Honeywell (HON) to Report Q1 Earnings: What's in the Cards?

Honeywell International Inc. HON is scheduled to report first-quarter 2019 results on Apr 18, before the opening bell.

The company delivered average positive earnings surprise of 3.06% in the trailing four quarters, beating estimates all through. Notably, Honeywell’s fourth-quarter adjusted earnings of $1.91 per share surpassed the Zacks Consensus Estimate of $1.88 by 1.60%.

In the past three months, the company’s shares have gained 15.8% compared with the industry’s rise of 15.4%.

Let’s see how things are shaping up for this announcement.

Factors to Influence Q1 Results

Honeywell anticipates gaining from strength in its end markets. The company expects robust demand environment in commercial aerospace business to boost Aerospace segment’s first-quarter revenues. Also, strength in the defense and space businesses on account of strong global demand for sensors, guidance systems, spares volumes and new satellite program wins is likely to boost the segment’s performance. The Zacks Consensus Estimate for first-quarter revenues from the Aerospace segment is currently pegged at $3,262 million, lower than $3,546 million reported a year ago.

For the Performance Materials and Technologies segment, strength in the company's process solutions business backed by sturdier demand in its software maintenance and migration services, is likely to be a tailwind. Notably, the Zacks Consensus Estimate for the segment's first-quarter revenues is currently pegged at $2,549 million, higher than $2,353 million reported a year ago.

Solid demand for commercial fire products and new product launches are also likely to boost top-line performance of the Honeywell Building Technologies segment in the quarter.  In addition, strength in the company’s sensing business and productivity products business backed by sturdier demand for Android-based mobility product offerings are likely to drive the revenues of Safety and Productivity Solutions segment. Moreover, Honeywell expects greater operational excellence and corporate tax benefits to be conducive to its profitability.

In addition, the acquired business of Transnorm (November 2018), which is part of Safety and Productivity Solutions segment, has strengthened its warehouse automation portfolio. It has positioned Honeywell to benefit from the growing European e-commerce market apart from broadening its connected distribution center and aftermarket offerings.

However, the company is currently dealing with rising costs of sales. Notably, in 2018, the company's cost of sales increased 5.3% year over year. Also, its gross margin for the year was down 140 basis points. Honeywell is currently experiencing inflation in a number of areas like material and labor. Also, high R&D costs could also be a drag on the Aerospace segment's profitability. As a matter of fact, escalating costs might dent Honeywell's profitability in the quarters ahead.

The company’s interest expenses and other financial expenses rose 16.1% in 2018 on a year-over- year basis. We believe, if unchecked, high-debt levels can increase its financial obligations and prove detrimental to its profitability.

Earnings Whispers

Our proven model provides some idea on the stocks that are about to release their earnings results. Per the model, a stock needs to have a combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy), or at least 3 (Hold) for a likely earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

That is not the case here as we will see below.

Earnings ESPHoneywell has an Earnings ESP of 0.00%, as both the Most Accurate Estimate and the Zacks Consensus Estimate are pegged at $1.83.

Honeywell International Inc. Price and EPS Surprise

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

Zacks Rank: The company carries a Zacks Rank of 3, which increases the predictive power of ESP. However, its 0.00% ESP makes surprise prediction difficult.

It should be noted that we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Key Picks

Here are some companies from the same space you may want to consider as our model shows that these have the right combination of elements to beat estimates this earnings season:

Unifirst Corporation UNF has an Earnings ESP of +0.69% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Chart Industries, Inc. GTLS has an Earnings ESP of +8.66% and a Zacks Rank #2.

Colfax Corporation CFX has an Earnings ESP of +1.25% and a Zacks Rank #3.

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Honeywell International Inc. (HON): Free Stock Analysis Report

Unifirst Corporation (UNF): Free Stock Analysis Report

Colfax Corporation (CFX): Free Stock Analysis Report

Chart Industries, Inc. (GTLS): 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.

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