Honeywell Q3 Earnings: Revenue And Earnings Beat; Company Optimistic Of A Brighter Future

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Honeywell

Honeywell (NYSE: HON) reported a solid Q3 earnings last week. The company managed to post an earnings of $1.67 per share (excluding restructuring charges of $0.07 per share), beating the consensus estimate of $1.60 by a wide margin. The third quarter witnessed some important changes in the structure of the company that are expected to drive performance going forward, despite the slow environment. These include the split of the former automation and controls solutions segment, the acquisition of Intelligrated, the sale of its government services business and the spin of resins and chemicals.

The conglomerate is expecting to return to double-digit EPS growth in the fourth quarter. Further, if all goes to plan, Honeywell could be seeing its full-year EPS growth target to come in at around 8% to 9% as communicated on October 7.

Furthermore, CEO Dave Cote took this earnings call as an opportunity to reaffirm the management’s confidence in the company and its future, reassuring investors that Honeywell is poised to outperform in the coming quarters.

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Screen Shot 2016-10-24 at 6.08.45 PM

Screen Shot 2016-10-24 at 6.09.44 PM

Key Financial Highlights:

  • Sales in Q3 were reported at $9.8 billion primarily reflecting the impact of acquisitions. On a core organic growth basis, the sales of the company were down almost 3%. Revenues growth was primarily driven by process solutions, transportation systems, and home and building technologies. That said, the positive impacts were more than offset by the softness in business jets, defense and space, productivity solutions and UOP.
  • Segment margins declined on the back of adverse impacts from OEM incentives, M&A integration costs and lower volumes. This was partially offset by benefits from previous restructuring endeavours. As mentioned previously, EPS was up 4% to $1.67, excluding a restructuring charge. However, individual restructuring projects in Q3 are expected to provide attractive accretion in both 2017 and 2018.
  • The dismal business jet market continues to hurt sales at Honeywell’s aerospace business. The company expects the subpar sales figures going into 2017 as well. OEM incentives ate into the companies margins this quarter and will continue to do at least until the next quarter. Furthermore, the company is experiencing lower volumes in defense and space as well. We can expect the business to be down in the mid single digit range in Q4. The aftermarket business is expected to see a steady growth in spares, primarily due to the new jet wave installations and channel and customer demand. However, repair and overhaul will moderate slightly on lower aircraft utilization.
  • The Home and Building Technologies (HBT) saw revenues increase by about 17% year over year, with a positive organic growth of about 5%. Going forward, we can expect organic growth in the low single-digit range in both products and distribution businesses. The reported growth will however be supported by Elster, where significant rollouts are on the cards in the UK. On the product side, sales in the environment and energy solutions business will continue to improve on the back of new product introductions in North and South America, and a continued double digit growth in China and India.

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