Honeywell International Inc. — Q2 2021 Form 10-Q
Business context and reporting period. The filing reports the three and six months ended June 30, 2021, compared with the same periods in 2020. Honeywell operates through Aerospace, Honeywell Building Technologies, Performance Materials and Technologies, and Safety and Productivity Solutions. Results reflect recovery in demand from pandemic-affected levels, though aviation remained weak year to date.
Key financial results
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net sales | $8.81 billion | $7.48 billion | $17.26 billion | $15.94 billion |
| Income before taxes | $1.88 billion | $1.22 billion | $3.74 billion | $3.15 billion |
| Net income attributable to Honeywell | $1.43 billion | $1.08 billion | $2.86 billion | $2.66 billion |
| Diluted EPS | $2.04 | $1.53 | $4.06 | $3.74 |
| Operating cash flow | Not separately provided for Q2 | Not separately provided for Q2 | $2.26 billion | $2.42 billion |
Margins. Q2 gross margin was approximately 31.8%, up from 29.4%. Six-month gross margin was approximately 32.2%, broadly unchanged. Q2 net income attributable to Honeywell represented approximately 16.2% of sales, versus 14.5%; the six-month figure was approximately 16.6%, versus 16.7%.
Liquidity and debt. At June 30, cash and cash equivalents were $11.43 billion and short-term investments were $891 million, together down from $15.22 billion at December 31, 2020. Total borrowings were $21.36 billion, versus $22.38 billion at year-end; long-term debt and current maturities had a reported fair value of $19.04 billion. The company had no borrowings under its $4.0 billion five-year or $1.5 billion 364-day revolving credit agreements. Six-month investing cash outflow was $1.24 billion and financing cash outflow was $3.88 billion.
Changes versus the prior comparable period
- Q2 sales rose 18%, reflecting higher volumes, favorable foreign currency translation, and pricing. Six-month sales increased 8%; Aerospace weakness partly offset growth elsewhere.
- Q2 diluted EPS rose 33%. Higher segment profit, pension income, and lower repositioning charges contributed; higher income taxes partly offset these gains. The six-month diluted EPS increase was 9%.
- Safety and Productivity Solutions was the fastest-growing segment: sales increased 35% in Q2 and 42% for the half, with warehouse automation, productivity solutions, and respiratory PPE among the demand drivers. Aerospace Q2 sales increased 9%, but its six-month sales declined 9% amid weak global travel and lower flight hours.
- Operating cash flow declined $163 million in the first half, primarily because changes in assets and liabilities used more cash, partly offset by higher net income.
Outlook, commentary, risks, and unusual items
- Outlook: The filing does not provide a clear numerical earnings or sales guidance range. Management said it expects operating cash flows, available cash, committed credit lines, and capital-market access to meet operating needs, debt maturities, and investment opportunities. Management remained cautious about COVID-19 and emerging variants.
- Costs and restructuring: Q2 costs increased with higher volume, including approximately $690 million of higher direct and indirect material costs and $90 million of higher labor costs. Six-month repositioning and other charges were $242 million, compared with $342 million. Q2 actions included workforce reductions and asset impairments; cash repositioning spending in the first half was $202 million.
- Acquisition and divestiture: Honeywell acquired Sparta Systems for $1.303 billion, adding life-sciences quality-management software to Performance Materials and Technologies. The retail footwear business was sold for gross cash consideration of $230 million, generating a $90 million pretax gain.
- Garrett resolution: Following Garrett’s emergence from bankruptcy, Honeywell received $375 million and preferred-stock interests in settlement of the relevant indemnification and tax agreements; the related litigation was resolved.
- Contingencies: Recorded environmental liabilities were $632 million. Asbestos-related liabilities were $2.119 billion, with $377 million of related insurance recoveries. The company said environmental costs, asbestos estimates, and litigation outcomes involve uncertainty. Discussions with U.S. and Brazilian authorities concerning Petrobras-related matters and a separate Unaoil matter were ongoing; Honeywell said it could not estimate potential losses or outcomes.
- Other items: The effective tax rate increased year over year, in part because prior-year tax benefits did not recur. The company repurchased $1.849 billion of shares in the first half; $8.6 billion remained under its repurchase authorization at June 30.
Important facts for investors to verify
- Whether aviation aftermarket demand and flight activity continue to recover, and how that affects Aerospace results.
- Whether strong Safety and Productivity Solutions growth is sustained and at what margin, given the segment’s changing product mix.
- Cash conversion and working-capital trends, alongside capital returns, acquisition spending, and upcoming debt maturities.
- Updates to environmental and asbestos estimates, insurance recoveries, and the status or potential consequences of the ongoing anti-corruption matters.
- Any subsequent earnings guidance or material changes in COVID-19, supply-cost, and demand assumptions, which are not quantified in this filing.