Honeywell Q4 Earnings: Despite Lowered Guidance, Honeywell Will Persevere

+10.01%
Upside
205
Market
226
Trefis
HON: Honeywell logo
HON
Honeywell

Honeywell International reported its earnings last Friday. Despite a challenging macroeconomic environment, the company has managed to record a comparatively modest quarter. While the earnings were in line with the consensus estimates, revenues fell short significantly due to the weak performance at Aerospace. Organic growth at the conglomerate was down 1% year over year on the back of the spin-off of Resins and Chemicals in Performance Materials and Technologies and the divesture of the Aerospace government services business. However, the decline was partially offset by the acquisitions of Elster and Intelligrated.

Screen Shot 2017-01-31 at 7.26.56 PM

Sales over the second half of the year were lighter than expected. This forced Honeywell to lower its overall revenue outlook for 2017 by almost 1.5% at the midpoint of its guidance range. Despite this, Honeywell’s stock remained steady, occasionally trading up throughout Friday morning. In fact, the company has missed the revenue consensus estimates 18 times in the last decade, but only 10 of those resulted in a stock price drop.

Relevant Articles
  1. Should You Pick Honeywell Stock After A 5% Fall This Year?
  2. Will Honeywell Stock See Higher Levels After A 15% Fall This Year?
  3. Which Is A Better Pick – Honeywell Stock Or Travelers?
  4. Which Is A Better Pick – Honeywell Stock Or Amgen?
  5. Which Is A Better Pick – Honeywell Or 3M Stock?
  6. Semiconductor Fab Equipment Companies, Like Lam Research, Are Outperforming. Will The Gains Continue?

Key Highlights

  • In the recent quarters, the business jet market has remained soft on the back of slowing GDP growth rates worldwide and a weak oil market. Since these factors have a direct impact on corporate profit growth, which has suffered in many sectors so far, business and commercial jet orders has slowed this year. This has hurt revenues at Aerospace. The segment recorded a significant decline of about 5% year over year in sales this time around. A reecocery in the oil prices is bound to push revenues up in the long term.  However, near term, things will remain stagnant.

  • The UOP sement continued its momentum this quarter, growing sales by almost 10%. Furthermore, it ended the year with two additional licensing agreements secured in the last quarter with China. This is the ninth such MTO (Methanal-To-Olefins) license. The segment licensed its Unicracking technology used in the production of diesel and naphtha. Furthermore, it licensed its Methanal-To-Olefins technology that aids in the process of making plastics. Considering the immense demand for transportation fuels in China, these deals are bound to drive the segment’s top line going forward, positioning itself well for future growth.
  • Within the year, the company undertook many notable portfolio actions that could to deliver attractive future returns to shareholders. Firstly, the spinoff of Honeywell’s Resins and Chemicals business reduces cyclicality. Furthermore, the move is expected to improve the margins at the Performance Materials and Technology business. Secondly, the company has sold off its Aerospace government services business and has reinvested $175 million of the cash procured into enhancing restructuring projects. Third, the conglomerate split the previously known Automation and Control Solutions business into two smaller reporting segments that will deliver better growth, speed and productivity.

The updated outlook figures are not as bad as one would expect actually. And the fact that the company was forced to reduce guidance should come as no surprise considering the slump in the commodity prices and global growth, like most other industrials. Revenues are expected to remain flat going into 2017.

That said, Honeywell is well on track to increase profits for the seventh year in a row. Honeywell is targeting segment operating margins of 17.9% to 18.2% this year, versus a July forecast for 18.9% to 19.3%.

View Interactive Institutional Research (Powered by Trefis):
Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap
More Trefis Research