Friday, diversified technology and manufacturing company Honeywell International Inc. (HON) posted a decline in third-quarter profit, hampered by double-digit decline in sales across all its business segments. However, earnings per share topped the Street expectations. Further, the company issued financial forecast for the full year.
Q3 Results
The Morris Township, New Jersey-based company's third-quarter net income declined to $619 million from $723 million reported a year earlier. Net income attributable to Honeywell was $608 million or $0.80 per share, compared to $719 million or $0.97 per share in the year-ago quarter.
On average, 19 analysts polled by Thomson Reuters expected the company to post earnings of $0.72 per share. Analysts' estimates typically exclude special items.
The company noted that the most recent quarter results included the positive impact of lower than expected tax expense in the quarter of about $0.04, which the company expects to be offset on a full-year basis by a higher income tax rate in the fourth quarter of 2009.
Quarterly net sales amounted to $7.70 billion, a decline from the previous year's net sales of $9.28 billion, and fell shy of the $7.88 billion revenue consensus estimate of thirteen analysts polled by Thomson Reuters.
Product sales for the latest quarter dropped to $5.95 billion from $7.38 billion, and Service sales slipped to $1.75 billion from $1.90 billion in the last year.
Dave Cote, Chairman and Chief Executive Officer of Honeywell, said, "Honeywell is positioning its businesses for long-term growth by continuing to invest in new products and services, geographic expansion, and key process initiatives."
Segmental Review
The company's Aerospace segment witnessed a decline of 16% in sales that totaled $2.62 billion, compared to $3.11 billion a year ago, resulting from lower volumes in Commercial Aerospace, partially offset by higher sales of original equipment for military platforms, logistics services and advanced aircraft modifications, and upgrades. Segment profit was down 12% to $455 million from $516 million last year, primarily due to volume declines, however, segment margin increased 80 bps to 17.4%, driven by cost savings initiatives and benefits from prior repositioning actions.
Automation and Control Solutions division posted third-quarter sales of $3.19 billion, a decline of 14% from $3.69 billion in the previous year, resulting from slower economic growth and the unfavorable impact of foreign exchange, partially offset by continued growth in emerging regions, new product introductions, and the net favorable impact from acquisitions and divestitures. Segment profit was $431 million, versus $430 million reported last year, while segment margin rose 180 bps to 13.5%.
Third-quarter sales at the company Transportation Systems segment fell 24% to $875 million from $1.16 billion in the previous year, impacted by lower volumes primarily driven by lower sales to global automotive OE customers and the negative impact of foreign exchange, partially offset by new platform launches with automotive OE customers and share gains in the automotive aftermarket retail channel. Segment profit was down 39% to $62 million from $102 million in 2008, and segment margin fell 170 bps to 7.1% due to lower sales volumes.
Specialty Materials generated quarterly net sales of $1.02 billion, down 23% from $1.32 billion last year, hurt by lower volumes and the unfavorable impact of pass through raw material price declines at its Resins and Chemicals business, partially offset by higher petrochemical catalyst sales and traction on green initiatives at UOP. Profit was down 2%, primarily due to volume declines, however segment margin increased 330 bps to 15.2%.
Year-To-Date Highlights
For the nine-month period, the company reported net income of $1.48 billion, down from the previous year's $2.09 billion. Net income attributable to Honeywell totaled $1.46 billion or $1.94 per share, compared to $2.09 billion or $2.79 per share in the prior-year period.
Year-to-date net sales decreased to $22.8 billion from $27.8 billion reported in the corresponding period of the previous year.
Road Ahead
Looking forward to fiscal 2009, the company expects earnings to be $2.85 per share, on sales of about $31 billion. Free cash flow for fiscal 2009 is expected to be $3 billion. Analysts are looking for earnings of $2.78 per share on revenue of $31.46 billion for the full year.
Peer Performance
Among other players in the field, Johnson Controls Inc. (JCI) will issue fourth-quarter results on October 27, with analysts projecting earnings of $0.50 per share on revenues of $7.79 billion. The company projects fourth-quarter earnings to range between $0.40 and $0.42 per share, which include a $0.12 warranty charge in its North America residential HVAC business, but excludes the costs associated with its recent convertible debt exchange offer and the impact of non-recurring tax benefits. In the fourth quarter of fiscal 2008, the company reported net income of $16 million or $0.03 per share. For fiscal 2010, Milwaukee, Wisconsin-based Johnson Controls expects earnings to be in the range of $1.35 - $1.35 per share, significantly higher than 2009. Net sales are estimated to be about $31 billion.
Another peer, United Technologies Corp. (UTX) reported third-quarter net income of $1.06 billion or $1.14 per share, lower than $1.27 billion or $1.33 per share in the prior-year quarter, hurt by lower operating margins at five of its six business segments as well as an 11% decline in quarterly revenues. Revenues decreased to $13.38 billion from $15.09 billion last year. Given the overall order trends as well as significant cost traction, the company now expects fiscal 2009 earnings of $4.10 per share, the midpoint of the prior guidance range of $4.00 - $4.20 per share.
Yet another competitor, Goodrich Corp. (GR) posted lower profit for the third quarter that totaled $145.4 million or $1.14 per share from $168.0 million or $1.32 per share in the year-ago quarter, as sales dropped 7% to $1.65 billion from $1.77 billion last year, impacted by foreign currency exchange rates and the formation of the engine controls joint venture with Rolls-Royce, amid the economic downturn.
Stock Quotes
Honeywell shares, which have been trading between $23.06 and $40.55 in the past 52 weeks, closed Thursday's trading session at $38.53.
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