Honeywell International (HON 1.12%) delivered a solid quarter, but the company's guidance suggests investors might have to wait for growth. Shares of the industrial conglomerate traded down as much as 3% post-earnings, and were down slightly as of 1 p.m. ET on Thursday.
Strength in part of the business
Honeywell, a manufacturer of industrial, aerospace, and automation products, earned $2.25 per share in the first quarter on revenue of $9.11 billion. That's ahead of Wall Street's expectations for $2.17 per share in earnings on sales of $9.03 billion.
Operating margin improved by 130 basis points year over year to 20.4% thanks to strength in commercial aviation, defense, and space. Honeywell's backlog of future business grew by 6% to $32 billion.
But sales in more economically sensitive areas including industrial automation were down, a reflection of customers being unwilling to commit to new spending at a time when the health of the economy seems uncertain.
CEO Vimal Kapur said Honeywell is experiencing "pockets of recovery" in these so-called short-cycle businesses and is expecting "broader participation as the year unfolds and channels normalize."
The question is how soon that recovery will come. Honeywell expects to earn between $2.25 and $2.35 per share in the current quarter, implying some potential downside to Wall Street's $2.35 consensus estimate.
Is Honeywell a buy following its earnings report?
Honeywell has underperformed the market for several years now as we wait for both the long- and short-cycle parts of the business to take off. That day is coming, but it appears it could be more of a story in the second half of 2024 than something we will see this quarter.
In the meantime, the company continues to deploy its cash for bolt-on acquisitions as well as dividends and share repurchases, offering shareholders a 2.25% yield at current prices while they wait for a recovery. Long-term investors who buy in today are likely to be rewarded over time.
