Industrial giant Honeywell International will be glad to see 2021 in the rear view mirror. The company is ringing in the new year in a brand-new building, and with a belief that things are looking up for the company.
Barron’s visited the new headquarters in Charlotte, North Carolina, for a day in late December, and the company made available many executives, including CEO Darius Adamczyk. We learned a lot about supply-chain issues, industrial conglomerates, and even something about Elon Musk’s space company SpaceX.
The positive mood belies recent stock performance. It hasn’t been the best of times for Honeywell (ticker: HON) investors. Shares dropped about 2% in 2021, trailing the 27% and 19% comparable, respective returns of the S&P 500 and Dow Jones Industrial Average.
The problem for shares has been twofold. First, Covid-19 has hurt the company’s largest division: aerospace. Travel is still lagging prepandemic levels. The second problem is related to the stock market. Shares were trading at about 27 times next year’s estimated earnings at the end of 2020. They are now trading at about 23 times estimated 2022 earnings. The long-running pandemic has had an impact on investor sentiment.
The pandemic hasn’t hurt demand for Honeywell products and services, however. Demand in 2021 has “been through the roof,” says Chief Commercial Officer Jeff Kimbell, sitting in a conference room next to his office. The room, and the entire building, smells a little like a new car. That’s how new Honeywell’s space is.
He doesn’t see demand changing in 2022. Kimball explains that demand for air quality solutions, productivity solutions as well as products that make all industrial operations more sustainable are growing gangbusters. In 2020, amid pandemic, demand for everything dried up, and Kimball was the one chiefly responsible for drumming up demand. Now his big challenge is to price dynamically to offset inflation.
Inflation issues are a concern for Chief Supply Chain Officer Torsten Pilz, whose office is, curiously adorned with photos of SpaceX rocket launches. Pilz was the head of supply chain at SpaceX before coming to Honeywell, making 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 all the way back [to land],” explains Pilz. Launches from Florida go to the East, with the rotation of the earth, putting the first stage of a reusable rocket over water.
Pliz also explains 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’s an industry that is characterized by high value, relatively low volume equipment. That’s only one of Honeywell’s divisions, though.
Honeywell has five divisions investors can think about: aerospace, energy, automation, commercial buildings and software. Each, excluding the simply named aerospace unit, have their own Honeywell-specific acronym: PMT, SPS, HBT and HCE, respectively.
“Every unit gets a certain portion of the love,” says Pilz. Semiconductor shortages took up a lot of his time in 2021. That hit the SPS, or safety and productivity solutions, business hard. “As a supply chain leader you always focus on constraints,” adds Pilz, explaining how to manage supply chains in a business as complicated as Honeywell.
Semiconductors should be less of a headwind in 2022. Honeywell has secured about 90% of its semiconductor needs for 2022, points out CEO Adamczyk. That is an example of something he is proud the organization has accomplished amid a lot of disruption. Adamczyk believes Honeywell has done a good job adjusting to what 2020 and 2021 has thrown at the company.
“You have to be agile,” adds Adamczyk. That’s not easy for a sprawling conglomerate. The CEO, however, bristles a little at the conglomerate label. “Honeywell’s actually not a conglomerate,” argues Adamczyk. For him, there is a consistent backbone that runs through all of Honeywell 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 make businesses digital, including its own, might mean Sheila Jordan, who joined in January 2020, is a hidden management gem inside the company. She is Honeywell’s chief digital technologies officer, and one of her jobs is to get everyone using the same tools. “When I came in two years ago, [Honeywell] had 42 active [digital] transformation projects.”
That is a lot, but it isn’t a problem per se. Honeywell was very aggressive in moving to manage its internally generated data. “There’s massive progress on every front.” adds Jordan. The number of projects are down, and there are new pricing tools for each business. Honeywell has even launched a corporate wide virtual assistant, dubbed Red, that can help with everything from expenses, to passwords, to purchase orders. It’s like Siri for the office.
Honeywell looks ready to deal with future challenges related to inflation, demand shifts and even trade conflict. It is ready to help customers do that as well. Wall Street expects Honeywell to earn about $9 in 2022. That’s more than the $8.16 adjusted per share figure reported in 2019, before Covid.
Write to Al Root at allen.root@dowjones.com
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