Honeywell International Inc Earnings - Q1 2025 Analysis
Positives
- Segment profit grew by 8% YoY in Q1, aided by the inclusion of 2024 acquisitions, which are performing ahead of initial expectations.
- EPS in Q2 is expected to be in the range of $2.60 to $2.70, up 4% to 8% YoY.
- Organic sales are expected to be up in the mid-single-digit to high single-digit range in Q2, led by strength in the commercial aftermarket business.
- Building Automation delivered another solid quarter and outpaced expectations, up 8% organically, led by second consecutive quarter above double-digit growth in Building Solutions and mid-single-digit growth in Building Products.
- EPS for Q1 was $2.22 per share, flat from the previous year, while adjusted EPS was $2.51 per share, up 7% YoY.
Q&A Highlights - Q1 2025
Analyst asked about the contingency in the company's guide related to macro.
The contingency is more of a top-down view, based on the company's assessment of its end markets, especially in Industrial Automation, where it has exposure to China. The company is taking a prudent view to protect its total year guidance, but does not have any data to suggest that demand is falling out.
Analyst asked about the volume assumption in the context of the contingency.
The company's total year framework is unchanged if everything holds. The company is assuming about 2% price and minus 1% to 2% volume going into the year. In the current guide, the company is assuming about 3% of price and minus 2% to 1% of volume, which reflects a more conservative approach.
Analyst asked about the impact of tariffs on Honeywell's business, specifically the portion coming from China.
Honeywell is a net exporter to China, and exports from the US to China have a significant impact on their tariff exposure. The company is also impacted by reciprocal tariffs on parts coming from all over the world. The tariff impact is not significant on the incoming side in the US, but there is a tail-off impact from China, specifically in the Industrial Automation business. Honeywell has factored all known tariff rates, both coming into the US and coming into China.
Analyst asked about the drop-off in the PSS top line in the first quarter and how it will affect the balance of the year.
The PSS quarter one was roughly flat, excluding the royalty from Zebra. The company did well in North America, but Europe saw some pressure. It's too early to observe any specific puts and takes to share, but the company expects some pressure on the PSS business in the assumption for the rest of the year. The company expects some pressure on the PSS business in the assumption for the rest of the year, due to uncertainty around the business and the retail markets. The company expects some pressure on the PSS business in the assumption for the rest of the year, due to uncertainty around the business and the retail markets. The company expects some pressure on the PSS business in the assumption for the rest of the year, due to uncertainty around the business and the retail markets. The company expects some pressure on the PSS business in the assumption for the rest of the year, due to uncertainty around the business and the retail markets. The company expects some pressure on the PSS business in the assumption for the rest of the year, due to uncertainty around the business and the retail markets. The company expects some pressure on the PSS business in the assumption for the rest of the year, due to uncertainty around the business and the retail markets. The company expects some pressure on the PSS business in the assumption for the rest of the year, due to uncertainty around the business and the retail markets. The company expects some pressure on the PSS business in the assumption for the rest of the year, due to uncertainty around the business and the retail markets. The company expects some pressure on the PSS business in the assumption for the rest of the year, due to uncertainty
Analyst asked about the company's buyback scope for the year.
The company will continue to be opportunistic with their buybacks, but they want to balance their capital deployment with M&A. They view their share price as attractive and will consider buying back shares if they believe it's a good opportunity.
Analyst asked about the cadence of the company's cost side of tariffs and price mitigation efforts.
The company has a large team of people who understand tariffs by HTS code and know it to a dollar, and they have been actively working to understand how to offset the tariffs and what mitigation actions to take. They have other options besides price, such as direct material productivity, and they are confident that they will be on par with the second half of the year and stable by the fourth quarter.
Analyst asked about the impact of tariffs on Honeywell's supply chain in the US and China.
Vimal M. Kapur explained that the tariffs have a significant impact on Honeywell's Industrial Automation business, particularly in the US. The company has already factored the tariff pressure into its guidance, and the impact will be felt primarily in the short cycle of the Automation business. However, the tariffs also have a positive impact on the company's Aerospace and ESS businesses, as they ship products from the US into China. The company has also factored the demand destruction on either side of the fence due to the known facts into its guidance.
Analyst asked about the timing of the spin and whether it could happen sooner than previously indicated.
Vimal M. Kapur stated that the timing of the spin for Advanced Materials is still Q4 of this year or Q1 of next year. The company is far along in the process, and they will provide a specific date at the Q2 earnings call. However, there are external elements that are not entirely under Honeywell's control, such as regulatory agency approvals, which may impact the timing of the spin. The company is working to make the Aerospace spin date on schedule, but it's still early days, and they will provide more specific color as the schedule progresses.
Analyst asked about the potential for Aerospace margins to improve beyond the first quarter.
Vimal M. Kapur explained that the company has provided guidance for Aerospace margins for 2025, which includes two specific drivers: the mix of products shipped and the CAES acquisition integration. The integration-related costs and the lower margin onboarded business will contract the Aero margins, but the company expects them to remain on a similar pace as seen in Q1. The company does not expect any substantial shift in margins, but the guidance provided at the start of the year still holds good.
Analyst asked about the visibility of HPS's growth and if the company is seeing any hints of CapEx delays or project deferrals in HPS.
Vimal M. Kapur, Honeywell International Inc's CEO, explained that HPS's reported performance was flat in Q1, but the projects and services are performing on expected lines. He mentioned that the company sees some pushout on projects that are sustainability-related, and energy companies are becoming more cautious about investing in sustainability-related projects. However, the company has a diversified portfolio, and they expect a normal year for HPS in 2025.
Analyst asked about the strength of international defense and if the company expects to see any impact from DOGE.
Michael Stepniak, Honeywell International Inc's CFO, responded that the company does not expect any impact from DOGE as they have already secured funding for their multiyear programs. He also mentioned that international defense is showing strength and demand, and the company does not expect any issues in managing the comps on the defense and space side this year.
