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Honeywell Sales Grounded by Weak Aerospace Results in 2Q16

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Honeywell sales performance

Honeywell’s (HON) revenue rose by 2.2% to $10 billion in 2Q16 compared to analysts’ consensus estimate of $10.1 billion. This rise in sales came from acquisitions that were integrated into the company’s Automation and Control Solutions unit in 2016.

In organic terms, HON’s sales fell by 2% due to double-digit falls in its oil (XOP) and gas businesses and higher discounts offered in its aerospace (XAR) original equipment sales. Sales in the aerospace segment were particularly weak. The defense and space businesses suffered double-digit organic falls on lower government orders and oil’s and gas’s drags on the helicopter business. We’ll discuss these aspects in the next two parts of this series.

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Key points about overall industry trends

Industrial (IYJ) giants such as General Electric (GE), United Technologies (UTX), and Honeywell are still reeling from anemic demand as growth rates across key regional markets continue to be tepid. The problems in the energy sector, although believed to have bottomed out, are leading to double-digit organic falls in some of the businesses of these industrial behemoths.

At the beginning of 2016, segments with aerospace, healthcare, and housing market exposure were supposed to be the most favorably positioned for organic growth. However, healthcare-oriented units were the only businesses that saw consistent organic gains throughout the first half of the year.

Management commentary

“Honeywell grew earnings 10% in the second quarter, capping off a strong first half of 2016,” said Honeywell’s chair and CEO Dave Cote.

He continued, “Sales in the quarter of $10.0B were in-line with our expectations driven by contributions from each of our business groups. In Aerospace, we saw continued momentum in Commercial Aviation Aftermarket and Transportation Systems. ACS had strong growth in Security and Fire, Buildings Solutions and Distribution, and its China business. And, PMT saw higher sales in Process Solutions and Fluorine Products, where we continue to outperform.”

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