beginning of an era that will be defined by deep decarbonization and sustainability," Oliver told Wall Street analysts during the call. "And Johnson Controls is well positioned to be an important contributor to empowering our customers in every industry to create healthy, safe spaces for people on the planet."

Among the proof points: For the company's Q3 of fiscal year 2023:

• Sales were $7.1 billion, up 8% from Q3 of 2022.
• Net income from continuing operations was $1.05 billion, up from $379 million in Q3 of 2022.
• And nearly 55% of company revenue comes from sustainable products and solutions, Oliver said.

Elaborating on the results, Oliver said: "Decarbonization is an area of focus across the entire Johnson Controls portfolio. This includes our sustainable infrastructure or SI business, as well as many products and solutions in our portfolio such as heat pumps, energy-efficient refrigerants and digital solutions."

Added Johnson Controls CFO Olivier Leonetti: "We are very bullish about the value proposition of offering, either through solution and including services, but also through the product portfolio where we have a strong in commercial sustainability offering."

Still, the company's recent business performance and near-term financial forecast didn't quite meet Wall Street's expectations. Indeed, quarterly revenue was about $70 million below Wall Street's expectations, SeekingAlpha reported. Amid that shortfall, shares in the company ($JCI) fell about 9%.

Johnson Controls: OpenBlue R&D, Acquisitions

On the R&D front, Johnson Controls continues to build and expand OpenBlue -- a suite of connected solutions to further improve building sustainability. The company also opened an OpenBlue Innovation Centre in Bengaluru, Karnataka, to ensure more partners and customers can see the technology in action.

On the M&A front, Johnson Controls in June 2023 announced plans to acquired FM:Systems, a provider of digital workplace management and Internet of Things (IoT) solutions for facilities and real estate professionals. The base purchase price is $455 million, plus potential earn-out incentives.

"FM:Systems is a leader in the growing Integrated Workplace Management System or IWMS sector," Oliver said during the earnings call. "IWMS furthers our OpenBlue capabilities, allowing Johnson Controls to offer a one-stop solution that helps customers accelerate their digital transformation journey, improve building efficiency, and reduce operational costs."

The overall OpenBlue solution and associated digital services allows Johnson Controls to "deliver healthy indoor environments, while optimizing costs, reducing emissions, and ensuring HVAC equipment is operating at peak performance, ready for any condition," Oliver said.

Johnson Controls: Partnerships and Customer Wins

Partnerships are also key to the company. Johnson Controls' executive leadership has extensive experience in the IT channel -- including the Microsoft partner ecosystem. For instance, Johnson Controls VP and Chief Commercial Officer Rodney Clark previously was corporate VP of global partner sales at Microsoft.

Among the recent business moves: Microsoft and Johnson Controls recently held a joint briefing in Sydney, Australia to help customers capture the data and insights they need to efficiently record, report on, and reduce the environmental footprint of their real estate assets, Technology Record reported. Naturally, Microsoft Cloud for Sustainability was central to the conversation.

On the customer front, recent wins include the city of Hamburg, Germany. Indeed, Johnson Controls will supply the city with a heat-pump system that will lower carbon dioxide emissions by 66,000 tons a year, the company said. Johnson Controls is working with utilities Hamburg Wasser and Hamburg Energy on the installation, SeekingAlpha reported.

Smart Buildings and Energy Management Market Growth Forecast

Demand for smart building technology and associated energy management systems appears steady to strong, depending on which market forecast you potentially believe. For instance:

• The global building automation and control system market will reach $168.8 billion by 2031, up from $87.3 billion in 2022, Transparency Market Research forecast. That's a compound annual growth rate (CAGR) of 7.9%, the firm said.
• Spending on building management systems is expected to reach $19.25 billion in 2023, up from $6.65 billion in 2016. That's a 16.7% compound annual growth rate (CAGR) during the forecast period, according to MarketsAndMarkets. 

The U.S. government also is assisting the market. For instance, the federal government plans to spend $250 million to help federal agencies implement net-zero building projects.

Smart Buildings, Technology Startups, HVAC Systems and Decarbonization Strategies

Meanwhile, numerous startups and consulting companies now focus on smart buildings and associated energy management systems. For instance:

• August 2023: Redaptive, an Energy-as-a-Service provider, has unveiled Redaptive ONE -- a digital platform that "tracks and analyzes building energy use data to provide actionable insights for facility managers and energy and sustainability professionals," the company said.
• July 2023: The State of New York has $18 million available under the Next Generation Buildings Innovation Challenges for projects that offer advanced building technologies for clean heating, ventilation, and air conditioning (HVAC) systems, building envelopes, and controls, according to Governor Kathy Hochul.

• May 2023: BrainBox AI raised $20 million, led by CEO Sam Ramadori, to further develop autonomous building technology -- which improves the performance of HVAC (heating, ventilation and air conditioning) systems. Around the same time, BrainBox AI acquired a multi-site retail (MSR) energy management system integrator.
• March 2023: Microsoft's Climate Innovation Fund invested in BlocPower, which develops a SaaS analytics software platform for the greening of America's buildings, and the decarbonization of low income communities.
• March 2023: CarbonCents Inc., a Clemson University sustainability startup, has received approval from the SC Launch Inc. board for a $250,000 convertible note.
• February 2023: Power management company Eaton and IES partnered to assist customers with sustainable building strategies. The effort involves digital twin technology -- which allow customers to see and analyze a 3D digital representation of their buildings and supporting infrastructure.

We'll be watching for continued Johnson Controls R&D and partner program updates.