Honeywell International Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023; unaudited. Honeywell operates across Aerospace, Honeywell Building Technologies, Performance Materials and Technologies, and Safety and Productivity Solutions.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Net sales | $9.146 billion | $8.953 billion | $18.010 billion | $17.329 billion |
| Income before taxes | $1.904 billion | $1.704 billion | $3.686 billion | $3.209 billion |
| Net income attributable to Honeywell | $1.487 billion | $1.261 billion | $2.881 billion | $2.395 billion |
| Diluted EPS | $2.22 | $1.84 | $4.29 | $3.48 |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $576 million | $825 million |
Q2 sales increased 2% year over year, with price contributing 4%, volume reducing sales 1%, and foreign exchange reducing sales 1%. Diluted EPS rose about 21%. Gross margin was 38.5%, up from 36.8%; six-month gross margin was 38.2%, up from 36.6%.
Q2 segment results: Aerospace sales rose 15% and profit 20%; Building Technologies sales fell 1% while profit rose 7%; Performance Materials and Technologies sales rose 6% and profit 3%; Safety and Productivity Solutions sales fell 22% while profit rose 3%. Aerospace growth reflected higher commercial aviation aftermarket activity and flight hours. Safety and Productivity Solutions faced weaker warehouse project and productivity-product demand.
Cash, debt and liquidity
At June 30, cash and cash equivalents were $8.626 billion, with $143 million of short-term investments. Total borrowings, as presented by management, were $21.373 billion, up from $19.570 billion at year-end 2022. Long-term debt was $17.600 billion and current maturities were $945 million. Honeywell issued approximately $3.0 billion of USD- and euro-denominated notes in May, primarily for commercial-paper repayment and general corporate purposes. No borrowings were outstanding under its $1.5 billion 364-day and $4.0 billion five-year credit agreements.
Six-month operating cash flow was $576 million, including the $1.325 billion NARCO buyout payment; capital expenditures were $426 million. Cash flow from operations less capital expenditures was approximately $150 million. The company paid $1.416 billion in dividends and repurchased $1.176 billion of shares during the half-year. It received $275 million of HWI sale proceeds. Management said operating cash flow, available cash, credit lines, and capital-market access should be sufficient for operating needs and planned investments.
Changes, outlook and notable items
- Sales and earnings improved overall, but performance varied materially by segment; Safety and Productivity Solutions had the sharpest sales decline.
- Material inflation moderated, and supply chains showed some improvement. Honeywell continued to report supply constraints, including Aerospace labor shortages, and manufacturing labor cost pressure. Management cited pricing, supplier engagement, planning, and product alternatives as mitigations.
- The Russia-Ukraine conflict continued to contribute to market volatility and supply-chain and inflation risks. Honeywell said its mitigation efforts had worked to date, but failure to sustain them could adversely affect results or operating cash flows.
- No specific full-year financial guidance is stated in the supplied filing text. Management expressed confidence in liquidity and operating cash flow to meet future operating needs.
- Honeywell paid $1.325 billion to resolve its NARCO Trust obligations and was released from those obligations. HWI sale proceeds received were $275 million; the remaining proceeds had a $9 million fair value and were contingent on conditions being met.
- Environmental liabilities were $693 million. Asbestos-related liabilities were $1.249 billion, largely for Bendix claims, with $244 million of related insurance recoveries. The company said environmental matters could materially affect results or operating cash flows in periods recognized or paid, though it did not expect a material adverse effect on its financial position.
- The Petrobras and Unaoil investigations were resolved through agreements, including a total payment of approximately $202.7 million in January 2023 and a three-year Deferred Prosecution Agreement for UOP. The filing notes ongoing compliance measures and reporting obligations.
- Honeywell authorized up to $10 billion of share repurchases in April 2023; $9.6 billion remained available at quarter-end. A reclassification of R&D costs beginning in 2023 changed presentation but had no effect on net income, EPS, cash flow, segment reporting, or financial position.
Important facts for investors to verify
- Whether Aerospace growth and segment margin performance continue, and whether weakness in Safety and Productivity Solutions stabilizes.
- How cash conversion develops after the NARCO payment, including working-capital movements and capital spending.
- Debt levels, interest costs, and the use of proceeds from recent note issuances and the expanded share-repurchase authorization.
- Future Bendix asbestos claim activity, insurance recoveries, environmental costs, and any changes to related estimates.
- Whether supply-chain, labor, inflation, and geopolitical risks affect delivery, margins, or cash flow despite mitigation efforts.