Honeywell Earnings Were Good. The Stock Isn’t Up.

Honeywell earned $2.27 per share on sales of $9.3 billion. Wall Street had expected earnings of $2.23 per share on sales of $9.2 billion. A year ago, in the 2022 third quarter, Honeywell earned $2.25 per share from sales of just under $9 billion.

Honeywell also narrowed the range of forecasts it has made for 2023 earnings per share to $9.10 to $9.20, keeping a midpoint of $9.15. That implies fourth-quarter earnings per share of about $2.60, while the consensus estimate is just under $2.60, according to FactSet.

Sales for 2023 are still expected to be about $37 billion, up about 5% from 2022 on a comparable basis.

Honeywell’s long-term goal is to grow sales 4% to 7% a year on average. This year will be at the lower end of that range, partly because the global industrial economy is relatively weak.

Management’s goal for segment operating-profit margins is 25%. This year, Honeywell is expected to produce average profit margins of about 22.5%.

In the third quarter, aerospace margins came in at almost 28%, leading the way. Margins in the commercial building business were almost 26%, also above the long-term goal at almost 26%. Energy-related margins were about 22%.

Margins in the safety and productivity solutions business, which includes things such as warehouse automation, were less than 17%, but they expanded about 4 percentage points from just under 13% a year ago despite a 22% decline in the segment’s sales. That demonstrates solid execution.

The drop in sales, meanwhile, reflects a weak economy. Businesses are being more careful with their capital spending.

Honeywell announced in the third quarter a new reporting structure for the company. Honeywell’s four operating segments will be Aerospace Technologies, Industrial Automation, Building Automation, as well as Energy and Sustainability Solutions.

The segments are similar to its previous business units, but part of the energy business is being moved to Industrial Automation. The changes will make comparability a little harder for a couple of quarters. The new structure will start in 2024.

Through Wednesday’s close, Honeywell stock is down about 6% over the past 12 months, while the
S&P 500
and
Dow Jones Industrial Average
are up about 9% and 4%, respectively.

It’s tough to blame all the underperformance on the company. Honeywell has beaten Street estimates in this year’s first, second, and third quarters. It raised guidance after the first and second quarterly reports.

RBC analyst Deane Dray noted in a preview report that Honeywell stock has underperformed those of peers by a couple of percentage points over the past few weeks, and shares are at the lower end of their historic valuation range.

That wasn’t a bad setup for investors. Still, Honeywell shares fell 1.1% Thursday while the
S&P 500
and
Nasdaq Composite
fell 1.2% and 1.8%, respectively.

The market seems to be the stock’s biggest problem on Thursday.

“Orders grew [at] double-digit [rates] in the quarter due to tremendous demand generation in Aero,” said CEO Vimal Kapur on the company’s conference call. “Honeywell Building Technologies and Safety and Productivity Solutions ended the quarter with flat year-over-year orders with book-to-bill of around 1, an indication that we are seeing short-cycle end markets beginning to stabilize.”

Short-cycle markets refers to sales of lower-priced items that react more quickly to economic conditions. A jet is a long-cycle item, while a Honeywell part for that jet is a short-cycle item.

Stability is a positive.

Write to Al Root at [email protected]