Honeywell International Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; unaudited results compared with Q1 2022. Honeywell is a diversified technology and manufacturing company operating through Aerospace, Honeywell Building Technologies, Performance Materials and Technologies, and Safety and Productivity Solutions.
Key financial results
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Net sales | $8.864 billion | $8.376 billion |
| Gross margin | 38.0% | 36.4% |
| Income before taxes | $1.782 billion | $1.505 billion |
| Net income attributable to Honeywell | $1.394 billion | $1.134 billion |
| Diluted EPS | $2.07 | $1.64 |
| Operating cash flow | $(784) million | $36 million |
| Capital expenditures | $193 million | $183 million |
| Cash and cash equivalents at period end | $6.869 billion | $9.281 billion |
Sales increased 6%: pricing contributed 6 percentage points and volume 2 points, partly offset by a 2-point foreign-currency impact. Gross margin rose about $0.3 billion and 160 basis points. The effective tax rate was 21%, equal to the U.S. federal statutory rate.
Segments
| Segment | Sales, Q1 2023 | Year-over-year sales | Segment profit | Margin change |
|---|---|---|---|---|
| Aerospace | $3.111 billion | +13% | $827 million | 26.6%, down 80 bps |
| Honeywell Building Technologies | $1.487 billion | +4% | $375 million | 25.2%, up 170 bps |
| Performance Materials and Technologies | $2.749 billion | +12% | $566 million | 20.6%, down 20 bps |
| Safety and Productivity Solutions | $1.515 billion | −13% | $260 million | 17.2%, up 270 bps |
Liquidity, debt, and cash flow
Total borrowings were $19.162 billion at March 31, 2023, versus $19.570 billion at year-end 2022. Cash, cash equivalents, and short-term investments totaled approximately $7.2 billion, down from $10.1 billion; $5.4 billion was held by non-U.S. subsidiaries. Current assets were $22.510 billion and current liabilities $17.896 billion. Honeywell reported no borrowings under its $1.5 billion 364-day or $4.0 billion five-year revolving credit agreements.
Operating cash flow was negative $784 million, mainly reflecting the $1.325 billion NARCO Trust buyout payment and payment of $202.7 million to resolve the UOP and Unaoil matters, partly offset by $256 million of initial proceeds from the HWI sale. Working-capital movements were a $546 million use of cash. Financing used $1.973 billion, including $699 million of share repurchases, $725 million of dividends, and $1.363 billion of long-term debt repayments.
Material changes and unusual items
- Net income attributable to Honeywell rose approximately 23% and diluted EPS rose approximately 26%. Management attributed EPS improvement principally to higher segment profit and lower repositioning and other charges, partly offset by lower pension income.
- Repositioning and other charges fell to $141 million from $387 million. Q1 2023 included $67 million of severance, $12 million of asset impairments, $24 million of exit costs, asbestos and environmental charges, and other items. Workforce reductions covered 1,797 positions.
- The $1.325 billion NARCO buyout payment released Honeywell from future obligations to the NARCO Trust; Honeywell retains rights to related insurance proceeds. It received $256 million of HWI sale proceeds and expected approximately $295 million in total proceeds during 2023, subject to conditions.
- Effective January 1, 2023, Honeywell presented research and development expenses as a separate line item and recast prior periods. The change did not affect net income, EPS, cash flows, segment reporting, or financial position.
- After quarter-end, Honeywell agreed to acquire Compressor Controls Corporation for estimated cash consideration of $670 million, subject to approvals and expected to close in the second half of 2023. On April 24, the Board authorized up to $10 billion in share repurchases, including remaining prior authorization.
Outlook, commentary, and risks
Management said it expects operating cash flows to be sufficient for future operating needs, with cash, committed credit lines, and access to capital markets providing additional liquidity. The filing does not provide a clear new quantitative full-year earnings or revenue guidance figure.
Management reported moderating material inflation but continued supply-chain constraints, Aerospace labor shortages, and manufacturing labor cost pressure. The Russia-Ukraine conflict remained a source of market volatility, supply shortages, and inflationary pressure. Environmental liabilities were $673 million; ultimate costs and timing are uncertain and could materially affect results or operating cash flows when recognized or paid, though Honeywell did not expect a material adverse effect on financial position. Other litigation and contingency outcomes may also affect results or cash flows; the company said it could not estimate reasonably possible losses beyond current accruals. Bendix asbestos claims remained outstanding, with 5,706 unresolved at quarter-end. The Petrobras and Unaoil investigations were resolved under agreements that include compliance measures and reporting obligations.
Investor verification points
- Assess whether the large operating cash outflow is primarily transaction-related or signals persistent working-capital pressure.
- Track Safety and Productivity Solutions’ sales decline and whether demand improves, alongside margin trends across all segments.
- Verify receipt and conditions for the remaining HWI sale proceeds and monitor the final impact of the NARCO buyout.
- Review environmental and Bendix asbestos liabilities, related insurance recoveries, and any changes in estimates or claims activity.
- Monitor the timing and funding of the proposed acquisition and the pace and terms of the expanded share-repurchase authorization.