5 Things Honeywell International's Management Wants You to Know

By Travis HoiumFool.com

When companies like Honeywell International report earnings, it's easy to get bogged down in the top- and bottom-line numbers. But what drives those numbers and how management feels about the future are arguably more important to investors.

With that in mind, here are the five things I took away from Honeywell's recent conference call with investors and analysts.

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Margins are the name of the game

The story of Honeywell lately has been that of disappointing sales growth but rapidly expanding margins. A focus internally on operations has combined with management divesting from lower-margin businesses, leading to the 5% decline in sales -- although there was 1% organic sales growth -- and 8.3% increase in net income last quarter.

If the comments below are any indication, the plan is to continue that trend in the future.

Wifi for the skies

One interesting growth opportunity for Honeywell is in-aircraft Wifi. The company has partnered with Inmarsat to build a global satellite network for aircraft, and Honeywell will be providing the needed hardware on the plane. This expands the company's presence onboard aircraft, and could be an opportunity for upgrades in thousands of planes worldwide.

Low oil prices help Honeywell

One of the strange things about Honeywell's results is that the company can increase margins despite lowering prices. This is because it's passing through cost savings from low oil prices, and therefore lower resin and chemical costs, to customers.

If oil prices stay low, these savings will continue to help margins where pass-through pricing exists. But if oil goes up, it will help the energy business, so the company is really well positioned either way.

VW is no big deal

Honeywell has talked about turbochargers being a big potential business for it, so with VW's troubles in the diesel market, investors have to be concerned about that business. The good news is that it's a small percentage of Honeywell's sales and won't impact earnings much going forward. Management tried to spin VW's issues as a blip on diesel's radar, and seemed to think more diesel engines will be on the way in the future. That remains to be seen.

The bad news is that this appears to be a potential drag on the business in the future rather than a benefit, which isn't what management hoped for.

The future looks strong

The fourth quarter should continue the pattern of slow revenue growth but strong earnings growth for Honeywell. This isn't a growth story for investors, but the company's focus on high-value products and operational improvements is paying off.

The next step is to turn strong margins and cash flow into strong organic sales. Honeywell hasn't proven its ability to do that, and until it does, the upside potential on this stock will be limited.

The article 5 Things Honeywell International's Management Wants You to Know originally appeared on Fool.com.

Travis Hoium has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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