A month has gone by since the last earnings report for Honeywell (HON). Shares have lost about 4.3% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Honeywell due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Honeywell Beats on Q3 Earnings, Lowers 2018 EPS View
Honeywell International reported better-than-expected results for third-quarter 2018.
Earnings & Revenues
Adjusted earnings in the reported quarter were $2.03 per share, outpacing the Zacks Consensus Estimate of $1.99. The bottom line also improved 16.7% year over year. This upside primarily stemmed from the company's stellar operational performance during the reported quarter.
Revenues of $10,762 million in the third quarter surpassed the Zacks Consensus Estimate of $10,731 million. The top line also grew 6.3% year over year. Top-line numbers improved 7% organically on the back of stronger sales generated from the company's Aerospace, and Safety and Productivity Solutions businesses.
Revenues in the Aerospace segment were $4,030 million, up 10% year over year. The top-line performance of the Home and Building Technologies segment improved 2% year over year to $2,517 million. Performance Materials and Technologies segment's revenues in the third quarter were $2,640 million, up 3% year over year. Safety and
Productivity Solutions revenues improved 11% year over year to $1,575 million.
The company's total cost of sales in the reported quarter was $7,556 million, up 7.1% year over year. Selling, general and administrative expenses remained flat year over year at $1,524 million. Interest expenses and other financial charges were $99 million compared with $81 million witnessed in the comparable period last year.
Operating income margin in the third quarter was 15.6%, up 40 basis points year over year.
Balance Sheet/Cash Flow
Exiting the quarter, Honeywell had cash and cash equivalents of $9,803 million, higher than $7,059 million recorded as of Dec 31, 2017. Long-term debt was $14,059 million, higher than $12,573 million recorded at the end of 2017.
During the reported quarter, the company generated $1,887 million cash from operating activities, higher than $1,407 million recorded in the year-ago period. Capital expenditure in the July-September quarter was $183 million, lower than $212 million incurred in the year-earlier quarter.
Adjusted free cash flow in the reported quarter was $1,809 million, up 51% year over year.
During the reported quarter, Honeywell repurchased common stock worth $300 million. The company also increased its dividend by 10% - marking the ninth double-digit hike since 2010.
Honeywell lowered its earnings view for 2018 from $8.10-$8.20 per share to $7.95-$8.00. The outlook is revised after considering the impact of 27 cents per share of net earnings dilution from the separation of Garrett Motion Inc. and Resideo Technologies, Inc. Garrett started operating as a stand-alone company from Oct 1. Resideo spin-off is anticipated to be closed by Oct 29.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -10.28% due to these changes.
Currently, Honeywell has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Honeywell has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.