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Honeywell International
posted better-than-expected second-quarter earnings, while raising its full-year earnings forecast. It was not good enough to keep the stock from falling. Remember, investors always expect strong results.
Honeywell stock (ticker: HON) fell 2.5% to $ 227.03 at noon on Friday after reporting earnings of $ 2.02 per share on $ 8.8 billion in sales. Wall Street was looking for $ 1.94 per share and sales of $ 8.6 billion.
Management also raised its full-year earnings guidance from a range with a midpoint of $ 7.88 per share to one at $ 8.03 per share. The 15-cent increase is larger than the 8-cent second-quarter profit. Investors like to see growing forecasts, and they really like the forecast to rise more than the current quarterly outperformance. This shows that the business environment is still improving.
The range of sales forecasts for the full year of 2021 has fallen from a midpoint of $ 34.4 billion to $ 34.9 billion.
The results are good news for Honeywell shareholders. This is also good news for all investors looking for evidence that the global economy continues to improve.
Overall, operating margins increased by almost 2 percentage points to over 20%. In the second quarter, aerospace sales increased 9% year-on-year. Energy-related sales increased 15% year-on-year. The company also increased its sales in its commercial buildings business, as well as its productivity business. The quarter appears to check all the boxes.
“Our results were driven by revenue growth and expansion of margins in all four segments,” CEO Darius Adamczyk said in the company’s new statement. “We are particularly pleased to see a turnaround in several of our key end markets that have been hit hardest by the pandemic, with the commercial aerospace aftermarket and the [energy] activity returned to growth during the quarter.
The aerospace industry has been particularly affected by the Covid-19. Honeywell’s strong results bode well for the future results of other major aerospace suppliers such as
Raytheon Technologies
(RTX) and
General Electric
(GE). Shares of these two companies were higher on Friday, although the gains did not keep pace with the broader market. Raytheon stock rose about 0.1% and GE stock gained 0.2%. The S&P 500, for comparison, rose about 0.8%.
Why the lukewarm reaction to the big gains? For one thing, Honeywell stock hit a new 52-week high on Thursday, just ahead of results. An unenthusiastic reaction to a pace is actually quite common. Going into Friday’s report, the company has gained more than expected for 16 consecutive quarters, according to Bloomberg, but its shares have fallen six times.
More than half of companies reporting quarterly profits report more than analysts expect. But the average reaction to earnings reports is about a 0.5% drop. Investors are still waiting for good news.
For the year, Honeywell stock is up about 7%, while the
S&P 500
is up 17% and the
Dow Jones Industrial Average
gained 15%.
Wall Street analysts appeared happy with the numbers during a conference call to discuss the results. The conversation focused mainly on profit margins and growth potential over the next few quarters.
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