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Honeywell’s Moving Parts Consume Management Attention

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Moving parts for Honeywell in 3Q16

Although David Cote,  Honeywell’s (HON) CEO, eased concerns on management capacity, the company does seem to have encountered a lot of organizational challenges in a short amount of time. The company is integrating nine acquisitions for which it deployed $8 billion in capital. To create a leaner operating structure, the company split its Automation and Control Solutions segment into two separate segments. The leaner structure is expected to generate savings of $100 million annually beginning next year.

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Honeywell also divested the AdvanSix and the government services businesses (or HTSI), as they didn’t fit its core organizational objectives. AdvanSix had a highly cyclical end market in the commodity chemicals industry (VAW), whereas HTSI didn’t have any discernable technology differentiation qualities. Plus, the company is also adopting new accounting standards a little earlier.

Financial impact of moving parts

The company derived benefits of 14 cents per share each from the HTSI divestiture and the adoption of new accounting standards. The aggregate benefits of 28 cents will be deployed in Honeywell’s restructuring initiatives related to the realignment of the Automation & Control Solutions segment and certain cost optimization measures in the Aerospace division. These measures are expected to generate savings between $175 million and $200 million in 2017.

The AdvanSix divestiture unlocked $800 million in shareholder value through a combination of cash dividends and tax-free share dividends to the company’s shareholders.

For more updates on the industrial (XLI) and aerospace industry, investors can check out our pre-earnings series on Idex (IEX), Lennox International (LII), Lockheed Martin (LMT), and Textron (TXT).

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