Industry Summary Articles

Honeywell announced results for the third quarter that met or exceeded the company's guidance. The company also updated its full-year sales, segment margin², and adjusted earnings per share^2,3 guidance ranges.

The company reported third-quarter year-over-year sales growth of 3% and organic¹ sales growth of 2%, led by double-digit organic sales growth in commercial aviation, defense and space, and process solutions. Operating margin expanded 140 basis points to 20.9% and segment margin¹ expanded by 80 basis points to 22.6%, led by expansion in Honeywell Building Technologies. Earnings per share for the third quarter was $2.27, roughly flat year over year on a reported basis and up 1% year over year adjusted¹. Excluding a 14-cent non-cash pension headwind, adjusted earnings per share¹ was up 7%. Operating cash flow was $1.8 billion with operating cash flow margin of 19.6%, and free cash flow¹ was $1.6 billion with free cash flow margin¹ of 16.9%, driven by strong net income and collections.

"Honeywell executed through a challenging environment in the third quarter, meeting or exceeding guidance for all metrics and demonstrating once again our culture of execution and accountability," said Vimal Kapur, chief executive officer of Honeywell. "Organic¹ sales growth was led by our Aerospace segment, where continued supply chain improvements enabled significant sales growth in both commercial aviation and defense and space. We also saw strong growth in other pockets of the portfolio, including double-digit organic sales growth in our process solutions business, and 20% organic sales growth in our Honeywell Connected Enterprise offerings. Orders growth of 10% in the quarter, led by strength in Aerospace and our other long-cycle businesses, drove our backlog to a new record level of $31.4 billion, up 8% year over year. Continued mix benefits combined with our laser focus on productivity across the Honeywell portfolio enabled us to expand margins in line with the high end of our guidance range. We remain committed to our capital deployment strategy and put our robust balance sheet to work in the third quarter by deploying $2.0 billion to dividends, high-return capex, M&A, and share repurchases, including more than doubling our share repurchases sequentially to 5.3 million shares. The result of all these efforts was increased adjusted earnings per share¹ in the face of uncertain macroeconomic dynamics."

Kapur continued, "I am very excited about the future of Honeywell. Our portfolio is aligned to powerful megatrends: automation, the future of aviation, and energy transition, all underpinned by our robust digitalization capabilities. Our technologically differentiated portfolio of solutions and world-class Honeywell Accelerator operating system will enable us to capitalize on these trends and drive the profitable growth we outlined in our long-term financial framework."

As a result of the company's third-quarter performance and management's outlook for the remainder of the year, Honeywell updated its full-year sales, segment margin², and adjusted earnings per share^2,3 guidance. Full-year sales are now expected to be $36.8 billion to $37.1 billion with organic¹ sales growth in the range of 4% to 5%. Segment margin² is now expected to be in the range of 22.5% to 22.6%, with segment margin expansion² of 80 to 90 basis points, up 10 basis points on the low end from the prior guidance range. Adjusted earnings per share^2,3 is now expected to be in the range of $9.10 to $9.20, narrowing the range by 5 cents on both ends from the prior guidance range. Operating cash flow is still expected to be in the range of $4.9 billion to $5.3 billion, and free cash flow¹ is still expected to be in the range of $3.9 billion to $4.3 billion, or $5.1 billion to $5.5 billion excluding the net impact of settlements signed in the fourth quarter of 2022. A summary of the company's full-year guidance changes can be found in Table 1.

Third-Quarter Performance

Honeywell sales for the third quarter were up 3% year over year on a reported basis and 2% year over year on an organic¹ basis. The third-quarter financial results can be found in Tables 2 and 3.

Aerospace sales for the third quarter were up 18% year over year on an organic¹ basis, the fifth consecutive quarter of double-digit organic growth, with strength in both commercial aviation and defense and space. Commercial aviation growth was led by robust aftermarket demand driven by increased flight activity, particularly in air transport, with commercial aftermarket sales up more than 20% year over year. Commercial original equipment sales also increased in the third quarter on increased deliveries, particularly in business and general aviation. Defense and space sales grew 18% year over year as supply chain improvements and strengthened orders enabled us to convert our strong order book into sales. Segment margin remained unchanged year over year at 27.5%, as higher volume leverage and commercial excellence were offset by cost inflation and mix pressure in our original equipment business.

Honeywell Building Technologies sales for the third quarter were flat on an organic¹ basis year over year. Building solutions sales grew 4% organically driven by strong execution of building projects, particularly energy projects. Building products sales declined modestly on lower volumes of security offerings. Segment margin expanded 110 basis points to 25.2% driven by productivity actions and commercial excellence, partially offset by cost inflation.

Performance Materials and Technologies sales for the third quarter were up 3% on an organic¹ basis year over year. HPS sales grew 11% organically, led by another quarter of double-digit growth in projects and lifecycle solutions and services. UOP grew 6% organically as a result of increased petrochemical catalyst shipments, and double-digit growth in sustainable technology solutions. Orders in our sustainable technology solutions business once again grew triple digits. Segment margin contracted 50 basis points to 22.1% as a result of lower volumes in advanced materials.

Safety and Productivity Solutions sales for the third quarter decreased by 25% year over year on an organic¹ basis. Sales declines were due to lower volumes in warehouse and workflow solutions, which continues to be impacted by softness in the warehouse automation market. However, our pipeline remains robust, which translated into double-digit year over year and over 50% sequential orders growth in the third quarter. Additionally, we continue to see strong double-digit growth in the aftermarket services business. Volume declines in productivity solutions and services also impacted sales as we continue to work through the impact of lower demand and distributor destocking. Segment margin contracted 120 basis points year over year to 14.5% driven by lower volume leverage, partially offset by productivity and commercial excellence.

Conference Call Details

Honeywell will discuss its third-quarter results and updated full-year 2023 guidance during an investor conference call starting at 8:30 a.m. Eastern Daylight Time today. A live webcast of the investor call as well as related presentation materials will be available through the Investor Relations section of the company's website (www.honeywell.com/investor). A replay of the webcast will be available for 30 days following the presentation.

TABLE 1: FULL-YEAR 2023 GUIDANCE²

To view the original press release, please click here.

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