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

2 months ago 19
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Updated July 23, 2021 9:00 am ET / Original July 23, 2021 6:30 am ET

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Signage at the Honeywell Quantum Computer Lab in Broomfield, Colorado

David Williams/Bloomberg

Honeywell International reported better-than-expected second-quarter earnings, while raising full-year earnings guidance. It wasn’t good enough to keep the stock from falling. Don’t forget, investors always expect solid results.

Honeywell (ticker: HON) stock has fallen 1.8% to $228.61 after reporting earnings of $2.02 a share from $8.8 billion in sales. Wall Street was looking for $1.94 a share on sales of $8.6 billion.

Management raised full-year earnings guidance from a midpoint of $7.88 a share to $8.03 a share. The 15 cent boost is larger than the second quarter’s 8 cent earnings beat. Investors like to see increasing guidance, and they really like it when guidance goes up more than the current quarterly beat. It shows the business environment is still getting better.

Sales guidance, for the full year 2021, went from a midpoint of $34.4 billion to $34.9 billion.

The results are good news for Honeywell stockholders. They are also good news for all investors looking for evidence the global economy is still improving.

Overall, operating profit margins rose by almost 2 percentage points to more than 20%. In the second quarter, aerospace sales grew 9% year over year. Energy-related sales were up 15% year over year. The company also grew sales in its commercial buildings-related business as well as its productivity-related businesses. The quarter appears to check all the boxes.

“Our results were driven by top-line growth and margin expansion in all four segments,” said CEO Darius Adamczyk in the company’s new release. “We are especially pleased to see a turnaround in several of our key end marketsthat were hardest hit by the pandemic, with commercial aerospace aftermarket and the [energy] business returning to growth in the quarter.”

Aerospace was hit particularly hard by Covid-19. Solid results from Honeywell bode well for upcoming results from other large aerospace suppliers such as Raytheon Technologies (RTX) and General Electric (GE).

Why the lukewarm reaction to the great earnings? For one, Honeywell stock hit a new 52-week high on Thursday, just before the print. And a lukewarm reaction to a beat is actually fairly common. Coming into Friday’s report the company has beaten earnings for 16 consecutive quarters, according to Bloomberg, but its stock has dropped six of those times.

That’s not unusual, even for other companies. More than half of the companies reporting quarterly earnings “beat” analyst estimates. But the average reaction to earnings reports is a drop of roughly 0.5%. Investors always expect good news.

For the year, Honeywell stock is up about 9%, a little behind the comparable, respective 16% and 14% respective gains of the S&P 500 and Dow Jones Industrial Average.

The company will host a conference call at 8:30 a.m. eastern time to discuss results. Investors, happy with the current quarter, will want to hear more about the durability of the global economic recovery.

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