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Why Honeywell’s Home and Building Technologies Margins Improved

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Apr. 24 2018, Updated 7:31 a.m. ET

Home and Building Technologies in 1Q18

Honeywell International (HON) has made organizational changes to its HBT (Home and Building Technologies) for better alignment. The segment accounted for 23.4% of the company’s total revenue in 1Q18. Despite revenue growth, its total share of Honeywell’s revenue fell 0.50 percentage points from 1Q17. The HBT segment’s revenue rose 7.2% YoY (year-over-year) to $2.4 billion from $2.3 billion.

The demand for residential thermal solutions and thermostats helped the segment grow organically, by 2%. The remaining 5% of growth was due to foreign currency translation. The homes business grew 10%, driven by the ADI global distribution business. The conversion of backlog orders boosted the building segment by 5%.

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Net income and margins

The HBT segment reported net income of $416.0 million in 1Q18, an increase of 10.3% from its net income of $377.0 million in 1Q17. Restructuring in the segment and foreign currency translation resulted in the segment’s profit and widened the segment’s margin by 50 basis points YoY to 17.1% from 16.6%.

Outlook

The segment’s revenue is expected to continue to be driven by home products and ADI. Foreign currency exchange could also boost the segment’s revenue and income growth, and productivity measures could continue to support its margin.

Investors seeking indirect exposure to Honeywell could consider the iShares US Industrials ETF (IYJ), which has invested 3.3% of its portfolio in Honeywell. The fund also provided exposure to Union Pacific (UNP), Caterpillar (CAT), and Deere (DE), of 3.1%, 2.7%, and 1.4%, respectively, as of April 20.

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