Honeywell’s Strong Q1 Guidance Amid Tariff Uncertainty Impresses Investors
Investors have prepared for potential downgrades in full-year guidance from industrial firms due to ongoing tariff conflicts. In this context, the recent first-quarter results and guidance from Honeywell International (NASDAQ: HON) stand out, suggesting the stock might be attractive for patient investors.
Honeywell’s Robust Guidance Outlook
Honeywell has a reputation for surpassing expectations, making any failure to do so a concern for investors. Given the current economic turbulence caused by tariffs, many expected unfavorable news from Honeywell. For instance, its aerospace competitor, RTX, surprised the market with a warning regarding potential tariff impacts, while companies like 3M have refrained from providing guidance due to tariff uncertainties.
Contrary to expectations, Honeywell raised its guidance midpoint by adjusting its range’s lower end. During its fourth-quarter earnings call, management projected a full-year 2025 earnings per share (EPS) range of $10.10 to $10.50, which has now been upgraded to $10.20 to $10.50, reflecting the expected tariff effects.
Although Honeywell faces challenges from tariffs, it has responded by lowering sales expectations in its industrial automation sector. Specifically, management adjusted its forecast from a low-single-digit decline to a mid-single-digit decline. Nonetheless, an impressive organic sales growth of 4% in the first quarter exceeded expectations, particularly driven by the commercial aerospace aftermarket.
Positioned to Navigate Tariff Challenges
Honeywell’s guidance anticipates a $500 million impact from tariffs. However, the company is taking steps to mitigate this through pricing adjustments and alternative sourcing. Notably, more than 80% of Honeywell’s sales in the U.S. and Europe are locally produced, which positions the company favorably.
While tariffs do affect Honeywell, it remains a net exporter to China, where the impact of U.S.-China trading relations is crucial. With significant tariffs already imposed, any easing could enhance Honeywell’s earnings projections.
Catalysts for Future Growth
Looking ahead, Honeywell’s separation plans may further drive optimism. Management intends to spin off its advanced materials business, named Solstice Advanced Materials, in late 2025 or early 2026, with expectations of improved growth during that period.
Additionally, Honeywell Aerospace is experiencing high-single-digit growth from ongoing demand in both the commercial aftermarket and original equipment segments. This growth is further bolstered by increasing activity in building automation, which offsets weakness in industrial automation.
Overall, the potential for all three future entities—Solstice Advanced Materials, Honeywell Aerospace, and Honeywell Automation—to start as growth-oriented companies is promising. Increased production in aerospace and investments in automation could significantly enhance long-term growth.
An Investment Opportunity?
For both short-term and long-term investors, Honeywell’s stock appears attractive. There’s a reasonable chance for Honeywell to exceed its guidance for 2025, which may appeal to near-term investors.
If you believe that breaking up can allow management to focus more effectively on each separated business, Honeywell may also be a strong option for long-term investment.
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Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends 3M. The Motley Fool recommends RTX. The Motley Fool has a disclosure policy.
The views expressed herein are solely those of the author and do not necessarily reflect those of Nasdaq, Inc.
