Sale enables Honeywell to further simplify and optimize its businesses in alignment with three powerful megatrends: automation, the future of aviation and energy transition Positions Honeywell to continue to deliver profitable growth and strong cash generation, creating compelling long-term value for shareowners.CHARLOTTE, N.C., Nov. 22, 2024 /PRNewswire/ -- Honeywell (NASDAQ: HON) announced today that it has agreed to sell its Personal Protective Equipment (PPE) business to Protective Industrial Products ...

Honeywell International Inc. (HON) has been benefiting from strength in its commercial aviation aftermarket business, driven by solid demand in the air transport and business aviation markets. In the third quarter of 2024, its commercial aviation aftermarket sales increased 8% year over year. Also, solid momentum in the commercial aviation original equipment business, backed by an improvement in build rates and an increase in air transport hours, has been favorable. In the third quarter, sales from this bus ...

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Core Viewpoint - Activist investor Elliott Investment Management LP is advocating for Honeywell International Inc. to spin off its Aerospace Technologies business, arguing that this separation could enhance performance and shareholder value [1][2][10]. Spin-Off Proposal - Elliott proposes that Honeywell be divided into two independent entities: one focused on automation, energy, and sustainability solutions, and the other on aerospace [2][10]. - The separation is expected to create two sector-leading companies, potentially increasing Honeywell's share price by 51% to 75% over the next two years [3][10]. Financial Performance and Market Position - Honeywell's Aerospace segment generated $13.6 billion in sales in 2023, accounting for approximately 37% of total revenue [8]. - The Aerospace division has experienced stagnant sales with a compound annual growth rate (CAGR) of -0.58% from 2018 to 2023, and margins have remained around 28% [9][10]. - Challenges such as supply chain disruptions and geopolitical tensions have impacted the Aerospace segment's performance [9]. Business Structure Post-Separation - Post-separation, the Aerospace business (SpinCo) will focus on products and services including auxiliary power units, propulsion engines, and integrated avionics [4][12]. - The remaining Honeywell (RemainCo) will concentrate on automation and energy transition, structured into three segments: industrial automation, building automation, and energy and sustainability solutions [5][11]. Management Response - Honeywell's management has acknowledged Elliott's views and expressed willingness to discuss the matter further, indicating that they had not been contacted prior to Elliott's letter [6].

About this content About Emily Jarvie Emily began her career as a political journalist for Australian Community Media in Hobart, Tasmania. After she relocated to Toronto, Canada, she reported on business, legal, and scientific developments in the emerging psychedelics sector before joining Proactive in 2022. She brings a strong journalism background with her work featured in newspapers, magazines, and digital publications across Australia, Europe, and North America, including The Examiner, The Advocate, ...

KEY TAKEAWAYSHoneywell International shares jumped Tuesday to an all-time high, after Elliott Investment Management said it has built a $5 billion-plus position in the industrials conglomerate and is seeking a breakup of the company.Elliott said in a statement that it had sent a letter to Honeywell's board of directors seeking separations of the aerospace and automation businesses as standalone companies.General Electric's three-way split earlier this year has resulted in shares of the companies spun off su ...

Core Viewpoint - Activist investor Elliott Management is advocating for Honeywell to split into two separate companies, focusing on its Aerospace and Automation business lines, believing this could unlock significant value for shareholders [2][3]. Group 1: Elliott Management's Position - Elliott Management holds a stake of over $5 billion in Honeywell and argues that the current conglomerate structure is outdated and detrimental to performance [1][3]. - The firm estimates that a breakup could lead to a potential upside of 75% over the next two years [3]. - Elliott's managing partners expressed that Honeywell has underperformed its industrial peers since 2019 due to a complicated corporate structure and poor investor communication [4]. Group 2: Honeywell's Business Performance - Honeywell is recognized for having a collection of high-quality businesses, with its Aerospace division being highlighted as the "crown jewel" [5]. - Despite its strengths, Honeywell has struggled to meet performance expectations in recent years, particularly under the leadership of current CEO Vimal Kapur, who has been in the role since 2023 [5]. - The company has been involved in significant M&A activities, acquiring businesses worth billions in 2024, despite a general downturn in M&A activity [3]. Group 3: Industry Context - Elliott's call for a breakup aligns with a broader trend in the industrial sector, where companies like General Electric, 3M, and Johnson Controls have also pursued divestitures or breakups [6]. - Elliott has a history of advocating for breakups in other companies, including Marathon Petroleum and Alcoa, indicating a consistent strategy in its investment approach [7].

Core Viewpoint - Honeywell is facing challenges due to its conglomerate structure, which has led to inconsistent financial results and an underperforming share price, prompting a call for simplification through the separation of its Aerospace and Automation divisions [1][7][30]. Group 1: Investment Opportunity - Elliott Investment Management has invested over $5 billion in Honeywell, becoming its largest active investor, and believes there is a significant opportunity for value creation through a separation of its business units [5][64]. - A separation could lead to share price gains of 51% to 75% over the next two years, reflecting the potential for improved operational performance and valuation for both Aerospace and Automation as standalone entities [4][80]. Group 2: Current Performance and Challenges - Honeywell has experienced uneven execution and inconsistent financial results over the past five years, resulting in a decline in its share price and overall underperformance compared to peers [7][23][26]. - The conglomerate structure has led to operational challenges, with smaller business units lacking management attention and larger units competing for investment, hindering overall performance [37][41]. Group 3: Benefits of Simplification - Separating into two independent companies would allow for enhanced strategic focus, improved capital allocation, and better operational performance, as evidenced by other companies that have successfully simplified their structures [3][35][36]. - A simplified investment narrative would likely attract more investor interest, as the current conglomerate model is viewed as less attractive compared to pure-play companies [54][56]. Group 4: Market Position and Valuation - Honeywell Aerospace is positioned as a top-five global aerospace supplier with strong aftermarket revenue, while Honeywell Automation is expected to be a significant player in the automation sector, with nearly $20 billion in annual revenue [64][70]. - Despite its strong market position, Honeywell currently trades at a discount compared to its peers, indicating a disconnect between its operational capabilities and market valuation [26][58]. Group 5: Path Forward - The recommendation is for Honeywell to pursue a separation of its Aerospace and Automation divisions to unlock value and improve operational focus, aligning with market trends favoring simplified business structures [84][85]. - The current market environment presents a favorable opportunity for such a separation, as investor preferences have shifted towards pure-play companies that can deliver better performance and returns [68][69].

Core Viewpoint - Honeywell International reported a slight earnings beat, but overall revenue was soft, leading to a decline in share price by 4% [1][2]. Financial Performance - The company reported third-quarter earnings of $2.58 per share, exceeding expectations by $0.07, while revenue was $9.73 billion, falling short of the $9.9 billion consensus [2]. - Earnings were positively impacted by a lower-than-expected share count and effective tax rate, but segment profits aligned with expectations [2]. - Aerospace sales decreased by 2%, industrial automation sales fell by 5%, energy remained flat, and building automation increased by 3% year over year [2]. Strategic Moves - Honeywell is undergoing a portfolio transformation, planning to spin off its advanced material business, similar to previous divestitures of automotive and security units [3]. - The company completed approximately $3.7 billion in acquisitions during the quarter while continuing share repurchases and maintaining a dividend yield of over 2% [3]. Market Position - Despite having a diverse set of assets, Honeywell's stock has underperformed the S&P 500 over the past five years, leading investors to remain cautious [3]. - The company raised the lower end of its full-year 2024 earnings guidance but lowered its revenue and free cash flow forecasts [2].

Financial Data and Key Metrics - Q3 2024 organic sales growth was 3%, below guidance, but aerospace technologies showed sustained strength [5] - Adjusted EPS was $2.58, up 8% YoY, exceeding the high-end of guidance [16] - Free cash flow increased 10% YoY to $1.7 billion, driven by stronger operational income and higher collections [16] - Backlog grew 10% YoY to a record $34 billion, with a book-to-bill ratio of 1.1 [14] - Full-year sales guidance revised to $38.6 billion to $38.8 billion, representing organic growth of 3% to 4%, down from 5% to 6% previously [24] Business Segment Performance Aerospace Technologies - Sales grew 10% organically YoY, marking the ninth consecutive quarter of double-digit growth [17] - Defense & Space and Commercial Aviation OE both saw double-digit growth [17] - Segment margin remained flat at 27.7% due to cost inflation and mix pressure [18] Industrial Automation - Sales were flat sequentially but declined 5% organically YoY, primarily due to lower volumes in warehouse and workflow solutions [18] - Segment margin expanded 60 basis points to 20.3% due to productivity actions and commercial excellence [20] Building Automation - Sales grew 14% YoY and 11% sequentially, driven by the Access Solutions acquisition and acceleration in the fire business [20] - Orders grew 25% YoY, led by strong demand in data centers, healthcare, and energy [21] - Segment margin expanded 30 basis points to 25.9% [21] Energy and Sustainability Solutions - Sales grew 1% organically, with Advanced Materials up 3% YoY [21] - UOP orders reached a record $1 billion, with sustainable technology solutions accounting for over $200 million [22] - Segment margin expanded 10 basis points to 24.5% [22] Market and Strategic Direction - The company is focusing on three megatrends: automation, the future of aviation, and energy transition [9] - Four acquisitions were closed in 2024, representing over $9 billion in deployed capital, aligning with the company's strategic priorities [10] - Advanced Materials will be spun off into an independent, publicly-traded company to focus on sustainability-focused specialty chemicals and materials [11] - The PPE business was reclassified as an asset held for sale to strengthen core business growth and margins [12] Management Commentary on Operating Environment and Future Outlook - The company expects organic growth across all four businesses in 2025, with margin expansion driven by volume leverage and productivity actions [33] - Despite macroeconomic challenges, the company remains confident in its ability to execute its long-term growth algorithm [32] - The company is cautious about the short-term macroeconomic environment but sees a constructive outlook due to its robust backlog and leading market positions [33] Other Important Information - The company deployed $3.1 billion in capital in Q3, including $2.1 billion in M&A, $700 million in dividends, and $300 million in high-return CapEx [16] - Full-year capital deployment is expected to reach a record $14 billion in 2024 [12] - The company expects adjusted EPS for 2024 to be between $10.15 and $10.25, up 7% to 8% YoY [31] Q&A Session Summary Question: Thoughts on 2025 outlook and cost-cutting measures - The company plans to provide detailed 2025 guidance in January but expects organic growth across all segments and margin expansion [36][37] - Repositioning guidance was adjusted due to lower Q3 spending, but the company maintains a robust productivity pipeline [38][39] Question: Impact of portfolio actions on organic growth and margins - Portfolio actions, such as the Advanced Materials spin-off and PPE divestiture, are driven by strategic fit and are expected to accelerate organic growth and margin expansion [40][41] Question: Free cash flow guidance reduction - The reduction in free cash flow guidance is primarily due to slower inventory progress in Aerospace and slower payment cycles in high-growth regions [45] Question: Aerospace performance and Boeing strike impact - The Boeing strike had no impact on Q4 revenue, but the company is adjusting shipments to aftermarket customers [48] - Commercial aftermarket growth was led by ATR, with BGA showing single-digit growth [49] Question: Portfolio divestiture pipeline - The company has largely completed its initial portfolio reshaping but will continue to evaluate opportunities for further optimization [73][74] Question: Project delays in Process Solutions - Project delays in Process Solutions were due to short-cycle pushouts, driven by geopolitical uncertainty and oil price fluctuations [76][77] Question: Defense business growth outlook - The defense business is expected to maintain strong growth in 2025, supported by robust order books and supply chain normalization [78] Question: Accelerating new product development - The company expects a material step-up in core growth in 2025 due to accelerated new product development and the evolution of the Accelerator operating system [81][82] Question: Geographic performance - Europe showed signs of recovery in Building Automation, while China remains flat to slightly contracting in automation businesses [83][84]