What's In Store For Honeywell (HON) This Earnings Season?

Industrial goods manufacturer Honeywell International Inc. (NYSE:HON) is scheduled to report second-quarter 2017 results before the opening bell on Jul 21. In the last reported quarter, the company’s adjusted earnings comfortably beat the Zacks Consensus Estimate by 4 cents. Over the trailing four quarters, the company delivered an average positive earnings surprise of 2%, beating estimates on three occasions. Let’s see how things are shaping up for this announcement.

Key Factors in the Second Quarter

During the quarter, Honeywell pledged its support yet again for eco-friendly products with the announcement of the start of commercial operations in its new manufacturing plant in Geismar, LA. The facility will manufacture HFO-1234yf, sold commercially as Solstice yf, to meet the increasing demand for this environment friendly air conditioning refrigerant for the auto industry. Honeywell has invested significantly to build this state-of-the-art manufacturing facility in Louisiana, which is likely to become the world’s largest producer of Solstice yf. In the process, the company also created several jobs in the area to boost the economic development of the region. With a ramp up in production, 40 million cars are expected to use Solstice yf by the end of 2017, up from its present tally of 20 million. Higher adoption of this refrigerant across the globe is expected to reduce greenhouse gas emissions produced by over 30 million cars. With such state-of-the-art products, Honeywell aims to gain a competitive edge over its rivals and augment its revenues.

Also, the company inked a definitive agreement to acquire Nextnine, a privately held security management solutions provider for industrial cyber security, for an undisclosed amount. The transaction is likely to augment Honeywell’s cyber security portfolio with complementary products and services. Nextnine’s comprehensive portfolio will also be utilized in Honeywell Connected Plant that facilitates connected plant operations to improve plant availability, safety and reliability quotients.

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 revenues to be down 1% to up 2% year over year.

Although the company’s proactive restructuring initiatives have positioned it better than many of its peers, it is yet to witness signs of stabilization in a number of its major end markets. A change in the U.S. government’s defense and aerospace funding could also adversely impact sales of Aerospace’s defense and space-related products and services. The high research and development costs could also be a drag on the Aerospace segment margin and affect its profitability.

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Earnings Whispers

Our proven model does not conclusively show that Honeywell is likely to beat earnings this quarter as it does not possess the key components. A stock needs to have both a positive Original post

Written By: Zacks Investment Research