Latest news with #AerospaceTechnologies
Yahoo
25-07-2025
- Business
- Yahoo
Why Honeywell (HON) Shares Are Plunging Today
What Happened? Shares of industrial conglomerate Honeywell (NASDAQ:HON) fell 5% in the afternoon session after the company reported second-quarter results that showed contracting margins and a decline in cash flow, which overshadowed a sales beat and raised full-year guidance. While the company exceeded sales expectations with 8% year-over-year growth and raised its full-year outlook for revenue and adjusted earnings per share, investors focused on signs of weakening profitability. The company's operating margin contracted by 30 basis points, and its overall segment margin also declined. This pressure was notable in key divisions, including the Aerospace Technologies segment. Furthermore, Honeywell lowered its full-year segment margin guidance and reported that its GAAP earnings per share missed analyst estimates. Weaker cash flow, with operating cash flow down 4%, added to the concerns. The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy Honeywell? Access our full analysis report here, it's free. What Is The Market Telling Us Honeywell's shares are not very volatile and have only had 6 moves greater than 5% over the last year. In that context, today's move indicates the market considers this news meaningful, although it might not be something that would fundamentally change its perception of the business. The biggest move we wrote about over the last year was 8 months ago when the stock gained 6.9% on the news that activist investor Elliott Investment Management built a stake worth more than $5 billion in the company. The stake made the investment firm the largest active investor when the position was revealed. Elliott advocated for a breakup of Honeywell into two separate companies, Honeywell Aerospace and Honeywell Automation, adding, "The conglomerate structure that once suited Honeywell no longer does, and the time has come to embrace simplification." This move is noteworthy given that activist investors often bring about significant changes in targeted companies, focusing on improving asset monetization, expense efficiency, and stock buybacks. Honeywell is up 0.7% since the beginning of the year, and at $227.11 per share, it is trading close to its 52-week high of $240.40 from July 2025. Investors who bought $1,000 worth of Honeywell's shares 5 years ago would now be looking at an investment worth $1,520. Here at StockStory, we certainly understand the potential of thematic investing. Diverse winners from Microsoft (MSFT) to Alphabet (GOOG), Coca-Cola (KO) to Monster Beverage (MNST) could all have been identified as promising growth stories with a megatrend driving the growth. So, in that spirit, we've identified a relatively under-the-radar profitable growth stock benefiting from the rise of AI, available to you FREE via this link.
Globe and Mail
24-07-2025
- Business
- Globe and Mail
Honeywell's Q2 Earnings & Revenues Beat Estimates, 25' View Up
Honeywell International Inc. HON reported second-quarter 2025 adjusted earnings of $2.75 per share, which surpassed the Zacks Consensus Estimate of $2.64. The bottom line increased 10% year over year on an adjusted basis. On a reported basis, the company's earnings were $2.45 per share, up 4% year over year. Total revenues of $10.35 billion beat the consensus estimate of $10.02 billion. The top line increased 8% from the year-ago quarter, driven by strength in the Aerospace Technologies segment. Organic sales increased 5% year over year. Honeywell Q2 Performance by Business Segment Beginning in the second quarter of 2024, the company started operating under the segments discussed below. Aerospace Technologies' quarterly revenues were $4.31 billion, up 11% year over year. Organic sales increased 6% year over year. Strength in both commercial aftermarket and defense and space markets, driven by increased flight activity, augmented the top line. Our estimate for the segment's revenues was $4.28 billion. Industrial Automation revenues declined 5% year over year to $2.38 billion. Organic sales were flat year over year. The sales decline was attributable to softness in the warehouse and workflow solutions business, which was partially offset by growth in the sensing and safety technologies business. Our estimate for segmental revenues was pegged at $2.36 billion. Building Automation revenues totaled $1.83 billion, up 16% year over year. Organic sales increased 8% year over year. The upside was driven by ongoing strength in both the building solutions and building products businesses. Our estimate for the segment's revenues was $1.71 billion. Energy and Sustainability Solutions' revenues increased 15% to $1.84 billion. Organic sales rose 6% year over year. The results were driven by strength across UOP, specialty chemicals and materials businesses. However, weakness in the fluorine products business offset the gains. Our estimate for the segment's revenues was $1.63 billion. Costs & Margins of HON The company's total cost of sales (cost of products and services) was about $6.33 billion, up 8.1% year over year. Selling, general and administrative expenses were $1.43 billion, up 4.9%. Interest expenses and other financial charges were $330 million, reflecting an increase of 32% year over year. Operating income was $2.11 billion, up 7% year over year. The operating income margin was 20.4% compared with 20.7% in the year-ago period. HON's Balance Sheet & Cash Flow Exiting second-quarter 2025, Honeywell had cash and cash equivalents of $10.3 billion compared with $10.6 billion at the end of December 2024. Long-term debt was $30.2 billion, higher than $25.5 billion at 2024-end. In the second quarter, it generated net cash of $1.3 billion from operating activities compared with $1.4 billion in the prior-year quarter. Capital expenditure totaled $303 million compared with $259 million in the previous year quarter. Free cash flow in the quarter was $1 billion, down 8.6% from the year-ago quarter's level. Honeywell's 2025 Guidance For 2025, Honeywell expects sales to be in the range of $40.8-$41.3 billion, higher than $39.6-$40.5 billion projected previously. Organic sales are now expected to increase in the range of 4-5% compared with its earlier projection of 2-5%. HON expects a segment margin of 23.0-23.2% compared with 22.6% in 2024. Adjusted earnings per share (EPS) are expected to be between $10.45 and $10.65, higher than $10.20-$10.50 guided earlier. The metric indicates an increase of 6-8% on a year-over-year basis. It continues to expect operating cash flow in the range of $6.7-$7.1 billion. Free cash flow is still expected to be in the band of $5.4-$5.8 billion. HON's Zacks Rank & Key Picks The company currently carries a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here. Some better-ranked stocks from the same space are discussed below: Huntington Ingalls Industries HII presently sports a Zacks Rank of 1. HII's earnings surpassed the consensus estimate twice and missed in the other two occasions in the trailing four quarters. The average earnings surprise was 4.2%. In the past 60 days, the Zacks Consensus Estimate for Huntington Ingalls' 2025 earnings has increased 0.8%. Howmet Aerospace HWM currently carries a Zacks Rank #2 (Buy). HWM has an impressive earnings surprise history, having outperformed the consensus estimate in each of the preceding four quarters, the average surprise being 8.8%. In the past 60 days, the Zacks Consensus Estimate for Howmet Aerospace's 2025 earnings has increased 0.9%. ITT Inc. ITT currently carries a Zacks Rank of 2. ITT has an impressive earnings surprise history, having outperformed the consensus estimate in each of the preceding four quarters, the average surprise being 1.7%. In the past 60 days, the Zacks Consensus Estimate for ITT's 2025 earnings has increased 0.9%. 7 Best Stocks for the Next 30 Days Just released: Experts distill 7 elite stocks from the current list of 220 Zacks Rank #1 Strong Buys. They deem these tickers "Most Likely for Early Price Pops." Since 1988, the full list has beaten the market more than 2X over with an average gain of +23.5% per year. So be sure to give these hand picked 7 your immediate attention. See them now >> Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Honeywell International Inc. (HON): Free Stock Analysis Report ITT Inc. (ITT): Free Stock Analysis Report Huntington Ingalls Industries, Inc. (HII): Free Stock Analysis Report Howmet Aerospace Inc. (HWM): Free Stock Analysis Report
Yahoo
24-07-2025
- Business
- Yahoo
Honeywell Lifts Outlook As Transformation Picks Up Speed
Honeywell International Inc. (NASDAQ:HON) on Thursday reported second-quarter 2025 results that beat Wall Street expectations and raised its full-year earnings and sales outlook as it continues a sweeping portfolio transformation. The company posted adjusted earnings of $2.75 per share, topping analysts' estimates of $2.65. Revenue for the quarter rose 8% year over year to $10.35 billion, beating expectations of $10.02 billion. Net income on a GAAP basis was $2.45 per share, up 4% from the prior-year period. Also Read: Operating income rose 7% and segment profit increased 8% to $2.4 billion, led by strength in Building Automation and Defense and Space. Operating margin contracted 30 basis points to 20.4% and segment margin contracted 10 basis points to 22.9%. Operating cash flow was $1.3 billion, down 4% year over year, and free cash flow was $1.0 billion, down 9% year over year. Segment results were mixed. Aerospace Technologies generated $4.31 billion in sales, up 6% organically, though segment margins declined 170 basis points due to cost inflation and recent acquisitions. Building Automation posted $1.83 billion in sales with 8% organic growth and a 90 basis-point margin expansion. Industrial Automation reported $2.38 billion in sales, flat on an organic basis, as gains in sensing and smart energy were offset by declines in warehouse automation and productivity solutions. View more earnings on HON Energy and Sustainability Solutions recorded $1.84 billion in sales, up 6% organically, though segment margins contracted due to cost inflation and a customer settlement. The quarter also marked continued execution on Honeywell's portfolio restructuring. The company closed its $2.2 billion acquisition of Sundyne, announced the £1.8 billion acquisition of Johnson Matthey's Catalyst Technologies business, and completed the $1.3 billion sale of its personal protective equipment unit. It also initiated a strategic review of its Productivity Solutions and Services and Warehouse and Workflow Solutions segments. In February, Honeywell announced it would separate its Automation and Aerospace businesses. The Solstice Advanced Materials spin-off remains on track for the fourth quarter of 2025, with the full restructuring expected to be completed in the second half of 2026. 'With the announcement of our review of strategic alternatives for our Productivity Solutions and Services and Warehouse and Workflow Solutions businesses, this month also marked the conclusion of the in-depth portfolio review that I initiated early in my tenure as CEO to simplify and optimize Honeywell's businesses. As we prepare to separate into three industry-leading public companies, we are confident that our efforts to shape our portfolio have positioned Honeywell to deliver significant value for customers, employees, and shareholders,' commented Vimal Kapur, chairman and chief executive officer of Honeywell. Outlook 2025 Honeywell raised its full-year 2025 adjusted earnings guidance to $10.45 to $10.65 per share, up from its prior forecast of $10.20 to $10.50, versus the consensus of $10.40. The company also increased its full-year sales outlook to $40.8 billion and $41.3 billion, up from $39.6 billion to $40.5 billion, versus a consensus of $40.27 billion. Honeywell expects operating cash flow to be between $6.7 billion and $7.1 billion, and free cash flow between $5.4 billion and $5.8 billion. Excluding the Bombardier settlement, it forecasts 3% to 4% organic sales growth, slightly lower segment margins, and adjusted EPS growth of 1% to 3%. For the third quarter, Honeywell expects adjusted earnings of $2.50 to $2.60 per share, compared with the analysts' estimate of $2.54. GAAP earnings are projected to range from $2.30 to $2.40 per share. Sales are expected to be between $10 billion and $10.3 billion, versus the consensus of $10.02 billion. The updated forecast includes contributions from the Sundyne acquisition and the sale of its personal protective equipment business. Price Action: At last check Thursday, HON shares were trading lower by 3.04% to $232 premarket. Read Next:Photo by Piotr Swat via Shutterstock Up Next: Transform your trading with Benzinga Edge's one-of-a-kind market trade ideas and tools. Click now to access unique insights that can set you ahead in today's competitive market. Get the latest stock analysis from Benzinga? HONEYWELL INTL (HON): Free Stock Analysis Report This article Honeywell Lifts Outlook As Transformation Picks Up Speed originally appeared on © 2025 Benzinga does not provide investment advice. All rights reserved. Sign in to access your portfolio
Yahoo
06-07-2025
- Business
- Yahoo
Activist-Backed Breakup: Is Honeywell About to Become a Market Darling?
Honeywell is a diversified industrial conglomerate with a presence across aerospace, buildings, industry, and energy markets. Its four reportable segments are Aerospace Technologies, Industrial Automation, Building Automation, and Energy & Sustainability Solutions (ESS), all powered by the Honeywell Forge software platform. Honeywell's segment mix and strength can be summarized as: Aerospace (~40% of sales), Industrial Automation (~25%), Building Automation (~17%), Energy/Sustainability (~18%). Warning! GuruFocus has detected 7 Warning Sign with HON. Aerospace: Leading provider of aircraft engines, avionics, auxiliary power units, and related services, with a particularly large aftermarket business (maintenance, parts, and services). Every takeoff/landing generates recurring aftermarket revenue. This recurring nature makes aerospace a high-margin Automation: Includes safety & productivity (sensors, gas detection, warehouse automation) and process solutions for industry. Demand tends to be cyclical (tied to capital spending).Building Automation: Controls, fire/safety, HVAC, security, and access systems for commercial buildings. Growth is driven by smart building upgrades; Honeywell recently bolstered this segment by acquiring Carrier's Global Access Solutions (LenelS2, Onity, Supra).Energy & Sustainability Solutions (ESS): High-margin fuel and refining technologies (UOP catalysts and licenses), plus advanced materials and clean energy systems. UOP's long-term, mission-critical refinery licenses generate steady cash flows and customer lock-in, underpinning Honeywell's value in the energy transition. Honeywell also heavily emphasizes software and services: its Honeywell Forge platform integrates industrial and building asset data with analytics to improve operations. Forge (and OT cyber products like SCADAfence) have >60% gross margins and embed Honeywell deeply into customer operations. Geographically, Honeywell is global (over 40% of output outside the U.S.), and it has a significant U.S. government business (roughly $3.4 B in contracts), adding diversification and resilience. Honeywell commenced 2025 with robust financial results, surpassing the high end of its guidance across key metrics in the first quarter. Reported sales reached $9.8 billion, representing an 8% year-over-year increase (vs. the consensus estimate of $9.6 billion). Operating income increased by 6% year-over-year, reaching $1.97 billion in Q1 2025, up from $1.86 billion in Q1 2024. Adjusted EPS demonstrated a healthy 7% year-over-year growth, reaching $2.51, which is notably above the consensus estimate of $2.21. Furthermore, the company showcased impressive cash flow generation, with operating cash flow increasing by 33% and free cash flow by 61% year-over-year. A granular look at each business segment reveals the varied contributions to Honeywell's overall Q1 2025 performance. Aerospace Technologies: Sales in the segment were $4.172 billion, up 14% year-over-year, with organic growth of 9%. Segment profit increased by 6% to $1.099 billion. However, the segment margin contracted by 190 basis points to 26.3% due to product mix and the impact of recent acquisitions, partially offset by productivity actions. The Industrial Automation segment experienced a challenging quarter, with sales declining by 4% year-over-year to $2.378 billion, and organic growth falling by 2%. Segment profit decreased by 11% to $424 million, and the segment margin contracted by 130 basis points to 17.8%. The margin contraction was driven by receivables write-downs and volume deleverage, although partially mitigated by productivity actions. The Building Automation segment saw sales increase by 19% year-over-year to $1.692 billion, with organic growth of 8%. Segment profit surged by 26% to $440 million, and the segment margin expanded by 150 basis points to 26.0%. This margin expansion was primarily driven by volume leverage and productivity actions, despite some offset from mix. Energy and Sustainability Solutions: Sales for ESS increased by 2% to $1.561 billion, though organic growth declined by 2%. Segment profit rose by 14% to $346 million, and the segment margin expanded significantly by 230 basis points to 22.2%. This margin expansion was a result of commercial excellence, productivity actions, and the year-over-year benefit from the margin-accretive LNG acquisition. In the near term, Honeywell faces a mixed environment. On one hand, its key end markets have pockets of strength. Global air travel and defense spending are recovering, fueling aerospace orders. The building automation business is growing (helped by the recent Carrier Access acquisition), and ESS (UOP) benefits from energy transition spending. On the other hand, the short-cycle industrial segment (safety, sensors, workflow automation) is soft as customers digest previous post-COVID capital spending. As the Renaissance Large Cap Growth fund observed, Honeywell faces subdued demand from its industrial segment leading to a shortfall in our short-cycle product growth expectations. Management's guidance and commentary reflect this caution. Although Q1 beat expectations, CEO Vimal Kapur warned of an uncertain global demand environment for the remainder of 2025. Honeywell reaffirmed full-year sales growth goals (including the Carrier acquisition, organic +25%) and marginally raised EPS guidance. The company is focused on cost control and backlog execution to weather any softness. Importantly, Honeywell is undergoing major restructuring: it will spin off its Aerospace and Automation businesses into separate companies by late 2026. The Elliott Management activist campaign has already pushed for these changes: Elliott will add partner Marc Steinberg to Honeywell's board as part of the agreement on the breakup. This activism underscores that management is under pressure to improve performance. Honeywell is undergoing a profound structural transformation, aiming to create three distinct, publicly traded companies, a move that is expected to redefine its long-term trajectory. Honeywell announced its intention to separate its Automation and Aerospace businesses, a plan that, when combined with the previously announced spin-off of Advanced Materials, will result in three independent industry leaders. Honeywell Automation: This new entity will concentrate on the industrial sector, delivering technologies, solutions, and software designed to enhance customer productivity. Honeywell Aerospace: This company will specialize in providing commercial and defense aircraft customers with essential products such as aircraft propulsion, cockpit systems, and advanced aviation technologies. Advanced Materials: This will form the third independent public entity. The separation process is anticipated to be completed in the second half of 2026 and is designed to be a tax-free event for Honeywell's shareholders. To ensure a smooth transition, Honeywell has established dedicated separation management offices to oversee the complex transformation processes. The strategic decision to split is rooted in a clear vision for enhanced long-term value creation. The primary objective is to "unlock significant value for shareholders and customers" by establishing standalone companies that benefit from a "simplified strategic focus" and "increased financial flexibility". Activist investor Elliott Investment Management, a key proponent of the split, argued that simplification is crucial for restoring shareholder value and improving operational performance. They criticized Honeywell's historically inconsistent earnings and lagging stock performance under the conglomerate structure. CEO Vimal Kapur articulated that the decision is driven by a "conviction that there's more growth momentum and more value to create as a separate company". He further emphasized the growing divergence in the operational needs of the aerospace business (requiring focus on capacity expansion and supply chain transformation) and the automation business (demanding attention to artificial intelligence and digital transformation). This restructuring aligns with a broader trend observed across the industrial and aerospace sectors, where large conglomerates, including General Electric and United Technologies, have pursued similar breakups to create more agile, specialized companies capable of adapting more effectively to market demands. As Honeywell prepares for its three-way split into Automation, Aerospace, and Advanced Materials, assigning sector-specific valuation multiples offers insight into potential upside. For instance, Honeywell Aerospace, with strong recurring aftermarket revenues and ~27.5% margins, could warrant a forward P/E of 2325x, in line with peers like Raytheon Technologies and TransDigm. Automation & Building Solutions, driven by industrial software (Honeywell Forge) and high-margin access/security platforms, could command 2224x, comparable to Rockwell Automation or Schneider Electric. Meanwhile, Advanced Materials, a lower-growth but cash-generative business, may trade closer to 1517x, similar to DuPont or Celanese. Applying these multiples to segmental earnings suggests the sum-of-the-parts (SOTP) valuation may exceed Honeywell's current blended multiple of ~21.8x, supporting the argument that the breakup could lead to a valuation re-rating as markets price each business more accurately based on fundamentals. The role of activist investor Elliott Investment Management has been instrumental in shaping Honeywell's strategic direction. Elliott acquired a significant stake in Honeywell, reported to be "north of $5 billion," in November. The firm "strongly advocated for" the restructuring and is acknowledged to have "played a key role in influencing Honeywell's decision" to restructure. As a direct outcome of a cooperation agreement, Marc Steinberg, a partner at Elliott, joined Honeywell's board of directors as an independent director and audit committee member, effective May 31, 2025. He will serve until the company's 2026 annual shareholder meeting. This agreement also includes standard governance provisions such as voting commitments and standstill restrictions. Elliott provided a compelling valuation thesis, estimating that the standalone aerospace unit alone could be worth over $100 billion. They projected a potential value per share for the combined entities between $321 (base case scenario) and $383 (bull case scenario) by the end of 2026. These figures represent a significant upside of 54% to 84% from the stock's price at the time of their analysis. Honeywell CEO Vimal Kapur publicly described Steinberg's input in recent months as "constructive," indicating a positive dialogue between the two parties. Honeywell had already initiated a strategic portfolio review and planned a spin-off of its Advanced Materials business. However, Elliott Investment Management's substantial stake and its public advocacy for a broader corporate breakup directly preceded and clearly influenced the subsequent announcement of the more extensive three-way split. This suggests that while management may have had a long-term vision for simplification, the activist push provided the necessary impetus and urgency to undertake such a complex and potentially value-unlocking maneuver more aggressively and swiftly. This also implies a higher degree of accountability for the transformation's successful execution, given Elliott's direct board representation and their public valuation targets, which will likely serve as benchmarks for success. Honeywell's breakup strategy echoes proven value-creation models seen in industrial conglomerates like Danaher and United Technologies. Danaher's systematic spin-offs, such as the separation of Fortive in 2016, unlocked significant shareholder value by sharpening business focus and improving capital allocation discipline. Similarly, UTC's breakup into Carrier, Otis, and Raytheon Technologies in 2020 allowed each company to pursue more targeted strategies and trade at sector-appropriate multiples. Both cases demonstrate how separating distinct business lines can lead to enhanced operational visibility, strategic agility, and increased investor confidence. By following a similar path, Honeywell is positioning itself to replicate this playbook, transforming from a diversified conglomerate into three specialized, high-performance entities with clearer growth narratives. Beyond the structural transformation, Honeywell is committed to several key drivers for sustained long-term growth. The core rationale for the planned three-way split is to achieve "simplified strategic focus" and create "more agile, specialized companies". However, the company is simultaneously navigating a complicated restructuring while also adding new businesses through acquisitions. For example, the acquisition of Sundyne for $2.16 billion was announced and completed during the ongoing breakup process. Continued Bolt-on Acquisitions: Management has explicitly stated its intent to "continue to make M&A a consistent part of our operational rhythm, seeking to acquire accretive bolt-on that further shape the portfolio and enhance the value proposition of each business during the dependency of the separation process". Recent acquisitions such as Sundyne and Carrier's Global Access Solutions exemplify this strategy. Digitalization Initiatives: Honeywell is heavily invested in digitalization, with platforms like Honeywell Forge and the Honeywell Connected Enterprise driving digital transformation across its segments. The acquisition of SCADAfence specifically strengthens the Honeywell Forge Cybersecurity+ suite, enhancing its industrial cybersecurity offerings. Honeywell Accelerator Operating System: This internal operating system is credited with enabling consistent margin expansion and improved operational efficiency across the company. Commitment to Shareholder Returns: Honeywell has a strong track record of shareholder returns, having maintained dividend payments for 41 consecutive years, with a current dividend yield of 2%. The company has committed to deploying at least $25 billion towards acquisitions, dividends, capital expenditures, and opportunistic share buybacks through 2025. Honeywell International is trading at a forward P/E of 21.8x based on its 2025 EPS estimate of $10.37, and 19.9x on its 2026 EPS estimate of $11.37, below its five-year average of 23.05x. The company is actively reshaping its portfolio through strategic, accretive acquisitions aligned with megatrends like energy transition, industrial cybersecurity, and smart buildings, while divesting non-core assets to streamline operations. The planned three-way split into Honeywell Automation, Honeywell Aerospace, and Advanced Materials, driven in part by activist investor Elliott Investment Management, marks a pivotal move to unlock long-term shareholder value. This transformation aims to boost strategic focus, agility, and financial flexibility. While near-term macro headwinds, including muted industrial demand and shifting global trade dynamics, persist, Honeywell's focus on R&D, strategic M&A, and its local-for-local approach position it well for resilience. Successful execution of this transition could lead to improved performance, clearer strategic direction, and a potential valuation re-rating as the market begins to price in the distinct value of its specialized businesses. This article first appeared on GuruFocus. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
06-07-2025
- Business
- Yahoo
Activist-Backed Breakup: Is Honeywell About to Become a Market Darling?
Honeywell is a diversified industrial conglomerate with a presence across aerospace, buildings, industry, and energy markets. Its four reportable segments are Aerospace Technologies, Industrial Automation, Building Automation, and Energy & Sustainability Solutions (ESS), all powered by the Honeywell Forge software platform. Honeywell's segment mix and strength can be summarized as: Aerospace (~40% of sales), Industrial Automation (~25%), Building Automation (~17%), Energy/Sustainability (~18%). Warning! GuruFocus has detected 7 Warning Sign with HON. Aerospace: Leading provider of aircraft engines, avionics, auxiliary power units, and related services, with a particularly large aftermarket business (maintenance, parts, and services). Every takeoff/landing generates recurring aftermarket revenue. This recurring nature makes aerospace a high-margin Automation: Includes safety & productivity (sensors, gas detection, warehouse automation) and process solutions for industry. Demand tends to be cyclical (tied to capital spending).Building Automation: Controls, fire/safety, HVAC, security, and access systems for commercial buildings. Growth is driven by smart building upgrades; Honeywell recently bolstered this segment by acquiring Carrier's Global Access Solutions (LenelS2, Onity, Supra).Energy & Sustainability Solutions (ESS): High-margin fuel and refining technologies (UOP catalysts and licenses), plus advanced materials and clean energy systems. UOP's long-term, mission-critical refinery licenses generate steady cash flows and customer lock-in, underpinning Honeywell's value in the energy transition. Honeywell also heavily emphasizes software and services: its Honeywell Forge platform integrates industrial and building asset data with analytics to improve operations. Forge (and OT cyber products like SCADAfence) have >60% gross margins and embed Honeywell deeply into customer operations. Geographically, Honeywell is global (over 40% of output outside the U.S.), and it has a significant U.S. government business (roughly $3.4 B in contracts), adding diversification and resilience. Honeywell commenced 2025 with robust financial results, surpassing the high end of its guidance across key metrics in the first quarter. Reported sales reached $9.8 billion, representing an 8% year-over-year increase (vs. the consensus estimate of $9.6 billion). Operating income increased by 6% year-over-year, reaching $1.97 billion in Q1 2025, up from $1.86 billion in Q1 2024. Adjusted EPS demonstrated a healthy 7% year-over-year growth, reaching $2.51, which is notably above the consensus estimate of $2.21. Furthermore, the company showcased impressive cash flow generation, with operating cash flow increasing by 33% and free cash flow by 61% year-over-year. A granular look at each business segment reveals the varied contributions to Honeywell's overall Q1 2025 performance. Aerospace Technologies: Sales in the segment were $4.172 billion, up 14% year-over-year, with organic growth of 9%. Segment profit increased by 6% to $1.099 billion. However, the segment margin contracted by 190 basis points to 26.3% due to product mix and the impact of recent acquisitions, partially offset by productivity actions. The Industrial Automation segment experienced a challenging quarter, with sales declining by 4% year-over-year to $2.378 billion, and organic growth falling by 2%. Segment profit decreased by 11% to $424 million, and the segment margin contracted by 130 basis points to 17.8%. The margin contraction was driven by receivables write-downs and volume deleverage, although partially mitigated by productivity actions. The Building Automation segment saw sales increase by 19% year-over-year to $1.692 billion, with organic growth of 8%. Segment profit surged by 26% to $440 million, and the segment margin expanded by 150 basis points to 26.0%. This margin expansion was primarily driven by volume leverage and productivity actions, despite some offset from mix. Energy and Sustainability Solutions: Sales for ESS increased by 2% to $1.561 billion, though organic growth declined by 2%. Segment profit rose by 14% to $346 million, and the segment margin expanded significantly by 230 basis points to 22.2%. This margin expansion was a result of commercial excellence, productivity actions, and the year-over-year benefit from the margin-accretive LNG acquisition. In the near term, Honeywell faces a mixed environment. On one hand, its key end markets have pockets of strength. Global air travel and defense spending are recovering, fueling aerospace orders. The building automation business is growing (helped by the recent Carrier Access acquisition), and ESS (UOP) benefits from energy transition spending. On the other hand, the short-cycle industrial segment (safety, sensors, workflow automation) is soft as customers digest previous post-COVID capital spending. As the Renaissance Large Cap Growth fund observed, Honeywell faces subdued demand from its industrial segment leading to a shortfall in our short-cycle product growth expectations. Management's guidance and commentary reflect this caution. Although Q1 beat expectations, CEO Vimal Kapur warned of an uncertain global demand environment for the remainder of 2025. Honeywell reaffirmed full-year sales growth goals (including the Carrier acquisition, organic +25%) and marginally raised EPS guidance. The company is focused on cost control and backlog execution to weather any softness. Importantly, Honeywell is undergoing major restructuring: it will spin off its Aerospace and Automation businesses into separate companies by late 2026. The Elliott Management activist campaign has already pushed for these changes: Elliott will add partner Marc Steinberg to Honeywell's board as part of the agreement on the breakup. This activism underscores that management is under pressure to improve performance. Honeywell is undergoing a profound structural transformation, aiming to create three distinct, publicly traded companies, a move that is expected to redefine its long-term trajectory. Honeywell announced its intention to separate its Automation and Aerospace businesses, a plan that, when combined with the previously announced spin-off of Advanced Materials, will result in three independent industry leaders. Honeywell Automation: This new entity will concentrate on the industrial sector, delivering technologies, solutions, and software designed to enhance customer productivity. Honeywell Aerospace: This company will specialize in providing commercial and defense aircraft customers with essential products such as aircraft propulsion, cockpit systems, and advanced aviation technologies. Advanced Materials: This will form the third independent public entity. The separation process is anticipated to be completed in the second half of 2026 and is designed to be a tax-free event for Honeywell's shareholders. To ensure a smooth transition, Honeywell has established dedicated separation management offices to oversee the complex transformation processes. The strategic decision to split is rooted in a clear vision for enhanced long-term value creation. The primary objective is to "unlock significant value for shareholders and customers" by establishing standalone companies that benefit from a "simplified strategic focus" and "increased financial flexibility". Activist investor Elliott Investment Management, a key proponent of the split, argued that simplification is crucial for restoring shareholder value and improving operational performance. They criticized Honeywell's historically inconsistent earnings and lagging stock performance under the conglomerate structure. CEO Vimal Kapur articulated that the decision is driven by a "conviction that there's more growth momentum and more value to create as a separate company". He further emphasized the growing divergence in the operational needs of the aerospace business (requiring focus on capacity expansion and supply chain transformation) and the automation business (demanding attention to artificial intelligence and digital transformation). This restructuring aligns with a broader trend observed across the industrial and aerospace sectors, where large conglomerates, including General Electric and United Technologies, have pursued similar breakups to create more agile, specialized companies capable of adapting more effectively to market demands. As Honeywell prepares for its three-way split into Automation, Aerospace, and Advanced Materials, assigning sector-specific valuation multiples offers insight into potential upside. For instance, Honeywell Aerospace, with strong recurring aftermarket revenues and ~27.5% margins, could warrant a forward P/E of 2325x, in line with peers like Raytheon Technologies and TransDigm. Automation & Building Solutions, driven by industrial software (Honeywell Forge) and high-margin access/security platforms, could command 2224x, comparable to Rockwell Automation or Schneider Electric. Meanwhile, Advanced Materials, a lower-growth but cash-generative business, may trade closer to 1517x, similar to DuPont or Celanese. Applying these multiples to segmental earnings suggests the sum-of-the-parts (SOTP) valuation may exceed Honeywell's current blended multiple of ~21.8x, supporting the argument that the breakup could lead to a valuation re-rating as markets price each business more accurately based on fundamentals. The role of activist investor Elliott Investment Management has been instrumental in shaping Honeywell's strategic direction. Elliott acquired a significant stake in Honeywell, reported to be "north of $5 billion," in November. The firm "strongly advocated for" the restructuring and is acknowledged to have "played a key role in influencing Honeywell's decision" to restructure. As a direct outcome of a cooperation agreement, Marc Steinberg, a partner at Elliott, joined Honeywell's board of directors as an independent director and audit committee member, effective May 31, 2025. He will serve until the company's 2026 annual shareholder meeting. This agreement also includes standard governance provisions such as voting commitments and standstill restrictions. Elliott provided a compelling valuation thesis, estimating that the standalone aerospace unit alone could be worth over $100 billion. They projected a potential value per share for the combined entities between $321 (base case scenario) and $383 (bull case scenario) by the end of 2026. These figures represent a significant upside of 54% to 84% from the stock's price at the time of their analysis. Honeywell CEO Vimal Kapur publicly described Steinberg's input in recent months as "constructive," indicating a positive dialogue between the two parties. Honeywell had already initiated a strategic portfolio review and planned a spin-off of its Advanced Materials business. However, Elliott Investment Management's substantial stake and its public advocacy for a broader corporate breakup directly preceded and clearly influenced the subsequent announcement of the more extensive three-way split. This suggests that while management may have had a long-term vision for simplification, the activist push provided the necessary impetus and urgency to undertake such a complex and potentially value-unlocking maneuver more aggressively and swiftly. This also implies a higher degree of accountability for the transformation's successful execution, given Elliott's direct board representation and their public valuation targets, which will likely serve as benchmarks for success. Honeywell's breakup strategy echoes proven value-creation models seen in industrial conglomerates like Danaher and United Technologies. Danaher's systematic spin-offs, such as the separation of Fortive in 2016, unlocked significant shareholder value by sharpening business focus and improving capital allocation discipline. Similarly, UTC's breakup into Carrier, Otis, and Raytheon Technologies in 2020 allowed each company to pursue more targeted strategies and trade at sector-appropriate multiples. Both cases demonstrate how separating distinct business lines can lead to enhanced operational visibility, strategic agility, and increased investor confidence. By following a similar path, Honeywell is positioning itself to replicate this playbook, transforming from a diversified conglomerate into three specialized, high-performance entities with clearer growth narratives. Beyond the structural transformation, Honeywell is committed to several key drivers for sustained long-term growth. The core rationale for the planned three-way split is to achieve "simplified strategic focus" and create "more agile, specialized companies". However, the company is simultaneously navigating a complicated restructuring while also adding new businesses through acquisitions. For example, the acquisition of Sundyne for $2.16 billion was announced and completed during the ongoing breakup process. Continued Bolt-on Acquisitions: Management has explicitly stated its intent to "continue to make M&A a consistent part of our operational rhythm, seeking to acquire accretive bolt-on that further shape the portfolio and enhance the value proposition of each business during the dependency of the separation process". Recent acquisitions such as Sundyne and Carrier's Global Access Solutions exemplify this strategy. Digitalization Initiatives: Honeywell is heavily invested in digitalization, with platforms like Honeywell Forge and the Honeywell Connected Enterprise driving digital transformation across its segments. The acquisition of SCADAfence specifically strengthens the Honeywell Forge Cybersecurity+ suite, enhancing its industrial cybersecurity offerings. Honeywell Accelerator Operating System: This internal operating system is credited with enabling consistent margin expansion and improved operational efficiency across the company. Commitment to Shareholder Returns: Honeywell has a strong track record of shareholder returns, having maintained dividend payments for 41 consecutive years, with a current dividend yield of 2%. The company has committed to deploying at least $25 billion towards acquisitions, dividends, capital expenditures, and opportunistic share buybacks through 2025. Honeywell International is trading at a forward P/E of 21.8x based on its 2025 EPS estimate of $10.37, and 19.9x on its 2026 EPS estimate of $11.37, below its five-year average of 23.05x. The company is actively reshaping its portfolio through strategic, accretive acquisitions aligned with megatrends like energy transition, industrial cybersecurity, and smart buildings, while divesting non-core assets to streamline operations. The planned three-way split into Honeywell Automation, Honeywell Aerospace, and Advanced Materials, driven in part by activist investor Elliott Investment Management, marks a pivotal move to unlock long-term shareholder value. This transformation aims to boost strategic focus, agility, and financial flexibility. While near-term macro headwinds, including muted industrial demand and shifting global trade dynamics, persist, Honeywell's focus on R&D, strategic M&A, and its local-for-local approach position it well for resilience. Successful execution of this transition could lead to improved performance, clearer strategic direction, and a potential valuation re-rating as the market begins to price in the distinct value of its specialized businesses. This article first appeared on GuruFocus. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
