Honeywell Addresses Sales Shortfall -- Update
October 07 2016 - 9:51AM
Dow Jones News
By Ted Mann
Honeywell International Inc. said an unexpectedly weak September
was to blame for an anticipated drop in its annual sales, which
confused and spooked investors in the aerospace and building
systems conglomerate.
Chief Executive Dave Cote told investors Friday morning that
sales in areas such as aftermarket services for business jet
engines and hand-held scanners for shippers and logistics companies
"failed to materialize" in the third quarter, requiring the company
to cut its targets for earnings and annual sales.
"We expected short cycle orders that normally materialize," Mr.
Cote said. "They usually do, but in this case, they didn't."
Honeywell shares fell 8% Friday morning, pressuring shares of
other industrial players General Electric Co. and United
Technologies Corp.
The announcement was "uncomfortable," Mr. Cote said on a
conference call. But the company remains confident in its direction
for the long term, he said, and executives say they have weathered
some of the headwinds, including weakness in its business linked to
oil refining and chemicals.
"This is the bottom" for Honeywell businesses exposed to the oil
and gas industries, Mr. Cote said, even as he cautioned troubles in
the business jet industry "will get worse" next year.
Sales related to business jets were hurt by a variety of
factors, executives said, including slowing growth in emerging
regions including the Middle East, Russia and China, where Chief
Financial Officer Tom Szlosek said an anticorruption campaign has
blunted the market for luxury goods such as private aircraft.
Honeywell's announcement came amid other changes it reported
ahead of its third-quarter earnings release, scheduled for Oct. 21,
including a reorganization of a business unit and the integration
of an acquisition that sells automation systems to warehouse
operators.
Nigel Coe, an analyst at Morgan Stanley, derisively compared
Honeywell's announcement to a "paella bowl" dropped in front of
investors. "The elephant in the room is that credibility is
becoming a growing issue," he wrote in a research report. "Can we
be sure that the wound has been cauterized?"
In addition to the drop-off in expected business jet sales,
Honeywell also is paying up to lock in future business, taking a
$140 million charge in the third quarter for sales incentives that
will get the company's aerospace systems included on new
aircraft.
Those incentives are "painful to do," Mr. Cote said. "You take a
short term hit for it, but I really think it sets you up for a long
time to come."
Honeywell has been a Wall Street darling over the last
half-decade, seeming to perfect a strategy of small- to midsize
acquisitions. The company prides itself on integration and has
earned the right, in the view of many bullish analysts, to function
as a throwback conglomerate, with product offerings that range from
jet engines to chemical catalysts for oil refining to thermostats
and rubber boots.
The steadiness of that model, along with a strong record for
meeting and beating Wall Street expectations, has been a key
element of the legacy being built by Mr. Cote, who is scheduled to
retire as CEO in March. Mr. Cote will be succeeded by Darius
Adamczyk, who joined the company in 2008. Mr. Cote is to stay on as
executive chairman through 2018, after Mr. Adamczyk takes the
reins.
Mr. Adamczyk didn't appear on Friday's conference call. In
response to an analyst's question, Mr. Cote said that Mr. Adamczyk
had been "fully involved" and that corporate strategy as his
successor takes over would be "consistent with what we're saying
today."
Mr. Cote's final months have included some moves that struck
observers as out of character, especially an unsuccessful $90
billion takeover bid for United Technologies, one of its chief
aerospace industry rivals. United Technologies rebuffed the bid,
saying neither customers nor regulators would allow it, and
Honeywell said it was walking away from the bid in March.
Write to Ted Mann at ted.mann@wsj.com
(END) Dow Jones Newswires
October 07, 2016 10:36 ET (14:36 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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