will be happy to see 2021 in the rearview mirror. The company is ringing in the New Year in a brand new building, and with the belief that things are getting better for the company.
Barron visited the new headquarters in Charlotte, NC, for a day in late December, and the company provided a number of 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 market performance. It hasn’t been the best of times for
(ticker: HON) investors. Shares fell around 2% in 2021, behind the respective returns of 27% and 19% in the
Dow Jones Industrial Average.
The problem of actions was twofold. First, Covid-19 has harmed the company’s largest division: aerospace. Travel still lags behind pre-pandemic levels. The second problem is related to the stock market. Stocks were trading at around 27 times next year’s estimated earnings at the end of 2020. They are now trading at around 23 times estimated 2022 earnings. The long-running pandemic has had an impact on investor sentiment .
However, the pandemic has not dampened demand for Honeywell products and services. Demand in 2021 has ‘exploded’, says commercial director Jeff Kimbell, sitting in a conference room next to his desk. The room, and the whole building, smells a bit like a new car. This is how Honeywell’s new space is.
He doesn’t see demand changing in 2022. Kimbell explains that the demand for air quality solutions, productivity solutions as well as products that make all industrial operations more sustainable are growing. In 2020, in the midst of the pandemic, demand for everything dried up and Kimbell was primarily responsible for driving demand. Now his big challenge is to dynamically set prices to compensate for inflation.
Inflation concerns worry supply chain director Torsten Pilz, whose office is, oddly enough, adorned with photos of SpaceX rocket launches. Pilz was the head of supply chain at SpaceX before coming to Honeywell, which makes him well positioned to explain a lot about space, including how SpaceX captures its rockets on drones at sea.
“You don’t have enough fuel to make it all the way back [to land], explains Pilz. The Florida launches go east, with the earth spinning, placing the first stage of a reusable rocket above water.
Pilz explains that the big supply chain challenge at SpaceX is to build something that isn’t really designed for mass production. Honeywell has some challenges with the aerospace industry. It is an industry characterized by high-value, relatively low-volume equipment. This is only one of Honeywell’s divisions, however.
Honeywell has five divisions that investors can think of: aerospace, energy, automation, commercial buildings and software. Each, with the exception of the simply named Aerospace Unit, has its own Honeywell-specific acronym: PMT, SPS, HBT, and HCE, respectively.
“Each unit receives a certain part of the love,” says Pilz. Semiconductor shortages have taken a lot of their time in 2021. It’s hit the SPS, or security and productivity solutions, hard. “As a supply chain leader, you always focus on the constraints,” he adds, explaining how to manage supply chains in a company as complicated as Honeywell.
Semiconductors are expected to be less of a headwind in 2022. Honeywell has met about 90% of its semiconductor needs for 2022, says CEO Adamczyk. It’s an example of something he’s proud the organization has accomplished amid so much disruption. Adamczyk believes Honeywell has done a good job adjusting to what 2020 and 2021 have brought to the business.
“You have to be agile,” he says. It’s not easy for a sprawling conglomerate. The CEO, however, bristles a bit with the conglomerate label. “Honeywell is actually not a conglomerate,” says Adamczyk. For him, there is a cohesive backbone that cuts across all Honeywell segments: digitization, automation and systems control. Honeywell sells products and services related to these three elements in each of its business segments.
The need to digitize businesses, including hers, could mean that Sheila Jordan, who joined in January 2020, is a hidden management gem within the company. She is the Chief Digital Officer of Honeywell and one of her jobs is to make sure everyone is using the same tools. “When I arrived two years ago, [Honeywell] had 42 assets [digital] transformation projects, ”she says.
That’s a lot, but it’s not a problem in itself. Honeywell has been very aggressive in its approach to managing its internally generated data. “There is huge progress on all fronts,” adds Jordan. The number of projects is dropping and there are new pricing tools for every business. Honeywell has even launched a company-wide virtual assistant, dubbed Red, which can help you with everything from expenses and passwords to purchase orders. It’s like Siri for the office.
Honeywell appears ready to face future challenges of inflation, changing demand, and even trade disputes. He is also ready to help clients with this. Wall Street expects Honeywell to earn around $ 9 in 2022. That’s more than the Adjusted $ 8.16 per share figure reported in 2019, before Covid.
Write to Al Root at [email protected]