Honeywell shares bounce on earnings. Here is what we favored most concerning the outcomes

Honeywell reported constructive first-quarter outcomes earlier than the opening bell on Tuesday, sending shares up greater than 5% within the session. Income within the three months ended March 31 rose 7.9% 12 months over 12 months to $9.82 billion, topping expectations of $9.59 billion, based on LSEG. Adjusted earnings per share (EPS) totaled $2.51, exceeding estimates of $2.21, LSEG information confirmed. On an annual foundation, adjusted EPS elevated 7.3%. Backside line Honeywell delivered a robust set of first-quarter numbers — paired with a wise strategy to full-year steering given the uncertainties of this tariff-filled economic system. Whereas Jim Cramer had some concern that Honeywell’s premarket inventory positive factors might average as soon as the earnings name bought underway, that has not been the case. Executives did a superb job on the decision of explaining the corporate’s tariff publicity whereas expressing confidence of their capacity to mitigate any unfavorable results. Moreover, administration made clear that it is nonetheless all methods go on its sensible plan to interrupt the commercial conglomerate up into smaller items — one thing Jim has lengthy urged the corporate to do, as a result of that may enable its crown jewel aerospace enterprise to be extra appropriately valued by buyers. “When Honeywell talks, they’ve at occasions not been as bullish as I might’ve favored, however they do have a greater story this time. Let’s give them that,” Jim mentioned throughout Tuesday’s Morning Assembly. As we noticed with the corporate’s fourth-quarter earnings report earlier this 12 months, this can be a new humble Honeywell that realized from final 12 months’s mistake of over promising and beneath delivering. We’re reiterating our worth goal of $235 a share and, for now, conserving our buy-equivalent 1 score on the inventory. Nevertheless, it is vital to remember the fact that our self-discipline isn’t to chase a inventory when it is up this a lot in a single session — even when we’re happy with the outcomes. Jim is ready to interview CEO Vimal Kapur later Tuesday on “Mad Cash,” and we’ll take what we hear from him into consideration, as nicely. Quarterly commentary There’s numerous inexperienced on that chart above, in an indication of simply how stable this quarter was. Whereas working money circulate and free money circulate missed estimates, Honeywell executives encouragingly reaffirmed their full-year steering for these metrics (extra on steering under). The outcomes exceeded administration’s prior steering throughout all metrics. That features natural gross sales progress of 4% — nicely forward of its flat-to-2% progress vary — and flat phase margin in contrast with steering of a modest decline. Honeywell’s first quarter was highlighted by 9% natural income progress in its aerospace applied sciences phase; 8% progress in constructing automation; and smaller-than-expected natural gross sales declines in industrial automation, in addition to its power and sustainability options enterprise. Inside industrial automation, it is value calling out that its warehouse and workflow options unit returned to progress within the quarter. That enterprise had been an prolonged drag on the general industrial automation phase — as warehouse development usually moderated after a pandemic-era growth — so this was encouraging to see. Orders elevated 3% organically, led by aerospace and constructing automation, and the corporate’s backlog closed the quarter at $36.1 billion, up 8% 12 months over 12 months. Honeywell offered some updates on the convention name about its smart breakup plans. Its superior supplies enterprise is on observe to be separated within the fourth quarter of this 12 months or the primary quarter of 2026. CEO Kapur mentioned there are some “exterior components” outdoors the corporate’s management that may decide the precise timing. The superior supplies break up was introduced in October , adopted by the aerospace and automation separations introduced in February amid strain from activist investor Elliott Administration. Kapur mentioned Honeywell’s board decided {that a} tax-free spin-off of Honeywell Aerospace is probably the most environment friendly technique to separate the remaining firm. There’s been no change to the timeline of finishing the spin within the second half of 2026. Lastly, Kapur mentioned the board additionally confirmed that he’ll lead the automation-focused firm as a result of that is the place he has spent most of his profession and “the place I’ve a particular imaginative and prescient for the longer term.” On the proper time, the board will “consider the longer term management of Honeywell Aerospace,” he added. Steering and tariffs As for full-year steering, administration left its outlook principally unchanged – which is a win in our guide contemplating the a number of downward revisions they’ve remodeled the previous few years. The corporate took $100 million off the excessive finish of its gross sales steering vary and trimmed the highest finish of its phase margin vary. On Tuesday’s earnings name, executives mentioned that finishing the sale of its private protecting gear enterprise in early Could — as an alternative of the top of June as beforehand anticipated — is a part of the rationale for the modified gross sales outlook. That sooner-than-expected sale is offsetting some favorable adjustments in international trade charges. On adjusted earnings, the corporate elevated the low finish of its outlook from $10.10 to $10.20 and raised the midpoint of its information to $10.35 from $10.30. The $10.50 high finish of the vary was unchanged. Importantly, the corporate backed into steering the affect of tariffs, in addition to “further contingency for potential end-market demand weak point triggered by this uncertainty,” CFO Mike Stepniak mentioned on the decision. The finance chief regularly used the phrase “prudent” or some variation of it to explain Honeywell’s strategy to steering — a method echoing that of fellow Membership industrial Dover, which reported final week. With a lot uncertainty proper now, that strategy is smart to us. Executives mentioned the corporate has about $500 million in tariff publicity for the rest of the 12 months, based mostly on obligation charges at the moment in impact, earlier than any mitigation efforts are carried out. Nevertheless, administration expressed confidence of their capacity to offset the affect via varied efforts together with strategic worth hikes. Stepniak mentioned that for greater than 20 years Honeywell has oriented its provide chain round a “native for native” technique, which helps reduce its publicity extra usually. Honeywell’s industrial automation enterprise is the one with probably the most publicity to China, based on administration. Its aerospace enterprise is also a web exporter to China, that means its American-made merchandise coming into that market may very well be topic to a 125% tariff. To make sure, some media shops together with The Wall Road Journal have reported that some aerospace elements have acquired exemptions from China, nevertheless it’s unclear whether or not Honeywell’s exports are included. Honeywell’s constructing automation phase is basically protected against tariffs, executives mentioned, as a result of it’s virtually 100% “native for native” in its geographies. Lastly, administration mentioned its power and sustainability options unit would not have a lot direct tariff publicity, however because it sells into China, it might undergo if the commerce conflict results in demand erosion. For the second quarter particularly, Honeywell’s earnings steering was above Wall Road estimates, whereas its gross sales forecast of $9.8 billion to $10.1 billion was gentle versus the FactSet consensus of $10.15 billion. Nevertheless, the sooner exit of its PPE enterprise was in all probability not in analysts’ fashions, making the second-quarter steering look nearer to estimates when taking that into consideration. (Jim Cramer’s Charitable Belief is lengthy HON. See right here for a full record of the shares.) As a subscriber to the CNBC Investing Membership with Jim Cramer, you’ll obtain a commerce alert earlier than Jim makes a commerce. Jim waits 45 minutes after sending a commerce alert earlier than shopping for or promoting a inventory in his charitable belief’s portfolio. If Jim has talked a few inventory on CNBC TV, he waits 72 hours after issuing the commerce alert earlier than executing the commerce. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. 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An plane engine is being examined at Honeywell Aerospace in Phoenix.

Alwyn Scott | Reuters

Honeywell reported constructive first-quarter outcomes earlier than the opening bell on Tuesday, sending shares up greater than 5% within the session.