Industrial giant Honeywell International will be happy to see 2021 in the rear view mirror. The company is ringing in the new year in a new building, and with the belief that things are looking up for the company.
baron’s It visited the new headquarters in Charlotte, North Carolina for a day in late December, and made available to several executives, including the company’s CEO Darius Adamczyk. We learned a lot about supply-chain issues, industrial conglomerates, and even Elon Musk’s space company SpaceX.
Positive mood belies the recent stock performance. It hasn’t been the best of times for Honeywell (ticker: HON) investors. Shares fell about 2% in 2021, trailing the respective returns of 27% and 19% comparable, the S&P 500 and the Dow Jones Industrial Average.,
For stocks, the problem is two-fold. First, Covid-19 has hit the company’s largest division: aerospace. Travel is still lagging behind pandemic levels. The second problem is related to the stock market. The shares were trading at about 27 times next year’s estimated earnings at the end of 2020. They are now trading at around 23 times the expected earnings of 2022. The prolonged pandemic has had an impact on investor sentiment.
However, the pandemic has not affected demand for Honeywell products and services. Chief commercial officer says demand has been “through the roof” in 2021 Jeff Kimbell, sitting in a conference room next to his office. The room, and the entire building, smells like a new car. Such is Honeywell’s new territory.
He doesn’t see a change in demand in 2022. Kimball points out that air quality solutions, productivity solutions as well as products that make all industrial operations more sustainable, are on the rise gangbusters. In 2020, amid the pandemic, demand for everything dried up, and Kimball was primarily responsible for driving down demand. Now their big challenge is to dynamically set pricing to compensate for inflation.
Inflation issues are a concern for Chief Supply Chain Officer Torsten Pilz, whose office is eagerly decorated with photos of SpaceX rocket launches. Pilz was head of supply chain at SpaceX before coming to Honeywell, which puts him well placed to explain a lot of things about space, including how SpaceX captures its rockets on drone ships at sea.
“You don’t have enough fuel to come back [to land], ” explains Pilz. Launches from Florida tend to go east with Earth’s rotation, putting the reusable rocket’s first stage above the water.
Please also point out that the big supply chain challenge at SpaceX is building something that isn’t really designed for mass production. Honeywell has some challenges with aerospace. It is an industry characterized by high-value, relatively low-volume equipment. Although it is only one of Honeywell’s divisions.
Honeywell has five divisions investors can think of: aerospace, energy, automation, commercial building and software. Each, except for the simply designated aerospace unit, has its own Honeywell-specific acronym: PMT, SPS, HBT and HCE, respectively.
“Every unit gets a certain share of love,” Pilz says. Semiconductor shortage took a lot of their time in 2021. This hit the SPS, or Security and Productivity Solutions, business hard. “As a supply chain leader you are always focused on the bottlenecks,” Pilz says, explaining how to manage supply chains in a complex business like Honeywell.
Semiconductors should be less of a headwind in 2022. Honeywell has achieved about 90% of its semiconductor needs for 2022, explains CEO Adamczyk. It is an example of what he is proud of that the organization has achieved amidst so many disruptions. Adamczyk believes Honeywell has done a good job adjusting to what 2020 and 2021 have thrown at the company.
“You have to be nimble,” Adamczyk says. It’s not easy for a huge group. However, the CEO pays little attention to the group’s label. “Honeywell is not really a group,” argues Adamczyk. For that, there is a coherent backbone that runs through all of Honeywell’s segments: digitization, automation, and systemic control. Honeywell sells products and services related to those three things in each of its business segments.
The need to digitize businesses, including our own, could mean Sheila Jordan, who joined in January 2020, has a hidden management gem inside the company. She is Honeywell’s Chief Digital Technology Officer, and one of her jobs is to make everyone use the same tools. “When I came two years ago, [Honeywell] 42 were active [digital] change projects. ,
That’s a lot, but it’s not a problem in itself. Honeywell was very aggressive in moving to manage its internally generated data. “Massive progress has been made on every front.” Jordan adds. The number of projects is small, and there are new pricing tools for each business. Honeywell has also launched a corporate wide virtual assistant, dubbed Red, that can help with everything from expenses to passwords, to buy orders. It’s like Siri for the office.
Honeywell is prepared to tackle future challenges related to inflation, demand changes and even trade conflicts. It’s also ready to help customers do just that. Wall Street expects Honeywell to make about $9 in 2022. It is more than that $8.16 adjusted per share Figures reported in 2019 before Covid.
Write to Al Root at [email protected]