On October 28th, Honeywell (HON.US) announced its financial results for the third quarter.
According to information obtained from Honeywell, despite achieving sales of $9.7 billion in the third quarter, a year-over-year increase of 6%, and strong performances in commercial aviation and smart building solutions, revenue decreased by 4% year-over-year, and the operating margin dropped by 180 basis points to 19.1%. Earnings per share for the third quarter also declined to $2.16, a 5% decrease year-over-year.
Honeywell stated that it will further deepen its layout in the Chinese market. In September of this year, China officially launched a pilot program for the application of sustainable aviation fuel at four airports and on twelve flights. In response, Sun Jianneng, Vice President and General Manager of Honeywell's Energy and Sustainable Technology Group in China, said that despite the complex and changing global economic environment, Honeywell is confident in its continuous growth in China. The company plans to support its customers' smooth development through practical and innovative technologies. With more projects coming online and technological breakthroughs, Honeywell believes that the production capacity of sustainable aviation fuel in China is expected to grow rapidly.
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Revenue Decline in the Third Quarter
Regarding the performance in the third quarter of this year, Honeywell told reporters that in a challenging operating environment, the company's revenue has decreased, but various indicators, including segment profit margins and adjusted earnings per share, have exceeded the company's guidance. The decline in revenue was mainly due to the impairment caused by classifying the personal protective equipment (PPE) business as assets held for sale. In addition, thanks to the strong performance of the Aerospace Technology Group and the successful acquisition of security business, segment profits for the entire quarter increased by 6% year-over-year, and segment profit margins increased by 23.6% year-over-year, exceeding the upper limit of the guidance range by 30 basis points.
"Honeywell faced challenges in the third quarter, with segment profit margins and adjusted earnings per share both exceeding the upper limit of the guidance range," said Vimal Kapur, Chairman and CEO of Honeywell. "Our accelerator operating system and execution culture have enabled us to achieve a 6% increase in segment profits even in the face of short-term sales headwinds. Even excluding the impact of this quarter's acquisition closing, we still see healthy order rates and continued growth in undelivered orders, which gives us confidence in achieving long-term goals. We have also made significant progress in our capital deployment strategy, deploying $3.1 billion for mergers and acquisitions, dividends, and high-return capital expenditures."
Since 2024, Honeywell has taken several measures to further simplify and improve its business portfolio, including completing the acquisition of Civitanavi, CAES Systems, and the liquefied natural gas business of Air Products. Recently, the company also announced plans to spin off its high-performance materials business into an independent company, which will become a specialty chemicals and materials supplier focused on sustainable development.
Kapur said, "This year, we have made significant progress in our business portfolio, announcing the spin-off of high-performance materials and exiting the personal protective equipment business, and completing four strategic acquisitions. We are proud of the progress we have made this year and continue to work hard to align our business with the three major trends of automation, future aviation, and energy transition."
In addition, reporters also learned from Honeywell that based on the performance of the third quarter and the management's outlook for the fourth quarter of this year, including the impact of recent acquisitions, Honeywell has updated its guidance range for full-year sales, segment profit margins, adjusted earnings per share, and cash flow.
Honeywell stated that the company's full-year sales are expected to be between $38.6 billion and $38.8 billion. Segment profit margins are expected to be between 23.4% and 23.5%, flat with last year or down by 10 basis points. Adjusted earnings per share are expected to be between $10.15 and $10.25, a year-over-year increase of 7% to 8%. Operating cash flow is expected to be between $6.2 billion and $6.5 billion, and free cash flow is expected to be between $5.1 billion and $5.4 billion.Deepening Market Layout in China
Against the backdrop of China's vigorous development of new quality productive forces, continuous advancement of the "dual carbon" goals, and the high-end, intelligent, and green development of the digital economy and manufacturing industry, Honeywell is focusing on the Chinese market.
Sun Jianeng stated that despite the current economic downturn, the Chinese supply chain and consumer demand for sustainable technology, as well as their willingness to invest, have shown a positive trend. Honeywell is committed to combining the development trends of automation, future aviation, and energy transition with the development needs of Chinese customers to promote influential local innovation. Taking the energy transition field as an example, with the in-depth advancement of the "dual carbon" goals, energy transition has become a common trend for various industries in China to achieve sustainable development. Honeywell's technologies in energy management, carbon capture and storage, sustainable aviation fuel, and plastic recycling are at the forefront of the market, helping many manufacturing sectors such as petrochemicals, aviation, and life sciences to improve quality and efficiency, and achieve sustainable development.
"In this year, Honeywell has steadily advanced amidst challenges such as global economic stagnation and rising raw material costs. We are also pleased to see the solid support provided by the scale, resilience, and innovative vitality of the Chinese market, as well as the Chinese government's high regard for green and low-carbon development. Honeywell will further deepen its layout in the Chinese market, especially in innovative technology fields such as sustainable aviation fuel, hydrogen technology, and carbon capture and storage," said Sun Jianeng.
In September this year, the National Development and Reform Commission and the Civil Aviation Administration of China launched a pilot project for the application of sustainable aviation fuel, with 12 flights departing from and arriving at Beijing Daxing, Chengdu Shuangliu, Zhengzhou Xinzheng, and Ningbo Lishe airports being the first to use sustainable aviation fuel for flight.
A report released by Deloitte predicts that by 2030, China's demand for sustainable aviation fuel will reach 3 million tons/year, and by 2050, this figure may reach 86 million tons/year.
Industry insiders say that this year marks the beginning of the pilot application of sustainable aviation fuel in China, with four airports and 12 flights starting to pilot the use of this environmentally friendly aviation fuel. Although the current market size is still small, it is expected that from 2024 to 2028, the market size of China's sustainable aviation fuel industry will grow from several hundred million yuan to about 70 billion yuan. This rapid growth not only demonstrates the huge potential of sustainable aviation fuel but also reflects the urgent demand of China's aviation industry for sustainable development.
Qu Guangdong, General Manager of Sustainable Development Solutions Business of Honeywell Energy and Sustainable Technology Group in China, said that Honeywell believes that the production of sustainable aviation fuel in China will show a diversified trend to address various issues such as raw material supply, production costs, and environmental impact. After years of development, China has a solid infrastructure, strong manufacturing capabilities, and technological research and development strength. Therefore, in the future, China will not only be able to meet domestic demand in the field of sustainable aviation fuel but also have the opportunity to provide more supply to the global market as production capacity continues to improve.
Reporters learned that China's current annual production capacity of sustainable aviation fuel has reached hundreds of thousands of tons, and many companies are planning and expanding production capacity, with great potential for future development.
Sun Jianeng said that with the commissioning of more projects and technological breakthroughs, Honeywell believes that China's production capacity of sustainable aviation fuel is expected to grow rapidly. Looking to the future, despite the complex and changing global economic environment, Honeywell is full of confidence in its continuous growth in China and will continue to adhere to the development strategy of "Oriental Service to the Orient," fully leveraging its advantages and innovative practices in green and low-carbon, energy transition, and other fields, and working with industry partners to promote high-quality development in various industries in China.
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