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Honeywell CEO is wisely preparing businesses for a tougher 2023, but remains optimistic

The chief executive of Club holding Honeywell (HON) said Friday he has taken steps to prepare the industrial conglomerate for an economic slowdown next year, an approach that should please shareholders. The comments from CEO Darius Adamczyk came in a CNBC interview one day after Honeywell reported solid third-quarter results and raised its full-year earnings per share guidance for 2022. “I’m cautiously optimistic about 2023, but there’s certainly going to be soft spots and, frankly, we’ve already taken some actions to prepare some of our businesses for a potential economic downturn,” Adamczyk said. “I don’t think ’23 is going to be a disaster, although I don’t think it’s going to be as robust as ’22 is.” The measures so far have been focused on the cost side, according to Adamczyk, who has led Honeywell since 2017. “Just making sure we’re right-sizing the business, taking a look at our indirect spend, making certain that we have our volumes with our indirect investments,” Adamczyk said. “We like to act way before we even see some of the markets actually turn. We’ve been in that kind of mode — nothing dramatic, nothing draconian — but even since Q3, we’ve been looking at this.” Honeywell is about four weeks into its fiscal 2022 fourth quarter. Honeywell has not started to lay off workers in a substantial way, Adamczyk said. However, one area where cuts have been more sizable is in the company’s warehouse automation division, which is sensitive to the retail industry. And that division has lately been challenged as retailers struggle with weaker demand this year compared to 2020 and 2021. Warehouse automation falls under the company’s safety and productivity solutions segment, which saw total revenue fall 7% year over year to $1.73 billion in the third quarter. While not providing formal guidance yet, Adamczyk said he expects the segment to be down in 2023 relative to 2022 revenue, “but we’ll expand margins there.” On the other hand, Adamczyk said Honeywell is hiring “aggressively” in divisions like aerospace, which as an industry is still recovering from the Covid pandemic. Airline executives still say new planes are in short supply . Out of Honeywell’s four reported segments, aerospace was the largest revenue contributor in the quarter, rising 9% year over year to $2.98 billion. Honeywell makes various parts that are used by aircraft makers Boeing (BA) and European rival Airbus. Sales for the division known as Honeywell building technologies rose 11% year over year to $1.53 billion, while performance materials and technologies revenue increased 8% to $2.72 billion. “I’m optimistic about our aerospace business. I’m optimistic about performance materials and technologies business, which is energy driven,” Adamczyk said. “Unquestionably, those two segments are going to do well. We’re still sitting on record backlogs. If we see any softness, we’ve got backlog we can go to.” “Our building technologies should grow, certainly not at the level it’s growing this year, but we still expect moderate growth,” he added. Honeywell is expected to provide a formal outlook for fiscal 2023 early next year when it reports fourth quarter 2022 earnings. “I do think ’23 will be a tougher economic environment. There’s no doubt about that in my mind. But the good news for Honeywell is that we’re in segments and positions where I think we’re going to do quite well in ’23, although I do expect some softness in spots for sure.” (Jim Cramer’s Charitable Trust is long HON . See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

Darius Adamczyk, CEO of Honeywell
Adam Jeffery | CNBC
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