What Can We Expect From Honeywell’s Q3 Earnings?

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HON: Honeywell logo
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Honeywell

Honeywell (NYSE: HON) recently unexpectedly cut its sales and earnings outlook for the current financial year on the back of lower orders in its commercial aircraft business. Following the news, the company’s stock suffered its biggest one day drop since August 2011. The stock tumbled 7.5% in after hours trading, opening at $107 per share the following day. The adverse reaction by investors wiped close to $6.6 billion off of Honeywell’s market capitalization. The company now expects Q3 earnings to come in at $1.60 a share with revenues coming in at $9.8 billion. Furthermore, the industrial conglomerate also lowered its upper end of its adjusted full year earnings guidance to $6.60-$6.64, down from $6.60-$6.70.Screen Shot 2016-10-13 at 1.18.19 PM

Source: Honeywell Business Update (link)

Most companies in the aerospace industry have been hit by conditions that are more difficult than anticipated. Both the business jet OEM (Original Equipment Manufacturer) and after-market businesses have lost out to a weakness in the oil and gas industry, and a slowing global economy. Furthermore, customer inventory levels and productivity solutions are unusually high and that is causing a temporary slowdown in revenue growth.

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Furthermore, the slowdown in the oil market will continue to impact Honeywell’s Performance Materials & Technology business. The division’s licensing, equipment and gas processing businesses are believed to have been weak throughout Q3. That said, the Honeywell’s UOP catalyst strength continues to show potential with an increase in orders and backlog.

In conclusion, with all divisions in a rut at the moment, it seems as though we can expect to see a weak quarter from Honeywell this time around. With the oil and gas market showing no signs of an immediate recovery we could expect this trend to continue well into 2017.

Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment / ask questions on the comments section

2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis of Honeywell

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