In 2000, General Electric posted its 100th consecutive quarter of growth in continuing operations. That's 25 years. Raise your hand if that sounds just a bit suspicious. Whatever business you're in, that feat just isn't possible unless your company is managing its reported earnings.

According to a 1998 survey, 78% of CFOs attending a given conference said they'd been asked to "cast financial results in a better light" without running afoul of GAAP. Half said they'd done it. Nearly half said they'd been asked to misrepresent their company's numbers, and 38% admitted they'd done so. Another survey at a different conference found that more than half of the CFOs attending had been asked to juice their numbers, and 17% had agreed to do so.

It's easy to understand why companies succumb to the incredible pressure to make it look like they've met or beaten targets or Wall Street expectations. Consistent growth is a feather in any CEO's cap, and a rising stock price often increases many executives' compensation, especially from stock options. But when companies stray from merely managing their numbers within GAAP into outright fudging them -- Enron, Sunbeam, we're looking at you here -- they can ruin themselves and their shareholders.

How can we spot suspicious earnings patterns soon enough to save ourselves? We can track how closely a company meets earnings expectations, monitor its frequency of year-over-year growth, and compare those stats to numbers from a few competitors, which should be affected similarly by changes in the business cycle. Any company that lands eerily close to earnings-per-share expectations, and grows earnings year over year with unusual reliability, should raise a yellow flag and invite us to look closer.

Here's a look at what Johnson Controls (NYSE: JCI), the HVAC company, has done over the past few years. I've also included a couple of other businesses playing in the same space for comparison.

Company

Reported EPS Within $0.02 of Estimates?

How Close to Estimates, on Average

How Often It Reported Growth

Johnson Controls

20 times in last 26 quarters.

$0.01

15 times in last 23 quarters.

Honeywell International (NYSE: HON)

15 times in last 26 quarters.

$0.02

16 times in last 22 quarters.

Lennox International (NYSE: LII)

8 times in last 26 quarters.

$0.03

14 times in last 22 quarters.

Source: earnings.com and author's calculations. Difference in number of quarters counted due to data source.

Far more than half the time, Johnson Controls met estimates within $0.02. And well more than half the time, it also reported growth. Over those quarters, it missed by $0.14 twice, and by $0.07 once, but every other miss was by $0.04 or less. That's unusually good, if you ask me. It could simply be good analyst management, but Foolish investors should look a bit closer. Especially considering that comparable companies Honeywell and Lennox hit estimates within $0.02 much less often.

Note that I'm not concentrating on managing estimates here -- though management does that, too. However, if a management team always seems to deliver on estimates time and time again, you should probably dig a bit deeper, to see whether its interpretation of GAAP is getting a bit too fast and loose.

Investors crave consistency. That's one reason why its string of reliable results spurred GE's stock price to rise so much in the 1980s and 1990s. But the real world isn't consistent, and Foolish investors should account for that. If a company's results seem too steady to be true, Fools should proceed with caution.

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Fool analyst Jim Mueller is a beneficial owner of General Electric, but doesn't have a position in any other company mentioned. He works with the Stock Advisor newsletter service. The Fool is all about investors writing for investors.