Industrial goods manufacturer Honeywell International Inc. HON is scheduled to report its first-quarter 2015 results before the opening bell on Apr 17. In the last reported quarter, quarterly earnings beat the Zacks Consensus Estimate by a penny. Let’s see how things are shaping up for this announcement.
Key Factors in the First Quarter
Honeywell continues to launch products and technologies in order to drive organic growth and expand its business in new geographical regions. The company’s diligent focus on working capital management, free cash flow generation and a conservative balance sheet remain key positive attributes. With a flexible yet disciplined focus on cost and productivity, Honeywell remains positive and expects organic sales growth acceleration throughout the year.
The company’s balanced mix of long- and short-cycle businesses has the potential to earn consistent above-average returns and mitigate operating risks. The outlook for the U.S. economy continues to improve and the company is expecting a positive trend in its U.S. businesses and at the same time remains focused on increasing its presence in high-growth regions. Population growth, urbanization and infrastructure development continue to create attractive opportunities across its entire portfolio. Investments and sales and marketing resources are targeted to the higher growth cities in China where local economies are growing at a faster pace. In China, Honeywell expects high single digit growth in 2015. Additionally, the company is building a robust pipeline of new products in air purification, energy efficiency, and security. All these factors bode well for accelerated growth for Honeywell in China in 2015. Also Honeywell expects to realize synergies from integration of the Datamax-O'Neil acquisition going forward.
For full-year 2015, Honeywell expects organic sales growth of 4% year over year to $40.5 billion–$41.1 billion. Operating margin is expected to be in the range of 16.7%–17.0%, leading to high single digit to double-digit earnings growth of 8%–12% to $5.95–$6.15 per share. This in turn will enable the company to pursue strategic mergers and acquisitions, engage in opportunistic share buybacks and maintain competitive dividends.
Earnings Whispers
Although the company’s proactive restructuring initiatives have positioned it to navigate better than many of its peers, it is yet to witness signs of stabilization in a number of its major end markets. Furthermore, our proven model does not conclusively show that Honeywell is likely to beat earnings this quarter as it lacks the key ingredients for a success recipe.
Zacks ESP: Expected Surprise Prediction or Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is currently pegged at 0.00%. This indicates likely in-line earnings for the shares.
Zacks Rank: Honeywell’s Zacks Rank #3 (Hold) when combined with 0.00% ESP reduces the predictive power of ESP. Note that stocks with a Zacks Ranks of #1 (Strong Buy), #2 (Buy) and #3 have a significantly higher chance of beating earnings. The Sell rated stocks (#4 and #5) should never be considered going into an earnings announcement.
Other Stocks to Consider
Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:
Broadcom Corp. BRCM, earnings ESP of +5.00% and Zacks Rank #1.
Popular, Inc. BPOP, earnings ESP of +9.86% and Zacks Rank #1.
Huntington Ingalls Industries, Inc. HII, earnings ESP of +2.91% and Zacks Rank #1.
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