Even investor darling Honeywell International Inc. isn’t immune to the slowdown taking place in manufacturing.
The maker of jet engines and air-conditioner controls reported second-quarter earnings that beat analysts’ estimates, but sales in the period were weaker than expected, both including and excluding the impact of M&A and currency swings. The 5 percent organic revenue growth Honeywell notched in the second quarter was a step down from both the year-earlier period and the aggressive 8 percent pace set in the first quarter.
While the company raised its 2019 organic sales growth target to a range of 4 percent from 6 percent, its third-quarter forecast for 2 percent to 4 percent expansion was weaker than RBC analyst Deane Dray had been expecting. An increased full-year earnings outlook was also less robust than analysts had been anticipating.
Don’t get me wrong: this was still a very strong earnings performance from Honeywell. The company’s aerospace division remains a standout, with 11 percent organic growth in the period. Notably, Honeywell had double-digit growth in new equipment for business jets. That’s an interesting contrast to the weak aviation revenue and $100 million slide in backlog at Textron Inc. in the second quarter, which the company blamed on business-jet customers becoming jittery about macroeconomic conditions.
And Honeywell does have a habit of under-promising on guidance so that it can over-deliver down the road.
But this feels different than merely keeping the bar low and beatable. There’s good reason to be cautious in this environment. Honeywell cited uncertainty in markets with shorter sales cycles, inventory pile-ups in some sectors and macro-economic concerns including tariffs and Brexit, and it appears to already be digging around in its toolkit for ways to weather a downturn. Concerns that cooling demand is becoming more marked than investors had appreciated took on a new gravity this week after East Coast railroad CSX Corp. reversed its call for sales growth this year and predicted as much as a 2 percent decline instead. Honeywell’s showing wasn’t nearly strong enough to buck the general feeling of unease.
Honeywell is still likely one of the safest places for investors to ride out a slowdown. But before the gloomy CSX report dragged down the whole industrial sector, Honeywell was enjoying its best start to the year since 2007. The run-up in its shares leaves the company priced for perfection — and investors priced for disappointment should that perfection prove out of reach.
—Bloomberg