Monday, October 25, 2021

Honeywell Shares Plunge Despite Upbeat Earnings

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What’s happening: Shares of Honeywell International fell on Friday, although the company reported upbeat earnings for its third quarter.

What happened: Honeywell was able to expand its profit margins, despite facing several issues during the quarter.

Investor grew concerned, however, after the Charlotte, North Carolina-based company updated its outlook for the full year reflecting continuing effects of macroeconomic challenges.

How were the results: The company reported growth in sales and earnings for the third quarter, although its top-line lagged market views.

  • Quarterly sales surged 9% year-over-year to $8.47 billion but missed the Street estimates of $8.65 billion.
  • Adjusted earnings climbed to $2.02 per share, from $1.56 per share in the same quarter last year, surpassing market expectations of $1.99 per share.

Why it matters: Honeywell continued to face supply chain disruptions during the quarter, which resulted in component shortages and curtailed production at its largest unit, the aerospace division. Shortage of electronic components also impacted the company’s safety and productivity solutions division.

Honeywell’s aerospace sales rose 3% year-over-year to $2.73 billion, while sales at building technologies climbed 5% to $1.37 billion. Performance materials and technologies sales surged 11% year-over-year to $2.51 billion, while safety and productivity solutions sales rose 18% to $1.86 billion.

The company’s operating profit margins widened to 18.6%, from 18.1% in the prior quarter.

"Our disciplined approach to productivity and pricing helped deliver a strong third quarter despite an uncertain global environment marked by supply chain constraints, increasing raw material inflation, and labor market challenges," CEO Darius Adamczyk said during the earnings call.

The company generated operating cash flows of $1.12 billion, up from $1.01 billion in the year-earlier period.

Management lowered the sales projection for fiscal 2021 to between $34.2 billion and $34.6 billion, from its previous estimate of $34.6 billion to $35.2 billion. The company also guided to organic sales growth of 4% to 5%, versus its previous forecast of 4% to 6%.

Honeywell said it expects adjusted earnings to come in between $8.00 to $8.10 per share, compared to its previous view of $7.95 to $8.10 per share.

How shares responded: Honeywell’s shares fell 3.2% to close at $217.40 on Friday, following the release of quarterly results. The stock declined by another 0.2% in after-hours trading. The company’s shares have gained around 5% year-to-date.

What to watch: Investors will keep an eye on the covid-19 pandemic, as Honeywell is a large supplier of aerospace components, and a resurgence in infections will negatively impact the pace of recovery in global air travel.

The Markets Today

     

Gold will be in focus today after recording gains on Friday.

Context: Gold closed higher on Friday, notching gains for the week as investors remained concerned about accelerating inflation around the world.

Details: Gold has traded within a range of $1,749 to $1,800 an ounce so far in October, with rising US 10-year Treasury yields limiting overall gains of the yellow metal.

Several members of the Federal Reserve released comments last week around the tapering of stimulus measures. Fed chief Jerome Powell said on Friday that it was "time to taper" monthly asset purchases worth $120 billion.

Atlanta Federal Reserve President Raphael Bostic projected inflation to remain elevated into 2022 and said the central bank needs to boost interest rates by the end of next year.

December gold jumped $14.40, or 0.8%, to close at $1,796.30 an ounce on Friday. The yellow metal rose around 1.6% last week, recording gains for the second straight week amid weakness in the US dollar.

Silver futures fell 0.3% to close at $24.385 an ounce on Friday but recorded gains for a fifth straight week. Platinum futures fell 0.8% at settle at $1,043.5 per ounce, while palladium declined by 0.9% to $2,017.50.

What to watch: Traders will keep an eye on comments from Fed members regarding the timelines of stimulus tapering and interest rate hikes.

Markets will also focus on covid-19 infections, with total global cases surpassing 244.4 million.

Other Markets: US indices closed mixed on Friday, with the S&P 500 and Nasdaq 100 down by 0.11% and 0.87%, respectively, and the Dow Jones index up by 0.21%.

Support & Resistances
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Futures at 0400 (GMT)

What else to watch today

     

Turkey’s manufacturing confidence index and capacity utilization, Germany’s Ifo business climate indicator and Bundesbank monthly report, Brazil’s FGV consumer confidence index, value of loans, government revenues and Central Bank of Brazil’s focus market readout, Mexico’s unemployment rate and overall index of economic activity, Canada’s wholesale sales, as well as America’s Chicago Fed national activity index and Dallas Fed manufacturing index.