Industry Headwinds Would Have Weighed On Honeywell’s Q2 Results

by Trefis Team
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Honeywell (NYSE: HON) is a multinational conglomerate that produces commercial and consumer products, engineering services, and aerospace systems. The company is slated to report earnings on Thursday, July 18. Per Trefis, Honeywell’s shares have a fair value of $160, which is roughly 10% below the current market level. We capture trends in Honeywell’s Earnings over recent quarters in our interactive dashboard along with our forecast for full-year 2019. You can modify Trefis forecasts to see the impact of changes on the company’s valuation. Additionally, you can see more Trefis data for Industrials here.

Business Division Overview:

Aerospace Division: Honeywell Aerospace provides integrated aerospace solutions like avionics, engines, and service solutions to aircraft manufacturers, airlines, military and space companies, and airports.  The division accounts for 36% of the company’s revenue and is expected to produce high single-digit growth for the quarter.

Home Building Technologies: This division is responsible for providing a range of home-building solutions, which includes energy efficiency solutions, safety solutions and maintenance solutions for home-builders and energy-related companies. The division accounts for 22% of the company’s revenue. With new home starts and sales trending lower in Q2 2019, we expect revenues for this division to trend lower for the quarter.

Safety and Productivity Solutions: Honeywell’s safety products provide a range of solutions for home and industrial safety. It accounts for 10% of revenue. The division is expected to see a sizable increase in revenues for the quarter.

Performance Material and Technologies: This business division offers a range of products and solutions including film and additive products, specialty chemicals, electronics materials, and renewable transport fuels. It accounts for 32% of the company’s revenue. We expect significant growth for the quarter from this division.

What to expect from Honeywell’s second-quarter results:

  • Over the past year, Honeywell has spun-off key businesses and consolidated its operations to streamline its business model. Retrenchment of businesses and consolidation of its products drove Honeywell’s margins above 20% in the first quarter, and we expect margins to remain around this level for the latest quarter.
  • Revenue is expected to decline 14% year-over-year to $9.4 billion partly as a result of the impact of spin-offs, and partly due to broader economic effects that have resulted in slower revenue growth.
  • The quarter saw key industries like housing (which Honeywell’s home building division depends on for revenue) slow down. Fewer housing starts for the period are expected to hurt Honeywell’s top line.
  • In addition to the housing issue, the company’s aerospace revenue would be under pressure as a result of 737-MAX issues. Honeywell supplies mechanical systems and avionics to Boeing for the production of 737-MAX aircrafts.
  • On a positive note, the company’s Safety division should see a sizable improvement in revenues for the quarter.
  • Operating profit is expected to come in at $1.2 billion, increasing by 2.5% year-on-year. Earnings per share are expected to come in at $2.10 per share, which would be a decline of 1.9% year on year. The company is expected to mitigate the fall in revenue through higher margins, thereby offsetting some of the declines in revenue.

Our Expectation’s Going Forward For Honeywell:

Home Building Technologies:

  • In a recent presentation at the Goldman Sachs conference, Honeywell outlined its strategy of focusing on its Home Building Technologies segment as the primary means by which it will improve revenue. The company believes the market for this segment is as large as $100 billion, and will grow at 4% annually for the foreseeable future.
  • Honeywell has market leadership in key sub-categories, which it believe’s will help it in two key ways: firstly, it believes it can increase its market-share, and secondly, with its leadership in the sub-categories like fire, software, etc., it can acquire some small players – consolidating its position as the market leader in the segment.
  • In general, the division is expected to play a key role in driving revenue in the coming quarters. But risks remain with slower construction, and new home starts showing a slowdown.


  • While Boeing is a key customer for Honeywell, the company does not play a large role in Honeywell’s overall profitability.
  • The aerospace division continues to see strong demand for its products, both from commercial airlines and government contracts
  • Lower revenue from Boeing should have minimal impact on the company’s top line in the long run, as new contracts should help mitigate most of the loss of revenue from Boeing’s contracts.

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