COVID-19 Impact: Aerospace To Account For 60% of Honeywell’s Sales Decline In 2020

by Trefis Team
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Honeywell’s (NYSE:HON) Aerospace segment has seen revenues decline from $14.8 billion in 2017 to $14.0 billion in 2019, due to the spin-off of the company’s transportation business. Why is this important? Aerospace is the company’s largest segment – accounting for 36% of the company’s total expected revenue in 2020. Without considering the transportation business, segment sales would have been up 21% between 2017 and 2019. This can be attributed to strong demand for aircraft components. The steady increase in global air traffic enabled both Boeing and Airbus to capitalize on their backlogs. Looking forward though, this segment will likely be the worst hit for the company due to the COVID-19 pandemic, and we expect the segment revenues to drop 14% to $12.1 billion in 2020, accounting for roughly 61% of the total revenue decline for the company, as we detail in our interactive dashboard, Honeywell Revenues: How Does HON Make Money?

Air travel has been the worst hit from COVID-19, with several countries imposing travel bans on international passenger flights. Even after ease of travel restrictions, it could take a while for international travel to come back to the levels seen in recent years, as there are uncertainties regarding the timing of availability of vaccines for the novel coronavirus. As such, several airlines have ramped down on capital expenditures. As such, aircraft components and aftermarket business both are expected to decline in the near term. Honeywell, in its Q1 2020 earnings release stated that it expects more than a 50% decrease in global air transport flight hours in Q2. On the positive side, Boeing plans to resume operations for 737 MAX as soon as this month, which could bode well for Honeywell. While we currently estimate an 8% drop in 2020 sales, the impact could be even higher, if signs of coronavirus containment aren’t clear by the Q2 earnings timeframe.

Beyond Aerospace, the company’s HVAC, Safety & Security Products segment is also expected to take a hit in 2020, though the decline in segment sales will likely be lower, compared to the Aerospace segment. While the demand for products such as N95 respirator masks and personal protection equipment is on the rise, Other products sales is expected to decline, as we detail in our interactive dashboard on Honeywell’s Revenues.

Company Overview

Honeywell International is a diversified technology and manufacturing company. It offers aircraft engines, avionics and other related products and services, control, sensing and security technologies for commercial and residential use, specialty chemicals, electronic and advanced materials, process technology for refining and the petrochemical industry, and heating, ventilation and air conditioning products and solutions for homes and businesses.

Honeywell supplies aircraft engines, avionics and related products and services to original equipment manufacturers (OEM) in the air transport, regional, business and general aviation aircraft segments. It also provides spare parts and repair and maintenance services for the aftermarket (principally to aircraft operators). Some of Honeywell’s customers are NASA, FAA, the U.S. Air Force, Department of Defense and Department of Energy, Boeing and Lockheed Martin. Honeywell’s Process Solutions & Performance Materials products are used in the refining, petrochemical, automotive, healthcare, agricultural, packaging, refrigeration, appliance, housing, semiconductor, wax and adhesives end-markets. HVAC, safety & security products are used by governments, retail consumers and companies operating in transportation and logistics, manufacturing, healthcare, warehousing and security sectors. People dealing with facilities and building management also purchase the segment’s products.

With Honeywell being a conglomerate, it faces competition from different companies across different sectors:

  • Aerospace: Garmin, Thales, Safran and United Technologies
  • Honeywell Building Technologies: Emerson Electric, Itron, Johnson Controls, Schneider Electric and Siemens Performance Materials and Technologies: Albemarle, BASF, DuPont, Emerson Electric, and Sinopec
  • Safety and Productivity Solutions: 3M, Mine Safety Appliances (MSA), Kion Group, TE Connectivity, and Zebra Technologies

The company’s $36.7 billion revenues in 2019 are clubbed under 3 operating segments:

  • Aerospace: Honeywell is a leading global supplier of products, software and services for aircraft that it sells to original equipment manufacturers (OEM) and other customers in a variety of end markets.
  • HVAC, Safety & Security Products: Honeywell’s HVAC, Safety & Security Products segment offers controls and displays for heating, ventilation, cooling, indoor air quality, humidification, combustion and lighting. It also provides sensing and control systems that help measure temperature, pressure and airflow, and detect fire and gas leaks. Its personal protection equipment portfolio includes hard hats, protective eye gear, clothing and footwear. It also provides video surveillance equipment and remote patient monitoring systems. Its scanning and mobility products include devices that help collect and store data such as barcode scanners and RFID tags, readers and related hardware.
  • Process Solutions & Performance Materials: Honeywell’s Process Solutions & Performance Materials segment offers process automation for industrial facilities and specialty materials and chemicals such as hydrocarbon processing technologies, catalysts, adsorbents, fluorine products, specialty films and additives, advanced fibers and composites, intermediates, electronic materials and chemicals.

Among the company’s 3 business segments, HVAC, Safety & Security Products revenue has seen a sharp decline from $15.4 billion in 2017 to $11.8 billion in 2019. This can be attributed to the spin-off of the company’s Homes and Global Distribution business into a separate company in Oct 2018. Not accounting for the Homes and Global Distribution business, segment sales would have been up 8% between 2017 and 2019. Though, just as other segments, Honeywell’s HVAC, Safety & Security Products sales will likely decline in 2020. Overall, all of the company’s segments are expected to face headwinds in the near term, though Aerospace could be the worst hit, in our view. Additional details about how other components of Honeywell’s Revenues have changed over the years and are likely to trend going forward, along with comparison of the company’s top line with peers, 3M and Emerson Electric, are available in our interactive dashboard. Trefis estimates an outlier case of Honeywell’s stock falling to $100, in view of the current pandemic and its impact on businesses.

Our dashboard forecasting US COVID-19 cases with cross-country comparisons analyzes expected recovery time-frames and possible spread of the virus.

Further, our dashboard -28% Coronavirus crash vs. 4 Historic crashes builds a complete macro picture. Additionally, the complete set of coronavirus impact and timing analyses is available here.

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