Double Dip Industrial Recession? Yup. Just Ask Honeywell & Dover

Takeaway: It's shaping up to be an ugly earnings season for Industrials as companies like Honeywell and Dover Corp cut guidance.

Double Dip Industrial Recession? Yup. Just Ask Honeywell & Dover - recession cartoon 04.14.2016

 

The U.S. #GrowthSlowing carnage continues.

 

That's the latest from a few big, publically-traded companies this week. It's shaping up to be an ugly earnings season for the Industrials sector as multi-billion dollar conglomerates like Honeywell and Dover Corp are pre-announcing downgraded earnings and sales guidance to investors. 

 

Double Dip Industrial Recession? Yup. Just Ask Honeywell & Dover - honeywell

 

First came Honeywell (HON). Shares of the aerospace manufacturer are down almost -8% since Thursday, when the company cut its full-year guidance for earnings per share (from $6.60 - $6.70 to $6.60 - $6.64) and sales (projected to be down 1% to 2%).

 

Equally distressing was the commentary from Honeywell management. Sales of aftermarket business-jet services and shipping and logistics products "failed to materialize," CEO David Cote told investors on a conference call. Furthermore, "customer inventory levels were unusually high," CFO Thomas Szlosek added, "causing a temporary slowdown in revenue growth."

 

Here's a key excerpt from the call via CEO Cote:

 

"I would say the economy is clearly slow. It's still growing, but it's even slower growth than what we'd expected before. And we've planned for that everywhere. And that's pretty much what we've been seeing. Up to this point, biz jets had actually been okay, especially in that mid – super mid-size category. That's the thing that has changed with the, let's say the additional slowing in the growth rate for the economy. And we're going to plan for that continuing." 

 

 

The Hedgeye Macro team released their Q4 2016 Macro Themes last week. One of the themes called for a #DoubleDipRecession in Industrials. Here's the brief summary:

 

"The cyclical-industrial complex peaks ahead of the peak in the economic cycle and the current cycle has not proved different. Globally, growth and inflation expectations continue to be marked lower while PMI’s and Industrial activity remain in Trend retreat. Domestically, manufacturing ISM’s remain peri-contractionary while industrial production and corporate capex remain mired in their worst non-recession streaks of negative growth ever." 

 

Add Dover Corp (DOV) to the list of companies caught up in this double dip industrial production downturn. Dover pre-announced results and it now expects:

 

  • Full-year organic revenue declines of -7% to -8%, versus the prior forecast of -3% to -5%.
  • Third quarter earnings per share guided down to $0.81 to $0.83, versus $1.02 expected

 

Dover shares reflect this weakness. DOV is down almost 9% since Thursday. Here's Dover CEO Robert Livingston explaining the downgraded guidance:

 

"While our upstream drilling and production businesses showed solid improvement in the third quarter, and our Printing & Identification businesses continued to perform well, our overall results were well below our expectations. These results were principally impacted by a weak global economy and ongoing production inefficiencies in our retail refrigeration business... We also expect the macro global economy to remain soft, later cycle oil & gas exposed businesses to remain weak, and continued margin pressures in Refrigeration & Food Equipment through the end of the year, as we work to streamline and improve our production systems."

 

So not good. And just think, this is only the beginning of Q3 earnings season.

More to be revealed.