Honeywell Wins With Accidental Go-It-Alone Strategy
Wall St. Journal
Jul 18, 2019
Honeywell International HON +2.22% didn’t necessarily mean to be on the right side of the industrial conglomerate break-up-or-merge conundrum. Shareholders should be thankful, though, that the aerospace company missed out on a 2016 tie-up with United Technologies .
Even as the company that rejected it works to convince shareholders about a messy deal to buy competitor Raytheon , Honeywell just booked a solid quarter. Results suggests it could scoot ahead further while others wring their hands and try to placate activists.
Honeywell bid $90 billion for United Technologies in early 2016 in a short but public battle. United Technologies rebuffed its offer, so Honeywell moved along and then spun off some divisions last year. Since launching its offer, Honeywell has appreciated by around 70% while United Technologies is up roughly 50%.
Netting out the effect of disposals and some other items, Honeywell’s earnings per share grew 9% in the latest quarter. Importantly, organic sales in its largest division, aerospace, were up 11% while margins improved. Organic revenue grew in its divisions for performance materials and technologies and building technologies, but was down in its safety and productivity-solutions group.
Risks loom: Unlike some other big industrial companies, most of Honeywell’s total revenue comes from so-called shorter-cycle businesses in which customers book orders and products are shipped. Such sales don’t benefit from the stability of a long order backlog. Short-term changes in business sentiment can drive such purchasing decisions, and global geopolitical and trade uncertainty is a risk. The company warned that parts of its short-cycle business could continue to be weak.
Research firm Gordon Haskett pegs no more than 10% of the company’s total sales as a concern, though. And, unlike others distracted with a merger, management has the bandwidth to focus on challenges.
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