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How Johnson Controls Aims to Grow Earnings

By Dan Caplinger - Apr 19, 2013 at 8:40PM

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The company has largely tied its future to the auto industry.

Next Tuesday, Johnson Controls (JCI 3.54%) will release its latest quarterly results. The key to making smart investment decisions on stocks reporting earnings 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.

Johnson Controls is best known for its status as a Tier 1 supplier to a wide range of auto manufacturers, providing needed parts and systems that go into many different vehicles, as well as car batteries. But the company also makes institutional-scale climate-control systems designed to promote energy efficiency. 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.

Stats on Johnson Controls



Analyst EPS Estimate


Change From Year-Ago EPS


Revenue Estimate

$10.48 billion

Change From Year-Ago Revenue


Earnings Beats in Past 4 Quarters


Source: Yahoo! Finance.

Can Johnson Controls stay under control this quarter?
Analysts have gotten less optimistic in recent months about the earnings prospects for Johnson Controls, cutting back their calls for the just-ended quarter by $0.08 per share. They've been less pessimistic about full-year 2013 earnings, cutting estimates there by just $0.03 per share, but overall, the stock has been stuck in neutral, posting just a 2% gain since mid-January.

Johnson Controls has faced two main problems lately. In its automotive segment, strong U.S. auto sales have bolstered the company's performance, but Johnson Controls has substantial exposure to the extremely weak European market, which accounts for about half the division's overall sales. The situation in Europe has been so bad that Ford and General Motors have had to close plants and make other major moves toward restructuring in an effort to slow down the steady flow of big losses. Johnson Controls has suffered collateral damage from Ford's and GM's respective moves in Europe, and few expect a rebound there soon.

Meanwhile, Johnson Controls has hoped to capture substantial new business from the Asian region, especially in its building-controls division. But slow growth in China has weighed on those prospects as well, hurting the company's ability to offset weakness in its other businesses.

One strategic move that Johnson Controls announced during the quarter is that it's planning to sell off its automotive electronics business, which could fetch $1 billion or more if a buyer steps up. Although competitor Magna International is a logical candidate to express interest, Chinese automakers may take the opportunity to gain access to Ford, GM, and other leading automakers by buying the division.

In its quarterly report, watch for Johnson Controls to give an update on how its electronics-unit sale is proceeding, along with other insight into its long-term strategy going forward. If the company only takes a wait-and-see approach, then investors may start to question its ability to grow in a tough economic environment.

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