Signage outside the Honeywell Quantum Computer Lab in Broomfield, Colorado
David Williams/Bloomberg
Honeywell International’s third-quarter earnings were fine, but the company cut its full-year 2021 guidance because inflation is running hot.
Honeywell (ticker: HON) earned $2.02 in adjusted per-share earnings from $8.5 billion in sales. Wall Street was looking for $1.99 a share and $8.7 billion in sales.
A year ago, Honeywell earned $1.57 in per-share earnings from $8 billion in sales. And in the second quarter of 2021, Honeywell produced $2.02 in adjusted per-share earnings from $8.8 billion in sales.
Results look OK. RBC analyst Deane Dray called the quarter a “modest beat” in a Friday report and praised the company’s cost controls. Investors, however, will likely focus on guidance. Honeywell trimmed full-year 2021 guidance to about $8 in per-share earnings from $34.4 billion in sales. Prior guidance called for $8.03 a share from $34.9 billion in sales.
The new full-year guidance implies fourth-quarter adjusted per-share earnings of about $2.04 a share. Wall Street is projecting $2.12. Honeywell stock is flat in premarket trading.
It’s a disappointment, but the risk to the stock in the short run looks modest. The cut, for starters, is small. And demand doesn’t seem to be the problem. Instead, higher raw material costs and labor inflation get the blame, according to management.
The stock hasn’t been doing anything lately. Shares are down about 2% since the company reported second-quarter numbers on July 23. The S&P 500 and Dow Jones Industrial Average are up 3% and 2% over the same span.
Covid is one reason the stock has stagnated. Honeywell is a large aerospace supplier and a surge in infections, due to the Delta variant, has investors wondering about the pace of recovery in global air travel. Other large aerospace companies are in the same boat as Honeywell. General Electric (GE) stock is up 1% since July 23. Boeing (BA) stock has dropped 3% over the same span.
There are some positives for investors to weigh. Honeywell managed to expand profit margins, despite cost pressures from labor inflation and supply chain delays. Operating profit margins came in at 18.6% in the third quarter. Operating margins were 18.1% in the second quarter of 2021.
Management is hosting a conference call to discuss results. Investors and analysts will want to hear about the outlook for growth in 2022 and when air travel will return to pre-Covid levels.
Write to Al Root at [email protected]
