Johnson Controls may signal 'bloody' losses for auto parts suppliers

Johnson Controls Inc.'s loss that exceeded analysts' estimates last week may signal a "bloody" earnings period for North American-based auto suppliers after carmakers pared production globally.

Johnson Controls, the largest maker of automotive seats, reported its first quarterly loss since 1992 on Jan. 16, "kicking off what promises to be a long, drawn-out and bloody earnings season," Christopher Ceraso, a New York-based analyst for Credit Suisse, wrote in a note to investors today.

Partsmakers such as Visteon Corp. and American Axle & Manufacturing Holdings Inc. are among those that may post losses and miss estimates, analysts said. Investors have already sold off supplier shares, sending the 13-stock Bloomberg U.S. Auto Parts/Equipment Index dropping 64 percent in the past 12 months.

"Getting through earnings season is a near-term risk," David Leiker, a Milwaukee-based analyst with Robert W. Baird & Co, wrote in a note to investors today. "This performance from one of the best companies in the group underscores that view." He rates Johnson Controls stock "outperform."

Johnson Controls' loss, excluding $562 million in one-time expenses, was 14 cents a share, trailing the average estimate of a 1-cent loss by 11 analysts surveyed by Bloomberg. That may point to negative earnings surprises for suppliers with smaller revenue bases and less cash on hand, said Shelly Lombard, a Montclair, New Jersey-based debt analyst with Gimme Credit.

"It's going to be equally ugly and worse for the guys who are on the cusp," she said. "It puts Visteon and American Axle in a difficult situation because they don't have enough of a liquidity cushion."

Visteon, spun off from Ford Motor Co. in 2000, said Jan. 13 fourth-quarter sales declined 43 percent to $1.55 billion as automakers pared production. The Van Buren, Michigan-based supplier said it had $1.18 billion in cash at year end, and is working to counter the drop in vehicle output by cutting costs and winning new business.

American Axle, General Motors Corp.'s largest maker of axles, said Jan. 14 that last year's revenue fell 35 percent to about $2.1 billion. The Detroit-based supplier said it had $400 million in available cash, short-term investments and committed borrowing capacity on a revolving credit line.

The company, which has posted four straight quarterly losses, will return to profitability this year because of cost cutting efforts and new business, Chief Executive Officer Richard E. Dauch told analysts at a conference Jan. 16.

American Axle may report a loss of 61 cents a share for the fourth quarter on Jan. 30, according to 10 analysts surveyed by Bloomberg. Visteon may post a loss of $1.42 a share on Feb. 25, according to the average of 8 analysts.

Lear Corp., the world's second-largest automotive seatmaker, may say Jan. 29 that it lost $1.06 a share, according to the average of 10 analysts surveyed by Bloomberg.