Honeywell (HON) reported third quarter profit gains of 16% on revenue of $9.3 billion which was also an increase of 6%. Shares are trading down more than 7% because the company narrowed guidance and lowered their full year revenue forecast. For those that follow HON, this should not be a surprise as the stock has been crushed already by these recession fears. Honeywell—down 51% year to date—has performed far worse than most of its diversified industrial peers which have fallen 24% on average. Furthermore, this recession has been on the mind of the HON management team, as CEO Dave Cote stated,
“While we are surprised by the extent of these tough times…I can’t say we are surprised they came. We have been preparing for that.”
In anticipation of operating difficulties, the company has been cutting costs by lowering discretionary spending and by implementing a hiring freeze. The company has sold off non-performing business segments such as the sale of the aircraft parts division to BE Aerospace Inc. (BEAV). What’s more, the company has a supremely diversified product set and has continued to emphasize growth in their aerospace and defense business lines. Profit slipped a bit (8%) in this division as Honeywell spent money developing and improving products which they anticipate will hedge them against a probable slowdown in their home building area. Despite the global slowdown, emerging market demand for airplanes continues to be strong. In 2008 Honeywell Aerospace forecast a record number of deliveries of business jets, nearly 1,200, up 20% with further growth projected next year.
As we all saw this morning, home starts continue to slip and are currently at their second lowest rate in 50 years. So, it was a bit of a surprise that the building controls unit (maker of thermostats, fire safety equipment, and the like) was the star of the earnings report with revenue growth of 15%. The automation and control unit was the largest in 2007 accounting for 36% of revenue, slightly edging out aerospace products and services with 35% of revenue.
So, there are certainly going to be some challenges ahead for Honeywell.
