Honeywell’s Aerospace segment in 1Q17

Honeywell’s (HON) Aerospace segment is the company’s largest revenue contributor and accounted for 37.4% of the company’s total revenue in 1Q17. The segment reported revenue of $3.6 billion in 1Q17, a 4.3% fall YoY (year-over-year).

How Honeywell’s Aerospace Segment Performed in 1Q17

HON’s Aerospace segment was adversely impacted by the defense and space business due to the divestiture of the government services business. Further, the weakness in the business jet space resulted in lower shipments, which adversely impacted the commercial aviation original equipment business. Plus, foreign exchange translations negatively affected the segment by 2%. However, the segment’s bright spot came from the aftermarket sales of the commercial aviation business due to increased demand for spares by air transport and regional customers.

Net income and margin

The Aerospace segment reported a net income of $796 million in 1Q17 as compared to $798 million in 1Q16 and remained flat on a year-over-year basis. However, the segment’s margin improved from 21.5% in 1Q16 to 22.4% in 1Q17, an increase of 90 basis points on a year-over-year basis. The segment’s margin improved primarily due to improved cost of goods sold compared to the previous year.

Segment’s outlook

The Aerospace segment in 2Q17 is expected to continue its decline as a result of the weakness in the defense and space and business jets divisions. On the other hand, the strong aftermarket business is expected to continue its growth driven by the shipments of spares in the commercial vehicle segment.

Investors can indirectly hold Honeywell by investing in the PowerShares Aerospace & Defense Portfolio (PPA), which has invested 6.9% of its portfolio in Honeywell as of April 21, 2017. The top holdings of the fund include Lockheed Martin (LMT), United Technologies (UTX), and General Dynamics (GD), which have weights of 7.0% in each of these companies as of April 24, 2017.

In the next part, we’ll look into the performance of Honeywell’s Home and Building Technologies segment.

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