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Honeywell (HON) Beats on Q3 Earnings & Revenues, Guides Well

Zacks Equity Research

Honeywell International Inc. HON reported adjusted earnings of $1.75 a share in third-quarter 2017, beating the Zacks Consensus Estimate of $1.74 by 0.6%. Notably, adjusted earnings increased 4.8% on a year-over-year basis.

Operational Details

Third-quarter revenues inched up 3.2% year over year to $10,121 million and exceeded the Zacks Consensus Estimate of $10,056 million. The improvement in the bottom line can largely be attributed to higher sales accrued from the Aerospace, Home and Building Technologies and Safety and Productivity Solutions segments.

Total segment profit was $1,895 million compared with $1,720 million in the prior-year period. Overall segment profit margin improved to 18.7% from 17.5% in the prior-year period.

Operating income increased to $1,801 million from $1,534 million in the year-ago quarter. Operating margin during the quarter was 17.8%, up 220 basis points (bps).

Costs and Margins

During the quarter, Honeywell recorded a total cost of goods sold of $6,873 million compared with $6,903 million in the prior-year period. Selling, general and administrative expenses came in at $1,447 million, up 5.9% year over year. Interest expenses and other financial charges during the quarter were $81 million compared with $82 million in the prior-year period.

Honeywell International Inc. Price, Consensus and EPS Surprise

Honeywell International Inc. Price, Consensus and EPS Surprise | Honeywell International Inc. Quote

Segment Details

Aerospace sales were $3,657 million in the reported quarter, up 1.6% year over year. Impressive growth was primarily driven by Commercial Aftermarket growth and lower customer incentives year over year. Strength in the U.S. defense as well as persistent recovery in commercial vehicles in Transportation Systems proved conductive to growth of the segment.

Home and Building Technologies sales came in at $2,790 million, up 3.3% year over year. The upside was driven by air and water product sales in China, smart Energy program roll-outs as well as continued growth in the Distribution business.

Performance Materials and Technologies revenues were $2,260 million, down 3% year over year. However, the decline was partially offset by robust catalyst, equipment, licensing and gas processing volumes.

Safety and Productivity Solutions’ top-line was $1,414 million, up 21% year over year. The segment’s sales improved on the back of growth in demand for industrial safety products, Movilizer software as well as voice-enabled workflow solutions. Additionally, the double digit growth in organic sales at Intelligrated (acquired by Honeywell in 2016) also supplemented the impressive performance of the segment.

Balance Sheet and Cash Flow

Cash and cash equivalents as of Sep 30, 2017 were $ 7,389 million and long-term debt was $11,453 million.

Net cash provided from operating activities for the three months ended Sep 30, 2017, was $1,407 million compared with $1,554 million in the prior-year period. Honeywell exited third-quarter 2017 with free cash flow of $1,195 million compared with the year-ago figure of $1,280 million.

Outlook

Concurrent with the earnings release, Honeywell revised full-year earnings guidance. The company raised earnings and revenue guidance for 2017. Its earnings per share is currently expected in the range of $7.05-$7.10 (from $7.00-$7.10).

Honeywell currently carries a Zacks Rank #2 (Buy). Some other top-ranked stocks in the same space worth a glance include Adobe Systems Incorporated ADBE, Gartner, Inc. IT and Analog Devices, Inc. ADI. While Adobe Systems sports a Zacks Rank #1 (Strong Buy), Gartner and Analog Devices carry the same Zacks Rank as Honeywell.

Adobe Systems has a striking earnings surprise history in the trailing four quarters, having outpaced estimates all through with an average beat of 7.8%. You can see the complete list of today’s Zacks #1 Rank stocks heree.

Gartner has delivered earning beat thrice in the trailing four quarters. It boasts an average beat of 5.4%.

Analog Devices has an excellent earnings surprise history, beating estimates in the trailing four quarters with an average beat of 19.1%.

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