Industrial conglomerate Honeywell (NYSE:HON) reports its third-quarter 2007 earnings Friday morning. Want to know what Wall Street expects to see? Read on. Want to know what really matters? Read on a bit more.

What analysts say:

  • Buy, sell, or waffle? Seventeen analysts follow Honeywell. Eleven say to buy it, four say to hold it, and two say to sell it.
  • Revenue. On average, they're looking for 8% sales growth to $8.59 billion.
  • Earnings. Profits are predicted to grow 23% to $0.81 per share.

What management says:
Boasting of "strong organic sales growth, double-digit earnings growth, and robust free cash flow," CEO Dave Cote sounded pretty pleased with Honeywell's performance last quarter. What's more, he put Honeywell's (actually, its shareholders') money where his mouth was, buying back 40 million shares of stock and authorizing another $3 billion in buybacks. (The bad news? The aim of all this buying is to "maintain an essentially flat share count through the remainder of 2007." In other words, to offset stock dilution.)

What management does:
Pity the company isn't doing more to actually reduce its share count, because the business is indeed doing just as well as Cote says it is. Sales growth looks strong and steady for this mature business, while profit margins on those sales expand. The company hasn't yet achieved the margins of rivals like Goodrich (NYSE:GR) or United Technologies (NYSE:UTX), but it's closing the gap fast -- and it's far out in front of automotive-industry-shackled Johnson Controls (NYSE:JCI).

Margins

3/06

6/06

9/06

12/06

3/07

6/07

Gross

23.9%

24.3%

24.3%

24.7%

24.9%

25.0%

Op.

10.5%

10.8%

10.9%

11.3%

11.7%

11.9%

Net

6.0%

6.6%

6.7%

6.6%

6.8%

6.9%

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Things are going so swell at Honeywell that Cote also raised guidance for this year. The company now expects to bring in $33.9 billion in sales, profits of about $3.13 per share, and perhaps $2.9 billion in free cash flow. That would make for growth rates of 8% for sales, 24% for EPS, and 17% for free cash flow. Very nice.

And how might Honeywell transform "nice" into "great?" Perhaps by improving its debt collection. Reviewing the year-to-date numbers on its balance sheet, I see that Honeywell is doing a fine job managing its inventory -- up just 3% versus 10% growth in sales. Unfortunately, its accounts receivable figure shows the opposite trend, rising 15% versus the 10% sales growth. To get free cash flowing as fast as net income is growing, the firm might need to ride closer herd on its bill collections department.

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Fool contributor Rich Smith does not own shares of any company named above. The Motley Fool has a disclosure policy.