Honeywell Earnings Beat Expectations Again. Why Its Stock Is Dropping.

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Updated July 23, 2021 1:21 p.m. ET / Original July 23, 2021 6:30 americium ET

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Signage astatine the Honeywell Quantum Computer Lab successful Broomfield, Colorado

David Williams/Bloomberg

Honeywell International reported better-than-expected second-quarter earnings, portion raising full-year net guidance. It wasn’t bully capable to support the banal from falling. Don’t forget, investors ever expect coagulated results.

Honeywell (ticker: HON) banal has fallen 2.5% to $227.03 successful midday trading Friday aft reporting net of $2.02 a stock from $8.8 cardinal successful sales. Wall Street was looking for $1.94 a stock and income of $8.6 billion.

Management besides raised its full-year earnings guidance from a scope with a midpoint of $7.88 a stock to 1 astatine $8.03 a share. The 15-cent boost is larger than the 2nd quarter’s 8-cent net beat. Investors similar to spot expanding guidance, and they truly similar it erstwhile guidance goes up much than the existent quarterly outperformance. It shows the concern situation is inactive getting better.

The scope of income forecasts for the afloat twelvemonth 2021 went from a midpoint of $34.4 cardinal to $34.9 billion.

The results are bully quality for Honeywell stockholders. They are besides bully quality for each investors looking for grounds the planetary system is inactive improving.

Overall, operating nett margins roseate by astir 2 percent points to much than 20%. In the 2nd quarter, aerospace income grew 9% twelvemonth implicit year. Energy-related income were up 15% twelvemonth implicit year. The institution besides accrued income successful its commercialized buildings-related business, arsenic good arsenic its productivity-related operations. The 4th appears to cheque each the boxes.

“Our results were driven by top-line maturation and borderline enlargement successful each 4 segments,” said CEO Darius Adamczyk successful the company’s caller release. “We are particularly pleased to spot a turnaround successful respective of our cardinal extremity marketsthat were hardest deed by the pandemic, with commercialized aerospace aftermarket and the [energy] concern returning to maturation successful the quarter.”

Aerospace was deed peculiarly hard by Covid-19. Solid results from Honeywell bode good for upcoming results from different ample aerospace suppliers specified arsenic Raytheon Technologies (RTX) and General Electric (GE). Shares of some those companies were up Friday, though the gains failed to support gait with the broader market. Raytheon banal was up astir 0.1% and GE banal gained 0.2%. The S&P 500, for comparison, roseate astir 0.8%.

Why the lukewarm absorption to the large earnings? For one, Honeywell banal deed a caller 52-week precocious connected Thursday, conscionable earlier the results. An unenthusiastic absorption to a bushed is really reasonably common. Coming into Friday’s report, the institution had earned much than expected for 16 consecutive quarters, according to Bloomberg, but its banal dropped six of those times.

More than fractional of the companies reporting quarterly net study much than analysts expect. But the mean absorption to net reports is simply a driblet of astir 0.5%. Investors ever expect bully news.

For the year, Honeywell banal is up astir 7%, portion the S&P 500 is up 17% and the Dow Jones Industrial Average has gained 15%.

Wall Street analysts seemed pleased with the numbers connected a conference call held to sermon the results. Conversation chiefly focused connected nett margins and the imaginable for maturation successful coming quarters.

Write to allen.root@dowjones.com

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