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Honeywell (HON) or GE: Which Conglomerate Had a Better Earnings Report?

Both General Electric GE and Honeywell HON topped earnings estimates Friday, but the situations behind these two storied firms couldn’t be more different. Let’s take a closer look at what’s going on with these two giants, and see which company is on track for solid growth.

General Electric

GE already had plenty of sources for concern heading into its earnings release, with its shares down over 21% year-to-date. Late last year, the company decided to back out of its engagements in transportation and lighting to focus on what were its three biggest revenue gainers: aviation, healthcare, and power.  

The issue, however, has been that these should-be money grabbers have themselves also underperformed. In Q4 2017, GE’s legacy insurance business alone accounted for a $0.91 per share loss, causing investors to pressure the company to spin off its various segments and return some of their capital. The power segment, which has long been one of the focal points of GE, also saw an over $3.5 billion year-over-year revenue decrease.

GE has continued to suffer in the ensuing two quarters. In Friday’s report, it posted earnings of $0.19 per share on revenues of $30.1 billion. While EPS beat expectations and represented an earnings surprise of 5.6%, it also reflected a 10% year-over-year decline. The two biggest culprits are decreasing margins and challenges in lighting and renewable energy.

Oil and gas revenues increased 85% to $5.5 billion thanks to improved benefits secured from Baker Hughes (BHGE). However, this was offset by the operating profit collapse across GE’s power (-58%), renewable energy (-48%), and transportation (-15%) groups. The company is following stringent cost-cutting and simplification initiatives, but that didn’t make much the figures any easier for investors to digest.

GE reiterated its guidance for 2018 but stated that earnings will fall on the lesser end of the previously-given $1.00-$1.07 range.

At a time when GE needed to build strong momentum, it was only able to apply a bandage to a wound that needs stitches.

Honeywell

Honeywell has also faced difficulties, with its shares shedding nearly 3.8% year-to-date. However, HON’s outperformed its industry peers, which have seen their shares lose an average of about 8% in value.

Like GE, Honeywell recently underwent internal restructuring, merging its transportation and aerospace segments together. It also took its automation and control solutions segment and broke it into two groups: home and building technologies, and safety and production solutions. It currently operates in four segments overall, with its performance materials and technologies segment remaining in its original form.

Coming into Friday’s report, Honeywell had notched 9 quarters of successive earnings beats. This was made possible due to strength across all four segments, each of which captured short and long-term market trends in U.S. defense growth, maintenance services, global distribution, and plus the successful spinoff of its transportations systems business.

On Friday, Honeywell posted earnings of $2.12 per share on revenues of $10.92 billion. Whereas GE lost revenue year-over-year, Honeywell saw 8% improvement. The strongest performing segments were safety and productivity solutions along with aerospace, which saw 13% and 10% respective year-over-year growth. Demand for the company’s products, along with the reduction of low-margin initiatives helped provide robust performance during the quarter.

In its strong report, the company raised its full-year guidance accordingly: organic sales growth between 5 and 6 percent, segment margin expansion of 40 to 60 basis points, earnings per share between $8.05 and $8.15, and free cash flowof between $5.6 and $6.2 billion.

Honeywell is on track to continue growing on the back of a shrewd investment strategy, greater operational efficiency, and stronger demand for its diversified products.

Looking Ahead

While Honeywell had the better earnings report, both firms have their work cut out for them. Honeywell has built strong momentum in the right direction, but needs to keep it up. GE is still rebuilding and rethinking its new identity, but that isn’t not to say that its glory days are over.

Honeywell’s current Zacks Rank #2 (Buy) rating makes it appear to be the more attractive venture over the next 3-6 months, but GE has weathered numerous storms in the past and managed to regain a position of strength. Still, its Zacks Rank #4 (Sell) is a strong indication that this isn’t the time to make a play on it.

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