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Instant Analysis: Honeywell International's Adamczyk Takes Center Stage

By Lee Samaha – Mar 2, 2017 at 12:05PM

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The incoming CEO outlined a more aggressive approach to capital deployment, and promised that dividends would grow at least in line with earnings.

What happened?

Honeywell International (HON -1.95%) gave its annual investor conference on Wednesday and updated investors on its 2017 outlook. In a nutshell, there was no change to the guidance given on its first quarter. That said, there is a case for believing that management is being a little conservative with its 2017 guidance, and at the conference management described the oil & gas and defense sectors -- previously problematic for Honeywell -- as improving. On a less positive note, the business-jet market still looks weak, with Honeywell predicting a recovery only toward the end of 2018.

Man handing out cash,

Image source: Getty Images

No matter, investing isn't just about the numbers. It's also about the people that make the numbers, and a key focus of the event was getting investors used to incoming CEO Darius Adamczyk. His address highlighted four key areas of focus:

  • Accelerating organic growth
  • Expanding margins via productivity rigor
  • Becoming a software-industrial company
  • More aggressive capital deployment

In a sense, there's nothing new about the first three points. Honeywell's forecast for 1% to 3% organic growth in 2017 comes after a year when core organic sales unexpectedly declined 1%. Clearly, investors would like to see more growth, and the pressure is on Adamczyk to deliver. Margin expansion has always been a key part of Honeywell's modus operandi, and its connected enterprise initiatives are part and parcel of being an industrial company these days.

However, what really caught the eye was the plan to be more aggressive with capital deployment in the next few years, particularly if President Trump's tax reform proves favorable for investment. The plan includes a more aggressive stance with regard to:

  • Share repurchases
  • Mergers and acquisitions
  • Capital expenditures
  • A dividend "that grows at or above our EPS growth rate"

Does it matter to the investment thesis?

Focusing on the more aggressive capital deployment plans, the truth is that Adamczyk's plans are pretty much to be expected, but it's good to hear them confirmed. He's inheriting a company set to increase free cash flow generation in future years, and as the new man in charge, it's natural that he would want to stamp his mark on the company by making acquisitions and divestitures.

Furthermore, the economy remains in a low-interest-rate environment and Honeywell has been struggling to grow in recent years -- some acquisition-led growth would be nice. Moreover, Trump's tax repatriation plans are encouraging companies to be more expansive in their capital deployment plans.

Lee Samaha has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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