Honeywell shares were under pressure on Thursday despite the fact that the economic group exceeded expectations for first-quarter sales and profit. The culprits: weaker guidance for the present quarter and a few uncertainty a few recovery in a few of its key businesses. Sales totaled $9.1 billion within the three months ended March 31, beating Wall Street expectations of $9.03 billion, in response to estimates from data provider LSEG. Revenue increased 3% year-over-year on each a reported and organic basis. Adjusted earnings per share rose about 9% from the year-ago period to $2.25, above the consensus forecast of $2.17 and above the high end of management’s forecast. Segment margin, just like an adjusted operating profit margin, increased about 20 basis points on an annual basis to 22.2%, barely below Street expectations but consistent with the upper end of management’s previously forecast range. Honeywell Why we own the corporate: Honeywell is a provider of commercial technology solutions for firms in various industries. We value the corporate’s presence within the aerospace industry as a parts supplier. However, the portfolio is somewhat bloated. We expect further upside to occur as the corporate divests non-core businesses and focuses each internal investments and acquisition efforts on management’s three targeted megatrends: automation, the longer term of aviation and the energy transition. Competitors: Emerson Electric, RTX, 3M Weight in portfolio: 3.57% Last purchase: April 10, 2024 Initiated: July 5, 2020 Conclusion We would describe the outcomes as higher than feared, considering that the stock was already at first of the yr was under pressure print. In addition to better-than-expected sales, profit and organic growth results, Honeywell’s backlog rose 6% year-over-year to a record $32 billion as long-cycle demand remained strong. Additionally, management is seeing some recovery in its short-cycle businesses and expects further improvements all year long. As a reminder, long-cycle firms are less sensitive to short-term economic conditions because there’s an extended time frame between order placement and delivery. Aerospace is a great example. Honeywell’s constructing products division, which incorporates fire protection systems, is an example of a brief cycle business. It’s hard to get too excited, nonetheless, because the second quarter guidance fell short and there have been weaknesses in key segments, together with a miss within the segment’s overall profit margin and money flow results. A sustained increase within the share price will only be possible when all business areas are back heading in the right direction for growth. The strong orders are encouraging; We just have to see how they convert into sales. Also encouraging is management’s ongoing efforts to optimize the portfolio against three key megatrends – automation, aerospace and energy and sustainability – by repurposing roughly 10% of non-core assets that don’t align with these trends. be sold. This frees up capital that might be invested in internal growth initiatives and mergers and acquisitions. We reiterate our rating of 1 as the chance/reward ratio at current prices is favorable given the record order backlog and the expectation of improvement within the second half of 2024. However, we’re lowering our price goal from $230 to $225, acknowledging that the following few months may very well be choppy until we get a precise time limit for a recovery in short-cycle firms. Forecast A have a look at the forecast table above shows that management’s outlook for the present quarter – the second quarter of fiscal 2024 – was below expectations, while its full-year guidance was mixed in comparison with consensus. The second half of 2024 is prone to be stronger than the primary. Note that the total yr guidance stays unchanged from the last guidance in addition to the fourth quarter release. On the earnings call with investors, management reiterated that this forecast assumes continued demand for long-cycle businesses and a “modest recovery in the second half” in short-cycle segments. These firms are likely to be more profitable, so a pick-up in demand might be a key consider future results. If the economy holds up or improves, we would not be surprised if management’s guidance seems to be conservative. The team also expects sequential improvement within the second half of 2024 as conditions improve. As the earnings chart above shows, Honeywell’s segments were mixed. Strength in aerospace technologies and energy and sustainability solutions was partially offset by weakness in industrial automation and constructing automation. Organic growth was led by the aerospace sector, which grew 18% year-on-year. Within the segment, business aviation posted double-digit growth for the twelfth consecutive quarter as original equipment sales increased over 20% in comparison with the identical period last yr, aftermarket sales increased organically by 17% and the defense and space segment increased organically by 16% Supply chain continues to enhance. In industrial automation, process solutions remained flat organically year-over-year, while sales of warehousing and workflow solutions fell 55% as a consequence of lower volumes. The sensor and security technology sector recorded a decline of 8%. Productivity solutions and services sales fell 11% organically, although management said orders grew sequentially and year-over-year for the second consecutive quarter, “a positive sign that we are close to a return to growth in this business.” .” Building automation declined year-over-year as growth within the longer cycle solutions business was offset by continued weakness within the shorter cycle products business. However, management said on the decision that constructing automation orders improved sequentially, leading to a book-to-bill ratio of 1.1. A book-to-bill ratio measures the quantity of business booked in comparison with the quantity billed. The higher the ratio, the higher since it signifies that demand exceeds supply and there’s a rise within the order backlog. Honeywell’s energy and sustainability solutions benefited from a 6% organic increase in advanced materials sales and a 3% organic increase at UOP, its petrochemicals business. 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Honeywell International Inc. signage is displayed on a monitor on the ground of the New York Stock Exchange (NYSE) in New York.
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Honeywell Shares are under pressure on Thursday despite the fact that the economic group exceeded expectations for sales and profit in the primary quarter. The culprits: weaker guidance for the present quarter and a few uncertainty a few recovery in a few of its key businesses.
