Earnings Preview: Higher expenses to weigh on Honeywell’s Q3

Honeywell International Inc. (HON) is scheduled to report earnings results for the third quarter of 2018 on Friday, October 19. Analysts expect the company to report revenues of $10.74 billion, reflecting an increase of 6.1% year-over-year. Earnings are expected to grow 13.7% year-over-year to $1.99 per share.

In the second quarter of 2018, Honeywell beat market expectations on revenues and earnings. Revenues rose 8% to $10.9 billion while adjusted EPS climbed 18% to $2.12 on a year-over-year basis.

The company has topped earnings expectations consistently over the past four quarters and can be expected to do the same for the third quarter too. The sales momentum and strategic investments are expected to boost the growth of the business. However, higher expenses pose a hurdle to growth with the rise in material prices likely to hurt profits in the near future.

Honeywell posts 8% growth in Q2 sales

Earlier this month, Honeywell completed the spinoff of its Transportation Systems business into the standalone entity named Garrett Motion Inc. The spin-off of the company’s Homes product portfolio and ADI Global Distribution businesses into a standalone company named Resideo is expected to be completed by the end of 2018.

Honeywell acquired Ortloff Engineers, Ltd., a developer of natural gas processing and sulfur recovery technologies, in August for undisclosed terms. The company also agreed to acquire German warehouse automation business Transnorm for about EUR425 million earlier this month with the deal expected to close in November.

Updates on the spinoffs and acquisitions are noteworthy points to look out for in the third quarter results announcement.

Honeywell has guided for full-year 2018 sales of $43.1 billion to $43.6 billion. In August, Honeywell increased its adjusted EPS guidance for full-year 2018 to a range of $8.10 to $8.20 and in September the company announced that it plans to increase its annual cash dividend by 10% effective in the fourth quarter of 2018.

Honeywell’s shares are up 3% so far this year and looking at the past three months, the stock is up over 7%. If the company beats estimates, the stock is likely to get a lift. The general sentiment surrounding the results appears to be positive.