Honeywell CEO Darius Adamczyk has just a little more than a month left before he turns the leadership reins over to current president and COO Vimal Kapur, but his tenure as CEO is ending on a high note and with a bullish attitude about Honeywell being an acquirer of other firms in the months to come.
The high note was delivered by the company’s first quarter 2023 earnings performance. Honeywell soundly beat analyst expectations, reporting Q1 revenue of $8.86 billion, topping estimates of closer to $8.5 billion and representing almost 6% year-over-year growth. Organic sales were up 8%. The performance drove Honeywell to raise its guidance for the rest of 2023. Adamczyk said on this week's Q1 earnings call that the firm now expects full-year sales to land between $36.5 billion and $37.3 billion with organic sales growth in the range of 3% to 6%.
Honeywell's Aerospace unit led the charge, as it saw sales for the first quarter increase 14% compared to the same period last year, with commercial aviation aftermarket sales growing more than 20%, and commercial original equipment also posting double-digit sales growth. This comes just a couple of months after Honeywell acknowledged that supply chain constraints, costs, and labor issues were still creating challenges for the company.
One analyst on the earnings call said Honeywell had been called out recently by one of its customers over a supply shortage issue. The customer was not named, but Honeywell’s aviation customers include big-name manufacturers like Boeing and Airbus, among others.
Commenting on ongoing supply chain issues, Adamczyk said Honeywell owns its shortcomings and still needs to improve, but he also put some of the blame on Honeywell’s suppliers. He demurred from naming names, but responded, “We have a lot of issues with our supply base as well. Some of those suppliers are large public companies, and I'm not going to sit here and call them out on a call like this… It's our responsibility, and it's our job to deliver so we're going to work at it; we own it. I know this supply chain in Aerospace is not perfect. It's getting better relatively quickly… but there's work to do.”
He continued, “There are four or five layers to the supply chain, and what we're seeing and feeling flows down to our suppliers. We're still getting some very inconsistent supply [from Honeywell's suppliers]. Our decommit rate went from 19-20% in Q4 down to 16-15% [in Q1]. Still not good, but improving." Referring to actions Honeywell started taking late last year to improve supply chain constraints, he added, “We're making those improvements, and we've launched hundreds of people into our supply chain to assist our suppliers.”
Meanwhile, sales in the Honeywell Building Technologies unit, which includes automation, IoT and other products, were up 9% on an organic basis year over year. The company’s Performance Materials and Technologies unit delivered 15% revenue growth. Sales in Honeywell’s Safety and Productivity Solutions unit were down 11% year over year, but the decline was partially offset by growth in the sensing portion of the unit.
M&A
In his final earnings call as CEO, Adamczyk, who will remain executive chairman of Honeywell, set a bullish tone regarding future mergers and acquisitions activity for his successor to deliver on.
A day before Q1 earnings were announced, Honeywell announced the $670 million acquisition of Compressor Controls Corporation, a provider of turbomachinery control and optimization solutions, including control hardware, software and services, that primarily serves the LNG, gas processing, refining and petrochemical segments.
Adamczyk said there is more M&A to come, and that Honeywell will be a buyer.
“I have not seen a better time since I’ve been CEO to be a buyer,” he said. “I think that it's an opportunity for us to be much more active. The pipeline is probably better than it's ever been, and I think we've got some interesting bolt-on [deals] that we're looking at that hopefully we’re going to be able to close here in the next few months.”
Asked about the potential size of acquisitions the company could make, Adamczyk said. “I think we have said a bolt-on for us could be up to the five, six, $7 billion range. The reason I'm more bullish is that the cost of money has gone up significantly. You see the interest rates, and… the competition for assets now is primarily strategic. I think it's smart to be a buyer or seller in various cycles of economic conditions and interest rates, and I think right now, I think it's smart to be a little bit more aggressive on being a buyer.”