Honeywell Aerospace earnings miss prompts CNBC Investing Club downgrade
Honeywell Aerospace missed second-quarter forecasts, cut its outlook and blamed supply constraints, leading CNBC’s Investing Club to lower its rating.
By Maya Okafor · Markets Writer
· 3 min read
Honeywell Aerospace earnings fell short of Wall Street expectations in the aircraft-parts maker’s first quarterly report as a standalone public company. CNBC’s Investing Club said it lowered its rating on the stock to 3 after the miss and a reduced full-year outlook, arguing that management now must restore investor confidence around its execution.
For the second quarter ended June 27, revenue rose 5.4% from a year earlier to $4.52 billion, according to CNBC. That was below the $4.6 billion consensus compiled by LSEG. Adjusted earnings per share, a profit measure that excludes certain items, dropped 32% to $1.87, missing the $2.11 LSEG estimate.
CNBC reported that the shares had fallen 6% in the regular session and another 11% in Wednesday evening trading after the results. Its report said that reaction would place the shares near $182, a report-time indication rather than a current quote.
Why did Honeywell Aerospace cut its outlook?
Management’s explanation was an output problem, not an order problem. Chief Executive Jim Currier said supply constraints had slowed factory-volume growth and that efforts to lift production had moved more slowly than expected. On the earnings call, management said its revised near-term outlook was set at a level it believed it could meet without a dramatic improvement in supplier performance, CNBC reported.
The company cut its full-year outlook for organic sales growth and operating profit, CNBC said. Organic growth strips out the effect of acquisitions, divestitures and currency moves to show growth within the existing business. The available report did not include the new numerical targets.
There were still signs of demand: CNBC reported orders grew 8% year over year and that Honeywell Aerospace recorded $15 billion in year-to-date new wins measured by lifetime value. Management said more than 3,000 suppliers serve the company and that 98% were performing well, while the other 2% were creating the production bottlenecks. CNBC reported that efforts to fix them could require higher investment and weigh on margins for a period.
Where was the profit pressure?
- Electronic Solutions revenue increased 8%, but adjusted EBIT, or operating profit before interest and taxes, declined 3% as mix and costs offset higher volume and prices, CNBC reported.
- Engines and Power Systems revenue rose 1%, while profit fell 32% because price increases did not cover higher costs.
- Control Systems revenue rose 7% and adjusted EBIT increased 8%, with pricing offsetting higher costs.
The stock began Nasdaq trading on June 29 after the separation from Honeywell Technologies. Reuters reported that it closed its debut at $220.19, down 0.4%, and that the company had then projected 7% to 9% sales growth for the year.
CNBC’s downgrade is a portfolio-rating decision by its Investing Club, not an independent analyst consensus or a company recommendation. Its stated concern was that executives had opportunities before the separation to temper near-term expectations, making the subsequent reset a test of management credibility as the newly independent company works through its supply constraints.
This story draws on original reporting from CNBC.
