Honeywell, a diversified industrial manufacturer that makes products ranging from jet engines to building controls to industrial materials, is an example of a company that uses several levers to create value, reshaping from a position of strength.
Among the steps the company has taken were two major divestments that reduced cyclicality, strengthened the balance sheet, increased free cash flow conversion and simplified end-market exposure.
The company has also realized the customer need for more software-oriented solutions and connected devices, so it created a new business unit in 2018 tasked with selling and marketing the connected solutions. Separately, the company’s Honeywell Ventures unit invests in early-stage companies with emerging and disruptive technologies.
At the same time, Honeywell has been more focused on using digital solutions to manage its own costs and on improving efficiency of its own internal process. It has also reduced its enterprise resource planning (ERP) systems from 148 in 2016 to 48 in 2019 and plans to continue to reduce them in the future years. To streamline how decisions are made, it established similar processes and consistent data sets to be used in different geographies.
The company is also reshaping its supply chain, adopting an asset-light model, employing more automation and digitization and hiring and training people to develop a workforce with the expertise needed to make the supply chain more flexible and capable.
These actions have already paid off for Honeywell, which has outperformed industrial companies, multi-industry peers and the S&P 500 in total shareholder return over the last year, three years, five years and 10 years. It also improved organic revenue growth to 6% in 2018 from an average of 1% in 2014-16, while exceeding its margin growth expectations and increasing software sales. Lastly, it has increased its available cash, giving it more optionality for acquisitions and capital expenditures while supporting increased dividend payments.