Honeywell Hit Hard by Aviation Slump

Honeywell workers making face masks in Phoenix in May.
Photo: Tom Brenner/Reuters

7/24/20

By Thomas Gryta and Dave Sebastian
The Wall Street Journal

Conglomerate says aerospace business suffered in latest quarter and will gradually improve this year

Honeywell International Inc.’s HON 0.89% quarterly sales fell 19% as Covid-19 damage to its big aerospace business offset rising demand for the conglomerate’s N95 face masks and other protective gear.

Revenue fell in all of Honeywell’s divisions during the second quarter with aerospace, its biggest business by revenue, leading the way with a drop of 28% from a year ago. The Charlotte, N.C., company said it expected improvement in the third quarter and total sales to fall more than 15% in the current period.

“This second quarter was one of the most challenging quarters Honeywell has ever faced,” Chief Executive Darius Adamczyk said on a conference call. “The widespread repercussions of the Covid-19 pandemic and oil-price volatility affected many of our business and end markets.”

Airlines have grounded hundreds of planes and cancelled thousands of flights amid a global slump in air travel since March. This week, American Airlines Group Inc. and Southwest Airlines Co. said they were tempering expectations for an air-travel recovery, as the pandemic surges in parts of the U.S.

Honeywell makes a range of aerospace systems and technology, from electric-power systems to engine controls, that go into Boeing Co. and Airbus SE jets. Sales in the company’s commercial aftermarket aerospace business fell 54% in the June quarter hurt by sharp declines in flight hours. The company projects aerospace sales will drop more than 25% in the third quarter.

Mr. Adamczyk said that the business saw a bottom in the latest quarter and that he sees gradual recovery in the rest of 2020 and into 2021. “We’re going to continue to see improvement,” he said, adding that a “much more dramatic improvement” will arrive when a vaccine for the new coronavirus becomes available.

“We’re optimistic that certainly there’s going to be a medical solution the first half of next year, which obviously will stimulate a greater level of air travel,” he said. He doesn’t expect the aerospace business getting back to 2019 levels until 2022 at the earliest.

Honeywell is one of the producers of N95 respiratory masks that have been in widespread use during the pandemic. Sales in Honeywell’s safety and productivity segment were off 0.7% to $1.54 billion as demand for personal protective equipment rose but sales volumes in sensing and internet-of-things products fell, the company said.

Respiratory masks are still in shortage as governments world-wide are bolstering their own domestic supply lines, and some hospitals and nursing homes are asking workers to use their masks for entire shifts, or even a week, as they manage limited supplies. Honeywell is adding a supply line in Scotland after the U.K. agreed to buy 70 million masks over 18 months, on top of two new facilities in the U.S.

Overall, Honeywell recorded quarterly net income of $1.08 billion, down 40% from a year ago. Revenue was $7.48 billion, compared with $9.24 billion a year ago.

The company said it saved $500 million during the quarter, making the first-half cost cuts total $750 million. It expects total cost reductions for 2020 of $1.4 billion to $1.6 billion, and sees cuts continuing in 2021.

The company has withdrawn its full-year guidance, citing the evolving nature of the pandemic and its effects on its supply chain and the market.

Write to Thomas Gryta at thomas.gryta@wsj.com and Dave Sebastian at dave.sebastian@wsj.com.

The original story can be found here.

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