Now that Christmas is out of the way, it's time for that other "most wonderful time ... of the year" -- year-end earnings season, when those companies whose fiscal years align sensibly with the calendar version report their Q4 and full-year results. Next up is industrial conglomerate Honeywell (NYSE:HON), which reports Friday morning.

What analysts say:

  • Buy, sell, or waffle? Twenty analysts follow Honeywell. One says sell, five more say hold, and everyone else says to buy it.
  • Revenues. On average, they're looking for 12% sales growth, to $8.1 billion.
  • Earnings. Profits are predicted to grow 16%, to $0.72 per share.

What management says:
Judging from the comments made by CEO Dave Cote last quarter, things are going just swimmingly at Honeywell. Citing "double-digit sales and earnings growth in the third quarter," which brought the firm up to $1.5 billion in free cash flow through the first three quarters, Cote promised to end the year with "13% sales growth, more than a 30% increase in earnings, and 25% growth in free cash flow this year." Superb.

And the good news doesn't end there. Peering forward into 2007, Cote predicted that even "slightly lower global economic growth next year" would not prevent the firm from posting "healthy organic sales growth, a double-digit increase in earnings, and strong free cash flow" this year. Cote further intends to use that cash to buy back shares and pay out dividends.

What management does:
All of this is borne out by the company's margin trends. Each of the rolling gross, operating, and net margins have been rising steadily over the last several quarters.

Margins %

6/05

9/05

12/05

3/06

6/06

9/06

Gross

22.8

23.3

23.3

23.7

24.2

24.3

Op.

10.2

10.5

10.5

10.8

11.1

11.3

Net

4.8

5.1

6.0

6.1

6.7

6.7
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:
Honeywell's margin expansion has been powered by the healthy trends of double-digit sales growth on the top line, and still-double-digit-but-not-so-much growth in cost of goods sold (COGS) and selling, general, and administrative expenses (SG&A) farther down the income statement. Over the last six months, sales have been up 14% year over year on average. Meanwhile, both COGS and SG&A rose just 12%. What's more, with energy costs (a significant input cost for any manufacturer) on the wane, I expect we'll see COGS continue to lag sales growth this quarter. Come to think of it, if Cote is right in predicting "slightly lower global economic growth next year," that could be just the ticket to keep Honeywell's COGS under wraps.

In other good news, the firm's balance sheet shows inventories also rising less quickly than sales (9% vs. 14%). The only troubling number I see, in fact, is accounts receivable, which are up about half again as much as sales -- 21% vs. 14%. If there's still any room for improvement in Honeywell's results on Friday, that's where I'd like to see it.

Competitors:

  • Boeing (NYSE:BA)
  • Lockheed Martin (NYSE:LMT)
  • Northrop Grumman (NYSE:NOC)
  • Raytheon (NYSE:RTN)
  • Tyco (NYSE:TYC)
  • United Technologies (NYSE:UTX)

What did we expect out of Honeywell last quarter, and what did we get? Find out in:

Tyco is a Motley Fool Inside Value pick. You can find out why with a 30-day free trial.

Fool contributor Rich Smith does not own shares of any company named above. The Fool's disclosure policy is just like honey.