Honeywell disappoints on quarterly results — but delivers on its breakup plan
Honeywell is selling off after disappointing first-quarter numbers. However, the report included a key update on the industrial conglomerate's major breakup, which should reward shareholders who hang on. Adjusted earnings per share increased 10.1% from the year-ago period to $2.45, outpacing the LSEG estimate of $2.32 apiece. Adjusted revenue in the quarter ending March 31 rose 2.4% year over year to $9.1 billion, missing the LSEG-compiled consensus estimate of $9.3 billion. Adjusted revenue grew 2% organically, excluding mergers and acquisitions and other outside drivers. HON 1Y mountain HON 1-year return Bottom line A tough quarter, weighed down by the war in Iran — management alerted investors to the headwind in March — and a supply disruption in its aerospace unit that hurt sales. Shares initially plunged more than 5% on the report but regained some footing, down 3% in midday trading. Investors focused solely on the numbers are missing the forest for the trees. We'd argue that the more important update was the company's announcement that it is selling its Workflow Solutions business in an all-cash transaction to American Industrial Partners. The deal is expected to close in the back half of 2026, along with its previoulsy announced sale of its Prodoctivity Solutions and Services unit. Management also set a date for the spin-off of its Aerospace business for June 29, pending board approval. "When you get the two pieces, Honeywell [the remaining automation company] is going to be worth more than what it's selling for now," Jim Cramer said on Thursday's "Morning Meeting." He urged member to hold onto their shares, even if there's a slight dip heading into the separations. As with the separation of Qnity from DuPont , spinning off a strong asset frees it to trade as a pure-play, drawing in new investors and often resulting in a higher valuation. In financial analysis, there is the concept of the conglomerate discount. The idea: A conglomerate comprising multiple unrelated industries can suffer from inefficient resource allocation, a lack of focus from higher-level management, and the general difficulty of valuing complex business units operating on different business cycles and in different operating environments. Sometimes investors reward conglomerates — think Alphabet or Amazon — when their units can create a flywheel effect, with each part strengthening the others in a continuous positive feedback loop. However, Honeywell is not that, and the conglomerate discount should unwind once aerospace is spun off, creating a pure-play aerospace and defense company, with the remaining company a focused high-tech automation company. In fact, the stock's bounce-back is likely due to investors reacting to management's discussion of the transformation strategy and viewing the sell-off as a buying opportunity. We agree and are reiterating our $250 price target and 1 rating. Why we own it Honeywell is a provider of industrial technology to firms in various industries. The company's planned three-part breakup should be a value-creating event for shareholders. Competitors: Emerson Electric , RTX , 3M Weight in portfolio: 2.37% Most recent buy: Nov. 14, 2025 Initiated: July 5, 2020 Outlook For the full year 2026, management's outlook was mostly unchanged, as strength in Building and Industrial Automation is offsetting the weaker-than-expected first half we are seeing in Process Automation and Technology. Higher pricing, along with enhanced productivity, is also helping offset a roughly $200 million incremental inflation headwind from higher metals, electronics, and freight costs. Management also provided guidance for the current quarter (fiscal 2026 second quarter). Sales: $9.4 to $9.6 billion versus $9.73 expected according to LSEG Organic Growth: 2% to 4% versus 4.3% expected according to FactSet Segment Margin: 22.2% to 22.5% versus 22.8% expected according to FactSet Adjusted EPS: $2.35 to $2.45 versus $2.56 expected according to LSEG Segment commentary Aerospace Technologies. Sales, held back by supply chain headwinds for mechanical products in January and February, increased organically by 3%. "Output improved considerably in March, our highest revenue month for the quarter, making us confident that our supply chain efforts will produce better results moving forward," CEO Vimal Japur said on the conference call with investors. This is a crucial comment because it indicates that we will indeed see top-line improvement ahead of the spin-off. That, along with today's better-than-expected segment profitability results, bodes well for the valuation of the pure-play aerospace company. Orders rose 6% organically, resulting in a 1.1x book-to-bill. Recall, a book-to-bill over 1x means the company took in orders faster than they could fill them, indicating growth in the backlog, which was indeed up 20% year over year, exiting the quarter at about $19 billion. Within the segment, organic revenue grew 3% in commercial aviation original equipment, 3% in commercial aviation aftermarket, and 4% in defense and space. Building Automation. Sales increased 8% organically, while orders grew 9% organically, resulting in a book-to-bill of 1.1x, with demand led by the data center and hospitality verticals. Within the segment, organic revenue grew 8% in both products and solutions. Process Automation and Technology. Sales fell 6% organically as the segment suffered from project delays due to conflict in the Middle East. On the other hand, orders were up 3%, driven by double-digit growth in process technology. Within the segment, on an organic basis, project revenue was unchanged versus the year-ago period, while aftermarket revenue was down 10% year over year. Industrial Automation. Sales increased 1% on an organic basis; however, orders were up 10% with double-digit growth realized in warehouse and workflow solutions and sensing. Within the segment, organic revenue rose 7% in solutions, partially offset by a 1% decline in products. (Jim Cramer's Charitable Trust is long HON. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. 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