Summary
Honeywell International Inc. reported a decrease in net sales for the third quarter and the first nine months of 2019 compared to the prior year, largely due to the spin-offs of its Transportation Systems and Homes and Global Distribution businesses. Despite lower overall sales, the company demonstrated resilience with positive organic growth in key segments like Aerospace and Performance Materials and Technologies. Earnings per share also saw a decline, influenced by higher tax expenses and the impact of divestitures, though operational improvements and cost management, including lower repositioning charges and favorable gross margins, provided some offset. The company maintained a strong liquidity position and continued its capital return strategy through share repurchases and dividend payments, signaling confidence in its ongoing operations and future prospects.
Financial Highlights
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Financial Statements
Beta
| Revenue | $9.09B |
| Cost of Revenue | $6.04B |
| Gross Profit | $3.05B |
| SG&A Expenses | $1.30B |
| Net Income | $1.62B |
| EPS (Basic) | $2.26 |
| EPS (Diluted) | $2.23 |
| Shares Outstanding (Basic) | 717.60M |
| Shares Outstanding (Diluted) | 726.70M |
Key Highlights
- 1Net sales decreased by 16% for the quarter and 15% year-to-date, primarily due to the spin-offs of Garrett Motion Inc. and Resideo Technologies, Inc.
- 2Aerospace segment showed resilience with organic sales growth in Commercial Aviation Original Equipment and Aftermarket, and strong growth in Defense and Space.
- 3Performance Materials and Technologies segment experienced modest overall sales growth driven by organic increases in UOP and Process Solutions, despite a slight dip in Advanced Materials.
- 4Honeywell Building Technologies and Safety and Productivity Solutions segments saw sales declines, largely attributed to divestiture impacts and unfavorable foreign currency translation, though organic growth was present in HBT's building solutions.
- 5Gross margin percentage improved for both the quarter (33.5% vs. 29.8%) and the year-to-date period (33.8% vs. 30.3%), benefiting from lower repositioning and other charges and pension service costs.
- 6The company continued its capital return program, repurchasing $3.65 billion of stock in the first nine months of 2019, with $7.7 billion remaining under the current authorization.
- 7Net income attributable to Honeywell decreased to $1.62 billion for the quarter and $4.58 billion for the nine months, impacting diluted EPS which fell to $2.23 and $6.25, respectively.
Frequently Asked Questions
The primary reason for the decline in net sales for the third quarter and the first nine months of 2019 was the impact of divestitures, specifically the spin-offs of Honeywell's Transportation Systems business (Garrett Motion Inc.) and its Homes and Global Distribution business (Resideo Technologies, Inc.). These spin-offs reduced reported sales figures as these businesses are no longer consolidated under Honeywell.
The Aerospace segment showed strong organic growth, particularly in Commercial Aviation and Defense & Space. Performance Materials and Technologies also saw organic growth in key areas like UOP and Process Solutions. Honeywell Building Technologies and Safety and Productivity Solutions experienced sales declines, largely due to the aforementioned spin-offs and unfavorable foreign currency impacts, although some areas within these segments showed organic growth.
Despite a decrease in net income and earnings per share compared to the prior year, driven by factors like higher tax expenses and divestitures, Honeywell's gross margin improved. The company also generated significant cash flow from operations ($4.28 billion for the nine months) and maintained a strong liquidity position with substantial credit lines. Management's continued share repurchase program and dividend increases indicate confidence in future profitability and cash-generating capabilities.
The report mentions ongoing legal proceedings, including environmental matters, asbestos-related liabilities (from past acquisitions like NARCO and Bendix), and other litigation. While the company accrues for probable and estimable liabilities, the ultimate outcomes of these matters are uncertain and could be material. Specifically, the SEC investigation into prior accounting for Bendix asbestos claims concluded with no enforcement action, and shareholder lawsuits related to this matter are ongoing but Honeywell believes they have no merit. The company also noted a dispute with Garrett regarding indemnification agreements.