What Can We Expect From Honeywell’s Q4 2017 Earnings?

Honeywell is set to release its earnings figures for the fourth and final quarter of 2016 this Friday, January 26th. In the first three quarters of the year, the company managed to beat analyst estimates two times. We expect such momentum continued through the last quarter as well. The company’s top line is expected to be driven by the Home and Building Technologies segment this time around, while the Aerospace business is expected  weigh the revenues.

Furthermore, 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.

Since the last earnings call, the company’s stock has rallied up by almost 9%, outperforming its rival General Electric, which rose only 5% in comparison. The rally can be attributed to positive business developments like the introduction of new products, collaboration with Dover Energy on asset integrity management, new business deals, debt refinancing, and most importantly, the issuance of its 2016 earnings guidance.

The conglomerate is expecting to return to double-digit EPS growth in the fourth quarter. Furthermore, 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 7th.

Home & Building Technologies To Shine Yet Again

As mentioned previously, the expected growth in Honeywell’s revenue could primarily be driven by the Home and Building Technologies segment. The company expects the segment to report revenues growing in the range of 15% to 16% due to the positive impacts of acquisitions, new product introductions and higher growth in China and India. Similarly, we can expect Honeywell’s Safety and Productivity Solutions segment to also grow in the 15% to 19% range on the back of favourable impacts from the Intelligrated acquisition.

Aerospace To Continue Its Down Trend

The company’s aerospace market has suffered tremendously in the year due to a slowing world economy, low oil prices and a shrinking defense budget. However, we can expect things at the segment to turn around going forward as the aforementioned factors begin to reverse.

As the global GDP began to decline, corporations across the world saw revenues fall. Consequently, the business jet market witnessed a signficant slowdown. This has adversely hit the company’s order tally. Furthermore, the continuously shrinking defense budget has hurt defense revenues in the recent past.

Business is expected 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.

That said, oil prices are seeing a reversal, and we can expect commercial and business jet orders to increase in the coming quarters. Additionally, Trump has, throughout his campaign, vowed to increase the size of the army while modernising the Air Force and Navy fleets. Such conditions would provide the company a perfect environment to push the aerospace segment to new heights.

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