Honeywell Aerospace 2Q16 financial overview
Honeywell’s (HON) Aerospace (ITA) segment is its largest business unit. It contributed to 37.8% of the company’s sales in 2Q16. The commercial aviation (~50% of revenue), defense and space (~29%), and transportation (~21%) businesses are housed within the Aerospace segment.
Revenue in Honeywell’s Aerospace segment came in below expectations and fell 1% year-over-year to $3.8 billion. Operating margins in the segment rose by 60 basis points to 20.9% due to continuing improvements in cost management and productivity.
Excluding mergers and acquisitions, the segment’s adjusted margins rose by 80 bps (basis points) to 21.1%. Investors interested in reading about the strengths and weaknesses of Honeywell’s Aerospace segment relative to overall industry trends can read on to the next part of this series.
Honeywell Aerospace 3Q16 forecast
For 3Q16, Honeywell has forecast sales growth in the Aerospace (XAR) segment to range between -1% and 1%. Operating margins within the segment are expected to fall by 30 to 50 bps due to discounts offered in the original equipment business (18% of aerospace) within commercial aviation.
HON has stated that original equipment sales could improve toward the end of the year, led by a ramp up in key platforms such as the Airbus (EADSY) A350 and A320 and the Boeing (BA) 737 and 787. The aftermarket business within commercial aviation, which contributed 32% to total aerospace sales, is expected to continue its run of above 5% organic growth in 3Q16.
Transportation systems sales are expected to be up in the low single digits as well, led by strong growth in light vehicle gas end-markets.