Honeywell shares gain on strong post-spinoff automation results

Honeywell Technologies shares jumped more than 5% on Thursday, defying a broader market selloff after the industrial group demonstrated the financial upside of its recent aerospace spinoff. Second-quarter revenue rose 4.3% year over year to $9.72 billion, beating the $9.5 billion consensus estimate. Adjusted earnings per share fell 4.2% from the year-ago period to $4.52.

The reported figures were weighed down by the now-separated Honeywell Aerospace unit, which missed on both revenue and segment profit, sending HONA shares down roughly 6%. Stripping out the aerospace division reveals a much stronger underlying performance for the remaining automation businesses. Total orders increased 16% organically, pushing the book-to-bill ratio above 1.1 and expanding the backlog by 9%.

The three core automation segments all posted sales and profit figures that exceeded expectations. Building Automation led with $2 billion in revenue, up 9% organically. CFO Michael Stepniak noted "incredibly strong orders" and highlighted growth in "healthcare, hospitality, and data centers."

Process Automation revenue reached $1.68 billion, down 1% organically due to aftermarket lapping, though offset by LNG growth. Looking forward, Stepniak said the company expects "a sharp inflection in growth in process automation technology beginning in the third quarter." He added that growth should "accelerate to high-single-digits in the second half." Industrial Automation sales were $1.5 billion, up 4% organically, driven by what Stepniak called "resilient short cycle demand for industrial measurement and sensing."

Management raised its full-year guidance for organic growth, segment margins, and adjusted earnings per share. While total dollar sales guidance was lowered to reflect accelerated divestitures of two units, the operational outlook improved significantly. Third-quarter segment margins are projected between 20% and 20.7%, well above the 18.3% consensus, rising to 22% to 22.7% in the fourth quarter.

The company reiterated its three-year financial targets, projecting 4% to 6% organic growth, roughly 24% segment margins, and adjusted earnings of roughly $12 per share, supported by over $3 billion in free cash flow. CEO Vimal Kapur noted the projections assume "no improvement from the current tension, but also no significant escalation in the war or further disruption to the supply chain" regarding the Iran conflict. Following the results, the price target was raised to $275 from $250.