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Honeywell (HON) Q2 Earnings Beat Estimates, Revenues Miss

Zacks Equity Research

Honeywell International Inc. HON reported mixed results for second-quarter 2019, with earnings beating estimates but revenues lagging the same. Adjusted earnings were $2.10 per share, surpassing the Zacks Consensus Estimate of $2.08. The bottom line also improved 8.8% year over year on the back of organic sales growth during the quarter.

Honeywell’s second-quarter revenues came in at $9,243 million, missing the consensus estimate of $9,364 million. Notably, the top line declined 15.3% year over year. The fall was primarily attributable to impact of spin-offs of some of the company’s businesses in 2018. However, the top line improved 5% organically on the back of strength in its long-cycle businesses in U.S. and international defense, commercial aerospace, process automation and building technologies, as well as robust demand in aerospace aftermarket business.

Honeywell International Inc. Price, Consensus and EPS Surprise

Honeywell International Inc. Price, Consensus and EPS Surprise

Honeywell International Inc. price-consensus-eps-surprise-chart | Honeywell International Inc. Quote

Segmental Breakup

Revenues for Aerospace were $3,508 million, down 14% year over year. Honeywell Building Technologies revenues declined 43% to $1,450 million. Performance Materials and Technologies revenues were $2,735 million, up 1% while Safety and Productivity Solutions revenues declined 4% to $1,550 million.

Costs/Margins

The company’s total cost of sales in the reported quarter was $6,094 million, down 20% year over year. Selling, general and administrative expenses declined 9.2% to $1,387 million. Interest expenses and other financial charges were $85 million compared with $95 million a year ago.

Operating income margin for the second quarter was 19.1%, up 280 basis points year over year.

Balance Sheet/Cash Flow

Exiting the second quarter, Honeywell had cash and cash equivalents of $8,225 million compared with $9,287 million as of Dec 31, 2018. Long-term debt was $8,608 million, lower than $9,756 million recorded at the end of 2018.

During the second quarter, the company generated $1,678 million cash from operating activities, lower than $1,861 million reported a year ago. Capital expenditure was $171 million compared with $199 million incurred in the year-earlier quarter.

Adjusted free cash flow was $1,535 million, down 11.2%.

Outlook

Honeywell expects robust demand environment in commercial aerospace business to drive its revenues in the quarters ahead. It also expects greater operational excellence, stock buybacks and corporate tax benefits to boost profitability.

Honeywell revised its full-year guidance for 2019. The company anticipates earnings to be in the range of $7.95-$8.15 per share compared with $7.90-$8.15 guided earlier. It has raised revenue guidance for 2019 between $36.7 billion and $37.2 billion from $36.5-$37.2 billion predicted earlier.

Zacks Rank & Other Key Picks

Honeywell currently carries a Zacks Rank #2 (Buy).

Some other top-ranked stocks in the same space are General Electric Company GE, United Technologies Corporation UTX and Danaher Corporation DHR. All these companies sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

General Electric delivered average earnings surprise of 5.56% in the trailing four quarters.

United Technologies pulled off average positive earnings surprise of 12.85% in the trailing four quarters.

Danaher outpaced estimates in the last reported quarter by 3.76%.

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