Honeywell’s (HON) Q4 Earnings and Revenues Beat Estimates

Honeywell International Inc. HON reported better-than-expected fourth-quarter 2018 results.

Earnings & Revenues

Adjusted earnings for the quarter were $1.91 per share, outpacing the Zacks Consensus Estimate of $1.88. The bottom line also improved 3.2% year over year. This upside primarily stemmed from the company’s stellar operational performance during the quarter.

Notably, Honeywell reported adjusted earnings of $8.01 for 2018, an increase of 12% from the prior year.

Revenues of $9,729 million for the fourth quarter surpassed the consensus estimate of $9,691 million. Notably, the top line declined 10.3% year over year. The fall was primarily attributable to impact of spin-offs of some of the company’s businesses in 2018. However, the top line improved 6% organically on the back of strength in its long-cycle businesses in U.S. defense, commercial aerospace as well as warehouse automation.

For 2018, the company reported total revenues of $41,802 million compared with $40,534 million in the previous year.

Segmental Break-Up

Revenues for Aerospace were $3,428 million, down 12% year over year. Honeywell Building Technologies revenues declined 31% to $1,802 million. Performance Materials and Technologies revenues were $2,802 million, down 1.8%. Safety and Productivity Solutions revenues improved 15.3% to $1,697 million.

Costs/Margins

The company’s total cost of sales in the reported quarter was $6,685 million, down 11.3% year over year. Selling, general and administrative expenses declined 9.5% to $1,524 million. Interest expenses and other financial charges were $90 million compared with $81 million a year ago.

Operating income margin for the fourth quarter was 15.6%, up 70 basis points year over year.

Balance Sheet/Cash Flow

Exiting 2018, Honeywell had cash and cash equivalents of $9,287 million, higher than $7,059 million as of Dec 31, 2017. Long-term debt was $9,756 million, lower than $12,573 million recorded at the end of 2017.

During the reported quarter, the company generated $1,559 million cash from operating activities, lower than $2,172 million reported a year ago. Capital expenditure in the September-December quarter was $306 million, lower than $418 million incurred in the year-earlier quarter.

Adjusted free cash flow was $1,486 million, down 15.3%.

Guidance

Honeywell is poised to augment its near-term revenues and profitability on the back of robust end-market demand. This company believes that solid demand for innovative technology solutions will continue to drive its segmental revenues in the quarters ahead. Stronger sales volumes, increased productivity and ongoing commercial effectiveness actions are likely to boost near-term profitability.

Backed by these positives, the company has given bullish full-year 2019 earnings guidance. Earnings are currently anticipated to lie within the $7.80-$8.10 per share range. Additionally, the company has given revenue guidance for 2019 between $36 billion and $36.9 billion (estimating organic growth of 2-5% year over year).

Zacks Rank & Key Picks

Honeywell currently carries a Zacks Rank #3(Hold).

Some better-ranked stocks in the same space are Hitachi Ltd. HTHIY, Carlisle Companies Incorporated CSL and HC2 Holdings, Inc. HCHC. While Hitachi sports a Zacks Rank #1 (Strong Buy), Carlisle and HC2 Holdings carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Hitachi delivered average earnings surprise of 55.51% in the trailing four quarters.

Carlisle pulled off average positive earnings surprise of 11.90% in the trailing four quarters.

HC2 Holdings outpaced estimates in the last reported quarter by 111.90%.

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