Honeywell International is all set to report earnings for the second quarter of FY 2017 on July 21. The company started the year off strongly, beating both the revenue and earnings consensus estimates in the first quarter by a comfortable margin. That said, things seem to be getting harder for the conglomerate as adverse global macro economic conditions begin to strain revenues. A weak global economy, volatile oil prices , and a tempered Chinese economy have significantly hurt demand for its business jets, and mobile scanners. We can expect the Q2 earnings call to shed more light on what to expect. In general, things seem to be looking uncertain for Honeywell, at the moment.
Probable Factors :
- Over the years, Honeywell has time and again pledged its support for eco-friendly products. In this respect, during the quarter, the company commenced operations at its new state-of-the-art manufacturing plant in Geismar, LA. The facility is tasked with manufacturing HFO-1234yf, sold commercially as Solstice yf in the open market. Solstice yf is an eco-friendly air conditioning refrigerant, and is very high in demand in the auto industry. To put this into perspective, 40 million cars are expected to use Solstice yf by the end of 2017; nearly double the number today. The plant is sure to give Honeywell a competitive edge over its rivals and augment its revenues.
- Further, the company signed a definite agreement to acquire Nextnine, a private security management solutions provider for industrial cyber security. The acquisition is expected to boost Honeywell’s limited cyber security portfolio with complementary products and services. Additionally, Nextnine’s portfolio will also be used to improve facilities at the Honeywell Connected Plant. We expect synergies from the deal will be realized by the end of the year.
- As mentioned above, the conglomerate is expected to see some tough times ahead. Like most large industrials, Honeywell too, is bearing the brunt of a slowing global economy and volatile oil prices. Despite its efforts, the industrial giant is yet to witness signs of stabilization in a number of its key end markets. For example, any change in the DoD’s defense budget could result in falling sales at Aerospace’s defense and space-related products and services. Additionally, high RD expenses could also drag on Aerospace’s profitability.