How Much Better Could Honeywell Earnings Be?

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Honeywell International Inc. (NYSE: HON) reported fourth-quarter and full-year 2017 results before markets opened Friday. For the quarter, the conglomerate posted adjusted diluted earnings per share (EPS) of $1.85 on revenues of $10.84 billion. In the same period a year ago, the company reported EPS of $1.74 on revenues of $9.99 billion. Fourth-quarter results also compare to consensus estimates for EPS of $1.84 and $10.75 billion in revenues.

For the full year, Honeywell reported adjusted EPS of $7.11 and revenues of $40.53 billion, compared with 2015 EPS of $6.46 and revenues of $39.3 billion. Analysts were looking for EPS of $7.10 and revenues of $40.43 billion.

On a GAAP basis, Honeywell posted a fourth-quarter loss per share of $3.18, which includes a $4.88 per share charge related to the recent tax law changes and $0.15 in charges for other items. The company’s provisional tax charge in the quarter was $3.8 billion. Pretax income totaled $1.62 billion, up from $1.43 billion in the year-ago quarter.

Honeywell’s board chair and chief executive, Darius Adamczyk, said:

Honeywell’s transformation to a software-industrial leader is well underway, and in 2018, we expect to complete the spin-offs of our Homes and Global Distribution business, and our Transportation Systems business, which will position Honeywell for future growth and margin expansion. After the spins, these businesses will be better positioned to maximize shareowner value through focused strategic decision making and capital allocation tailored for their end markets.

The company updated fiscal year 2018 guidance to reflect 2017 results and the anticipated effect of the new tax law. The company expects its effective tax rate to fall to between 22% and 23%. Honeywell also lifted its EPS guidance from a prior range of $7.55 to $7.80 to a new range of $7.75 to $8.00.

Revenue guidance was unchanged at $41.8 billion to $42.5 billion for the 2018 fiscal year, and free cash flow guidance also remained unchanged at $5.2 to $5.9 billion.

Analysts have first-quarter estimates of $1.83 in EPS and revenues of $10.02 billion. For fiscal 20187, analysts have forecast EPS of $7.83 and revenues of $42.23 billion.

Over the past 12 months, Honeywell stock has risen by nearly 37%, more than either the Dow Jones Industrial Average or the S&P 500. Free cash flow rose 12% year over year in 2017, and at the high end of the company’s guidance could rise by nearly 20% in 2018.

Honeywell’s shares closed up about 1.2% at $161.84 on Thursday and traded up about 0.1% in premarket trading Friday at $162.00. The stock’s 52-week range of $117.12 to $161.89, and the high was posted Thursday. The consensus 12-month price target was $169.24 before the report.