Manufacturing giant Honeywell International (HON 0.60%) reported financial results for the third quarter on Thursday, Oct. 24, that fell short of analyst consensus estimates on revenue but exceeded them on adjusted EPS. The company reported an adjusted earnings per share (EPS) of $2.58, topping estimates and marking an 8% increase year over year. However, total sales for the quarter of $9.7 billion missed the expected $9.91 billion.
Overall, the third quarter showed solid growth in specific areas, but investors were disappointed that the company lowered guidance for the full year.
| Metric | Q3 2024 | Analyst Estimate | Q3 2023 | Change (YOY) |
|---|---|---|---|---|
| Revenue | $9.73 billion | $9.91 billion | $9.21 billion | 6% |
| Net income | $1.41 billion | N/A | $1.51 billion | 6.7% |
| Adjusted EPS | $2.58 | $2.51 | $2.39 | 8% |
| Operating income margin | 19.1% | N/A | 20.9% | (180 bps) |
| Free cash flow | $1.72 billion | N/A | $1.56 billion | 10% |
Source: Honeywell International. Note: Analyst estimates for the quarter provided by FactSet. YOY = Year over year.
Business Overview
Honeywell International is a leading global technology and manufacturing company active in a broad range of industries, including aerospace, building automation, performance materials, and safety solutions. The company’s aerospace segment, which is a substantial growth driver, consistently contributes significantly to overall sales and profits. This segment benefited from robust demand in the defense market.
Recently, the company has focused on industrial automation and building solutions. Key performance indicators for Honeywell include growth metrics in these critical business segments and maintaining strong profit margins across its diverse product offerings.
Third Quarter Highlights
The Aerospace segment led Honeywell's Q3 report with a 10% sales increase (on an organic basis), largely driven by defense and space sectors. Segment margins were steady at 27.7%. Meanwhile, the Industrial Automation segment faced headwinds, recording a 5% year-over-year decline in sales due to reduced volume in warehouse solutions, although margins expanded by 60 basis points thanks to improving productivity efforts.
In the Building Automation segment, Honeywell reported a 3% growth in organic sales, backed by strong performance in building solutions. This was supported by improvements in segment margins driven by commercial excellence. Meanwhile, Energy and Sustainability Solutions saw moderate growth, with a 1% increase in organic sales and a promising backlog within the UOP (oil products) business, which achieved record order levels of $1 billion, highlighting future growth potential.
Material one-time events during the quarter included the spinoff of its Advanced Materials division and the exit from the PPE business. This strategic pivot is expected to streamline operations and focus on core competencies. Additionally, Honeywell closed acquisitions worth $3.7 billion, which should amplify its defense and natural gas processing capabilities.
Looking Ahead
The company lowered its full-year outlook, reflecting strategic changes and recent performance. Honeywell revised its sales expectations to a range of $38.6 billion to $38.8 billion (down from a prior guidance range of $39.1 billion to $39.7 billion). However, it remained optimistic about earnings growth, forecasting its adjusted EPS to grow by 7% to 8%, reaching between $10.15 to $10.25 (a raise from prior guidance of $10.05 to $10.25). Operating cash flow and free cash flow were also revised down.
Management emphasized ongoing strategic investments and realignment to capitalize on emerging opportunities in high-growth markets, despite sales guidance cuts. Continued focus will be on aerospace advancements and building technologies, which have shown promising resilience, along with closely monitoring the impact of its recent acquisitions on upcoming financial results.
