Honeywell International Inc. — 2023 Q3 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Financial statements are unaudited. Honeywell is a diversified industrial and technology company operating across aerospace, building technologies, performance materials and technologies, and safety and productivity solutions.
Key financial results
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Net sales | $9.212 billion | $8.951 billion | $27.222 billion | $26.280 billion |
| Income before taxes | $1.967 billion | $1.981 billion | $5.653 billion | $5.190 billion |
| Net income attributable to Honeywell | $1.514 billion | $1.552 billion | $4.395 billion | $3.947 billion |
| Diluted EPS | $2.27 | $2.28 | $6.56 | $5.76 |
| Gross margin | 38.4% | 37.5% | 38.3% | 36.9% |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $2.385 billion | $2.908 billion |
Q3 sales rose 3% year over year, while diluted EPS edged down. For the first nine months, sales increased 4% and diluted EPS rose 14%. Nine-month capital expenditures were $675 million; operating cash flow less capital expenditures was approximately $1.710 billion, calculated from reported figures.
Liquidity, debt and capital allocation
- At September 30, cash and cash equivalents were $7.770 billion and short-term investments were $164 million, down from $9.627 billion and $483 million, respectively, at year-end 2022.
- Total borrowings were reported at $20.286 billion, versus $19.570 billion at December 31, 2022. Long-term debt and current maturities totaled $18.353 billion. The company issued approximately $3.0 billion of notes during 2023 and had no borrowings under its $1.5 billion 364-day or $4.0 billion five-year revolving credit agreements.
- Nine-month cash dividends paid were $2.144 billion, and common-stock repurchases were $2.187 billion. The board authorized up to $10 billion of repurchases in April; $8.6 billion remained available at quarter-end.
- Management said operating cash flows, cash balances, credit lines and access to capital markets are expected to meet operating needs and other requirements. Moody’s revised its outlook to positive; S&P and Fitch outlooks were stable.
Segment performance and changes
- Aerospace: Q3 sales rose 18% to $3.499 billion and segment profit rose 18% to $963 million, driven by commercial aviation aftermarket and defense and space demand.
- Honeywell Building Technologies: Q3 sales were essentially flat at $1.530 billion; segment profit increased 5% to $386 million.
- Performance Materials and Technologies: Q3 sales rose 5% to $2.867 billion and segment profit rose 3% to $633 million. Segment margin declined 50 basis points to 22.1%.
- Safety and Productivity Solutions: Q3 sales fell 24% to $1.314 billion and segment profit fell 30% to $190 million, reflecting weaker warehouse-project and productivity-products demand. Segment margin declined 120 basis points to 14.5%.
- Service sales grew to $2.918 billion in Q3 from $2.363 billion a year earlier, while product sales declined. The company acquired Compressor Controls Corporation for $671 million and SCADAfence for $52 million, net of cash acquired.
- Honeywell announced a segment realignment expected in Q1 2024: Industrial Automation and Energy and Sustainability Solutions will replace the current Performance Materials and Technologies and Safety and Productivity Solutions structures; Aerospace and Honeywell Building Technologies will be renamed Aerospace Technologies and Building Automation.
Management commentary, risks and unusual items
- Management reported moderating material inflation and some supply-chain relief, but continued constraints, including labor shortages in the aerospace supply base and manufacturing labor-cost pressures. The Russia-Ukraine conflict remains a source of market volatility and supply risk.
- Nine-month operating cash flow was lower year over year, including the $1.325 billion NARCO trust buyout payment and payments related to UOP matters. Honeywell received $275 million of HWI sale proceeds during the period.
- The company paid $202.7 million in January 2023 to resolve U.S. and Brazilian investigations concerning Petrobras and Unaoil. UOP entered a three-year deferred prosecution agreement and the company undertook compliance obligations.
- Environmental liabilities were $682 million at September 30, 2023. The company cautioned that future environmental costs could materially affect results or operating cash flows in the periods recognized or paid, though it does not expect a material adverse effect on consolidated financial position.
- The NARCO buyout released Honeywell from future obligations to the NARCO trust. Bendix asbestos liabilities remained, with a recorded liability of $1.222 billion and related insurance recoveries of $241 million. The filing notes that Bendix claim resolution values may rise and are difficult to predict.
- No numerical full-year earnings or sales guidance is provided in the supplied filing text. Forward-looking statements are subject to macroeconomic, geopolitical, supply-chain and other risks.
Important facts for investors to verify
- Whether the weakness in Safety and Productivity Solutions persists and whether the announced segment realignment changes operating trends or comparability.
- Cash generation and working-capital performance, including the effect of asbestos-related, environmental and other legal payments.
- Debt maturities, refinancing costs and interest expense, which rose to $563 million for the first nine months from $270 million a year earlier.
- Progress on aerospace supply constraints and the extent to which pricing and productivity offset labor and material cost inflation.
- Future environmental costs, Bendix asbestos claims and recoveries, and any remaining contingent HWI sale proceeds.