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Will Honeywell International's (HON) Q3 Earnings Disappoint?

Zacks Equity Research

Honeywell International Inc. HON is scheduled to report third-quarter 2019 results on Oct 17, before the opening bell.

The company’s delivered average positive earnings surprise of 2.37% in the trailing four quarters, beating estimates all through. Notably, Honeywell’s second-quarter adjusted earnings of $2.10 per share surpassed the Zacks Consensus Estimate of $2.08 by 0.96%.

In the past three months, shares of the company have lost 6.7% compared with the industry’s 5.7% decline.

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

Factors to Influence Q3 Results

Softness in Honeywell’s Safety and Productivity Solutions segment due to weakness in its productivity products business is expected to have remained a concern in the third quarter. Also, the weakness in the productivity products business owing to lower volumes of sales due to inventory destocking, fewer large project rollouts in the mobility space and lower channel sell-through is expected to get reflected in the company’s top-line numbers. In addition, lower demand for general safety products and personal protective equipment might have affected its safety business.

Also, increasing liabilities pose a persistent concern for Honeywell. Notably, at the end of second-quarter 2019, the company’s total debt was $8,608 million. The company’s profitability is expected to have been impacted by high-debt levels in the to-be-reported quarter. Moreover, Honeywell’s high R&D costs are likely to have adversely impacted its margin and profitability.

Further, given Honeywell’s strong presence in China, its top-line performance is likely to reflect the soft macro signals that persisted in the country like slowdown in economic growth and persistent trade tensions with the United States.

Amid this backdrop, the Zacks Consensus Estimate for third-quarter revenues of Honeywell's Aerospace segment is pegged at $3,510 million, indicating a decline of 12.9%, from the year-ago reported number. The consensus mark for Safety and Productivity Solutions segment’s revenues stands at $1,535 million, implying 2.5% decrease. Moreover, the consensus estimate for Honeywell Building Technologies segments’ third-quarter revenues is pegged at $1,408 million, a decrease of 44.1%, from the year-ago reported figure. The consensus mark for Performance Materials and Technologies segment’s revenues is $2,692 million, implying an increase of 2% year over year.

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 surprise.

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 $2.01.

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 #4 (Sell).

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

Stocks to Consider

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

United Technologies Corporation UTX has an Earnings ESP of +1.30% and a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Chart Industries, Inc. GTLS has an Earnings ESP of +0.96% and a Zacks Rank of 3.

Sealed Air Corporation SEE has an Earnings ESP of +2.40% and a Zacks Rank #3.

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