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Honeywell’s Q3 Adjusted EPS Beat Estimates, Stock in the Red

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Honeywell beats analysts’ Q3 2018 earnings estimate

Honeywell International (HON) announced its third quarter of 2018 earnings on October 19 before the market opened. It reported adjusted EPS of $2.03, implying a 16.7% growth year-over-year. It beat Wall Street’s expectation of $1.99.

In this series, we’ll look at Honeywell’s earnings, revenue, and segment performances.

Honeywell’s higher revenue, better control over operating expenses as a percentage of sales, robust share buybacks, and lower effective tax rates boosted its adjusted EPS in the third quarter. Higher sales volumes were seen in the Aerospace segment. Its SG&A (selling, general, and administrative) expenses remained constant in dollar terms. However, as a percentage of sales, its SG&A expenses were ~14.2% of sales compared to 15.1% in the same quarter last year. That implies a contraction of 90 basis points year-over-year.

Honeywell bought back $2.3 billion in share repurchases. At the end of the third quarter, its outstanding shares were 752 million compared to 771 million in Q3 2017. Its effective tax rate was 21.9% compared to 23.4% in Q3 2017.

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Stock price reaction and guidance

On the day of its earnings release, HON stock fell 1.1%. The main reason for the decline was due to the announcement of the SEC’s (U.S. Securities Exchange Commission) investigation into HON’s accounting for asbestos-related liabilities. HON’s industrial peer General Electric (GE) rose 1.5%. 3M (MMM) and Stanley Black & Decker (SWK) fell 0.25% and 2%, respectively.

In its guidance, HON now expects its adjusted EPS for 2018 to be $7.95–$8. It reduced it from $8.05–$8.15 due to the spin-off.

Investors can indirectly hold Honeywell through the PowerShares Aerospace & Defense ETF (PPA), which has invested 7% of its portfolio in Honeywell as of October 19.

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