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What's in Store for Johnson Controls (JCI) in Q1 Earnings?

Zacks Equity Research

Johnson Controls International plc JCI is set to report first-quarter fiscal 2019 results before the opening bell on Feb 1. The company beat estimates in three out of the trailing four quarters and met estimates once. In the trailing four quarters, average surprise was 2.3%. The long-term growth rate of Johnson Controls is 11%.

In the last three months, Johnson Controls’ shares gained 2.7% against 0.3% decline recorded by the industry it belongs to.

Let’s see, how things have shaped up for the upcoming announcement.

Johnson Controls International plc Price and EPS Surprise

Johnson Controls International plc Price and EPS Surprise | Johnson Controls International plc Quote

Factors Influencing This Quarter

Weakening automotive production in China is expected to negatively impact Johnson Controls’ earnings in first-quarter fiscal 2019. The company’s power solutions segment generates the majority of its revenues by selling replacement batteries while the rest is achieved by selling batteries for the production of new vehicles. Declining production in China is a concern for the company's power solutions segment that delivers roughly 154 million lead-acid batteries a year in the world’s largest automotive market.

Further, rise in commodity prices, owing to high tariffs, is anticipated to create a dent in the company’s profit margins. The other segment, building technologies & solutions’ production involves raw materials — consisting of steel, aluminum and copper — whose high costs might hamper the segment’s EBITA.

Other headwinds for Johnson Controls are salesforce expansion and incremental investments to develop products. Despite such a backdrop, the company anticipates witnessing a strong fiscal year on the back of robust end-market demand.

For the soon-to-be-reported quarter, the Zacks Consensus Estimate for power solutions’ and building technologies & solutions’ net revenues are pegged at $2.5 billion and $5.5 billion, respectively. Further, the Zacks Consensus Estimate for power solutions’ and building technologies & solutions’ adjusted EBIT are pinned at $407 million and $601 million, respectively.

Earnings Whispers

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

Earnings ESP: Johnson Controls has an Earnings ESP of 0.00% as both the Zacks Consensus Estimate and the Most Accurate Estimate are currently pegged at 57 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Johnson Controls currently carries a Zacks Rank #5 (Strong Sell).

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

Stocks to Consider

Here are a few stocks from the same space, with the right combination of elements to outpace earnings estimates this time around:

General Motors Company GM has an Earnings ESP of +11.39% and it currently carries a Zacks Rank #2. Its fourth-quarter 2018 results are scheduled to release on Feb 6.

O’Reilly Automotive, Inc. ORLY has an Earnings ESP of +2.01% and a Zacks Rank of 3. The company is slated to report fourth-quarter 2018 results on Feb 6.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Wabco Holdings Inc. WBC has an Earnings ESP of +2.81% and is a #3 Ranked player. Its fourth-quarter 2018 results are slated to release on Feb 15.

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