Glen Ponczak – Vice President, Global Investor Relations Alex Molinaroli – Chairman and Chief Executive Officer Robert Bruce McDonald – Executive Vice President and Vice Chairman Brian Stief – Executive Vice President and Chief Financial Officer.

Brian Arthur Johnson – Barclays Capital, Inc Mike Wood – Macquarie Robert Barry – Susquehanna International Group, LLP Patrick Archambault – Goldman Sachs Jeff Sprague – Vertical Research Partners LLC Richard Kwas – Wells Fargo Securities LLC Brett Hoselton – KeyBanc Ravi Shanker – Morgan Stanley Ryan Brinkman – J.P. Morgan.

Welcome, and thank you for standing by. At this time all participants are in a listen-only mode. [Operator Instructions] This call is being recorded. If you have any objections you may disconnect at this point. Now we’ll turn the meeting over do your host, Vice President, Glen Ponczak. Sir, you may begin..

Thanks, Mitch [ph], and welcome everybody to the call to review Johnson Controls’ 2015 fiscal second quarter earnings. If you don’t have a copy of the presentation, you can go to johnsoncontrols.com, click on the Investors link at the top of the page and then scroll down to the events calendar section.

This morning, Chairman and CEO, Alex Molinaroli, will provide some perspective on the quarter, followed by Bruce McDonald, Executive Vice President and Vice Chairman for a review of the business results and then Executive Vice President and Chief Financial Officer, Brian Stief, who will review the company’s overall financial performance.

Following those prepared remarks, we’ll open up the call for questions, and we’re scheduled to end at the top of the hour.

Before I begin, I’d like to refer you to our full forward-looking statement disclosure that’s in the news release and also in the slide deck, and remind you that today’s comments will include forward-looking statements that are subject to risks, uncertainties and assumptions that could cause actual results to be materially different from those expressed or implied by such forward-looking statements.

Those factors include required regulatory approvals that are material conditions for proposed transactions to close, the strength of the U.S.

or other economies, currency exchange rates, automotive vehicle production levels, mix and schedules, energy and commodity prices, availability of raw materials and component products, and cancellations of or changes to commercial contracts as well as other factors discussed in item 1A of part 1 of Johnson Controls’ most recent annual report on Form 10-K for the year ended September 30, 2015.

Johnson Controls disclaims any obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this presentation. And with that, I’ll turn it over to Alex..

Good morning, everyone. So I’m pretty pleased to speak about the earnings today because I just see it as a continuation of the success that the team has been having over the past four to six quarters, particularly when we have all of the distractions going on.

I’ll go through some of the highlights, but you’re going to get some details from the rest of the team.

And one thing that I’d like you to remind yourself of is as we continue down this path of transforming the company, we’ve been able to meet or exceed the expectations that we set for ourselves, not only from a company perspective but across the board. Each one of our businesses really had a fantastic quarter.

I’ll give you the headlines then I’ll move into some of the highlights and we’ll turn it over to Bruce. At $9.2 billion of revenues it is down 3%, but if you take out currency we’re up 4% for the quarter. And we’ll talk about where that comes from in a few minutes, and how we see the outlook moving forward.

One of the things and I’ll go ahead and hit it early is that we’re pretty pleased with order intake. That’s going be a highlight of the conversation here today. When you look at Building Efficiency back in the summer we talked about the fact that we’re seeing some potential for sales secured in this quarter.

And it came through and it’s coming through in a big way. So we’re pretty pleased and it’s happening in our institutional markets. Look at our segment income, up 18%. Once again, great improvement from a margin perspective across the board.

A big part of what we’re trying to accomplish in this time period along with changing our portfolio and mix of businesses is the margins that we have within our businesses. And the teams have responded and continue to respond at a very positive way. As $0.73 per share, up $0.20 versus last year.

When Brian gets into the discontinued operations, and we’ll help unpack some of that for you but I think if you look across the board, with the exception of currency, it’s the one thing that none of us predicted. I think the things are happening pretty much as we expected.

If you move to the next page, we start talking about what’s happening in the businesses. I’ll talk about each one of our businesses, some of the things we’re seeing. The commercial orders in BE, I’ll unpack that in a little bit. I’m sure you’ll have some questions later but what we saw is the institutional market.

I wouldn’t say its roaring back but what we’re seeing is a significant improvement in order intake and in our pipeline. So later on when we have a chance to talk more about the pipelines we’ll see that not only we had a good quarter but we think that it’s sustainable at least over next couple quarters where we have visibility.

In the Automotive production, North America continues to be strong. Europe, we we’re uncertain. It’s staying level. At 6% growth in China, you’ll see later on that our sales are much higher than that. It has to do with our mix. It has to do with our share in China. And then I was really pleased to talk about our Battery business.

We’re enjoying strong OE growth but more importantly, the aftermarket seems to be stable. We’ve gained share. And in Europe, what we’ve seen is over a 30% increase in battery sales in the aftermarket. If you recall, last year was pretty rough year for us because of the mild winter.

And we were concerned that maybe there was something structural that’s changed but it looks like the battery market is back in Europe at least for us. And the team is seeing the benefits from that. I think that later on we may talk about it but we’re also seeing our start-stop sales increase tremendously. With a 34% increase I think in the quarter.

Of AGM batteries for start-stop. So we’re bumping up against our capacity and we’re adding more capacity as we speak. In fact, I’ll talk about that when you get to slide five. I’ll just jump to talking about batteries. Some of the things that’s happening in our Battery business.

As the start-stop power trains moved to China, we are expediting or pulling forward our AGM capacity installation in China. Along with our Slide battery capacities.

So if you look at what’s happening in China as it relates to our own capacity and I think we have this in our press release, what we’re talking about moving from 12.5 million to 15.5 million units. And as we add the north plant that hopefully construction will be underway soon. AGM capacity increasing to 6.4 million.

I think at this point we’re a little less than 2 million units. And we do expect in our own conversation with our customers and orders that we’re seeing that in China will be very similar patterns to what we’re seeing in Europe, is that 40% of the new vehicles by 2020 will be start-stop.

That bodes well for our business, and in the end it will bode well for our brand in the aftermarket. I’ll jump back to the top of the page and talk about some of the strategic things that are going on. I certainly don’t want this to be missed. We were very pleased with the outcome of the GWS transaction.

CB Richard Ellis is going be a great fit for our GWS business and for us as we move forward for pull through business. But if you look at that total transaction, the 1.475 for the remaining part of GWS plus the 200 million that we got from Brookfield, at one point – a little bit less than $1.7 billion is a real home run for us.

And based on the response from CB Richard Ellis and from our joint customers and from the marketplace, it’s a home run for them also. Also pleased to announce that the SAIC joint venture around interiors with Yanfeng, we signed the agreement. I think there’s a picture right here of us in Shanghai signing the agreement last month.

And that is strategically one of the imperatives that we had over the last couple years that actually is happening at a pace that I’m not even sure we anticipated it could happen so quickly if you go back in time. So we’re pretty pleased with that.

And then a couple new products that we have in place in BE, both in our commercial business and also – or our applied business, excuse me, around chillers, and our light commercial business for our UPG business that are launching now which will bode well particularly for this time of year. We expect to see some increased sales there.

The Johnson Controls operating system, Brian will talk more about some of the benefits that we’re seeing from that. It is something that we’ve always been operationally capable and excellent, but I think we’ll be able to take this to a new level.

And where we’re seeing the early benefits is in our manufacturing systems, our network optimization and our purchasing activities. Brian will talk about what we’re seeing, but I would say those benefits we’re pulling forward even quicker than I expected. And then I’ve been very busy.

If you look on the right, I’ve had an opportunity on behalf of the company to receive a whole bunch of awards, whether it be with General Motors or Toyota, and then some of the recognition that we’ve gotten as a company over the last quarter. So it’s been a busy quarter, but it’s been a great quarter.

Our teams have really responded in a period of potential distraction. And I think as we go through the numbers, you’ll see the details. It’s pretty hard to find where our team has not, in any part of the business, has not really responded well. With that I’ll turn it over to Bruce..

Thanks Alex, and good morning, everyone. So I’ll start on slide six with Building Efficiency. And I just remind folks that we have reported GWS in the discontinued operations, so I’m going to talk about sort of Building Efficiency ex-GWS on this slide here.

So overall we were pretty pleased with Building Efficiency’s’ results for the second quarter here. You can see sales of $2.4 billion were up about 4%. If we back out the impact of foreign exchange, sales grew by 9%.

If you look at that geographically, North America revenues for us were up 17%, though that was primarily attributable to the ADT acquisition. Again, stripping out foreign exchange, we saw a little bit of growth in Europe, so it was up 1%. Our Middle East business was up 9%. Asia was flat, and Latin America was down about 18%.

In terms of our backlog, you can see here at $4.6 billion was comparable to the prior year, again making the adjustment for FX and divestitures. In terms of geographically if you look at our backlog, North America was up about 3%. In the Middle East we saw a good strong growth up about 21%.

Asia was flat, and we see still some downward trends in Europe which was down 6%, and Latin America which was down 16%. I think the most important number here on this page for us, because it really sort of speaks to the business on a go-forward basis, is really our order intake for the quarter.

So if you just look at our Q2 orders, they are 2.5 billion and up 14% year-over-year. If you strip out FX and the impact of the ADT acquisition, our order intake was 8% higher. So that’s quite a turnaround from the 4% reduction that we talked about on our last earnings call. Real pleased with North America in particular.

There we saw our orders up on a consolidated basis were up 11%. And where we really saw the strong growth was in the education, the local, state and federal government markets. Those were the strong verticals for us. Outside of North America and again adjusting for foreign exchange, we were up 8% in Asia. 14% in the Middle East.

And down 3% and 9% in Europe and Latin America respectively. And again even though we had a good strong order intake in the month, if we looked at our quoting activity, the pipelines, we feel pretty good about what we’re sort of seeing here for the next couple quarters. Just turning to profitability. A great result here.

You can see our earnings were up 36% to $173 million. And you can see our margin expansion pretty impressed at 170 point points to 7.3%. Here we’re really seeing the benefit of improved results in North America, Europe and the Middle East as well as the beneficial impact of the ADT acquisition flowing through our numbers here.

And also the benefit of some of the SG&A reductions that we announced in the fourth Q4 of last year. So good strong performance from Building Efficiency and we feel good about that. In terms of Power Solutions for the second quarter our sales were up 2%. And if you back out the impact of foreign exchange, they’re up 8%.

If you look at unit shipments overall we are up 7%, with the Americas up 2%, Asia up 10%, and Europe up 21%. Really driven by the aftermarket where in aggregate our European aftermarket business was up 30%. In terms of OE volumes we split it by OE and aftermarket. Our global volumes for OE were up 3%, aftermarket up 9%.

So saw good strong growth in AGM, Alex referred to, up 34% to just over 2.6 million. As Alex mentioned in his remarks, we are adding nearly another five million units of AGM capacity in China. Really to capitalize on what is kind of a surge in recent demand from our OE customers.

Turning to our profitability here, you’ll see we’re up 13% to 264 million. I guess we’re benefiting primarily from higher volumes and an improved product mix as the profit of AGM sort of pulls through to the bottom line. And from a segment margin point of view, up 160 basis point points to 16.6%.

In terms of Automotive on slide eight, strong results in the quarter. Sales again up about 1% if you adjust for foreign currency. And this is our business that’s probably the most heavily impacted from a dollar perspective from the euro.

If you look at our geographic exposure here where revenues in North America were down 5% versus the industry being up 2%. That’s really due to some of the business that we I’d say commercially walked away from. So we’re seeing that rolling off against us. In Europe, our revenues were up 4%.

Again, comparing favorably to industry production which was flat. And in China inclusive of our non-consolidated joint ventures our revenues were up 17% to 1.9 billion which is a substantial improvement versus the 6% production growth. Just looking ahead, on the revenue side, I think we feel pretty good about what we’re seeing in auto.

North America, the inventories are in good shape and our production schedules look good for the balance of the year. We’ve been real encouraged with the recent improvement in vehicle registrations in Europe.

Which really accelerated every month into the second quarter here and that’s driving higher production schedules than we had thought here in the coming into our third quarter. Look at segment income overall we’re up 90 basis points. And our profitability improved to 261 million, where here we’re really benefiting from operational improvements.

Primarily in our South America operations and in interiors which has really had a nice turnaround here. We’re also seeing the benefits in Automotive primarily some of the Johnson Controls’s operating system initiatives. And Brian will talk to those more in his comments.

So before I turn it over to Brian I think sort of the takeaway from our business perspective is they’re all performing exceedingly well. We feel good about some of our leading indicators, the BE orders and the beginnings of strength in the Automotive production in here and Europe. It’s nice to see Power Solutions volume sort of back to normal.

With that Brian I’ll turn it over to you..

Okay, thanks, Bruce. Good morning, everyone. On page nine as you saw in our press release, with the March 2015 announcement of the sale of our GWS business to CBRE as well as the closing of two GWS joint ventures to Brookfield, we will, beginning this quarter, start reporting GWS as a discontinued operation.

And that requires all prior period financial statements to be restated or revised for comparative purposes. So my comments this morning will focus just on continuing operations financial results. So our Q2 as reported of $0.68 had two items in it that were nonrecurring in nature.

There was $0.03 associated with a noncash tax charge in Japan, and there was $0.02 associated with transaction integration costs related to our portfolio activities, so an adjusted EPS for Q2 of $0.73. As I talk through our continuing operations financial results, these two items will be excluded.

If you look at top line revenues, as Alex indicated, they’re down 3% to $9.2 million, but the underlying revenues in Building Efficiencies are up due to the inclusion of ADT. And auto experience is down by – has lower revenues as the foreign exchange more than offset the stronger volumes that we saw in the quarter.

If you take out foreign exchange, all three of our businesses report a very strong results in the top line, 4% across the board. Gross margin for the quarter of 17.1% was up 160 basis points from last year.

And as Alex mentioned, we are starting to see the benefits of the Johnson Controls operating system initiatives as well as just some improved operational execution across the business. SG&A expenses are essentially flat versus last year, and I think we continue to do a really good job of controlling our overall cost structure.

Equity income is up $9 million versus a year ago. And that continues to reflect the improved profitability primarily of our automotive joint ventures in China. So, on an overall basis, segment income margins were 7.6% in the quarter, which were up 130 basis points versus Q2 last year.

And on a year-to-date basis, our segment income margins are up 110 basis points, so a very strong performance from an operational standpoint. On page 10, if you look at the net financing charges, they’ve increased $13 million year over year.

That $13 million is simply the higher debt levels that we took on in June of 2014 related to the financing of the ADT acquisition. Tax rate in the second quarter of 2015 and 2014 were comparable at about 19%. So, on an overall basis, a very strong second quarter with diluted EPS of about $0.73 versus $0.61 a year ago, an increase of 20%.

And if you assume total diluted earnings per share, which would include GWS in 2015, and GWS and electronics in 2014 that comes to $0.77 again a very strong year-over-year improvement of 17% compared to $0.66 last year.

Going to page 11, as we mentioned on our first quarter earnings call, we expected to substantially offset the foreign currency headwinds that we had, which were mainly the euro at 1.15 at the time, with lower commodity prices and the benefits of our Johnson Controls operating system initiatives.

Our reprised guidance reflects these additional headwinds with the euro now at 1.05, but we still, if you look on an overall annual basis, will substantially offset the euro impact at 1.05 versus our plan which had it in at 1.30. So you’ll see we adjusted downward a bit our guidance for the remainder of the year to reflect the euro at 1.05.

A couple of things to mention that Alex referred to on Johnson Controls operating system initiatives, they’re well underway. A couple high points that are noteworthy in the quarter, we now have about 60% of our global plants under the enterprise wide manufacturing system program that resulted in about $25 million of benefits to date in 2015.

And we’ve got targeted to have all of our 285 plants under this program by September 2015. Secondly we centralized our enterprise-wide indirect procurement function. To standardized process and better leverage our scale globally. And that will result in about $50 million of benefits in 2015.

Those two items helped offset some of the FX headwinds I talked about earlier. So let me turn to revised guidance for Q3 and the full year. Our previous full year guidance was 355 to 370 which included the GWS business of about $0.20 a share.

For the third quarter, our revised guidance from continuing ops is $0.90 to $0.92 which would be an increase of 14% to 16% from the $0.79 in the prior year quarter.

And our full year guidance from continuing ops again with the euro, now forecast at 105, is 330 to 345 per share which would be up anywhere from 10% to 15% versus the $3 a share in fiscal ‘14.

Going to page 12, whether you look at EPS on a continuing ops basis or on a total company-wide basis we’re very pleased with our Q2 performance, versus prior year and consensus. And I would have to say that consensus is a bit messy with GWS but I think once we unpack that you’ll see that year-over-year very strong performance.

We’ve provided on page 12 the numbers for 2014 and 2015 showing continuing ops and the impact of GWS for the prior year quarters and the first quarter. And then we’ve also provided an appendix for the deck which really lays out detailed reconciliations of sales and segment income as well as the nonrecurring items.

So that’s a quick summary from a financial standpoint. With that Glen, we can open it up for questions..

Great thanks, Brian. Mitch, I guess we’re ready to take questions..

Thank you we will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Mr. Brian Johnson. Sir, your line is now open..

Yes. Good morning..

Good morning..

I just want to ask a couple questions. One around autos in China and the second around segmentation within Building Efficiency. Look you grew China production significantly yet again.

Can you give us some commentary coming back from Shanghai on the up contenting trend in China? How that’s affecting your current Seating business, whether you’re seeing it in the locals or the JV partners or both? And then also as we kind of roll forward assuming that up contenting continues to happen in interiors.

How the transaction that you finalized but will close on shortly, by the way nice Twitter picture, with the cigars. [Indiscernible] kind of your exposure to the China interior segments or just JV partners up to there..

Yeah, I’ll take that one, Brian. It’s Bruce here. I guess a couple comments. Kind of your underlying sort of question around the seating is really, help me understand how we’re substantially sort of 3x times the market here. A couple things.

So first of all, you’re absolutely right that we’re seeing particularly from the Chinese owned brands, I’m moved to improve the quality of the interior. And that is driving I’d say a shift in the market away from traditional local suppliers to our businesses. So that’s number one.

Secondly, if you look at the production data, what you’re tending to see is the luxury segment and the SUV segments – our SUV in particular – gaining a lot of share and we have a lot more content there. Third, the western brands are taking share away from some of the Chinese owned brand and we’re benefiting from that.

And then we just continue to gain share really as on the back of the investments that we’ve made in metals. So our metals business, I think we talked about when we made the two acquisitions, Hammerstein and Keiper, we were sort of in the low single digits. Right now I think our run rate’s about 20%.

And if you look at the backlog of business that we’ve won, we feel pretty good about getting to that 30% to 35% target. So those would be the seating factors.

Then your comment around the – your question around the interior side of things, again you sort of saw in our release we said on a 2015 basis, we’re looking at revenues being around $8.5 billion, which is about a billion dollars more than we talked about last May when we announced this joint venture.

There you’re really seeing the impact of China growth and the C-class launch. Those would be the two factors there. And the same comment I made about quality of the interior and the luxury segment in the SUV apply equally to interiors..

Right. So is it fair to simplify it by saying when you close the interior JV you’ll actually have more exposure to the positive revenue trends in interior in China..

Yes. Absolutely..

Second question over in the BE land, so you talked about the order strength coming from institutional.

How did small and mid-commercial North America do in the quarter? Where are you on ADTI cross selling? And what’s the next steps there in terms of boosting your distribution?.

So I’ll take that. Overall one of the things with ADTI, because it’s more of a – it’s a shorter cycle and it’s more of a book-to-bill because of how we go to market there. What we really saw was revenue. So we don’t have the same kind of pipeline information that we have for our company owned or our branch businesses.

I would say that the business overall was flat, maybe a little bit soft versus a year ago.

One of the things I’m not sure of, remember when we made the transaction a year ago, I’m not sure of when we look at the comps that things won’t be leveled out until we get into the summer, because we were, right before we secured the transaction, and I think there was a lot of moving parts right before we closed the deal.

But I think overall the market is – you remember those products aren’t just mid to light commercial. They also serve the institutional market. I think overall we’re seeing the market move up. I think our exposure in the commercial market is one that has been – we’ve been underexposed, so we haven’t benefited from it as much.

But I think that part of the market is still clipping along. I think what’s substantially different though is the institutional markets. We’ve even seen when you talk about it, we even saw in health care we’re seeing our pipeline increase, which is something we haven’t been able to say, I can’t remember when we we’re able to say.

That’s been a lot of years..

Okay. Thank you..

Thank you. Our next question comes from Mr. Mike Wood. Sir, your line is now open..

Hi. Thank you. You mentioned the Building Efficiency in Asia was flat. Curious what you’re seeing there in terms of orders.

And is the Hitachi portfolio you’re going to be acquiring that includes some of the energy efficiency products like VRF, is that a higher organic growth portfolio than your legacy BE portfolio there?.

Yeah. So I’ll take the second part for sure. I mean what you see in the growth rate of when look at the mix of products and technologies, two things. One Hitachi is well positioned in Asia, particularly in China.

And that part of the market is definitely eating into what we would consider our – the core of our market, more of the ducted equipment that we would see in North America. So it’s very fast growing at 2X of the rest of the marketplace. That’s why it’s strategically important for us. And our position is very strong.

Not only Hitachi direct but through our partner. Hitachi, our joint venture there, has a partner called Hisense, which plays in the light goods appliance space, a very strong player. And those two go to market channels along with our Europe brand is how we’ll leverage the VRF.

But to answer your question, at least 2X for the rest of the traditional HVAC market that we’re familiar with..

And then Mike, this is Bruce. Your question about Asian orders, so in the quarter, our order intake in Asia was up 8%..

Great.

And then also can you just give us an update in terms of what you’re seeing in the China aftermarket for Power Solutions just in terms of how that market is maturing and how your share is developing there?.

I think that this is the numbers. I think we’re seeing around 10% growth, probably a little less than what we expected, we’re signing up tremendous amount of distributors. We’re seeing – most of our growth is still happening in the OE space. So I think that we have more opportunity there..

Thank you..

I’m sorry, 10% right?.

Yes. Yes..

Thank you. Our next question comes from Mr. Robert Barry. Sir, your line is now open..

Hey, guys. Good morning..

Good morning..

Yeah..

Yeah, it’s still morning here. I wanted to ask about the margins in the Building business. It looks like they’ve been tracking quite good. I think above what you guided back at the Analyst day.

Maybe just comments on the sustainability of the levels that you’ve seen there and what might be driving that?.

I think our margin improvement at BE is front-end loaded. One issue we’ve got is the ADT acquisition. It was in our fourth quarter number last year. Its margin was included as we talked about when we made that deal, so we kind of have nice comps in the first three quarters of the year.

You also recall last year we talked about having some contract charges in the Middle East in the first half of the year. So those are behind us. And so again I think it’s really a question of the comps that we’ve got here are easier in the first half than in the back half of the year..

And that being said I think one of the things that as we get our backlog, we’re back to level. And we get our backlog stronger and stronger we’ll start to get leverage off our fixed cost..

Yeah..

So I do think there’s margin improvement but certainly the comps have not hurt us from..

Yeah..

From a comparative standpoint..

Yeah..

Fair enough. Maybe also to follow-up on that, a question about pricing. On the Ingersoll call they were talking about starting to see some pricing pressure in their Commercial HVAC business in Asia. This quarter it was Asia and also Latin America.

Can you talk about what you’re seeing on pricing in particular how you feel about the pricing as a backlog in Building?.

So I think our – I’ll take that. I’ll have to not listen to the call. I want to make sure I don’t try to make a complete comparison. I’m not sure of the reference, but I can tell you from our standpoint in our backlog that there has been pressure on pricing I think for at least 24 months.

And that has to do with the fact that lack of institutional work out there. We have a big focus ourselves to try to get our backlog margins up. If you track that you’d see they’ve been under pressure for quite some time. It’s not a new phenomenon. I haven’t seen any new pressure.

From our standpoint if the market picks up here I’d expect to see our margins and our backlog go up over time. We haven’t seen that yet. I don’t believe there’s any extraordinary pressure but I haven’t seen any relief either..

Got you. And then maybe a quick one on housekeeping item on the guidance update. So it sounds like it’s mostly changed due to the currency? I would think that Commodities would have also gotten better. Is it that the currency just got worse by a larger amount? Or what’s the dynamic there? Thank you..

Let me let Brian answer the specifics. I think when we – I think we had a better understanding what Commodities were going do in the last call. And so we forward-project what we thought our Commodities benefit was going be. What we didn’t have the view of is how much deterioration we’d see in the currency particularly in the Euro.

I think what you’re probably seeing – Brian, correct me if I’m wrong – is that that gap has increased much more than any kind of Commodity positives that we’ve seen..

Yeah. I think that’s right. I think in Commodities we had a pretty good line of sight on for the rest of the year. I think when you look at the Euro our plan and original guidance, we had the Euro at 130. At the end of our first quarter call it was at 115 and I think now going down to 105.

That’s probably about $50 million to $60 million worth of headwind in the second half of the year that we just didn’t have line of sight to. It’s really – you’re right it is primarily the FX piece..

And Rob I would just remind you that we do try and hedge out some of our commodity exposure so we don’t get sort of the immediate benefit whereas on FX we’re talking translation here not transactional. So there’s a bit of a lag..

Right, right. Fair enough. I think you did mention last quarter that Q2 was still going be a headwind then you’d see more of the net benefit then the back half..

Yes..

Yeah. Okay. Thank you..

Thank you. Our next question comes from Mr. Patrick Archambault. Sir, your line is now open..

Hi. Yes.

Can you hear me?.

Hi Pat, yeah..

Yeah..

Just one housekeeping one. Just on the – I think on the backlog you said it was up that’s, like, excluding currency right? Sorry the order book. Up 8% that’s excluding currency. Can you just tell us what that is including the impact of currency? Just as we think about the revenue cadence and how that compares to last quarter.

That’s my first question, if I’m thinking about that correctly. And then can you also remind us of the timing for quoting activity, then orders and backlog? I know you’ve been through this before but I think it would just be helpful as the timing allows for these things to impact the P&L..

Let me start on that. I’m not sure we’ll have all the data that you need but let me directionally give you the information that you need. If we need to follow-up we will. First off when we talk about these orders, it’s driven by North America because the size of our North American Contracting business is much larger.

So the good news there is there’s not a lot in translation. You’re not really talking about from a booking standpoint in the U.S. anyway a lot of translation. That’s where we saw the strongest order intake. In this environment that’s where we wanted it. And it relates to how long kind of the cycle. I’ll kind of go through the whole process for you.

If we look at our pipeline, we look at six-month rolling pipeline. When we talk about what we see before we book, it’s about a six-month view. That’s why we talked about, we have visibility to third quarter and fourth quarter bookings.

Once we get a contract in place, you’re really talking about a six-month before we really see a substantial movement of the backlog. So we’re still from a standpoint of being able to translate the bookings that we got this quarter, we’re not going to see significant revenue on those bookings, until probably sometime in the fourth quarter.

So it’s a bit of a lag. The good news coming out we lag but the bad news going in we lag also but it’s about six months..

That’s helpful. One other quickly, if I may. The margin improvement in Automotive was certainly very good once again. Can you just remind, how much of that, you pointed to a decent production number obviously in North America, and Europe’s starting to flatten out which is good.

How much of that is just better leverage? How much of that is some of the structural improvements that you guys have been making along the way?.

It’s Bruce here, Pat. I mean when you just sort of look at, we sort of gave the information here by seating and interior. So seating was up 40 basis points and I guess that business I would say it would be leverage. Interiors were up, went up from about 2.9% up 260 basis points. There it’s really reflecting a couple things.

One it’s the structural ranges that we’ve made to restructure the business. And then secondly, and we talked about this sort of for the last few years is the C-class, the Mercedes C-class. The biggest order that we’ve ever got. It’s about $500 million or $600 million in revenue. It’s rolling out globally.

So that’s sort of turning from being a pretty heavy investment that we’re making in terms of launching that product globally to net now where it’s kind of enjoying the benefits of it rolling into production..

The only caveat I’d bring to that is we are seeing year-on-year improvement in seating in South America..

That’s true..

And then just as we go forward, I mean on the leverage side for seating, to your point, the information or the registrations coming out of Europe and has been better.

Is that an area where you’d consider there to be a little bit of upside risk given, I can’t remember what number you were using in you guidance for production but it feels like there’s upside risk to what IHS has out there which I think is what you’re using..

Yeah, I think when we talked to auto team early this week, and I would say looking at what we see for Q3 as being up 4%, 5% from production point of view. So that’s better than the numbers that we had quoted. I would say that’s despite the fact obviously a place like Russia’s turned out worse.

So net-net it is a tailwind for us here in the next couple quarters..

All right, terrific. Thanks a lot, guys..

Thanks, Pat..

Thank you..

Thank you. Our next question comes from Mr. Jeff Sprague. Sir, your line is now open..

Hi Jeff..

Hi. Good morning..

Good morning..

Good morning..

Just a couple ones. Just first back to the institutional verticals.

Long overdue obviously and maybe it’s just kind of the way the cycle plays and it’s kind of their time so to speak but is there something in particular that you can put your finger on that’s actually driving it whether it’s, I don’t know, tax receipts or something that gives you some confidence that we can kind of build on beginning another turn?.

Yeah, so I don’t – we’re getting into political season here shortly. So I don’t know that I have any confidence to talk about that. But what I can tell you is that we’ve seen the reserves build up and certainly state and local governments. We’ve seen infrastructure spending go in place. And we’ve been talking about that for some time.

And I think now we’re starting to see people pull the trigger. We’re seeing the same thing with K-12. So you have bond issues, people are working on existing schools and adding to their facilities. I think we’ve talked about for some time. I think that I don’t think this is going be a short lived cycle.

I think that the absent something that’s happened outside of my ability to predict. I think we’re going be into kind of a slow cycle of improvement. What I’m not sure about but I’m encouraged by it is to see the healthcare pipeline is starting to increase and I don’t know if I have an answer for why that is yet.

But that’s one encouraging thing that we haven’t seen actually come through in orders but we’re seeing in pipeline..

And this may be a little touch granular but I’m just wondering, do you see any negative knock-on effects in some of the oil producing states kind of second derivative impact in the construction trends or anything there?.

It’s kind of lost in the numbers to me. Because if you look at where those things are and the type of business that we’re in, obviously there will be a knock-on effects of some infrastructure. We have not seen that yet. And to the extent we have, it’s lost in places where it’s not a significant part of our business..

And then just a quick one on cash flow. Off to kind of a slow start year-to-date.

Is there anything in particular that we should think kind of swings the other way in the back half? Any change to your year view there?.

Yeah. I mean cash flow’s a bit of a soft spot for us. I will say that if you look at the second quarter, we did have some tax payments related to some audit settlements that was just short of $100 million. And then we also had some estimated tax payments in the current year that we didn’t have last year as well.

Some of them transactional related so I would say as we sit here today, we’re probably about $250 million to $300 million behind where we’d like to be. But half or so of that is related to tax items and the other half unfortunately is not one or two items that we can go attack.

There are a number of items $10 million to $15 million here and there globally in trade working capital that we need to go after. So it’s a priority for us in the second half..

I’m sorry just on the tax items, is that simply timing within the year or is that a net headwind versus what you previously expected?.

That would not be timing because it was an audit settlement payment that was not in our plan for fiscal 2015. And then the other item was actually an estimated tax payment that I mean some of that could be timing I guess with the second half. But I guess I wouldn’t necessarily view it that way..

Okay. Thank you for the color..

Thank you. Our next question comes from Sir Rich Kwas. Sir, your line is now open..

Hi, good morning..

Hi, Rich..

Good morning..

So post yesterday’s announcement regarding Kathy, is Glen Ponczak the most important employee at Johnson Controls?.

That’s what we were thinking..

Well, you know what, it’s interesting that you say that. Ever since Kathy’s been on the team, things are going a lot better..

That’s true. That’s true..

Then I have my answer there?.

Yes..

So Bruce, in terms of the hedging activity as we think – so there’s going be benefit later in the fiscal year.

How should we think about benefit in 2016 with the lag, if not much changes from here in terms of pricing?.

Well, I mean, it’s hard to say, I guess. We tend to hedge copper really around the quotes that we’ve got like a quote of hedge in our backlog. So that insulates us from short term volatility. So I don’t know if that really saves us. Sort of depend on pricing I guess. But fuels come down.

And I expect that we’ll see an increase in benefit as I think expected to flow through to next year. So it’s kind of a tough one but I do think if you look at kind of a commodity benefit that we’re going to have here in the third and fourth quarter it’s probably indicative of a run rate into 2016.

Do you have a different view Brian?.

No, I mean, our approach in hedging is really if you look at some of our key commodities we’re hedging anywhere between 60% and 80% of that on an ongoing basis. So we aren’t going to see a significant bottom line benefit as a result to some of the commodity prices going down.

We’ll see some benefit, but we’ve kind of applied that range as far as a comfortable hedging position for us..

So the opportunity is really on the structural improvements regarding the operating initiatives?.

Absolutely..

That’s right, yeah..

Okay. Just a follow-up on building efficiency orders in Asia. Could you give us a China number? You know UTC was reported the other day and was a little softer in terms of what they’d seen in their quarter..

Yeah..

So how would you characterize, what was the order rate in the quarter? And then what’s the landscape right now as you see quoting activity over the balance?.

Yeah. I don’t have that – I don’t have China bulking so maybe Glen or Kathy [ph] can follow-up on that one. But I would – what I would tell you is, is the – our order intake in China in particular, we tend to be largest in the equipment side. It’s very geared towards financing.

And so we’re right now kind of enjoying a little bit of a breather in terms of their loosening some of the financing requirements. And the reason it’s volatile for financing rich is because most of our orders have a significant prepayment..

Okay. So some....

Yeah..

So that may be some of the reason that – may be could help you..

Yeah..

And Rich, I did see numbers more – it’s more of a revenue number than a secured number, a backlog number. What I did see is that we’re given much more growth in our lower tonnage equipment than our high tonnage equipment. The mix seems to be shifting at least right now.

So that leads you to believe around infrastructure, in the pace of infrastructure changes, versus other types of construction. So we’re seeing kind of a shift in mix here a little bit..

Is that ultimately a little bit lower margin?.

No. I don’t know that it’s lower margin. I think that overall it will be less lumpy. But I think what it is, is for us, it could be in some ways depending how we go to market, but I don’t know I would say it’s lower margin. I just think it’s a significant shift which leads us to make sure that we have the right products.

That’s – when I look at it, it makes it even more important that we have products like we are getting with Hitachi because it’s talking about the mix of the type of business that’s actually growing in China. It goes back to one of the questions we had earlier..

Right. Okay. Thanks. I’ll pass it on. Appreciate it..

Okay..

Okay. Our next question comes from Mr. Brett Hoselton. Sir, your line is now open..

Good morning, gentlemen..

Good morning, Brett..

Good morning..

I wanted to ask you just a kind of a macro Europe question. You comment on the call that you’re seeing pretty good growth in OE light vehicle sales, and certainly the aftermarket battery business is doing very well. So it kind of seems to suggest that you’re seeing signs of life at least in those two areas.

I didn’t necessarily hear any particularly positive commentary on the BE business out of Europe.

So I guess I’m kind of generally speaking wondering what are you seeing in terms of general recovery in Europe, and secondly how do we – how do you think that might translate to if at all your BE business?.

So this is Alex. I’ll take that. I think what you look at, if you look at our overall numbers they’re down in Europe. One of the things you have to look at. We have retrenched quite a bit in Europe in two ways. One is we got out of our commercial refrigeration business last year which was, it was 200 and something million dollars a year.

So that business is out of our ongoing flow. The other thing is that we’ve changed our go to market in some parts of Europe where we’re not as much dependent on our branches. So we have less contracting work and more product mix. I think the market is probably the same.

I mean, we’re probably seeing that it’s not any different than the rest of our businesses. Our participation in that has changed. Essentially because part of our strategy is to not overweight ourselves in Europe as it relates to exposure there.

So we probably aren’t the best parameters for how the market’s growing because we’ve actually restructured and sold some our businesses in Europe..

All right..

Yeah. And maybe just to size that, if you, in BE we’re about 2.3 billion, Europe’s at 300 million of it. So it’s not a significant piece..

Excellent. That answers my final question. Thank you very much gentlemen..

Okay..

Thank you. Our next question comes from Mr. Ravi Shanker. Sir, your line is now open..

Thanks. Good morning, everyone. I’ve had a question on Europe, this time on the battery side. Alex, you said that the European Battery business is doing fairly well..

Yeah..

Especially given the comp with weather. I’m surprised to hear that because I believe Europe had a very warm winter this year, as well. And if you listen to some other aftermarket companies decide they seem to have had a pretty hard time dealing with that.

So what made it different for you? Was it that the channel was already pretty empty just given last year and that was refilled? What explains you guys doing better than other aftermarket companies in Europe?.

That’s a good question, Ravi. I think that your observation or question is right on. Certainly the first quarter we benefited from the channel being in a different place this year than it was a year ago.

I also think that batteries just won’t last forever regardless of the weather is and the fact we’ve had two mild winters, you had 12 more months of wear. The batteries eventually need to be replaced. I don’t know there’s anything structurally any different than in the past.

We’ve had a few wins but not the kind of wins that will drive that kind of market share growth. So the channel changes are definitely one and the second is I just think we’ve had a delay and of one year and being able to replace batteries.

The last part is it should make it more structurally sound is remember that Europe when it went down, it went down hard from OE perspective. Now we’re starting to see the first time replacements of the vehicles that came out of after the recovery started..

Understood, and one more question for Bruce or Brian.

Given the moving parts on GWS and FX and lead prices and everything, can you give us an updated revenue guidance number for full year 2015?.

Yeah, we haven’t updated revenue guidance, Ravi. Rule of thumb is every nickel on the euro is $300 million top line..

Okay..

And Ravi, just to address, we probably should follow up and get more robust numbers but lead was a revenue headwind for us up to this point. And all of a sudden we’re starting to see it recover, so I think that it’s not going to, if it stays at the level it’s at now, it’s getting back toward our plan number and back toward last year.

But we need to get some more robust numbers than what we have..

Sure. I’ll follow up with Glen. Thank you so much..

Thanks, Ravi. Operator, we’ve got time for one more..

Our last question comes from Ryan Brinkman. Sir, your line is now open..

Hi. Thanks for squeezing me in. Just wondering if you could update how you’re thinking about M&A? Obviously, you’ve done Hitachi, yen thing, GWS electronics, home link, electronics.

But are you now sort of more on hold with regard to strategic action or will you continue to be opportunistic here? And then remind us maybe the businesses, the types of businesses you’d be interested in and which of your end markets?.

Sure. So I’ll take that. And other two can feel free to jump in.

So I think with where we are from the standpoint of this whole entire process, I think our initial portfolio actions, I wouldn’t say they’re coming to a close but we’ve really gotten through a lot of the things we talked about a year and a half ago at a pretty good pace and I think our ability to execute on these initiatives has been outstanding.

So I’m pretty pleased with where we are. As it relates to moving forward, we do want to make sure we make some investments strategically, we are looking. But we want to make sure that we’re smart about it.

We do see adjacencies in both our end markets around our Buildings business and our Battery business that are interesting to us, and we want to make sure if we do something it gives us a platform for growth.

And remember that from a regional perspective, what’s most important to us is take advantage of the strong position we have North America and the strong position we have in China and Asia.

So when we start thinking about our bias, our bias is our Buildings business, our Battery business, it’s really infrastructure related and our bias is North America weighted North America weighted Asia so that we can make sure we can take advantage of our current position and growth expectations. But I don’t think we’re on pause.

I think because of where we are and how we’ve been able to execute and the ADTI integration is going – we can’t really talk about that here. It’s going as expected or better, and so I think our confidence is pretty high..

Great. Appreciate it..

Thanks, everybody.

Alex, any closing comments?.

Yeah, so I’ll just build on that. I couldn’t be more pleased. We had an opportunity, actually in the last few days to meet with our new partner, CBRE, who will be providing services to us and we’ll also be providing services to the commercial market through CBRE and Trammel Crow and their companies.

I look – I feel fantastic about not only the transaction but strategically what CBRE’s going to bring to the market with our GWS employees who are long-term employees that are quite frankly a lot of them are my friends. I’ve been here 32 years and a lot of them have been too. And I feel great about that transaction. It’s great for our customers.

It’s great for our shareholders. And it’s great for our employees. I feel the same way about our Interiors business. We’ve now moved from a business, and it looks like we’re early movers. The business is starting to consolidate as we predicted. We couldn’t have a better partner.

The strong position that we have in China along with the footprint that we bring from a global perspective to the joint venture is fantastic, once again for our customers, no doubt for our shareholders and our employees are now in a part of a business that is going to invest and grow.

So both of those things strategically have been important, and I just can’t thank our employees enough. The ability to go through the amount of change that we’ve gone through over the last year and a half and be able to meet the commitments that we’ve made year-on-year, and you look at it business-by-business; confidence is continuing to build.

And then lastly, our employees embracing the Johnson Controls operating system, and actually taking it on faster and more effectively than what I anticipated. I wouldn’t trade the position we’re in if I could go back a year and a half. And so I feel great about where we’re at. I think the opportunities in front of us.

I think the challenge for us is to make sure that we invest in the right platforms for growth. But our margins continue to improve, not only because of our portfolio actions but also because we’re executing. So it was a great quarter. I want to thank employees and I appreciate the attention that you guys are paying with us..

Great. Thanks, Alex. Thanks everybody for calling. Kathy [ph] and I will be available for any follow-up for the balance of the day and whatever you need. Good luck with the rest of earnings season..

Thank you. That concludes today’s conference. Thank you all for participating. You may now disconnect..