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Applied Commercial HVAC Idea Proposal (JCI)

Applied Commercial HVAC Idea Proposal (JCI)
 

Will Johnson Controls keep pace with its competitors in the applied commercial HVAC space?

Report Available:March 15, 2017

 

Blueshift’s initial research showed JCI disappointing with low organic growth in its recent earnings, falling behind its competitors in the applied commercial HVAC space. But JCI operates in different geographies, contracts with the federal government, and works in the oil patch, all of which may be an avenue to regaining its footing to compete with IR and LII.

 

Observations

  1. JCI’s Q1 beat earnings estimates by a penny, though revenue missed slightly. Organic sales growth was 1% year to year, though there was a 1% decline in its building technologies and solutions segment. Its applied HVAC business was up mid-single digits and its fire and security business was up low-single digits. Performance contracting was under pressure from federal government budget delays and industrial refrigeration was hurt by the oil and gas and process end markets, with these two business down about 20% year to year. The company reported better-than-expected profitability across all its businesses, but offered disappointing guidance for its Q2 with organic growth slated for a 2% decline.
  2. Competitor IR marked 3% organic growth led by its North American HVAC business gaining share and expanding margin. LII saw revenue in its commercial segment climb 4% with a 14% increase in profit, with North American commercial HVAC equipment revenue up 10%.
  3. Blueshift’s Nov. 4, 2016, report found that bidding activity in applied commercial HVAC remained strong. Three sources expected 2017 to outpace 2016, including one who said 2018 will be even better. They credited a strong economy and in-demand projects. Two sources focused on government and education projects said 2017 will start slowly because of uncertainty surrounding the presidential election, but then they expect bidding activity to build in the second half of the year. IR’s Trane was highlighted as the leading company that will continue to thrive because of its combination of good equipment and talented people. Sources were split on JCI. Three criticized its poor service of its accounts and its lack of presence in competitive bids. Yet two others said the company had been bidding more often for new projects, including for the biggest controls jobs. Our Aug. 5, 2016, report said the cycle had not yet reached its peak. Nearly all sources expected continued growth in their areas.

 

How active is the project/bidding environment for the applied HVAC space? How does demand compare between institutional work (schools, hospitals, airports) and private non-residential projects? What effect, if any, is the FAST Act having on the amount of institutional work? How competitive is bidding? What changes are taking place in pricing? How is bidding from JCI? How has this changed since the Tyco deal closed? What is the overall perception of JCI in the marketplace? How does JCI’s product line compare to that of IR and LII? To answer these and other questions, Blueshift will gather data and issue a market research report from independent sources in the following areas: Architects and engineers, Installers and Supply Chain, Large developers, Building and property managers, and Industry specialists.

 

Companies: Johnson Controls (JCI),Honeywell International (HON),Ingersoll-Rand (IR), Lennox International (LII), United Technologies (UTX)

 

Research Begins: Feb. 27, 2017