Honeywell rose on Thursday after the sprawling conglomerate reported quarterly earnings guidance and an upgrade to its full-year outlook ahead of the first step of a three-way split next week. Sales for the third quarter ended Sept. 30 rose 7% from a year earlier to $10.41 billion, beating expectations of $10.11 billion, according to market data service LSEG. Organic sales rose 6% year over year, double what the Street had expected, according to FactSet. Adjusted earnings per share rose 9.3% year over year to $2.82, beating expectations of $2.57, according to LSEG data. HON YTD MOUNTAIN HONEYWELL YTD While soaring more than 7% on paper, Honeywell stock is still down about 2% year-to-date and 8% below its July 3 all-time high closing price of just over $240. Club stocks, which are one of the 30 stocks that make up the Dow Jones Industrial Average, are stuck in so-called spin purgatory. Next week’s Solstice Advanced Materials spinoff could be a good start to getting the stock out of the shed. The two-step transformation will be completed by separating the company’s remaining automation and aerospace businesses in the second half of 2026. Honeywell shareholders as of October 17th will receive one Solstice share for every four Honeywell shares on October 30th. Later that day, Solstice is expected to begin trading separately under the ticker “SOLS.” Honeywell’s ticker will continue to be “HON.” If we acquire Solstice stock, we plan to retain Honeywell stock. Conclusion Perhaps the most important takeaway from this report is the resurgence of Honeywell’s largest and most important division, aerospace, as quarterly sales, earnings, and organic growth all beat expectations. Last time I was disappointed. The third quarter saw a rebound as customer destocking eased and commercial OEM sales returned to growth. Management expects the division to maintain its momentum through the remainder of the year. Honeywell also reported a record order backlog, excluding acquisitions, of $39.1 billion, up 11% from a year ago, equivalent to about one year’s worth of revenue. This growth was driven by an impressive 22% year-over-year increase in orders, resulting in a book balance of 1.1. This means the company is filling orders faster than it can fulfill them. In addition to aerospace technology, order increases were realized in all four segments, including industrial automation, building automation, and energy and sustainability solutions. Why Own Honeywell? Honeywell provides industrial technology to companies in a variety of industries. The company’s planned three-part split should be a value-creating event for shareholders. Competitors: Emerson Electric , RTX , 3M Portfolio weight: 2.3% Latest purchase date: September 11, 2025 Start date: July 5, 2020 Even better, the team raised its full-year guidance for both sales and EPS after adjusting for the impact of the Solstice spin and organic sales growth. With the upcoming Solstice spin and aerospace industry recovery, we continue to like Honeywell stock at current levels. These spins will help support further growth and drive shareholder returns as each of the three new organizations will be able to operate in a more focused and efficient manner. Honeywell offers an attractive opportunity for investors who are patient and wait for the spin dynamics to play out. The management team has proven to be competent managers, and that should be even more true once the spinoff is complete. Accordingly, we reiterate our Buy rating of 1 and our $255 per share price target. Commentary Honeywell’s third quarter sales were achieved on the back of better-than-expected revenues in all major business segments. Although the segment profit margin was slightly lower than expected at 23.1 times, segment profit of $2.41 billion still exceeded expectations and exceeded the bottom line. Aerospace Technology’s third quarter sales increased more than 15%, or 12% from organic growth, to $4.51 billion. Segment margins contracted year over year, the company said, “as commercial excellence and volume leverage were more than offset by cost inflation and acquisition-related headwinds.” However, the scale gradually expanded due to improved volume leverage. More volume means fixed costs are spread over more units. Cost per unit is reduced and profit per unit is increased. In a post-earnings conference call, management said commercial aircraft original equipment returned to growth following inventory reduction pressure from customers last quarter. Destocking occurs when customers delay or pause orders to reduce existing inventory levels. Honeywell delivered double-digit order growth in all three subsegments of the aerospace industry (civil aviation original equipment, civil aviation aftermarket, and defense and space), with book sales increasing 1.2x. Industrial Automation sales decreased 9% to $2.27 billion, but exceeded expectations. However, organic sales increased by 1%. Management attributed the return to growth to “solid performance in process solutions as continued enhancements in sensing, improvements in warehouse automation, and increases in smart energy and thermal solutions offset expected project delays.” Overall order growth benefited from increased warehouse automation and process solutions. The decline in segment profit was due to cost increases. Building Automation sales increased 7.6%, with an underlying increase of 7% as Building Products delivered its fourth consecutive quarter of organic growth. Again, cost inflation weighed on profitability, but nevertheless, cost pressures were offset by volume leverage and “commercial excellence”, allowing the division to report profit expansion. Sales in this segment were 1.1x. Energy & Sustainability Solutions sales increased approximately 11.5% compared to the same period last year. However, on an organic basis, sales decreased by 2%. Management said orders, excluding the impact of mergers and acquisitions, increased by double digits on a year-over-year percentage basis. Guidance Management has raised its guidance for full-year sales and adjusted earnings per share, adjusting for the impact of the Solstice spinoff at the end of October. Organic growth guidance has also been enhanced. Although the operating cash flow outlook was lowered, the team did not change its free cash flow forecast. The forecast for segment profit margin was also revised downward. Here’s where Honeywell’s full-year guidance stands based on several key metrics. (Note: We are not providing comparable estimates as our consensus estimates do not appear to reflect the Solstice spin-off and are therefore not an apples-to-apples comparison with updated guidance.) Adjusting for the impact of the Solstice spin, revenue was in the $40.7 billion to $40.9 billion range, up from the prior range of $40.1 billion to $40.6 billion. Organic sales growth was approximately 6%, up from 4% and 5% previously. Adjusted EPS increased to $10.60 to $10.70 from the previous range of $10.24 to $10.44 when adjusting for the impact of the Solstice spin. Segment margin guidance has been lowered slightly, with management now targeting a range of 22.9% to 23%, compared to the previously expected range of 23% to 23.2%. The operating cash flow forecast has also been lowered from the previous range of $6.7 billion to $7.1 billion to a range of $6.4 billion to $6.8 billion. However, free cash flow guidance was reiterated to be between $5.2 billion and $5.6 billion, after adjusting for the Solstice spin. (Jim Cramer’s Charitable Trust is a long HON. See here for a complete list of stocks.) As a subscriber to Jim Cramer’s CNBC Investing Club, you will receive trade alerts from Jim Cramer before he makes a trade. After Jim sends a trade alert, he waits 45 minutes before buying or selling stocks in his charitable trust’s portfolio. If Jim talks about a stock on CNBC TV, he will issue a trade alert and then wait 72 hours before executing the trade. The above investment club information is subject to our Terms of Use and Privacy Policy, along with our disclaimer. No fiduciary duties or obligations exist or arise from your receipt of information provided in connection with the Investment Club. No specific results or benefits are guaranteed.
