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Honeywell (HON) Beats on Q1 Earnings, Revenue Estimates

Zacks

Honeywell International Inc.’s HON first-quarter 2017 adjusted earnings as well as revenues surpassed the Zacks Consensus Estimates by 2.5% and 1.7%, respectively. Notably, share price of the stock climbed on a pre-market trading basis, reflecting positive sentiments stemming from the better-than-expected result.

Earnings

Quarterly adjusted earnings came in at $1.66 per share, higher than the Zacks Consensus Estimate of $1.62. The bottom line also comfortably surpassed the year-ago tally of $1.50 per share.


The quarterly GAAP earnings per share of $1.71 exceeded the year-ago tally by 9.6%. The company noted that this upside was driven by solid operational performance delivered during the quarter.

Revenues

Net sales during the quarter came in at $9,492 million, down 0.3% year over year. The downside was stemmed by adverse foreign currency translation impact and divestiture of the Resins and Chemicals, and Aerospace government services businesses in 2016.

However, the company mentioned that organic sales during the quarter were up 2% year over year. However, the top line surpassed the Zacks Consensus Estimate of $9,332 million.

Costs and Margins

Total cost of goods sold during the quarter was $6,356 million, down 2.9% year over year. Selling, general and administrative expenses came in at $1,349 million, up 5.4% year over year. Interest expenses and other financial charges during the quarter were $75 million compared with $85 million reported in the year-ago quarter.

Segmental profit margin was 18.8%, up 70 basis points (year over year). Operating income margin expanded 100 bps to 18.8%.

Segment Performance

Honeywell International reports results in terms of four business segments:

Home and Building Technologies’ revenues were $2,553 million, up 3.1% year over year. The upside was backed by the benefits accrued from product launches, and robust distribution, air and water products business in China.

Safety and Productivity Solutions’ revenues totaled $1,324 million, up 25% year over year. The year-over-year growth was driven by higher volumes in workflow solutions and safety products businesses.

However, revenues of Aerospace sales during the quarter came in at $3,546 million, down 4.3% year over year. Also, Performance Materials and Technologies’ sales during the quarter came in at $2,069 million, down 9.3% year over year.

Balance Sheet and Cash Flow

Cash and cash equivalents as of Mar 31, 2017 were $7,710 million compared with $7,843 million recorded in Dec 31, 2016. Long-term debt was $11,181 million, down from $12,182 recorded in at the end of 2016.

At the end of the first three months of 2017, net cash from operating activities was $940 million compared with $319 million recorded in the prior-year period. Free cash flow was $772 million during the quarter compared with $125 million in the year-ago quarter.

Outlook

Honeywell International is aimed at boosting its near-term results on the back of strategic investments, greater operational efficacy and stronger demand for its diversified products. The company anticipates to report earnings within the range of $6.90–$7.10 per share for full-year 2017 (estimating 7–10% year-over-year growth).

Why a Poor Zacks Rank?

Honeywell International currently carries an unfavorable Zacks Rank #4 (Sell). Over the last month, this stock recorded a loss of 1.39%, as against 0.38% growth recorded by the Zacks classified Diversified Operations industry.

Industry specific headwinds such as input price inflation, tepid demand for mobile scanners and business jets, as well as volatility in crude oil prices are currently hurting the company’s top- and bottom-line performances.

Stocks to Consider

Some better-ranked stocks in the same space are listed below:

Crane Co. CR has a positive average earnings surprise of 8.89% for the trailing four quarters and currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Carlisle Companies Inc. CSL currently carries a Zacks Rank #2 and has a positive average earnings surprise of 11.08% for the last four quarters.

3M Company MMM also carries a Zacks Rank #2 and has a positive average earnings surprise of 1.94% for the past four quarters.


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