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Honeywell (HON) to Report Q3 Earnings: Will it Disappoint?

Zacks Equity Research
·4 min read

Honeywell International Inc. HON is scheduled to report third-quarter 2020 results on Oct 30, before the opening bell.

The company delivered a positive earnings surprise of 6.41%, on average, in the trailing four quarters, beating estimates on all occasions. Honeywell’s second-quarter 2020 adjusted earnings of $1.26 per share surpassed the Zacks Consensus Estimate of $1.15 by 9.57%.  

In the past three months, shares of the company have gained 9.7% compared with the industry’s 11.5% growth.

Key Factors

Weakness in Honeywell’s commercial original equipment business on account of slowdown in original equipment build rates and lower business jet demand is likely to have affected its Aerospace segment’s performance in the third quarter. Also, headwinds across the commercial aftermarket business, owing to the low global air transport flight hours amid the coronavirus outbreak, is expected to have hurt the segment’s top-line numbers.

Also, weak oil and gas capital expenditure and pandemic-related issues, along with softness in its UOP business and automation project delays in process solutions business, are likely to have affected its Performance Materials and Technologies segment’s revenues. Further, low demand for security and building management products and softness in building solution projects might have hurt the Honeywell Building Technologies segment’s revenues in the quarter.

Moreover, forex woes adversely impacted the company’s sales in the first and second quarters of 2020 by 1%. This trend is likely to have continued in the to-be-reported quarter as well, given its strong operational presence globally. In addition, due to persistent weakness in industrial production and supply chain inefficiencies are expected to have affected its top-line performance in the third quarter.

However, strength across Honeywell’s defense and space businesses, supported by healthy defense budget and strong backlog, is likely to have boosted the company’s top line in the third quarter. In addition, a surge in demand for personal protective equipment and medical sensors, along with strong backlog conversion rate, might have acted as tailwinds for its Safety and Productivity Solutions segment.

This apart, its efforts toward maximizing commercial and operational excellence are likely to have boosted margins and its financial performance in the third quarter.

Amid this backdrop, the Zacks Consensus Estimate for third-quarter revenues of the company's Aerospace segment is pegged at $2,532 million, indicating a decline of 28.6% from the year-ago reported number. The consensus mark for the Performance Materials and Technologies segment’s revenues is pegged at $2,330 million, implying a decrease of 12.7% year over year. Moreover, the consensus estimate for Honeywell Building Technologies segments’ third-quarter revenues is pegged at $1,247 million, suggesting a decrease of 11.9%. The consensus mark for the Safety and Productivity Solutions segment’s revenues stands at $1,557 million, implying a 6.9% year-over-year increase.

The Zack Consensus Estimate for the company’s third-quarter revenues is currently pegged at $7,656 million, suggesting 15.7% decline from the year-ago quarter’s reported number. The consensus estimate for earnings of $1.48 suggests a decline of 28.8% on a year-over-year basis.

Earnings Whispers

According to our quantitative model, a stock needs to have the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) to increase the odds of an 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 -0.30%.

Honeywell International Inc. Price and EPS Surprise

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: The company carries a Zacks Rank #4 (Sell).

Key Picks

Here are some companies you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this season:

Flowserve Corporation FLS has an Earnings ESP of +2.56% and a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.

ITT Inc. ITT has an Earnings ESP of +2.28% and a Zacks Rank #2.

Parker Hannifin Corporation PH has an Earnings ESP of +5.44% and a Zacks Rank of 2, at present.

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