Honeywell Earnings Beat Expectations Again. Why Its Stock Is Dropping.
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 2.5% to $227.03 in midday trading Friday after reporting earnings of $2.02 a share from $8.8 billion in sales. Wall Street was looking for $1.94 a share and sales of $8.6 billion.
Management also raised its full-year earnings guidance from a range with a midpoint of $7.88 a share to one at $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 outperformance. It shows the business environment is still getting better.
The range of sales forecasts 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 increased sales in its commercial buildings-related business, as well as its productivity-related operations. 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
(GE). Shares of both those companies were up Friday, though the gains failed to keep pace with the broader market. Raytheon stock was up 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 great earnings? For one, Honeywell stock hit a new 52-week high on Thursday, just before the results. An unenthusiastic reaction to a beat is actually fairly common. Coming into Friday’s report, the company had earned more than expected for 16 consecutive quarters, according to Bloomberg, but its stock dropped six of those times.
More than half of the companies reporting quarterly earnings report more than analysts expect. But the average reaction to earnings reports is a drop of roughly 0.5%. Investors always expect good news.
Wall Street analysts seemed pleased with the numbers on a conference call held to discuss the results. Conversation mainly focused on profit margins and the potential for growth in coming quarters.
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