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Johnson Controls (JCI) to Post Q3 Earnings: What's in Store?

Zacks Equity Research

Johnson Controls International plc JCI is scheduled to release third-quarter fiscal 2019 results on Jul 31, before market open. In the last reported quarter, the company delivered positive earnings surprise of 6.67%. In fact, the company’s earnings surpassed estimates in all of the trailing four quarters, at an average beat of 4.06%.

In the past six months, shares of Johnson have outperformed the industry it belongs to. The stock has gained 25.8% compared with the industry’s 19.7% growth.


Let’s discuss the factors that are likely to make an impact on the upcoming quarterly announcement.

Factors Likely to Influence Q3

Johnson Controls has been consistently undertaking efforts to enhance its AGM battery manufacturing capacity and address rising demand for Start-Stop technology. Higher demand stems from the government’s pressure to improve fuel efficiency and reduce carbon emission. The company has invested $555 million from 2011 to 2020 to expand AGM production capacity in Germany, the United States and China. These factors are likely to increase the market for new vehicle and aftermarket Start-Stop batteries worldwide in the third quarter fiscal 2019.

The company anticipates fiscal 2019 adjusted earnings per share (EPS) from continuing operations of $1.85-$1.95, marking year-over-year increase of 16-23%.

The company’s focus to drive productivity, optimize cost structure and improve pricing discipline across product categories as well as project businesses is likely to impact fiscal third-quarter results. Raw material and tariff impact have been stabilised. This is expected to improve operating leverage in the quarter to be reported.

Johnson Controls is committed to drive execution and well positioned to continue investing in portfolio growth. The company actively undertakes mergers and acquisitions to provide unmatched quality assurance for customers as well as develop industry-leading energy-efficient technology. These factors are also expected to drive the upcoming quarterly results.

However, the company’s exposure to changes in commodity prices is a concern. Moreover, higher original equipment global shipments within the power solution segment have increased transportation and logistics, which is offsetting productivity initiatives undertaken by the company.

The divestiture of several businesses can lead to lower revenues and profits, thanks to high separation costs. This is likely to affect results in the to-be-reported quarter.

Johnson Controls International plc Price and EPS Surprise


Johnson Controls International plc Price and EPS Surprise

Johnson Controls International plc price-eps-surprise | Johnson Controls International plc Quote


What the Zacks Model Says

Our proven model does not conclusively show that the company is likely to beat earnings estimates in the quarter to be reported. This is because a stock needs to have the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for this to happen. This is not the case here as you will see below:

Earnings ESP: Johnson Controls has an Earnings ESP of 0.00%. The Most Accurate Estimate and the Zacks Consensus Estimate are currently pegged at 63 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP.

Zacks Rank: The company currently carries a Zacks Rank #4. A sell-rated rank along with 0.00 % Earnings ESP makes surprise prediction difficult.

Note that we caution against stocks with a Zacks Rank #4 or #5 (Strong Sell) going into the earnings announcement, especially when the company is witnessing negative estimate revisions.

Other Stocks to Consider

Here are some stocks worth considering, which have the right combination of elements to deliver an earnings beat this time around:

Cummins Inc. CMI has an Earnings ESP of +3.49% and carries a Zacks Rank #3. It is slated to release second-quarter 2019 results on Jul 31. You can see the complete list of today’s Zacks #1 Rank stocks here.

Barrick Gold Corporation GOLD has an Earnings ESP of +1.56% and currently carries a Zacks Rank of 2. It is slated to release second-quarter 2019 results on Aug 12.

Penske Automotive Group, Inc PAG has an Earnings ESP of +0.42% and currently carries a Zacks Rank of 3. The company is slated to release second-quarter 2019 results on Jul 30.

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