Manufacturing conglomerate Honeywell reported its 2020 second quarter financial results on Monday, showing that an ongoing surge in orders for its personal protective equipment amid the COVID-19 pandemic wasn't nearly enough to offset weakness in other areas.
The Charlotte, NC-based company reported total Q2 sales of $7.48 billion, down 19 percent year-over-year (YoY), with organic sales down 18 percent. In Q1, sales of $8.5 billion were down 5 percent YoY, with organic sales down 4 percent. In Q2, operating profit margin of 13.6 percent was down 550 base points from a year earlier and down from 20.0 percent in Q1. Q2 operating profit of $1.22 billion was down from $1.98 million a year earlier, while total profit of $1.01 billion was down from $1.56 billion a year earlier and $1.61 billion in Q1.
By business segment in Q2:
"The second quarter was a challenging one, but we executed on the three things that will enable us to weather this downturn: aggressively managing cost, driving sales growth where demand is strong, and investing in exciting new technologies that, through careful attention to customer and end-user needs, will help keep people safe when they get back to the workplace, back to play, back to travel, and back to life," said Darius Adamczyk, chairman and CEO of Honeywell.
- Aerospace sales of $2.54 billion were down 27 percent on an organic basis, driven by lower commercial aftermarket demand due to steep declines in flight hours, reduced volumes in commercial original equipment, and the 737 MAX impact in air transport original equipment. Segment margin contracted 510 basis points to 20.8 percent.
- Performance Materials and Technologies sales of $2.12 billion were down 17 percent on an organic basis, driven by volume declines in products, including thermal solutions and smart energy, in Process Solutions; lower gas processing projects, catalyst shipments and licensing due to softness in the oil and gas sector in UOP; and lower automotive refrigerant volumes in Advanced Materials, partially offset by strength in specialty products. Segment margin contracted 460 basis points to 18.9 percent.
- Safety and Productivity Solutions sales $1.54 billion were up 1 percent on an organic basis, driven by double-digit Intelligrated growth and demand for respiratory personal protective equipment, partially offset by lower short-cycle sales volumes in sensing and IoT, productivity products and gas sensing. Record high bookings of $0.7 billion in PPE and $1.2 billion in Intelligrated drove orders growth up approximately 90 percent year-over-year. Backlog was up over 100 percent year-over-year, including an all-time high Intelligrated backlog of over $2 billion. Segment margin expanded 150 basis points to 13.8% driven by productivity, net of inflation and commercial excellence.
- Honeywell Building Technologies sales of $1.18 billion were down 17 percent on an organic basis, driven by lower demand for security, building management and fire products, and delays in Building Solutions projects in key verticals. Segment margin expanded 50 basis points to 21.2 percent.
“We also remain focused on driving sales growth in areas that have not been as impacted by the current downturn," Adamczyk added. "In the second quarter, our businesses serving the defense, warehouse automation, and personal protective equipment industries exhibited outstanding performance."
Honeywell said that its previously-announced cost reduction actions, which include reduced discretionary spending; canceled merit increases company-wide; reduced work schedules; reduced executive and board member pay and $250 million of funded repositioning in Q2; combined to result in Q2 cost savings of about $500 million in Q2 and $700 million for the first half of 2020. The company expects those measures to result in full-year savings of $1.4 billion to $1.6 billion.
Looking forward, Honeywell expects Q3 sales to be down approximately 15 percent YoY overall, including:
- Down at least 25 percent in Aerospace
- Down at least 10 percent in Performance Materials and Technologies
- Down at least 10 percent in Honeywell Building Technologies
- Up as much as 7 percent in Safety and Productivity Solutions