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Honeywell will miss mark
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June 19, 2000: 6:10 p.m. ET
Stock plunges after Dow member warns of disappointing 2Q earnings
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NEW YORK (CNNfn) - Honeywell International Inc.'s second-quarter earnings will fall short of Wall Street expectations, the company said Monday, citing weak revenue, a shortage of aircraft parts, higher interest rates and a higher cost of raw materials for its Performance Materials unit.
The warning appeared to catch some investors by surprise, with shares of the company tumbling 8 to 40-1/2, a plunge of nearly 16.5 percent. At one point Monday, the stock was down to 38, well below its 52-week low of 40-5/16.
However, not everyone was caught off guard by the earnings warning because shares of Honeywell fell steadily in the opening hours of trade as rumors of a shortfall swept through the New York Stock Exchange, leading some market watchers to wonder if word of the company's troubles had leaked out. A spokesman for the Securities and Exchange Commission declined to comment on whether officials were looking into the movement of the stock.
Honeywell - formerly AlliedSignal Inc., which bought the original Honeywell Inc. in June 1999 - said it expects earnings of 73 cents to 77 cents a diluted share, just short of the 78 cents a share expected by Wall Street, according to First Call, which polls analysts for their expectations of company earnings. Honeywell spokesman Tom Crane declined further comment.
Paul Nisbet, an analyst with JSA Research, said the news had a profound impact on Honeywell's stock price because Honeywell was eerily quiet about the implications for the rest of the year.
"We don't know if it's a momentary problem or one that's more long-standing," Nisbet said. "The fact that they haven't indicated whether it's momentary probably has everybody spooked, figuring it's a heavy hit for the year."
Nisbet said Honeywell - which makes products for the aerospace industry as well as specialty auto parts, chemicals, fibers, plastics and electronics - needs to explain further its claim of parts shortages for its aerospace unit.
"We don't really know what the aerospace problem is," Nisbet said. "Apparently they've had some delivery problems, but exactly what we don't know."
Nisbet pointed out that Honeywell's competitors have not complained of similar delivery problems.
When Honeywell talks about "raw material" for its Performance Materials unit, which makes products of plastic and wax, it means oil, Nisbet said. If oil prices stay high, Honeywell could continue to suffer in future quarters, and Honeywell's competitors in this sector also could have profit trouble.
Chuck Hill, director of research for First Call, said Honeywell's report did not surprise all analysts. Hill said that, of the 13 analysts First Call polled, six of them expected Honeywell to post earnings of 77 cents a share while seven of them expected earnings of 78 cents. Honeywell thus could meet at least six analysts' expectations, though analysts obviously will revise their expectations downward after the announcement.
Morris Township, N.J.-based Honeywell (HON: Research, Estimates) is a component of the Dow Jones industrial average and the Standard & Poor's 500 Index. The company has 120,000 employees and had revenue of $23.7 billion in 1999.
Honeywell also said it expects second-quarter revenue to increase by 7 to 8 percent, and free cash flow to range from $250 million to $300 million. The company should report its earnings July 18. 
-- from staff and wire reports
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Honeywell
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