Will Johnson Controls' Earnings Disappoint Investors on Friday?

2013 is here, and earnings season has already started ramping up. The key to making smart investment decisions with companies releasing their quarterly reports is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed knee-jerk reaction to news that turns out to be exactly the wrong move.

Let's turn to Johnson Controls (NYSE: JCI  ) . The maker of automotive components and building control and HVAC systems has seen its stock rise in recent months in anticipation of a long-hoped-for economic recovery. But will the company really benefit from that growth? Let's take an early look at what's been happening with Johnson Controls over the past quarter and what we're likely to see in its quarterly report Friday morning.

Stats on Johnson Controls

Analyst EPS Estimate

$0.51

Change from Year-Ago EPS

(15%)

Revenue Estimate

$10.25 billion

Change from Year-Ago Revenue

(1.6%)

Earnings Beats in Past 4 Quarters

1

Source: Yahoo Finance.

Will Johnson Controls earn or burn?
Looking at analyst projections, it's hard to get excited about Johnson Controls and its prospects for a favorable quarterly report. With the company having missed estimates twice in the past year, investors can't feel confident it won't miss again this time, even with analysts having cut their initial estimates for the quarter by more than 20% already. Yet even given those headwinds, the stock has risen more than 23% since mid-October.

The primary driver of Johnson Controls' earnings will likely come from automakers Ford (NYSE: F  ) and General Motors (NYSE: GM  ) , which are some of the company's biggest customers. Both of those companies had relatively strong fourth quarters, and even though they've been losing market share, both have posted impressive progress from their respective low points.

But the ongoing saga of Johnson Controls' attempt to buy the assets of bankrupt A123 Systems continues to go badly. After losing an auction for A123 to Chinese-owned Wanxiang America, Johnson Controls has challenged the decision, and the U.S. Committee on Foreign Investment will have to review the deal before it becomes final. If Johnson Controls can capture victory from the jaws of defeat, it will mark a useful asset to have in its fight against rival Exide Technologies, which would much prefer not to have Johnson Controls get A123's technology.

Beyond earnings results, investors also need to look for any signs of a potential break-up of the company. Between its building HVAC and security systems business, its auto components segment, and its traditional and hybrid battery technology, Johnson Controls could find buyers for parts of its business, just as it sold its marine refrigeration-control business to Emerson Electric early last year.

Johnson Controls will be a good early indicator of how industrial activity fared during the fourth quarter. Better-than-expected news could end up lifting the entire market.

Learn more
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