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Honeywell (HON) Q4 Earnings to Gain From Aerospace Revenues?
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Industrial goods manufacturer, Honeywell International Inc. (HON - Free Report) is scheduled to report fourth-quarter 2017 results before the opening bell on Jan 26. The company is likely to report higher Aerospace segment revenues in the quarter owing to improved market dynamics.
Whether this will benefit the bottom line of the company remains to be seen.
Top-Line Expansion
With a flexible yet disciplined focus on cost and productivity, Honeywell aims to increase its presence in high-growth regions. The company’s balanced mix of long- and short-cycle businesses along with decent organic growth are likely to lead to improved performance in the quarter. Population growth, urbanization and infrastructure development continue to create attractive opportunities across its entire portfolio. Additionally, the company is building a robust pipeline of new products by divesting non-core operations and focusing on core businesses.
Honeywell's Aerospace segment develops innovative technologies designed to make aircraft safer and more fuel-efficient and accounts for the lion’s share of total revenues. Over the years, Honeywell has developed a rich expertise in the areas of aircraft component exchange and repairs. The company intends to leverage this strength to provide comprehensive repair and maintenance services to lower cost of ownership and increase the lifespan of aircraft components.
The airline industry is also fiercely competitive and each player in the market strives to incorporate all possible options to reduce operating costs. Fuel consumption usually accounts for 20-40% of an airline’s operating costs and even a single-digit percentage improvement can reportedly save millions for an airline company.
Amid this backdrop, the Zacks Consensus Estimate the Aerospace segment’s revenues in the to-be-reported quarter is currently pegged at $3,873 million, which is relatively higher than the year-ago tally of $3,666 million. The higher revenue expectations can be primarily attributed to an uptick in demand of Aerospace’s products and services by aircraft manufacturers, airlines and the U.S. military.
Revenues from Performance Materials and Technologies segment are likely to be $2,866 million, up from $2,228 million. Total revenues for the company are expected to be $10,689 million compared with $9,985 million in the prior-year period.
Other Key Factors
Honeywell remains susceptible to material price inflation, which in turn is expected to affect its operating profit and bottom-line growth for the fourth quarter. Further, high dependency on supply chain to scale production and adjusting delivery of long lead-time products during times of volatile demand remains matters of concern. High operating risks in one of the key ingredients of its business might reflect poorly on the upcoming quarterly results.
Given its international presence, the company often faces unfavorable foreign currency movements, impacting its top-line growth. Any slowdown in the global economy, particularly after the Brexit referendum or the manufacturing industry as a whole, will have an adverse impact on its business and would affect earnings. A geopolitical impasse due to various conflicts and disruptions may further affect its international operations in key markets. In order to fend off competition, Honeywell has to continually develop and maintain competitive products by adding innovative features that differentiate its products and prevent commoditization. These increase R&D expenditure and have often resulted in margin contraction and reduced bottom-line growth.
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 Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here as you will see below:
Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is -0.06%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Honeywell International Inc. Price and EPS Surprise
Zacks Rank: Honeywell has a Zacks Rank #3. Although this increases the predictive power of ESP, we need to have a positive ESP to make us confident of an earnings beat.
Note 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 a negative estimate revisions momentum.
Stocks to Consider
Here are some companies that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:
Apple Inc. (AAPL - Free Report) has an Earnings ESP of +0.94% and a Zacks Rank #3.
American Financial Group, Inc. (AFG - Free Report) has an Earnings ESP of +1.82% and a Zacks Rank #2.
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
Image: Bigstock
Honeywell (HON) Q4 Earnings to Gain From Aerospace Revenues?
Industrial goods manufacturer, Honeywell International Inc. (HON - Free Report) is scheduled to report fourth-quarter 2017 results before the opening bell on Jan 26. The company is likely to report higher Aerospace segment revenues in the quarter owing to improved market dynamics.
Whether this will benefit the bottom line of the company remains to be seen.
Top-Line Expansion
With a flexible yet disciplined focus on cost and productivity, Honeywell aims to increase its presence in high-growth regions. The company’s balanced mix of long- and short-cycle businesses along with decent organic growth are likely to lead to improved performance in the quarter. Population growth, urbanization and infrastructure development continue to create attractive opportunities across its entire portfolio. Additionally, the company is building a robust pipeline of new products by divesting non-core operations and focusing on core businesses.
Honeywell's Aerospace segment develops innovative technologies designed to make aircraft safer and more fuel-efficient and accounts for the lion’s share of total revenues. Over the years, Honeywell has developed a rich expertise in the areas of aircraft component exchange and repairs. The company intends to leverage this strength to provide comprehensive repair and maintenance services to lower cost of ownership and increase the lifespan of aircraft components.
The airline industry is also fiercely competitive and each player in the market strives to incorporate all possible options to reduce operating costs. Fuel consumption usually accounts for 20-40% of an airline’s operating costs and even a single-digit percentage improvement can reportedly save millions for an airline company.
Amid this backdrop, the Zacks Consensus Estimate the Aerospace segment’s revenues in the to-be-reported quarter is currently pegged at $3,873 million, which is relatively higher than the year-ago tally of $3,666 million. The higher revenue expectations can be primarily attributed to an uptick in demand of Aerospace’s products and services by aircraft manufacturers, airlines and the U.S. military.
Revenues from Performance Materials and Technologies segment are likely to be $2,866 million, up from $2,228 million. Total revenues for the company are expected to be $10,689 million compared with $9,985 million in the prior-year period.
Other Key Factors
Honeywell remains susceptible to material price inflation, which in turn is expected to affect its operating profit and bottom-line growth for the fourth quarter. Further, high dependency on supply chain to scale production and adjusting delivery of long lead-time products during times of volatile demand remains matters of concern. High operating risks in one of the key ingredients of its business might reflect poorly on the upcoming quarterly results.
Given its international presence, the company often faces unfavorable foreign currency movements, impacting its top-line growth. Any slowdown in the global economy, particularly after the Brexit referendum or the manufacturing industry as a whole, will have an adverse impact on its business and would affect earnings. A geopolitical impasse due to various conflicts and disruptions may further affect its international operations in key markets. In order to fend off competition, Honeywell has to continually develop and maintain competitive products by adding innovative features that differentiate its products and prevent commoditization. These increase R&D expenditure and have often resulted in margin contraction and reduced bottom-line growth.
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 Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here as you will see below:
Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is -0.06%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Honeywell International Inc. Price and EPS Surprise
Honeywell International Inc. Price and EPS Surprise | Honeywell International Inc. Quote
Zacks Rank: Honeywell has a Zacks Rank #3. Although this increases the predictive power of ESP, we need to have a positive ESP to make us confident of an earnings beat.
Note 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 a negative estimate revisions momentum.
Stocks to Consider
Here are some companies that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:
Apple Inc. (AAPL - Free Report) has an Earnings ESP of +0.94% and a Zacks Rank #3.
AmerisourceBergen Corporation has an Earnings ESP of +1.50% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
American Financial Group, Inc. (AFG - Free Report) has an Earnings ESP of +1.82% and a Zacks Rank #2.
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>