Al Root

Shares of industrial conglomerate Honeywell fell in late trading Monday after the company lowered its earnings and free cash flow guidance for 2024.

Investors appear to be reacting to the headline guidance cut. However, the changes were due to a new commercial agreement with jet maker Bombardier. Not much appears to have changed with Honeywell's business or the state of its end markets.

Honeywell announced an agreement Monday evening with Bombardier to provide technology for its jets. Honeywell says the value of the agreement is some $17 billion.

Both management teams struck a positive tone in the news release.

"This is a tremendous opportunity to co-innovate and advance next-generation technologies, including Anthem avionics and engines," said Honeywell CEO Vimal Kapur.

"This new partnership creates unprecedented opportunities for Bombardier, " added Bombardier CEO Eric Martel. "Honeywell's differentiated technology is the key reason we decided to collaboratively build a bright future with them."

The new agreement, however, impacts 2024 results. Honeywell lowered its 2024 sales outlook by $400 million and earnings by 47 cents a share. Free cash flow guidance was cut by $500 million. Honeywell didn't immediately respond to a request for comment for more detail.

For now, investors aren't focused on the longer-term benefits. Shares of Honeywell were down 3.2% in after-hours trading at $222.51. The drop wipes out about $4.5 billion of market value, about nine times the amount of the free cash flow adjustment.

Honeywell stock closed down 1.3% on Monday to $229.95, while the S&P 500 added 0.2% and the Dow Jones Industrial Average fell 0.3%.

The timing of the cut is inauspicious for the company. Recently, activist fund Elliott Management took a stake in Honeywell and urged the company to break up into two firms: one focused on aerospace and another on automation. Weak stock performance can give activists an upper hand in convincing shareholders to act.

Before Elliott's stake was disclosed, Honeywell stock was up about 7% this year, trailing the gain of the S&P 500. Through Monday trading, the stock was up about 10% this year.

Write to Al Root at allen.root@dowjones.com

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December 02, 2024 17:32 ET (22:32 GMT)

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