Honeywell International Inc. (HON, Financial) reported its first quarter earnings in which profits exceeded the street estimates by a considerable margin. However, the company reduced their sales forecast for the current year. The results were declared before the markets opened on Friday. Shares of the American conglomerate increased up to 2% at $106.14 in premarket trading Friday.
Money matters
The first quarter net income reported was $1.12 billion. In 2014, the first quarter earnings excluding pension was $1.02 billion or $1.28 per share. However, the company reported a net income of $1.12 billion, translating to $1.41 earnings per share this year for the same period. Eighteen analysts had estimated the earnings per share to be around $1.39 on an average, according to a data compiled by Bloomberg. Sales of various fire alarm products, along with gas detectors and lighting controls have increased due to a U.S. commercial construction sector rebound. Besides, there has also been an increase in demand for the software systems that control these products. Profit margin increase was observed due to productivity gains net of inflation and higher volumes along with other factors. Revenue earned for the same period however, did not meet expectations. According to 9 analysts surveyed by Zacks Investment Research, the expected revenue was $9.57 billion. However, the company reported revenue of $9.21 billion.
Though the high profits reported brought happiness for the investors and shareholders, this happiness seems to be short-lived. The company has lowered its sales estimates for the current fiscal from the previous range of $40.5 billion to $41.1 billion to a new and lower range of $39 to $39.6 billion. Analysts had estimated sales for the first quarter to be around $9.47 billion. However, sales witnessed a drop of 4.8% to $9.2 billion. Last year, the company reported sales of $9.68 billion for the same quarter. The reason for the drop in sales was the strong US dollar coupled with the huge impact of lower oil prices which pushed down the prices of resins and chemicals manufactured by Honeywell. Honeywell produces various products including home thermostats along with Garrett turbocharges.Â
Management talks
David M. Cote, the CEO of Honeywell Internationa,l said that though the company is off to a great start this year, they will continue to plan conservatively due to the evolving global economic environment. In the first quarter of 2015, the company funded additional repositioning. He said, “We’re able to raise our full-year earnings guidance and maintain our cash outlook while continuing to invest for the future in seed planting and additional repositioning because of new products and technologies, further penetration of High Growth Regions, conservative cost planning, and deployment of our key process initiatives as part of HOS Gold.” Cote further added that Honeywell is very confident that their current balanced portfolio mix will help them in delivering their 2015 commitments as well as their 2018 targets.
Investment outlook
Analysts have estimated that Honeywell will report earnings of $6.09 a share for 2015 on revenues of $40.52 billion. The New-Jersey based company expects their 2015 revenue to be around $39 billion to $39.6 billion, with earnings between $6 to $6.15 per share. Investors of Honeywell can expect their stocks to perform well in the months to come as stocks have performed well in the past few months. Since early 2015, share value has seen an increase of 4%. Last year, share value had increase 11%. Though the company has reduced their sales forecast for the year, the increase in profits should act as a catalyst and boost performance of shares.
