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Honeywell (HON) Posts In-Line Q4 Earnings, Reaffirms View

Despite a challenging macroeconomic environment, Honeywell International Inc.HON reported relatively modest fourth-quarter 2016 results. Quarterly adjusted earnings per share (EPS) came in at $1.74, in line with the Zacks Consensus Estimate, but up from $1.53 in the year-ago quarter.

GAAP EPS for the quarter was $1.34 per share compared with $1.54 in the year-ago quarter.

Fourth-quarter revenues were flat at $9,985 million, compared with $9,982 million in the year-ago quarter. However, the revenues missed the Zacks Consensus Estimate of $10,152 million. Organic revenue growth was down 1% year over year due to the spin-off of Resins and Chemicals in Performance Materials and Technologies and the divestiture of the Aerospace government services business. The decline was partially offset by acquisitions of Elster and Intelligrated.

For full-year 2016, the company reported adjusted earnings of $6.60 per share compared with prior-year's earnings of $6.10. Revenues for the full year were $39,302 million compared with $38,581 million in the prior year. The improvement in revenues was primarily attributable to the superior performance of the Home and Building Technologies and Performance Materials and Technologies segments.

Operational Details

Total segment's profit was $1,899 million compared with $1,880 million in the year-ago quarter. Overall segment profit margin slightly improved to 19.0% from 18.8% in the prior-year period, an increase of 20 basis points (bps).

Operating income (excluding pension mark-to-market adjustment and debt refinancing expense) increased to $2,012 million from $1,800 million in fourth-quarter 2015. Operating margin during the quarter was 16.2%, down 120 bps.

Segmental Performance

Aerospace sales were $3,666 million in the reported quarter, down 8% year over year. The downside was due to lower volumes in Business and General Aviation, program accomplishment of the international defense and U.S. Space businesses and weakness in commercial helicopter trade.

Home and Building Technologies sales came in at $2,800 million, up 13% year over year. The upside was driven by robust Distribution and Building Solutions businesses, double-digit growth in China and India, as well as new product introductions in Environmental and Energy Solutions.

Performance Materials and Technologies revenues were $2,228 million, down 5% year over year.

Safety and Productivity Solutions' top line was $1,291 million, up 9% year over year. This is due to restructuring benefits and commercial excellence, partially offset by lower volumes across the portfolio.

Balance Sheet and Cash Flow

Cash and cash equivalents as of Dec 31, 2016 were $7,843 million compared with $5,455 million in the year-ago period. Long-term debt was $12,182 million compared with $5,554 million in the year-ago period.

Net cash from operating activities for the three months ended Dec 31, 2016, was $2,042 million compared with $1,963 million in the prior-year period. Free cash flow was $1,696 million during the quarter compared with $1,575 million in the year ago quarter.

Guidance Reiterated

Honeywell aims to improve its revenues and margins in the upcoming quarters backed by greater business internationalization, innovation and product portfolio solidification. Based on favorable business conditions, the company reiterated its full-year earnings guidance.

However, Honeywell expects a tepid demand pattern for its business jets and mobile scanners in 2017 due to sluggish global growth, volatility in crude oil prices and a tempered Chinese economy. Consequently, the company projects 2017 earnings in the range of $6.85-$7.10 per share, while revenues are anticipated to be down 1% to up 2% year over year.

Honeywell International Inc. Price, Consensus and EPS Surprise

Honeywell International Inc. Price, Consensus and EPS Surprise | Honeywell International Inc. Quote

Zacks Rank & Stocks to Consider

Honeywell currently carries a Zacks Rank #4 (Sell).

Stocks to Consider

Some better-ranked stocks in the same space include Hitachi, Ltd. HTHIY , FactSet Research Systems Inc. FDS and Barloworld Ltd. BRRAY . All three stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 (Strong Buy)Rank stocks here .

Hitachi has a long-term earnings growth expectation of 13% and is currently trading at a forward P/E of 14.7x.

Barloworld has a long-term earnings growth expectation of 18.70% and is currently trading at a forward P/E of 11.04x.

FactSet has a long-term earnings growth expectation of 10.7% and is currently trading at a forward P/E of 23.9x.

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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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