10-QPeriod: Q2 FY2015

HONEYWELL INTERNATIONAL INC Quarterly Report for Q2 Ended Jun 30, 2015

Filed July 17, 2015For Securities:HONHONIV

Summary

Honeywell International Inc. reported a 5% decrease in net sales for both the three and six-month periods ending June 30, 2015, compared to the prior year. This decline was primarily attributed to unfavorable foreign exchange rates and the divestiture of the Friction Materials business, partially offset by organic growth. Despite the sales dip, the company demonstrated improved profitability due to cost management initiatives, including lower cost of goods sold and streamlined selling, general, and administrative expenses. Net income attributable to Honeywell increased to $1.194 billion for the quarter and $2.310 billion for the year-to-date period, leading to a rise in diluted earnings per share to $1.51 and $2.91, respectively. The company also reported strong operating cash flow, although it was lower than the previous year due to changes in working capital and increased repositioning payments.

Financial Highlights

48 data points
Beta

Revenue

$9.78B

30.3% Gross Margin

Net Income

$1.19B

12.2% Net Margin

EPS (Diluted)

$1.51

Total Assets

$46.41B

Cash & Equivalents

$5.95B

Free Cash Flow

$1.17B

Financial Statements
Beta
Revenue$9.78B
Cost of Revenue$6.81B
Gross Profit$2.96B
SG&A Expenses$1.24B
Net Income$1.19B
EPS (Basic)$1.52
EPS (Diluted)$1.51
Shares Outstanding (Basic)783.30M
Shares Outstanding (Diluted)792.90M

Key Highlights

  • 1Net sales decreased by 5% to $9.775 billion for the second quarter and by 5% to $18.988 billion for the first six months of 2015, largely due to foreign exchange impacts and divestitures.
  • 2Gross margin percentage improved to 30.3% in Q2 2015 and 30.6% year-to-date, reflecting cost efficiencies and productivity gains.
  • 3Net income attributable to Honeywell rose to $1.194 billion in Q2 2015 ($1.51 EPS) and $2.310 billion year-to-date ($2.91 EPS), indicating effective cost control and operational improvements.
  • 4Operating cash flow for the first six months was $1.829 billion, a decrease from the prior year, primarily due to changes in accrued liabilities and increased repositioning payments.
  • 5The Aerospace segment saw a 5% sales decline but a 2% increase in segment profit for the quarter, driven by organic growth in commercial segments and productivity improvements.
  • 6Automation and Control Solutions (ACS) reported a 1% sales decrease but a 6% increase in segment profit for the quarter, benefiting from organic sales growth and productivity initiatives.
  • 7Performance Materials and Technologies (PMT) experienced a 9% sales decline but a 7% increase in segment profit for the quarter, driven by price and productivity improvements despite project delays.

Frequently Asked Questions

The primary drivers for the decrease in net sales were the unfavorable impact of foreign exchange rates and the divestiture of the Friction Materials business. These factors were partially offset by organic growth across various segments.

Honeywell achieved improved profitability through effective cost management. This included a reduction in the cost of products and services sold due to lower material and labor costs, favorable foreign exchange, and productivity initiatives. Selling, general, and administrative expenses also decreased, contributing to higher net income and EPS.

While the Aerospace segment experienced a sales decrease primarily due to divestitures and foreign exchange, segment profit increased due to organic growth in commercial segments (Original Equipment and Aftermarket) and productivity improvements. The company anticipates continued growth in business and general aviation engine shipments and repair/overhaul activities.

Honeywell faces ongoing matters related to environmental liabilities, particularly concerning Onondaga Lake, and significant asbestos-related liabilities from former predecessor companies (NARCO and Bendix). The company has recorded reserves for these liabilities and believes it has sufficient insurance coverage and reserves. While these are substantial, the company does not expect them, individually or in aggregate, to have a material adverse effect on its consolidated financial position, though potential future outcomes remain uncertain.