Specifically, the company raised its Q4 EPS guidance to $1.84, the high-point of its prior expectation of $1.79-$1.84, and above the $1.83 Capital IQ Consensus. For revenue, HON now sees sales growth of 9%, compared to its previous guidance of 5-7%, equating to $10.88 billion vs. the $10.54 billion consensus. In its press release, management commented that the increase in growth is being driven by Intelligrated and Safety Products, Advanced Materials, and the Aerospace aftermarket businesses. The only blemish on its updated Q4 outlook is that it lowered its segment margin expansion to down 10 bps - flat, from up 30-50 bps.
As for its 2018 outlook, HON is projecting EPS of $7.55-$7.80, or, $7.68 at the mid-point, below the $7.79 Capital IQ Consensus. This would equate to annual growth of 6-10%, driven by organic sales growth of 2-4%. For some context, HON believes it will achieve organic sales growth of 4-6% in 4Q17.
Still, management is expressing strong confidence in its prospects for the year ahead. The company is spinning off non-core businesses (homes and global distributions & transportation systems), which will streamline the company, while also reducing cyclicality across the company.
HON is also expecting to generate very healthy free cash flow of $5.2-$5.9 billion, or, 20% year/year growth, allowing it to continue to buyback stock and increase its dividend. In Q4 alone, it expects to buy back nearly $1.5 billion in shares. Furthermore, in September, it announced a 12% bump in its dividend. Simultaneously, the company says that M&A will remain a high priority in 2018. So, in other words, management is laying out multiple levels it can pull in order to keep earnings and cash flow moving higher.
To conclude, while its FY18 EPS guidance may be a bit disappointing, it is also evident the overall business is still very healthy and that HON remains an attractive play for those looking for solid shareholder yield.