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Honeywell (HON) Beats on Q3 Earnings, Revenues Down Y/Y

Honeywell International IncHON reported third-quarter 2015 net income of $1,264 million or $1.60 per share, compared with $1,167 million or $1.47 per share in the year-ago quarter. The uptick in earnings was driven by improved cost management and margins.

Adjusted earnings per share stood at $1.57 in the reported quarter versus $1.43 in the year-ago quarter. The adjusted earnings beat the Zacks Consensus Estimate of $1.55.

Revenues

Revenues in third-quarter 2015 decreased 5% year over year to $9,611 million. Reported revenues missed the Zacks Consensus Estimate of $9,884 million. The decrease in revenues was due to the unfavorable foreign currency impact and divestiture of Friction Material. However, during the reported quarter, Honeywell delivered 1% core organic sales growth.

Operating margins were up 210 bps year over year to 18.3% in the reported quarter.

Segment Performance

Aerospace segment sales were down 2% year over year to $3,820 million in the reported quarter. Revenues were down due to unfavorable impact of foreign exchange and the Friction Materials divestiture. However, sales were up on an organic basis driven by strong Business and General Aviation (BGA) engine shipments, growth in repair and overhaul activities and new platform launches.

Segment profit was up 5% year over year to $833 million, while margins expanded 150 bps year over year to 21.8%. The increase in profit was driven by commercial excellence.

Automation and Control Solutions segment sales inched down 3% year over year to $3,571 million in the reported quarter. The fall was triggered by the unfavorable impact of foreign exchange. However, sales were up on an organic basis, driven by continued growth in Security and Fire (HSF) and Sensing & Productivity Solutions (S&PS).

Moreover, segment profit rose 5% to $614 million; while margins were up 130 bps year over year to 17.2%. Growth in profits was attributable to higher volumes, partially offset by continued investments for growth.

Performance Materials and Technologies segment sales were down 13% year over year to $2,220 million in the reported quarter, led by adverse impact of foreign exchange and raw materials pricing in Resins & Chemicals. Sales were down on an organic basis driven by lower equipment and licensing sales.

Segment profit increased 4% to $461 million, driven by commercial excellence, and the favorable impact of raw materials pricing in Resins & Chemicals, partially offset by continued investments for growth. Margins rose 330 bps year over year to 20.8%.

Balance Sheet and Cash Flow

Cash and cash equivalents as of Sep 30, 2015 were $6,563 million versus $6,959 million as of Dec, 31, 2014. Long-term debt as of Sep 30, 2015 stood at $5,599 million versus $6,046 million as of Dec 31, 2014. Net cash provided by operating activities for three months ended Sep 30, 2015 was $1,666 million, compared with $1,233 million in the prior-year period. Free cash flow was $1,389 million as of Sep 30, 2015, compared with $974 million in the prior-year period.

Acquisition

On Jul 28, 2015, Honeywell signed an agreement to acquire the Elster Division of Melrose Industries plc - a leading provider of thermal gas solutions for approximately $5.1 billion. The acquisition is expected to close in the first quarter of 2016. On closing, Elster will be integrated into Automation and Control Solutions segment.

Outlook

Honeywell revised its full-year 2015 guidance. The company expects sales in the range of $38.7 billion down from the previous range of $39.0-$39.6 billion. The company expects it's earning per share guidance to be at $6.10, representing full-year earnings growth of approximately 10% versus the prior guidance of $6.05-$6.15. Operating margin is expected in the range of 17.9%, up from the prior guidance of 17.5%-17.7%. Free cash flow is expected within $4.2-$4.3 billion.

Going forward, Honeywell intends to continue investing in new products and technologies, and increase its footprint in high-growth markets. Looking ahead in 2016, the company expects continuous margin expansion and earnings outperformance driven by its balanced portfolio and over $300 million of funded restructuring.

Honeywell currently has a Zacks Rank #3 (Hold). Other favorably-ranked stocks that currently look promising in the industry include Danaher Corp. DHR , Barnes Group Inc. B) and Graham Corp. GHM , each carrying a Zacks Rank #2 (Buy).

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HONEYWELL INTL (HON): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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