Honeywell Misses on Q4 Earnings, Reaffirms 2016 Outlook

Honeywell International Inc. HON reported fourth-quarter 2015 net income of $1,194 million or $1.53 per share, compared with $956 million or $1.20 per share in the year-ago quarter. The uptick in earnings, despite lower revenues, was driven by improved cost-management efforts.

Excluding mark-to-market pension expense, adjusted earnings per share were $1.58 in the reported quarter compared with $1.43 in the year-ago quarter. The adjusted earnings marginally missed the Zacks Consensus Estimate by a penny.
 

Honeywell International Inc. (HON) Street EPS & Surprise Percent - Last 5 Quarters | FindTheCompany

For full year 2015, the company reported GAAP net income of $4,768 million or $6.04 per share compared with $4,239 million or $5.33 per share in 2014. Excluding mark-to-market pension expense, adjusted earnings for 2015 were $6.10 per share compared with $5.56 in 2014. The adjusted earnings for 2015 were in sync with the Zacks Consensus Estimate.

Q4 Details

Revenues in fourth-quarter 2015 decreased 3% year over year to $9,982 million and exceeded the Zacks Consensus Estimate of $9,980 million. The year-over-year decrease in revenues was primarily due to unfavorable foreign currency impact. For full year 2015, the company recorded revenues of $38,581 million compared with $40,306 million in 2014.
 
Total segment profit improved significantly on stringent cost-cutting initiatives to $1,880 million from $1,632 million in the year-ago quarter. Overall segment profit margin was up 290 bps year over year to 18.8%. Operating income also increased on discipline cost-management efforts to 1,733 million from $1,240 million in fourth-quarter 2014, for respective operating margins of 17.4% and 12.1%.      

Segment Performance

Aerospace segment sales were $3,983 million in the reported quarter, up 4% year over year. Revenues largely improved due to $184 million OEM incentives incurred in the fourth quarter of 2014. Sales were up 2% on an organic basis driven by strong Business and General Aviation (BGA) engine shipments, healthy commercial aftermarket sales and new platform launches.

Segment profit was up 29% year over year to $856 million, while margins expanded 420 bps year over year to 21.5%. The increase in profit was driven by commercial excellence and higher productivity.

Automation and Control Solutions segment sales inched down 3% year over year to $3,721 million in the reported quarter. The fall was triggered by the unfavorable impact of foreign exchange. However, sales were flat on an organic basis, driven by continued growth in Security and Fire (HSF) business, offset by a decline in Sensing & Productivity Solutions (S&PS).    

Segment profit remained flat at $616 million; while margins were up 70 bps year over year to 16.6%. A flat trajectory for profit was attributable to higher productivity and commercial excellence being annulled by continued investments for growth.

Performance Materials and Technologies segment sales were down 12% year over year to $2,278 million in the reported quarter, led by adverse impact of foreign exchange and raw materials pricing in Resins & Chemicals.  Sales were down 4% on an organic basis driven by lower equipment and licensing sales.

Segment profit increased 9% to $462 million, driven by commercial excellence, and the favorable impact of raw materials pass-through pricing in Resins & Chemicals. Margins rose 380 bps year over year to 20.3%.

Balance Sheet and Cash Flow

Cash and cash equivalents as of Dec 31, 2015 were $5,455 million compared with $6,959 million as of Dec, 31, 2014. Long-term debt as of Dec 31, 2015 stood at $5,554 million versus $6,046 million as of Dec 31, 2014.

Net cash provided by operating activities for three months ended Dec 31, 2015 was $1,959 million, compared with $1,762 million in the prior-year period, bringing the respective tallies for the year to $5,454 million and $5,024 million. Free cash flow was $1,571 million as of Dec 31, 2015, compared with $1,348 million in the prior-year period, while that of full year 2015 was 4,381 million compared with $3,930 million in 2014.

Acquisition

During fourth-quart 2015, Honeywell closed the acquisition of the Elster Division of Melrose Industries plc -- a leading provider of thermal gas solutions for approximately $5.1 billion. The integration of the acquired unit is currently under way into the Automation and Control Solutions segment.

Honeywell committed over $6 billion in acquisitions in 2015 to bolster its “Great Positions in Good Industries,” while reinvesting $1.1 billion in businesses through high-return capital expenditure projects. The company funded over $160 million in new restructuring projects, including $60 million in the fourth quarter. At the same time, the company returned more than $3.5 billion to shareholders, including a 15% increase in dividend.  

Outlook

Despite a challenging macroeconomic environment, Honeywell reiterated its earlier full-year 2016 guidance. The company anticipates that revenues for 2016 will lie in a range of $39.9 billion and $40.9 billion, reflecting year-over-year growth of 4%-6%. 2016 adjusted earnings are forecasted to lie in the range of $6.45 per share and $6.70 per share, reflecting growth of 6%-10%.

Going forward, Honeywell intends to continue investing in new products and technologies, and increase its footprint in high-growth markets. Looking ahead in 2016, the company expects continuous margin expansion and earnings outperformance driven by its balanced portfolio and prudent cost-management efforts.

Honeywell currently has a Zacks Rank #3 (Hold). Stocks that look promising in the industry include Noble Group Ltd. NOBGY, Koninklijke KPN N.V. KKPNF and LSB Industries Inc. LXU, each carrying a Zacks Rank #2 (Buy).

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