Earnings Preview: Honeywell Intl. - Analyst Blog

Honeywell International Inc. (HON) is slated to release its third-quarter 2011 results on Friday, October 21, 2011. The current Zacks Consensus Estimate for third-quarter earnings per share (EPS) is 99 cents, representing an annualized growth of 55.21%.  

Honeywell had outperformed the Zacks Consensus Estimate over the trailing four quarters with an average positive surprise of 77.03%.

Second Quarter Highlights

Honeywell International Inc. reported second-quarter 2011 earnings per share from continuing operations of $1.00, above the Zacks Consensus Estimate of 98 cents and prior-year earnings of 71 cents.

Total revenue was $9.1 billion, below the Zacks Consensus Estimate of $9.2 billion for the quarter and above $7.9 billion in the prior-year quarter. Revenue excludes $234 million from its discontinued Consumer Products Group (CPG) operations in 2011 and $235 million in 2010. Organically, total revenue was up 8% year over year, driven by growth of new products, emerging-region growth and strong end-markets. Honeywell witnesses continued momentum across its portfolio.

Agreement of Estimate Revisions  

In the last 30 days, out of the analysts providing estimates for the stock, two decreased their estimates for the third quarter and for 2011 while three decreased their estimate for 2012. One analyst has increased its estimate for 2012.

For the third quarter, none of the analysts changed their estimate in the last 7 days while one decreased for 2011 and one has increased for 2012.

Magnitude of Estimate Revisions  

In last 30 days, the earnings estimate for 2011 increased from $3.95 to $3.97 and for 2012 decreased from $4.44 to $4.39. The estimate for the third quarter increased from 98 cents to 99 cents per share in the last 30 days.

In the last 7 days, the earnings estimate for 2011 declined from $3.98 to $3.97 and for 2012 was unchanged. The estimate for the first quarter has been stable at 99 cents per share in the last 7 days.

Our Take  

Honeywell’s short-cycle businesses as well as its commercial aerospace spares and residential and commercial retrofit businesses are performing impressively well and are expected to support the company's future growth outlook. In second-quarter 2011, aerospace's commercial aftermarket continued to see a robust recovery, with spares up 30-plus percent and R&O significantly outpacing flight hours. Longer-cycle businesses including Process Solutions and UOP also witnessed double-digit growth in the quarter.

Improving end markets, growth from new products, high-growth regions and good return from acquisitions are facilitating Honeywell to deliver solid performance. However, material price inflation negatively affects segments operating profit and is a matter of concern. High R&D cost together with the BGA OE payments declined Aerospace profit in the second quarter. Major competitors of Honeywell are BorgWarner Inc. (BWA), United Technologies Corp. (UTX) and Johnson Controls Inc. (JCI).

Overall, we believe Honeywell is all set to deliver good financial results in the third quarter of 2011. We currently maintain our Neutral recommendation on the stock, with a Zacks #3 Rank (Hold recommendation) over the next one to three months.

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