What happened

Shares of industrials giant Honeywell International (HON -0.91%) rose a respectable 3.6% in noonday trading (ET) Thursday after delivering a beat-and-raise quarter on Wall Street.

Beating analyst forecasts for $1.93 per share in earnings, as calculated according to generally accepted accounting principles (GAAP), Honeywell earned $2.07 instead, with revenues of $8.9 billion likewise beating out expectations for $8.5 billion. And as for the raise part, Honeywell raised both the floor and the ceiling on its guidance for this full fiscal year -- now predicting non-GAAP profits of between $9.55 and $9.80 per share.  

So what

Sales grew 6% in the quarter, and Honeywell vastly improved the profits it earns on those revenues. The company's operating profit margin expanded by a whopping 390 basis points to 19.1%. As a result, Honeywell was able to transform a rather modest single-digit sales gain into a great galumphing 26% increase in profits per diluted share.  

Honeywell enjoyed its best sales growth in the two business segments that were already its largest: aerospace, up 13% year over year, and performance materials, up 12%. The smaller building technologies and safety solutions divisions grew 4% and shrank 13%, respectively.

Now what

CEO Darius Adamczyk called the results "an outstanding start to 2023" -- outstanding enough, in fact, to convince management that it is time to update its guidance for the rest of this year. Looking ahead, Honeywell now anticipates it will be able to grow sales organically by 3% to 6%, to as much as $37.3 billion by year-end. Operating profit margins are expected to continue improving to as high as 22.6% (i.e., potentially another 350 basis point gain over Q1 levels).

In dollars and cents, Honeywell estimates that will work out to per-share profits of between $9.55 and $9.80 this year. However, these numbers are characterized as both "adjusted" (i.e., they don't count anything that Honeywell considers a one-time item) and "excluding pension headwind" (i.e., they particularly don't count any extra pension contributions Honeywell may have to make to counteract the effects of a falling stock market).

That latter factor, of course, isn't really within Honeywell's control. Still, investors should probably anticipate that Honeywell's GAAP profits this year won't fully measure up to its non-GAAP predictions. Accordingly, when compared to Honeywell's current share price, you should probably figure this company costs 20 times earnings at least. More likely, it costs a bit more than that.

Whether it's worth the price, given that Honeywell is only growing sales in the single digits -- but growing earnings much faster than that -- really depends on how long you think Honeywell can keep expanding its profit margin in a high-interest rate, high-inflation environment.