Honeywell sees higher 2018 profit, says tax bill could spur investment

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Honeywell International Inc on Wednesday forecast higher 2018 earnings and said a sweeping tax overhaul could lead it to deploy more cash in the United States for investments, which might include acquisitions.

The jet engine and industrial equipment maker’s shares rose 1.6 percent to $156.24 in early trading.

Honeywell said it was still assessing any impact the potential legislation could have on its ongoing tax rate as well as its cash overseas, adding that its 2018 financial forecast does not reflect the proposed bill.

“I do think that it will make us may be a little bit more focused on generating further opportunity here from a U.S. perspective on M&A,” Chief Financial Officer Thomas Szlosek said on a conference call with analysts.

President Donald Trump’s administration wants to cut the U.S. corporate income tax rate to 20 percent from 35 percent and encourage multinationals to bring home profits held overseas.

The company said it expects its largest unit – aerospace – to benefit from higher production of narrowbody aircraft even as it sees the business jet market to remain weak.

“Longer term, we’re still conservatively planning for the business jet (original equipment) market to recover at the end of 2018 or in early 2019,” Szlosek said.

For 2017, Honeywell expects quarterly and annual profit at the top of its previous forecast range.

Honeywell also set 2018 earnings per share forecast of $7.55-$7.80. Analysts on average expected a profit of $7.79 per share in 2018, according to Thomson Reuters I/B/E/S.

“Honeywell typically sets a low bar for its outlook, building in some conservativeness and opportunity for beats during the course of the year,” RBC Capital Markets Deane Dray wrote in a note.

Honeywell said it expected 2017 sales of $40.6 billion, up from its previous forecast of $40.2 billion to $40.4 billion. It expects capital expenditure to decline 15 percent next year.

The company said it was targeting free cash flow of more than 20 percent and would buy back nearly $1.5 billion of its shares.

Honeywell said in October it would spin off its homes and global distribution and transportation systems businesses. The company said on Wednesday it expects those deals to be completed by the end of the year. The two businesses have $7.5 billion in annual revenue.

Up to Tuesday’s close, Honeywell’s stock had risen 32.7 percent this year. (Reporting by Arunima Banerjee in Bengaluru; Editing by Patrick Graham, Bernard Orr)

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