DBT Bureau
Pune, 28 July 2024
Honeywell’s second-quarter results met or surpassed the company’s expectations. The company reported a 5% year-over-year increase in sales and a 4% rise in organic sales, driven by double-digit organic sales growth in defense and space, commercial aviation, and building solutions. Operating income grew by 5%, with the operating margin expanding by 10 basis points to 20.7%. Segment profit increased by 4%, led by Aerospace Technologies, although segment margin contraction of 10 basis points was slightly higher than the midpoint of the guidance range. Earnings per share for the quarter were $2.36, marking a 6% year-over-year increase, while adjusted earnings per share were $2.49, up 8% year-over-year, exceeding the upper end of the guidance range. Operating cash flow was $1.4 billion, and free cash flow was $1.1 billion, remaining approximately flat compared to the previous year.
“Honeywell delivered a strong second quarter, once again meeting or exceeding guidance across all metrics while maneuvering through a dynamic operating environment,” said Vimal Kapur, chairman and chief executive officer of Honeywell. “While Aerospace continues to lead our growth, we are seeing broader participation across our portfolio, with three of our four segments contributing positive growth for the quarter. All four segments grew sequentially in the quarter as well, giving us further confidence in our expectation of a second-half organic growth acceleration.”
Kapur continued, “We also made significant progress in our capital deployment strategy, deploying $6.4 billion to M&A, dividends, share repurchases, and capex, highlighted by the closing of our $5 billion acquisition of Access Solutions. We also recently announced two additional deals – the $1.9 billion acquisition of CAES Systems and the $1.8 billion acquisition of Air Products’ LNG process technology and equipment business. We continue to make significant progress on my key priorities for Honeywell as we accelerate our alignment to three powerful megatrends – automation, the future of aviation, and energy transition, all underpinned by digitalization. Together, our technologically differentiated portfolio and world-class Honeywell Accelerator operating system are poised to further unlock incremental value and enable us to achieve our long-term financial framework.”
As a result of the company’s second-quarter performance and management’s outlook for the remainder of the year, including the impact of recently announced acquisitions, Honeywell updated its full-year sales, segment margin2, adjusted earnings per share2,3, and cash flow1 guidance. Full-year sales are now expected to be $39.1 billion to $39.7 billion with organic1 sales growth in the range of 5% to 6%. Segment margin2 is now expected to be in the range of 23.3% to 23.5% with segment margin contraction2 of 20 basis points to flat year over year. Adjusted earnings per share2,3 is now expected to be in the range of $10.05 to $10.25, up 6% to 8% year over year. Operating cash flow is now expected to be in the range of $6.6 billion to $7.0 billion, with free cash flow of $5.5 billion to $5.9 billion.
Second-Quarter Performance
Honeywell’s sales for the second quarter increased by 5% year over year on a reported basis and by 4% year over year on an organic basis.
Aerospace Technologies sales for the second quarter increased 16% on an organic basis year over year, the eighth consecutive quarter of double-digit organic growth, on sustained strength in both commercial aviation and defense and space. Commercial aviation was led by a 17% growth in aftermarket sales as global flight activity continued to rise. Commercial original equipment sales once again grew double digits on increased shipset deliveries, particularly in air transport. Defense and space grew 19% year over year as sustained demand from the current geopolitical climate and further supply chain improvements enabled us to convert on our robust backlog. Segment margin contracted 60 basis points year over year to 27.2%, driven by mix pressure in original equipment, partially offset by commercial excellence net of inflation.
Industrial Automation sales for the second quarter decreased 8% on an organic basis year over year. Sales declines were primarily driven by volume softness in warehouse and workflow solutions. While sales declined in productivity solutions and services overall, they were up year over year and sequentially excluding the impact of payments under the license and settlement agreement that ended in the first quarter. Process solutions sales grew 1% in the second quarter as continued double-digit growth in aftermarket services was partially offset by softness in thermal solutions and smart energy. Sales in our sensing and safety technologies business declined year over year, but both orders and sales improved sequentially. Segment margin contracted 90 basis points to 19.0% due to lower volume leverage and the end of payments under the license and settlement agreement.
Building Automation sales for the second quarter increased 1% on an organic basis year over year and increased 10% sequentially including one month of benefit from the acquisition of our access solutions business. Building solutions delivered another solid quarter, growing 14% organically, as both projects and services grew double digits. The ongoing strength in building solutions was mostly offset by declines in building products, primarily driven by lower year-over-year volumes in fire and building management systems; however, both businesses saw improved sales quarter over quarter. Segment margin improved sequentially for the second consecutive quarter but contracted 60 basis points year over year to 25.3%, due to product mix headwinds and cost inflation, partially offset by productivity actions and commercial excellence.
In the second quarter, Energy and Sustainability Solutions sales grew by 3% compared to last year. Advanced Materials led the way with an 8% increase in sales, thanks to strong demand for fluorine products. UOP sales dropped by 4% due to tough comparisons from big gas processing projects last year, but this was partly offset by higher sales in refining catalysts and aftermarket services. The segment margin increased by 200 basis points to 25.2%, mainly because of productivity improvements.
