Honeywell Adjusts Full Year 2024 Guidance

Image: Honeywell’s shares have traded sideways the past couple years.

By Brian Nelson, CFA

Honeywell (HON) reported mixed third quarter results October 24 with revenue coming in a bit light relative to the consensus forecast and non-GAAP earnings per share beating what the Street was looking for. Sales came in at $9.7 billion in the quarter, up 6%, while organic sales advanced 3%. Its operating margin was 19.1%, down from 20.9% in the prior year period due mostly to an impairment related to classifying its personal protective equipment (PPE) business as assets held for sale.

The company’s segment profit increased 6% in the quarter, and its segment margin came in at 23.6%–above the high end of prior guidance by 30 basis points, but flat with respect to last year’s quarter. Earnings per share in the quarter was $2.16, down from $2.27 last year, and adjusted earnings per share came in at $2.58, above the high end of prior guidance and up 8% on a year-over-year basis.

Its Aerospace Technologies division experienced 10% growth on an organic basis year-over-year thanks to continued strength in defense and space sales, which increased 14% organically in the third quarter. Segment margin was flat year-over-year at 27.7%. Its Industrial Automation division’s sales fell 5% on an organic basis year-over-year due to “volume softness in warehouse and workflow solutions and safety and sensing technologies.” Segment margin expanded 60 basis points.

Honeywell’s Building Automation sales increased 3% on an organic basis year-over-year, with segment margin expanding 30 basis points. Its Energy and Sustainable Solutions segment experienced 1% organic growth, while segment margin increased 10 basis points. Both operating and free cash flow advanced 10% in the quarter on a year-over-year basis. Management had the following to say about the quarter:

Honeywell executed through a challenging environment in the third quarter, delivering segment margin and adjusted earnings per share above the high end of our guidance. Our Accelerator operating system and culture of execution enabled us to grow segment profit by 6% in spite of transitory sales headwinds. We continue to see healthy order rates and sequential growth in our backlog, even excluding the impact of acquisitions closed in the quarter, giving us confidence in our ability to achieve our long-term targets. We also further advanced on our capital deployment strategy, deploying $3.1 billion to M&A, dividends, and high-return capex.

Looking to full-year 2024 guidance, management now expects sales in the range of $38.6-$38.8 billion, down from its prior expectations of $39.1-$39.7 billion, with organic growth expected at 3-4%, down from expectations of 5%-6% previously. Segment margin is targeted in the range of 23.4%-23.5%, with the company raising the low end of the range by 10 basis points versus prior expectations.

Adjusted earnings per share is expected in the range of $10.15-$10.25 for the full year 2024, up from the range of $10.05-$10.25 previously (up 7%-8% versus 6%-8% previously). Operating cash flow is now expected in the range of $6.2-$6.5 billion, down from prior expectations of $6.6-$7.0 billion, while free cash flow is expected in the range of $5.1-$5.4 billion, down from prior expectations of $5.5-$5.9 billion.

Honeywell has a lot of moving parts these days. The company closed its $1.9 billion acquisition of CAES Systems and $1.8 billion acquisition of Air Products’ (APD) LNG business, while it plans to spin off its Advanced Materials business and exit its PPE business. We’re big fans of Honeywell’s aerospace division, which recorded its ninth consecutive quarter of double-digit organic growth thanks to strong commercial original equipment and solid growth in commercial aftermarket. Though the firm reduced its revenue and free cash flow outlook for 2024, we like the long-term story at Honeywell, and the company remains a core holding in the Dividend Growth Newsletter portfolio. Our fair value estimate stands at $216 per share.

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