Honeywell Sees Jump in Profit Margins as New CEO's Plan Kicks In
(Bloomberg) -- Honeywell International Inc.’s plan to peel off sluggish businesses and sharpen its focus on profit margins and sales growth is showing early signs of paying off.
The industrial manufacturer expects to record its highest profit margin in more than two decades this year, riding robust demand in aviation parts and a booming market for warehouse automation equipment that should boost sales by as much as 5 percent. The confident outlook comes with a newly slenderized business profile after the company spun off two slower-growing units in October.
“We now have a simpler, more focused portfolio spread across six attractive end markets with approximately 60 percent of the portfolio growing sales at or above 5 percent organically for the full year,” Chief Executive Officer Darius Adamczyk said in a statement on Friday.
In his second year leading the company, Adamczyk is trying to build on the success of former CEO Dave Cote, who took over a declining Honeywell in 2002 and converted the eclectic maker of jet engines, oil refining catalysts, building security systems, hand-held computers and work boots into one of the more profitable industrial companies. The new CEO is trying to ignite a start-up culture by introducing more software-based products to the 134-year-old company.
Segment profit margins are expected to be between 20.7 percent and 21 percent for the year, the highest since at least 1997. Honeywell forecasting profit of $7.80 to $8.10 a share, the midpoint of which topped analysts’ expectations of $7.89.
Organic sales, which adjust for acquisitions, divestitures and currency fluctuations, are expected to rise between 2 percent and 5 percent -- a wide range because of uncertainty over a potential international slowdown.
Honeywell’s ample portfolio of products with long periods between order and delivery, such as jet engines, will stoke sales even if the global economy slows or a trade war with China flares up. That will provide a cushion in case demand weakens for short-cycle goods, such as worker safety equipment, the company said.
“FY19 guidance was the major concern for investors, but this is coming in better than expectations,” Nigel Coe, an analyst with Wolf Research said in a note.
Honeywell’s aerospace unit is benefiting from sales of engines and other equipment for new business aircraft, such as General Dynamics Corp.’s Gulfstream G500 and Bombardier Inc.’s Global 7500. Aerospace sales rose 4.8 percent last year to $15.5 billion.
Demand for the company’s warehouse-automation equipment is surging along with e-commerce, helping drive sales up 12 percent at the Safety and Product Solutions unit to $6.3 billion.
Fourth-quarter adjusted earnings rose to $1.91 a share, topping the $1.89 average of analyst estimates compiled by Bloomberg.
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