BUY-rated Honeywell International Inc. (NYSE: HON). The pandemic has upended the global economy and Honeywell’s record of growth. We think both will eventually recover. Honeywell scores high on both counts.
The segment margin narrowed by 130 basis points on a pro forma basis to 19.9%. Adjusted EPS fell 25% to $1.56.
Along with the 3Q results, Honeywell reinstated its earnings guidance. It now anticipates 4Q sales of $8.2-$8.5 billion and EPS of $1.97-$2.02.
In 3Q, it acquired Rocky Research, a technology company specializing in thermal energy and power management solutions, and Ballard Unmanned Systems.
HON shares were added to the Dow Jones Industrial Average on August 31. While this development has no impact on Honeywell’s fundamentals, it is a sign of investor confidence to be added to the prestigious DJIA.
EARNINGS & GROWTH ANALYSIS
The company reports net sales on an ‘organic’ basis that adjusts for currency translation as well as for acquisitions and divestitures – thus highlighting management’s ability to improve underlying results in each segment.
All segments except for Safety and Productivity Solutions posted lower revenue in 3Q. The Aerospace division (-25%) was affected by lower commercial aerospace demand, partly offset by strength in Defense and Space. In Honeywell Building Technologies, revenue declined 8% – compared to a 17% decline in 2Q – due to delays in building management projects; however, the pipeline for healthy building solutions is growing. In Performance Materials and Technologies, 3Q sales were down 16% on an organic basis, driven by lower demand in Process Solutions and weakness in the oil segment UOP. Safety and Productivity Solutions sales rose 8% on an organic basis, driven by double-digit growth in the Intelligrated business and demand for respiratory personal protective equipment.
The segment margin narrowed by 130 basis points on a pro forma basis to 19.9%. Margins improved in HBT and SPS. The company is focused on reducing costs amid the slowdown in demand, and delivered over $450 million in savings in the third quarter, bringing the year-to-date total to $1.1 billion. Management now expects to generate $1.5-$1.6 billion of cost savings in 2020, up from its previous estimate of $1.4-$1.6 billion.
FINANCIAL STRENGTH & DIVIDEND
Honeywell pays a dividend.
MANAGEMENT & RISKS
The CEO became chairman in 2018. Mr. Cote had been CEO since 2002. Greg Lewis became CFO in 2018 after serving as the VP of Corporate Finance.
Honeywell is subject to environmental risks, such as asbestos claims associated with a number of legacy businesses.
Honeywell, based in North Carolina, is a diversified technology and manufacturing company. The Company has approximately 113,000 employees.
We are maintaining our BUY rating on this well-managed company and raising our target price to $195.