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Defense a Key Sales Driver in Honeywell’s Aerospace Segment

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Jul. 26 2016, Updated 8:07 a.m. ET

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.

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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.

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