Honeywell Cuts 2016 Forecast in Bow to Weaker Global Economy

  • Revenue target lowered by $300 million despite acquisitions
  • Company to separate automation unit into two businesses

Honeywell International Inc. cut its 2016 sales forecast amid sluggish global growth and lower demand for energy-related products and services. Shares tumbled the most in almost a year.

Revenue is expected to total between $40 billion and $40.6 billion this year, a reduction of $300 million for each figure from the previous forecast, the maker of gas processing equipment and cockpit controls said in a statement Friday. Excluding the effects of recent acquisitions and currency shifts, sales fell 2 percent in the second quarter.

A plunge in the price of crude has weakened demand for the goods Honeywell sells to the oil and gas industry, just as demand has slackened for some of its aerospace products. A “challenging global economy” is dragging on sales, Chief Executive Officer Dave Cote said on a conference call. The International Monetary Fund this week scrapped its forecast for a pickup in global growth this year, citing the U.K.’s vote to leave the European Union.

“The one thing that investors are going to be looking at is this underlying sales growth,” Jeff Windau, an analyst at Edward Jones & Co., said in a telephone interview. “It just seems like it’s a pretty sluggish environment right now.”

Acquisition Pipeline

Honeywell fell 3.5 percent to $114.54 at 11:27 a.m. in New York after tumbling as much as 5 percent, the biggest intraday decline since Aug. 24. General Electric Co. also dropped after reporting a slide in orders of big-ticket items such as locomotives.

For coverage of GE’s earnings, click here.

Cote has been using acquisitions to help juice Honeywell’s sales and he suggested that those efforts will continue. The acquisition pipeline “still looks really good” and the company is studying as many as 100 potential targets, he said on the call.

Honeywell paid $6 billion to buy companies last year and is adding more this year, such as the $1.5 billion purchase of warehouse-automation equipment maker Intelligrated.

“We’ve got a lot of money to deploy and that gives us a lot of flexibility,” he said.

Revenue Misses

In the second quarter, Honeywell’s revenue increased 2.2 percent to $9.99 billion, compared with an average estimate of $10.1 billion. The sales increase was driven mostly by acquisitions at the Automation and Control Solutions unit, where sales climbed 9.4 percent. The company also reported the split of that business into two new segments: home and building technologies, and safety and productivity solutions.

Sales fell 1.3 percent at the aerospace business and dropped 2.9 percent at Performance Materials and Technologies, the unit that provides catalysts for refineries and makes resins.

The company raised the lower end of its 2016 profit forecast for a second time this year, by five cents to $6.60 a share, while keeping the higher figure at $6.70. Despite the economic headwinds, the company is still targeting 2017 sales growth of between 4 percent and 5 percent, excluding acquisitions and currency effects.

Slow Growth

“The operational performance continues to be very good in a slow-growth environment,” Cote said. 

Earnings for the second quarter climbed to $1.66 a share, the company reported. Analysts had predicted $1.64, according to the average of estimates compiled by Bloomberg. Profit margins, excluding corporate expenses, rose slightly to 18.5 percent from 18.4 percent.

For the third quarter, Morris Plains, New Jersey-based Honeywell expects earnings per share of $1.67 to $1.72 and sales of as much as $10.2 billion.

The company announced that Alex Ismail, who ran the automation unit, is leaving the company. Ismail was seen as a candidate to replace Cote, 64, who is stepping down in March. Darius Adamczyk, appointed chief operating officer in April, was named last month as the next CEO. 

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