Honeywell Adjusts Full Year 2024 Guidance on Margin Pressures

Image: Honeywell’s shares have traded sideways for the past 12-18 months.

By Brian Nelson, CFA

On July 25, Honeywell (HON) reported better than expected second quarter results with revenue and non-GAAP earnings per share coming in higher than the consensus forecast. Reported sales advanced 5% thanks to organic revenue growth of 4%, hitting the high end of its previous guidance. Adjusted earnings per share of $2.49 was above the high end of its previous guidance. Thanks to strength in its ‘Building Automation’ and ‘Energy and Sustainability Solutions’ divisions, orders were up 4%.

During the second quarter, ‘Aerospace Technologies’ sales advanced an impressive 16% on an organic basis from last year’s quarter, marking the eighth consecutive quarter of double-digit organic expansion. The division benefited from aftermarket sales and increased global flight activity. ‘Industrial Automation’ sales fell 8% on an organic basis due to weaker volumes in warehouse and workflow solutions. ‘Building Automation sales increased 1% on an organic basis as building solutions strength was partially offset by declines in fire and building management systems. ‘Energy and Sustainability Solutions’ sales advanced 3% on an organic basis in the quarter year over year.

Though Honeywell’s quarter was fine, the firm adjusted its 2024 profitability outlook lower. For 2024, net sales are expected to be $39.1-$39.7 billion, up from $38.5-$39.3 billion, reflecting improvement in organic growth of 5%-6% (was 4%-6%). Segment margin performance is now expected to be down 20 basis points to flat from up 30-60 basis points previously. This will drive adjusted earnings per share in the range of $10.05-$10.25 (was $10.15-$10.45), up 6%-8% but down from its prior range calling for 7%-10% growth. Free cash flow was also adjusted modestly lower to the range of $5.5-$5.9 billion (was $5.6-$6 billion). 

Honeywell is a fantastic company, and we continue to like shares in the Dividend Growth Newsletter portfolio. Second quarter results were better than expected, but the quarterly beat was overshadowed by lowered adjusted earnings per share and free cash flow guidance for 2024. Though the news wasn’t great, we’re not making any changes to our newsletter portfolios at this time. Shares of Honeywell yield 2% at the time of this writing.