Industrial conglomerate Honeywell International (HON -0.72%) operates in many end markets and has multiple competitors. As such, its outlook should always be closely followed by the company's stockholders, as well as investors looking for ideas on how to invest in the larger market in 2023. So here's a look at what management said about its earnings and end-market prospects for next year. 

Honeywell's 2022 results and 2023 outlook

It's been a pretty good year for Honeywell under the circumstances. Management started the year guiding toward full-year sales of $35.4 billion to $36.4 billion, only to run up against the loss of $350 million worth of sales discontinued to Russia due to the conflict and a further $750 million due to adverse foreign-currency movements. As a result, the current guidance of $35.4 billion to $35.7 billion is a reduction on a reported basis, but on an organic growth basis, it's an improvement -- 6% to 7% compared to 4% to 7% at the start of the year. 

Moreover, even though the full-year adjusted EPS guidance hike from $8.40 to $8.70 to a new range of $8.70 to $8.80 doesn't seem impressive, it's an increase of 8% to 9% when compared with 4% to 8% after adjusting for the impact of lost sales to Russia.  

The best way to quickly see which parts of Honeywell's end markets are outperforming is by looking at the cadence of its full-year revenue guidance by segment. I'll reference the table in the discussion of the investment themes below. 

Honeywell Division

February Full-Year Guidance

October Full-Year Guidance

Sales 2021

Aerospace

High single digits

Mid-single digits to high single digits

$11 billion

Honeywell Building Technologies (HBT)

High single digits

Double digits

$5.5 billion

Performance Materials and Technologies (PMT)

Mid-single digits to high single digits

Double digits

$10 billion

Safety and Productivity Solutions (SPS)

Flat

Mid-single-digit decline

$7.8 billion

Data source: Honeywell presentations. 

A graphical depiction of each segment third quarter organic sales growth (in bold) with subsectors (in shaded) helps to define the areas of strength and weakness for the company. 

Honeywell third quarter sales growth.

Data source: Honeywell presentations. YOY is year over year. OEM is original equipment market. UOP sells catalysts and absorbents to the petrochemicals and refining industries.

1. Consumer weak, corporate good

Honeywell has no significant business that goes straight to the consumer anymore. However, Safety and Productivity Solutions (barcode scanners, RFID, and other data capture solutions) sell into the retail sector. Spending on warehouse automation (largely e-commerce related) is the weakest area of Honeywell's sales. That's why the SPS outlook has worsened through 2022, and management expects ongoing softness in 2023.

In contrast, the outlook for HBT (nonresidential building controls and systems) significantly improved through 2022. It mirrors what's happening across the building technology sector, where strong nonresidential orders balance weak residential orders.

Simply put, industrials with heavy consumer exposure, such as Stanley Black & Decker, have seen softness, while industrials with corporate exposure have seen strength.

2. Aerospace and energy are hot sectors

Aerospace and energy have been two bright spots in the global economy in 2022. As a result, management expects its Aerospace and PMT (exposed to downstream oil and gas spending) segments to "lead growth and profitability" in 2023.

As mentioned, Honeywell's aerospace segment has had an exceptional year. That looks likely to continue, mirrored by General Electric's and Raytheon Technologies' excellent recent results in commercial aerospace. 

Alongside aerospace, capital spending in the energy sector is driven by a relatively high price of oil, as seen with a stock like Baker Hughes, which looks like a great theme for next year. 

3. Sustainability investment remains high

Its 2023 management also said, "Sustainability drives growth tailwinds from infrastructure investment." This trend can be seen in the HBT segment (where building controls help create healthy buildings, improve efficiency, and reduce emissions) and in PMT, where management expects the Inflation Reduction Act will spur further investment in sustainable technology like carbon capture, renewable fuels, and recycled plastics. 

Preparing for 2023

All told, when setting up a portfolio, remember: Favor industrial stocks with business spending exposure over consumer-focused industrials, aerospace and energy are still go-to sectors for investment, and sustainability remains a hot investment theme.