Oct 30, 2020
Why Honeywell’s results should matter to you
Fundamentally, there are a few locations and industries that do not affect Honeywell. Therefore, if you are an investor or a business owner. Their results should be important to you.
Honeywell is seen as an industrial giant. And industrial companies have probably had the worst time during the global pandemic. As Barron reported on the 26th of October, the energy and industrial sectors were the worst performers. With the industrial industry “technically” being in a recession, COVID impacted their numbers further and with the looming “trade war” between the US and China. Well, let’s be honest. It is not doing anyone any good at this time really.
If you are not aware. Honeywell is a solutions provider to optimise and streamline your operations. From solutions that assist a business in making sense of their data, to automating the logistics within the warehouse of a business.
Honeywell is exposed to the following sectors.
- Aerospace and Defense
- Building and Cities
- Chemicals and Materials
- Industrial and Manufacturing
- Retail
- Safety
- Sporting Goods
- Supply Chain
Honeywell is almost exposed to every industry imaginable. And on a global scale. Therefore, it’s results should tell a very interesting story about the state of current affairs. And before we jump into the results. By looking at the industries. Are there any that you can identify that you would imagine it did not perform during this quarter? Aerospace is the one that jumps out for me. And with all the lockdowns, building and cities could not have performed very well either.
The results for everyone
Now if you are a shareholder. You should be interested in the numbers that will follow, as well as the final numbers that we will discuss later. However, if you are a business owner or entrepreneur. This section is specifically for you.
From the above, we can see the aerospace industry showed sales of $2.662 Million in sales. This is down 25% in organic sales. The Defense and Space sectors performed very well, experiencing double-digit growth, the commercial aerospace was the problem. With global borders closed, and lower flights, the industry is struggling. It is not all bad news for the Aero segment, as margin increased by 240 basis points or 2.4% from the previous quarter.
HBT or Honeywell Building Technologies declined 8% in revenue to $1.305 Million. However, margin control within this segment was excellent, with a 60 basis point or 0.6% increase in margins. Honeywell attributes the struggle in their sales figures for the segment to the delays in the Building Solutions projects. While projects and energy verticals experienced double-digit growth. There appears to be a very optimistic pipeline of healthy building solutions in the future.
PMT or Performance Materials and Technology experienced a 16% decline in organic sales to $2.252 Million, with margins declining by 2.2%. Main attributes to the decline in sales include delays in projects, product volumes declining, lower gas processing investments, lower licensing, engineering and catalyst shipments in UOP.
It is not all bad news (although it almost sounded like it). With packaging still looking very promising within the PMT segment.
SPS or Safety and Productivity Solutions experienced an increase in sales of 8% to 1.578 Million. As with the global pandemic, a major shift was made by all businesses and industries to safety and productivity solutions. With cost-cutting and implementation of smart technologies on the forefront of business minds. It makes sense that this segment performed exceptionally well for Honeywell during this quarter.
What can we expect from quarter four?
Honeywell has provided some guidance on where they see the fourth quarter heading. Their outlook looks very optimistic, with the results indicating an improvement in sales within all four segments of the business. Attributing this to the momentum in the healthy solutions, double-digit growth in defence, warehouse automation and PPE and then the recovery of the overall economy.
Honeywell further indicates that there are some opportunistic share repurchases in the pipeline, with two M&A transactions already completed. Business acquisitions have proven to work very well for Honeywell, providing them with new and innovative solutions that make this business very resilient.
What did the third quarter really look like for Honeywell?
Sales decline compared to the prior fiscal year by 14%. Defence, warehouse automation and PPE were their strongest segments, with the rest dragging the results down.
The margin was controlled during a very difficult time. With Aerospace and PMT under pressure to lower margins with an already decline in volumes.
Cash flow experienced a very significant decline from $1.3 Billion to $800 million. Cash generation was significantly lower during the current quarter. With investments into Property, Plant and Equipment, dividends paid out and share repurchases it is understandable that the cash flow decreased during the quarter.
The $0.8Billion in free cash flow is still a healthy position to be in, and we are not too concerned yet.
