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Honeywell (HON) to Report Q2 Earnings: What's in the Offing?

Zacks Equity Research

Honeywell International Inc. HON is scheduled to report second-quarter 2019 results on Jul 18, before the opening bell.

The company’s earnings delivered average positive surprise of 3.50% in the trailing four quarters, beating estimates all through. Notably, Honeywell’s first-quarter adjusted earnings of $1.92 per share surpassed the Zacks Consensus Estimate of $1.83 by 4.92%.

In the past three months, shares of the company have increased 7.5% compared with the industry’s 0.2% rise.

Let’s see how things are shaping up for this announcement.

Factors to Influence Q2 Results

Honeywell is well-positioned to benefit from strength in its end markets. The company believes that a robust demand environment in the commercial aerospace business will continue to boost its Aerospace segment’s revenues in the second quarter. In addition, an uptick in the defense & space business and the aerospace aftermarket business on account of solid demand for sensors, guidance systems, original equipment shipment volumes and higher spares volumes is likely to drive the segment’s performance in the to-be-reported quarter.

The Zacks Consensus Estimate for second-quarter revenues from the Aerospace segment is currently pegged at $3,446 million, higher than $3,341 million reported in the previous quarter.

Also, growth in automation and process solutions businesses, driven by sturdier demand for maintenance and migration services, and field instrumentation devices is expected to aid the revenues in the company's Performance Materials and Technologies segment. Notably, the Zacks Consensus Estimate for the segment's second-quarter revenues currently stands at $2,762 million, up from $2,572 million reported in the previous quarter.

Moreover, the company hopes to see a spurt in demand for the commercial fire and security products, which will keep contributing to revenues at the Honeywell Building Technologies segment. Further, consistently favorable demand for its warehouse automation, sensing and IoT businesses, will possibly ramp up the Safety and Productivity Solutions segment’s revenues. Also, the segment will benefit from the thriving e-commerce market as well as growth in maintenance, services and voice solutions. Additionally, steady investments in product development and commercial excellence initiatives are envisioned to be conducive to its profitability.

Notably, the Zacks Consensus Estimate for second-quarter operating profit of Honeywell's Performance Materials and Technologies, and Safety and Productivity Solutions segments is pegged at $626 million and $267 million, respectively, higher than $564 million and $212 million each, reported in the previous quarter. Moreover, the consensus estimate for Aerospace and Honeywell Building Technologies segments’ second-quarter operating profit stands at $854 million and $283 million, respectively, higher than $838 million and $271 million respectively, reported sequentially.

However, the company is experiencing softness in its productivity products business due to lower volumes of sales in scanning and mobility products, primarily in North America. As a matter of fact, the company expects this weakness to persist in its productivity products business in the near term. Moreover, tepid demand for general safety products and personal protective equipment is a lingering concern for the company’s safety business.

Earnings Whispers

Our proven model provides some idea on the stocks that are about to release earnings results. The quantitative Zacks methodology shows that a stock needs to have a perfect combination of a positive Earnings ESP and a top Zacks Rank #1 (Strong Buy), 2 (Buy), or at least 3 (Hold) for a likely earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

But that is not the case here as we will see below.

Earnings ESP: Honeywell has an Earnings ESP of 0.00% as both the Most Accurate Estimate and the Zacks Consensus Estimate are pegged at $2.08.

Honeywell International Inc. Price and EPS Surprise

Honeywell International Inc. Price and EPS Surprise

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

Zacks Rank: Honeywell carries a Zacks Rank #2, which increases the predictive power of ESP. However, its 0.00% ESP in the combination makes surprise prediction difficult this time around.

We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Key Picks

Here are some companies from the same space you may want to consider as our model shows that these have the right mix of elements to beat estimates this earnings season:

CIRCOR International, Inc. CIR has an Earnings ESP of +1.10% and a Zacks Rank of 1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Axon Enterprise, Inc AAXN has an Earnings ESP of +10.96% and a Zacks Rank of 2.

ACCO Brands Corporation ACCO has an Earnings ESP of +0.63% and a Zacks Rank #3.

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