Johnson Controls Inc , one of the world's largest auto suppliers, said a drop in auto production following last month's earthquake in Japan would cut earnings and revenue in its fiscal third quarter.

The company on Monday forecast a $500 million drop in revenue in the third quarter, which ends in June, that would reduce earnings by between 16 cents and 18 cents per share.

Johnson Controls forecast third-quarter earnings between 51 cents and 53 cents per share. On average, analysts culled by Thomson Reuters I/B/E/S projected third-quarter earnings of 67 cents per share.

The company's shares fell 3.5 percent to $39.30 in morning trading on the New York Stock Exchange.

The drop in revenue assumes a 13 percent drop in North American auto output, said Baird analyst David Leiker in a research note. Japan production is expected to fall 50 percent compared the company's prior estimates, Leiker noted.

Johnson Controls said it expects to recoup those losses in the first half of its fiscal 2012 year, which begins in October.

Johnson Controls also posted second-quarter earnings that edged out Wall Street estimates and lifted its revenue outlook for the 2011 fiscal year.

The company reported net income of $354 million, or 51 cents per share, up from $274 million, or 40 cents per share, a year earlier. Excluding one-time costs linked to acquisitions, the company earned 56 cents per share, slightly better than the average analyst estimate of 55 cents per share.

Revenue in the quarter rose 22 percent to $10.14 billion.

A stronger euro and a 15 percent jump in revenue in its building efficiency unit will boost Johnson Controls' 2011 revenue to $39.5 billion, the company said. This was $1 billion higher than its previous forecast of $38.5 billion.

The building efficiency unit makes heating and ventilation systems for buildings.

The March 11 earthquake, tsunami and nuclear crisis in Japan has disrupted the supply of key auto parts and forced auto companies to idle plants, forcing automakers and suppliers to cut production.

Domestic production at Toyota Motor Co <7203.T> plummeted 62.7 percent in March, putting the world's largest automaker at risk to lose its top spot to General Motors and Volkswagen AG .

(Reporting by Deepa Seetharaman, editing by Dave Zimmerman and Maureen Bavdek)