Honeywell International Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Amounts are in millions of dollars except per-share data. Interim results are unaudited. Honeywell is a diversified technology and manufacturing company with four reportable segments: Aerospace, Honeywell Building Technologies, Performance Materials and Technologies, and Safety and Productivity Solutions.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Net sales | $8,953 | $8,808 | $17,329 | $17,262 |
| Income before taxes | $1,704 | $1,881 | $3,209 | $3,742 |
| Net income attributable to Honeywell | $1,261 | $1,430 | $2,395 | $2,857 |
| Diluted EPS | $1.84 | $2.04 | $3.48 | $4.06 |
| Operating cash flow | Not separately reported quarterly in the supplied filing text | $825 | $2,256 |
- Q2 sales rose 1.6%; first-half sales rose 0.4%. Management attributed sales growth chiefly to pricing, which offset higher material and labor costs; lower volumes in Safety and Productivity Solutions and unfavorable currency translation partly offset growth.
- Q2 gross margin was approximately 32.5% of sales, versus 31.9% a year earlier; first-half gross margin was approximately 32.4%, versus 32.2%. These figures are calculated from reported net sales less cost of products and services sold.
- Q2 segment profit was $1,867, up from $1,793. First-half segment profit was $3,633, up from $3,568. For Q2, Aerospace profit increased 8%, Building Technologies 14%, and Performance Materials and Technologies 13%; Safety and Productivity Solutions declined 21%.
- Q2 net income attributable to Honeywell fell 11.8% and diluted EPS fell 9.8%. First-half net income fell 16.2% and diluted EPS fell 14.3%. The company cited higher repositioning and other charges, Russia-related costs, a UOP-related expense, lower pension income, and the prior-year footwear-business sale gain; higher segment profit and lower share count provided partial offsets.
- First-half operating cash flow was $825, down $1,431 year over year. Working capital changes used $1,578, chiefly reflecting increases in receivables and inventory and decreases in accrued liabilities and payables.
Liquidity, debt and capital allocation
- At June 30, cash and cash equivalents were $8,248; short-term investments were $411. Cash plus short-term investments totaled $8,659, compared with $11,523 at December 31, 2021.
- Total borrowings were $19,077, versus $19,599 at year-end; current liabilities were $19,947 and current assets were $23,847. Current maturities of long-term debt rose to $3,099 from $1,803.
- The company reported no borrowings under its $4.0 billion five-year or $1.5 billion 364-day revolving credit agreements. It stated operating cash flow, available cash, credit lines, and capital-market access should be sufficient for expected operating needs, debt maturities, and investment opportunities.
- In the first half, Honeywell repurchased $2,437 of stock and paid $1,359 in cash dividends. At quarter-end, $4.7 billion remained under its share-repurchase authorization. Capital expenditures were $341.
Material changes, outlook and risks
- Segment trends: Q2 Aerospace sales rose 5%, supported by commercial aviation aftermarket and OEM demand, while Defense and Space sales fell 12%. Building Technologies sales rose 9%; Performance Materials and Technologies rose 6%. Safety and Productivity Solutions sales fell 12%, with weaker PPE and warehouse/workflow demand and project timing cited.
- Costs and operating environment: Management said supply-chain constraints, inflationary pressures, and labor shortages were affecting operations and anticipated supply constraints and inflation to continue during 2022. Favorable pricing partly offset higher input and labor costs.
- Russia-Ukraine: Honeywell suspended substantially all sales, distribution, and service activity in Russia and Belarus in March and decided in June to wind down its Russian businesses. It recognized $309 of related charges and reserves in the first half, including $126 in Q2. Management said future contingencies could adversely affect results in the periods recognized; escalation or unknown developments could have a material adverse effect on financial position.
- Other unusual items: First-half repositioning and other charges were $614, versus $242 a year earlier. Q2 included a $50 UOP-related expense; the cumulative estimated probable loss for UOP matters was approximately $210. A Productivity Solutions and Services licensing and settlement agreement provides for up to $360 in equal quarterly payments over eight quarters beginning in Q2 and resolves patent-related litigation between the parties.
- Contingencies: Environmental liabilities were $667 at quarter-end; the company said ultimate costs and timing are uncertain and could be material to results or operating cash flows when recognized or paid, but it did not expect a material adverse effect on consolidated financial position. Asbestos liabilities were $2,016, with $313 of related insurance recoveries and other assets. A NARCO Trust dispute had been tried, with the court ruling pending at filing. Honeywell also disclosed ongoing Petrobras/Unaoil investigations and other litigation.
- Reporting and governance: Honeywell planned to realign certain Safety and Productivity Solutions business units and report on the new basis beginning with Q3 2022. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether pricing continues to offset inflation, labor costs, and supply-chain constraints—and whether cash conversion improves after the first-half working-capital outflow.
- The drivers and persistence of Safety and Productivity Solutions’ sales and profit declines, alongside commercial aviation recovery and growth in the other segments.
- Future cash costs and exposures from the Russia wind-down, including guarantees, contractual settlements, and any further asset or receivable impairments.
- Developments in the UOP investigations, the NARCO Trust litigation, environmental obligations, and asbestos claims and insurance recoveries.
- Debt maturities, liquidity, and capital allocation plans, including repurchases, dividends, and the expected licensing-agreement receipts.