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Johnson Controls (JCI): Will its Earnings Disappoint in Q4?

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Johnson Controls International plc (JCI - Free Report) is set to report fourth-quarter (ended Sep 30, 2016) fiscal 2016 results on Nov 8. In the last quarter, the company delivered a positive earnings surprise of 1.79%. Let’s see how things are shaping up for this announcement.

Factors Influencing this Quarter

Johnson Controls expects earnings per share in the fourth quarter of fiscal 2016 to be in the range of $1.17–$1.20, up from $1.07 recorded in the fourth quarter of fiscal 2015. Revenues should benefit from an improvement in results in the Building Efficiency and Power Solutions segments as well as higher automotive production.

The company is focused on its comprehensive cost saving program along with improving productivity. In Sep 2015, Johnson Controls announced plans to reduce its workforce by 2.5% in the next two years to achieve annual cost savings of $250 million. Some of this benefit is expected to reflect in the quarter to be reported. Further, Johnson Controls is gaining strategic contracts which are aiding its business expansion. In Aug 2016, the company signed a $12.9 million technology contract with Methodist Healthcare. In Feb 2016, it signed a $15 million energy performance contract with Arkansas State University.

However, the divestiture of several businesses has been weighing on the company’s revenues and profits. Further, negative foreign currency translation is affecting Johnson Controls’ results. Revenues in the first nine months of fiscal 2016 dropped 3.4% year over year due to deconsolidation of the company's automotive interiors business and foreign exchange headwinds. This trend may continue in the quarter to be reported.

Earnings Whispers

Our proven model does not conclusively show that Johnson Controls is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. This is not the case here, as you will see below:

Zacks ESP: Earnings ESP for Johnson Controls is currently pegged at -6.14% as the Most Accurate estimate of $1.07 stands below the Zacks Consensus Estimate of $1.14. Please check our Earnings ESP Filter that enables you to find stocks that are expected to come out with earnings surprises.

JOHNSON CONTRLS Price and EPS Surprise



Zacks Rank: Johnson Controls currently sports a Zacks Rank #1 (Strong Buy), which increases the predictive power of ESP. However, we need to have a positive ESP to be confident about an earnings surprise.

We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Westport Fuel Systems Inc. (WPRT - Free Report) will post third-quarter 2016 results on Nov 9. The company has a Zacks Rank #3 (Hold).

Continental Aktiengesellschaft (CTTAY - Free Report) is expected to post third-quarter 2016 results on Nov 10. The company has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Meritor, Inc. (MTOR - Free Report) – a Zacks Rank #3 stock – will report its fourth-quarter and fiscal 2016 (ended Sep 30, 2016) financial numbers on Nov 16.

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