What’s happening: Shares of Honeywell International nosedived on Friday despite the company reporting its second-quarter results ahead of expectations.
What happened: Being a mammoth technology and manufacturing conglomerate, Honeywell’s results are closely watched as a barometer for the overall performance of the US industrial economy.
Although the second-quarter results exceeded expectations, the company was hard hit by the pandemic-related travel restrictions, as it has a significant presence in the aerospace sector. There were other investor concerns that drove the stock lower on Friday.
How were the results: Honeywell reported a decline in both sales and earnings for the second quarter, while beating expectations for both metrics.
- Sales declined 19% to $7.48 billion; but came in higher than the consensus view of $7.29 billion.
- Net income came in at $1.08 billion, or $1.53 per share, down from $1.54 billion, or $2.10 per share, in the same quarter last year.
- Excluding nonrecurring items, earnings declined by 40% to $1.26 a share; but were better than the consensus estimate of $1.21 a share.
Why it matters: Honeywell witnessed a sharp slump in the demand for aircraft spare parts, as aircrafts remained grounded amid the pandemic. In the US, only around 25 million people flew commercial in the second quarter, down a whopping 90% from 221 million in the same quarter in 2019. Several airline companies retired thousands of planes, as global travel restrictions affecting their business.
Honeywell recorded a 27% decline in aerospace sales. Sales at Honeywell’s building technology unit plummeted 17%, with closures and shelter-n-place orders.
The retail unit performed better, with sales growing 1%, as widespread lockdowns resulted in a rise in online orders and curb-side pickups.
Efforts to reduce costs during the quarter helped the company’s aerospace division to keep its operating margins above the 20% level.
With Boeing’s 737 MAX likely to be back in commercial service by the end of the year or early 2021, Honeywell projected only a 25% year-on-year decline in its aerospace sales.
Reassuring investors, CEO Darius Adamczyk said, “Our focus on sales, cost, and optimizing working capital, combined with our diverse portfolio and strong balance sheet, will enable Honeywell to adapt to and execute through the downturn.”
How shares responded: Honeywell’s shares fell 2.8% to close at $149.43 on Friday following the release of quarterly results. The company’s stock has gained around 8% over the past month and is down around 16% year to date.
What to watch: With some rebound in travel demand following the easing of restrictions by various countries, investors expect Honeywell’s business to pick up soon. There are concerns, however, around the rebound taking much longer than anticipated, giving the rising coronavirus numbers in the US and some states re-imposing restrictions.