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Honeywell Earnings Are Fine. The Guidance Is the Problem.

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Industrial giant Honeywell International had a strong end to 2021, but fourth-quarter numbers won’t be what investors focus on Thursday. Weaker-than-expected guidance likely will weigh on the shares.

Honeywell reported $2.09 in fourth-quarter per-share earnings from $8.7 billion in sales. Results were in line with what Wall Street was looking for. Analysts projected earnings of $2.08 a share from $8.7 billion in sales.

A year ago, Honeywell reported earnings of $2.07 a share on sales of $8.9 billion.

“We remained resilient, focusing on operational excellence to deliver the commitments we made to shareholders,” said Chief Executive Darius Adamczyk in the company’s news release. Full-year earnings came in at $8.06 a share, above $8, which was the upper end of management’s original guidance. Improving profit margins in the company’s aerospace and energy-related divisions help boost earnings.

Along with earnings, Honeywell offered its initial guidance for 2022. The company expects to earn between $8.40 and $8.70 a share from about $35.9 billion in sales. That is less that what Wall Street was looking for. Analysts are projecting about $8.93 in per-share earnings from $36.7 billion in sales.

What’s more, free cash flow is expected to be about $4.9 billion in 2022. Analysts are projecting about $6 billion in free cash flow for this year. RBC analyst Deane Dray called guidance “mostly disappointing” in a research report Thursday.

Dray rates Honeywell shares Hold and has a $224 price target on the stock.

Honeywell stock was down 6% on Thursday. The S&P 500 and Dow Jones Industrial Average are down about 1.3% and 0.9%, respectively.

Melius analyst Scott Davis said the guidance seems conservative on the earnings conference call, which prompted a response from management.

“The first half will be slow, which actually means that we’ve got to have substantial acceleration in the second half,” said Adamczyk. “Although we’re bullish on improved supply-chain flow, it is a bit of an unknown … I think it’s a fairly reasonable guide to start the year.”

The guidance continues a trend for U.S. industrial stocks. So far this earnings season, about half of the industrial stocks in the S&P 500 have reported numbers. Roughly 85% have beaten Wall Street expectations. The stocks, however, have declined about 0.7% on average after reporting solid numbers.

Guidance is a big reason for the weak reactions. Companies are taking a conservative approach given rising costs and rising interest rates.

Honeywell peer General Electric (GE) is an example. GE reported in-line fourth-quarter results, but earnings guidance was below expectations and the stock dropped 6% following its earnings report on Jan. 25.

Both GE and Honeywell have large aerospace businesses. The pandemic continues to affect demand for travel. Aerospace sales at Honeywell dropped 3% in the fourth quarter.

Write to Al Root at

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