Honeywell shares jump on earnings. Here’s what we liked most about the results

Honeywell reported positive first-quarter results before the opening bell on Tuesday, sending shares up more than 5% in the session. Revenue in the three months ended March 31 rose 7.9% year over year to $9.82 billion, topping expectations of $9.59 billion, according to LSEG. Adjusted earnings per share (EPS) totaled $2.51, exceeding estimates of $2.21, LSEG data showed. On an annual basis, adjusted EPS increased 7.3%. Bottom line Honeywell delivered a strong set of first-quarter numbers — paired with a sensible approach to full-year guidance given the uncertainties of this tariff-filled economy. While Jim Cramer had some concern that Honeywell’s premarket stock gains could moderate once the earnings call got underway, that has not been the case. Executives did a good job on the call of explaining the company’s tariff exposure while expressing confidence in their ability to mitigate any negative effects. Additionally, management made clear that it’s still all systems go on its smart plan to break the industrial conglomerate up into smaller pieces — something Jim has long urged the company to do, because that will allow its crown jewel aerospace business to be more appropriately valued by investors. “When Honeywell talks, they have at times not been as bullish as I would’ve liked, but they do have a better story this time. Let’s give them that,” Jim said during Tuesday’s Morning Meeting. As we saw with the company’s fourth-quarter earnings report earlier this year, this is a new humble Honeywell that learned from last year’s mistake of over promising and under delivering. We’re reiterating our price target of $235 a share and, for now, keeping our buy-equivalent 1 rating on the stock. However, it’s important to keep in mind that our discipline is never to chase a stock when it’s up this much in a single session — even if we are pleased with the results. Jim is set to interview CEO Vimal Kapur later Tuesday on “Mad Money,” and we’ll take what we hear from him into consideration, as well. Quarterly commentary There’s a lot of green on that chart above, in a sign of just how solid this quarter was. While operating cash flow and free cash flow missed estimates, Honeywell executives encouragingly reaffirmed their full-year guidance for those metrics (more on guidance below). The results exceeded management’s prior guidance across all metrics. That includes organic sales growth of 4% — well ahead of its flat-to-2% growth range — and flat segment margin compared with guidance of a modest decline. Honeywell’s first quarter was highlighted by 9% organic revenue growth in its aerospace technologies segment; 8% growth in building automation; and smaller-than-expected organic sales declines in industrial automation, as well as its energy and sustainability solutions business. Within industrial automation, it’s worth calling out that its warehouse and workflow solutions unit returned to growth in the quarter. That business had been an extended drag on the overall industrial automation segment — as warehouse construction in general moderated after a pandemic-era boom — so this was encouraging to see. Orders increased 3% organically, led by aerospace and building automation, and the company’s backlog closed the quarter at $36.1 billion, up 8% year over year. Honeywell provided some updates on the conference call about its wise breakup plans. Its advanced materials business is on track to be separated in the fourth quarter of this year or the first quarter of 2026. CEO Kapur said there are some “external elements” outside the company’s control that will determine the exact timing. The advanced materials split was announced in October , followed by the aerospace and automation separations announced in February amid pressure from activist investor Elliott Management. Kapur said Honeywell’s board determined that a tax-free spin-off of Honeywell Aerospace is the most efficient way to separate the remaining company. There’s been no change to the timeline of completing the spin in the second half of 2026. Finally, Kapur said the board also confirmed that he will lead the automation-focused company because that’s where he has spent most of his career and “where I have a specific vision for the future.” At the right time, the board will “evaluate the future leadership of Honeywell Aerospace,” he added. Guidance and tariffs As for full-year guidance, management left its outlook mostly unchanged – which is a win in our book considering the several downward revisions they have made over the past few years. The company took $100 million off the high end of its sales guidance range and trimmed the top end of its segment margin range. On Tuesday’s earnings call, executives said that completing the sale of its personal protective equipment business in early May — instead of the end of June as previously expected — is part of the reason for the changed sales outlook. That sooner-than-expected sale is offsetting some favorable changes in foreign exchange rates. On adjusted earnings, the company increased the low end of its outlook from $10.10 to $10.20 and raised the midpoint of its guide to $10.35 from $10.30. The $10.50 top end of the range was unchanged. Importantly, the company backed into guidance the impact of tariffs, as well as “additional contingency for potential end-market demand weakness triggered by this uncertainty,” CFO Mike Stepniak said on the call. The finance chief frequently used the word “prudent” or some variation of it to describe Honeywell’s approach to guidance — a strategy echoing that of fellow Club industrial Dover, which reported last week. With so much uncertainty right now, that approach makes sense to us. Executives said the company has about $500 million in tariff exposure for the remainder of the year, based on duty rates currently in effect, before any mitigation efforts are implemented. However, management expressed confidence in their ability to offset the impact through various efforts including strategic price hikes. Stepniak said that for more than two decades Honeywell has oriented its supply chain around a “local for local” strategy, which helps minimize its exposure more generally. Honeywell’s industrial automation business is the one with the most exposure to China, according to management. Its aerospace business also is a net exporter to China, meaning its American-made products entering that market could be subject to a 125% tariff. To be sure, some media outlets including The Wall Street Journal have reported that some aerospace parts have received exemptions from China, but it’s unclear whether Honeywell’s exports are included. Honeywell’s building automation segment is largely protected from tariffs, executives said, because it is almost 100% “local for local” in its geographies. Finally, management said its energy and sustainability solutions unit doesn’t have much direct tariff exposure, but since it sells into China, it could suffer if the trade war leads to demand erosion. For the second quarter specifically, Honeywell’s earnings guidance was above Wall Street estimates, while its sales forecast of $9.8 billion to $10.1 billion was light versus the FactSet consensus of $10.15 billion. However, the earlier exit of its PPE business was probably not in analysts’ models, making the second-quarter guidance look closer to estimates when taking that into account. (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. 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. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

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