HONEYWELL INTERNATIONAL INC (HON) FY 2024 MD&A
This page reproduces the company's own Item 7 MD&A text from the linked SEC filing. It is filer text, not grepcent analysis, scoring, or investment advice.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in tables and graphs in millions, except per share amounts)
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to help the reader understand the results of operations and financial condition of Honeywell International Inc. and its consolidated subsidiaries (Honeywell, we, us, our, or the Company) for the three years ended December 31, 2024. All references to Notes relate to Notes to Consolidated Financial Statements in the section titled Financial Statements and Supplementary Data.
A detailed discussion of the prior year 2023 to 2022 year-over-year changes is not included herein and can be found in the Management's Discussion and Analysis of Financial Condition and Results of Operations section in Exhibit 99.1 to the Current Report on Form 8-K filed April 25, 2024, which updated our Form 10-K for the year ended December 31, 2023, by recasting historical segment information to reflect the realignment of certain of the Company's business units effective the first quarter of 2024 and impacted the composition of the Company's reportable segments.
BUSINESS UPDATE
MACROECONOMIC CONDITIONS
We continue to monitor the impacts of ongoing macroeconomic conditions and geopolitical events. An escalation of geopolitical tensions or the implementation of global trade restrictions could impede disinflation and negatively impact growth prospects. Global conflicts, tariffs, labor disruptions, and regulations continue to create volatility in global markets and contribute to supply chain shortages and pricing volatility. We continue to actively collaborate with our suppliers to minimize shortages and reduce supply and price volatility. Global growth in the economy is projected to remain stable with further easing of inflation.
Our mitigation strategies include pricing actions and hedging strategies, longer term planning for constrained materials, new supplier development, material supply tracking tools, and direct engagement with key suppliers to meet customer demand. Our continued relationships with strategic primary and secondary suppliers allow us to reliably source key components and raw materials, which include considering altering existing products, developing new products, and committing our own resources to assist certain suppliers. We believe these mitigation strategies enable us to reduce supply risk, accelerate new product innovation, and expand our penetration in the markets we serve. Additionally, due to the strenuous quality controls and product qualification we perform on a new or altered product, these mitigation strategies have not impacted, and we do not expect them to impact, product quality or reliability.
To date, our strategies successfully mitigated our exposure to these conditions. However, if we are not successful in sustaining or executing these strategies, these macroeconomic conditions could have a material adverse effect on our consolidated results of operations or operating cash flows.
See the section titled Risk Factors for a discussion of risks associated with the potential adverse effects of inflationary cost pressures, supply chain disruptions, and labor shortages to our businesses.
SPIN-OFF OF ADVANCED MATERIALS
On October 8, 2024, the Company announced its intention to spin off its Advanced Materials business into an independent, U.S. publicly traded company, which is targeted to be completed by the end of 2025 or early 2026. The planned spin-off is intended to be a tax-free spin to Honeywell shareowners for U.S. federal income tax purposes. The spin-off will be subject to the satisfaction of a number of customary conditions, including, among others, finalization of the financial statements of the Advanced Materials business, the filing and effectiveness of applicable filings (including a Form 10 registration statement) with the SEC, assurance that the spin-off of the Advanced Materials business will be tax-free to Honeywell’s shareowners, receipt of applicable regulatory approvals and final approval by Honeywell’s Board of Directors. The proposed spin-off is complex in nature, and may be affected by unanticipated developments, credit and equity markets, or changes in market conditions.
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SEPARATION OF AUTOMATION AND AEROSPACE TECHNOLOGIES
On February 6, 2025, the Company announced its intention to pursue a separation of its Automation and Aerospace Technologies businesses into independent, U.S. publicly traded companies, which is targeted to be completed in the second half of 2026. The planned separation is intended to be a tax-free separation to Honeywell shareowners for U.S. federal income tax purposes. The separation will be subject to the satisfaction of a number of customary conditions, including, among others, finalization of the financial statements of the Automation and Aerospace Technologies businesses, the filing and effectiveness of applicable filings (including a Form 10 registration statement) with the SEC, assurance that the separation of the businesses will be tax-free to Honeywell’s shareowners, receipt of applicable regulatory approvals and final approval by Honeywell’s Board of Directors. The proposed separation is complex in nature, and may be affected by unanticipated developments, credit and equity markets, or changes in market conditions.
RESULTS OF OPERATIONS
Consolidated Financial Results
Net Sales by Segment
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Segment Profit by Segment
CONSOLIDATED OPERATING RESULTS
Net Sales
The increase in Net sales was attributable to the following:
| 2024 Versus 2023 | 2023 Versus 2022 | |
|---|---|---|
| Volume | 1 % | —% |
| Price | 2 % | 4 % |
| Foreign currency translation | —% | (1 %) |
| Acquisitions, divestitures, and other, net | 2 % | —% |
| Total % change in Net sales | 5 % | 3 % |
A discussion of Net sales by reportable business segment can be found in the Review of Business Segments section of Management's Discussion and Analysis.
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2024 compared with 2023
Net sales increased due to the following:
•Incremental sales from recent acquisitions,
•Increased pricing and price adjustments to offset inflation, and
•Higher sales volumes.
Cost of Products and Services Sold
2024 compared with 2023
Cost of products and services sold increased due to the following:
•Higher direct and indirect material costs and higher labor costs of approximately $0.8 billion or 3%, and
•Incremental costs from recent acquisitions of approximately $0.5 billion or 2%,
•Partially offset by higher productivity of approximately $0.4 billion or 2%.
Gross Margin
2024 compared with 2023
Gross margin increased by approximately $1.0 billion and gross margin percentage increased 80 basis points to 38.1% compared to 37.3% for the same period of 2023.
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Research and Development Expenses
2024 compared with 2023
Research and development expenses slightly increased but were flat as a percentage of Net sales.
A summary of our research and development costs for the years ended December 31, 2024, 2023, and 2022, is as follows:
| 2024 | 2023 | 2022 | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Company funded research and development expenses | $ | 1,536 | $ | 1,456 | $ | 1,478 | ||||
| Customer-sponsored research and development1 | 1,105 | 1,145 | 1,102 | |||||||
| Total Research and development costs | $ | 2,641 | $ | 2,601 | $ | 2,580 |
| Column 1 | Column 2 |
|---|---|
| 1 | Includes deferred customer funded nonrecurring engineering and development activities and expenditures on customer programs with a significant engineering performance obligation, included in Cost of products and services sold in the Consolidated Statement of Operations. |
Selling, General and Administrative Expenses
2024 compared with 2023
Selling, general and administrative expenses increased due to the following:
•Higher labor costs of approximately $0.2 billion or 4%, and
•Incremental costs from acquisitions of approximately $0.2 billion or 4%,
•Partially offset by higher productivity of approximately $0.1 billion or 2%.
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Impairment of Assets Held for Sale
| 2024 | 2023 | 2022 | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Impairment of assets held for sale | $ | 219 | $ | — | $ | — |
2024 compared with 2023
An impairment charge was recorded on assets held for sale related to the personal protective equipment business during the twelve months ended December 31, 2024.
Other (Income) Expense
| 2024 | 2023 | 2022 | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Other (income) expense | $ | (830) | $ | (840) | $ | (366) |
2024 compared with 2023
Other income was flat due to the following:
•Higher interest income of approximately $0.1 billion, and
•Higher pension and post-retirement income of $0.1 billion,
•Partially offset by higher acquisition-related costs of $0.1 billion.
Interest and Other Financial Charges
| 2024 | 2023 | 2022 | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Interest and other financial charges | $ | 1,058 | $ | 765 | $ | 414 |
2024 compared with 2023
Interest and other financial charges increased due to issuances of long-term debt during the twelve months ended December 31, 2024.
Tax Expense
2024 compared with U.S. Statutory Rate
The effective tax rate for 2024 was lower than the U.S. federal statutory rate of 21% as a result of the following:
•Tax credits, representing a 200 basis point decrease, and
•Tax benefits on non-U.S. earnings, representing a 140 basis point decrease,
•Partially offset by state, local, and global minimum taxes, representing a 170 basis point increase, and
•Change in accruals on global tax matters, representing a 120 basis point increase.
See Note 5 Income Taxes of Notes to Consolidated Financial Statements for further discussion of changes in the effective tax rate.
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Net Income Attributable to Honeywell
2024 compared with 2023
Earnings per share of common stock–assuming dilution increased due to the following:
•Lower repositioning and other charges ($0.73 after tax), and
•Lower share count ($0.17 after tax),
•Partially offset by higher interest expense ($0.35 after tax), and
•Impairment charges on assets held for sale ($0.33 after tax).
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REVIEW OF BUSINESS SEGMENTS
During the first quarter of 2024, the Company realigned certain of its business units, which impacted the composition of its reportable segments. The Company recast historical periods to reflect this change in segment presentation. See Note 22 Segment Financial Data of Notes to Consolidated Financial Statements for further discussion.
We globally manage our business operations through four reportable business segments: Aerospace Technologies, Industrial Automation, Building Automation, and Energy and Sustainability Solutions.
AEROSPACE TECHNOLOGIES
Net Sales
| 2024 | 2023 | Change2024vs.2023 | 2022 | Change2023vs.2022 | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Net sales | $ | 15,458 | $ | 13,624 | 13 | % | $ | 11,827 | 15 | % | |||||||
| Cost of products and services sold | 9,781 | 8,362 | 7,183 | ||||||||||||||
| Selling, general and administrative and other expenses | 1,689 | 1,502 | 1,397 | ||||||||||||||
| Segment profit | $ | 3,988 | $ | 3,760 | 6 | % | $ | 3,247 | 16 | % |
| Factors Contributing to Year-Over-Year Change | 2024 vs. 2023 | 2023 vs. 2022 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Net Sales | Segment Profit | Net Sales | Segment Profit | ||||||||
| Organic1 | 11 | % | 5 | % | 15 | % | 16 | % | |||
| Foreign currency translation | — | % | — | % | — | % | — | % | |||
| Acquisitions, divestitures, and other, net | 2 | % | 1 | % | — | % | — | % | |||
| Total % change | 13 | % | 6 | % | 15 | % | 16 | % |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| 1 | Organic sales percent change, presented for all of our reportable business segments, is defined as the change in Net sales, excluding the impact on sales from foreign currency translation and acquisitions, net of divestitures, for the first 12 months following the transaction date. We believe this non-GAAP measure is useful to investors and management in understanding the ongoing operations and analysis of ongoing operating trends. |
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2024 compared with 2023
Sales increased $1,834 million due to higher organic sales of $907 million in Commercial Aviation Aftermarket driven by higher sales volumes in air transport due to an increase in flight hours and higher organic sales of $772 million in Defense and Space driven by higher sales volumes due to increased shipments. Additionally, the acquisitions of CAES and Civitanavi Systems contributed $332 million to 2024 sales.
During the fourth quarter of 2024, our Commercial Aviation Original Equipment business entered into a strategic agreement with Bombardier (the Agreement) to provide advanced technology for current and future Bombardier aircraft in avionics, propulsion, and satellite communications technologies. Sales and segment profit for the twelve months ended December 31, 2024, decreased by approximately $370 million due to the Agreement.
Segment profit increased $228 million and segment margin percentage decreased 180 basis points to 25.8% compared to 27.6% for the same period of 2023.
On February 6, 2025, the Company announced its intention to separate its Automation and Aerospace Technologies businesses into independent, U.S. publicly traded companies.
INDUSTRIAL AUTOMATION
Net Sales
| 2024 | 2023 | Change2024vs.2023 | 2022 | Change2023vs.2022 | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Net sales | $ | 10,051 | $ | 10,756 | (7) | % | $ | 11,638 | (8) | % | |||||||
| Cost of products and services sold | 5,880 | 6,379 | 7,230 | ||||||||||||||
| Selling, general and administrative and other expenses | 2,209 | 2,168 | 2,256 | ||||||||||||||
| Segment profit | $ | 1,962 | $ | 2,209 | (11) | % | $ | 2,152 | 3 | % |
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| Factors Contributing to Year-Over-Year Change | 2024 vs. 2023 | 2023 vs. 2022 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Net Sales | Segment Profit | Net Sales | Segment Profit | ||||||||
| Organic | (7) | % | (11) | % | (8) | % | 3 | % | |||
| Foreign currency translation | (1) | % | (1) | % | (1) | % | (1) | % | |||
| Acquisitions, divestitures, and other, net | 1 | % | 1 | % | 1 | % | 1 | % | |||
| Total % change | (7) | % | (11) | % | (8) | % | 3 | % |
2024 compared with 2023
Sales decreased $705 million due to lower organic sales of $527 million in Warehouse and Workflow Solutions driven by lower demand for projects and lower organic sales of $155 million in Sensing and Safety Technologies driven by lower demand for personal protective equipment.
During the second quarter of 2022, our Productivity Solutions and Services business entered into a license and settlement agreement (the Agreement). Under the Agreement, we received $360 million, paid in equal quarterly installments over eight quarters, beginning with the second quarter of 2022 and ending with the first quarter of 2024. The Agreement provides each party a license to its existing patent portfolio for use by the other party’s existing products and resolved the patent-related litigation between the parties.
Segment profit decreased $247 million and segment margin percentage decreased 100 basis points to 19.5% compared to 20.5% for the same period in 2023.
On November 22, 2024, we announced an agreement to sell our PPE business for $1.3 billion, with the assets and liabilities of the business classified as held for sale until the closing date of the sale. The transaction is expected to be completed in the first half of 2025.
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BUILDING AUTOMATION
Net Sales
| 2024 | 2023 | Change2024vs.2023 | 2022 | Change2023vs.2022 | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Net sales | $ | 6,540 | $ | 6,031 | 8 | % | $ | 6,000 | 1 | % | |||||||
| Cost of products and services sold | 3,482 | 3,240 | 3,250 | ||||||||||||||
| Selling, general and administrative and other expenses | 1,377 | 1,262 | 1,286 | ||||||||||||||
| Segment profit | $ | 1,681 | $ | 1,529 | 10 | % | $ | 1,464 | 4 | % |
| Factors Contributing to Year-Over-Year Change | 2024 vs. 2023 | 2023 vs. 2022 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Net Sales | Segment Profit | Net Sales | Segment Profit | ||||||||
| Organic | 2 | % | — | % | 2 | % | 4 | % | |||
| Foreign currency translation | (1) | % | — | % | (1) | % | — | % | |||
| Acquisitions, divestitures, and other, net | 7 | % | 10 | % | — | % | — | % | |||
| Total % change | 8 | % | 10 | % | 1 | % | 4 | % |
2024 compared with 2023
Sales increased $509 million due to higher organic sales of $245 million in Building Solutions driven by higher demand for building projects and services, partially offset by lower organic sales of $124 million in Products driven by lower demand. The acquisition of Access Solutions contributed $424 million to 2024 sales.
Segment profit increased $152 million and segment margin percentage increased 30 basis points to 25.7% compared to 25.4% for the same period of 2023.
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ENERGY AND SUSTAINABILITY SOLUTIONS
Net Sales
| 2024 | 2023 | Change2024vs.2023 | 2022 | Change2023vs.2022 | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Net sales | $ | 6,425 | $ | 6,239 | 3 | % | $ | 5,996 | 4 | % | |||||||
| Cost of products and services sold | 4,030 | 3,950 | 3,673 | ||||||||||||||
| Selling, general and administrative and other expenses | 873 | 802 | 768 | ||||||||||||||
| Segment profit | $ | 1,522 | $ | 1,487 | 2 | % | $ | 1,555 | (4) | % |
| Factors Contributing to Year-Over-Year Change | 2024 vs. 2023 | 2023 vs. 2022 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Net Sales | Segment Profit | Net Sales | Segment Profit | ||||||||
| Organic | 2 | % | — | % | 4 | % | (3) | % | |||
| Foreign currency translation | — | % | — | % | — | % | (1) | % | |||
| Acquisitions, divestitures, and other, net | 1 | % | 2 | % | — | % | — | % | |||
| Total % change | 3 | % | 2 | % | 4 | % | (4) | % |
2024 compared with 2023
Sales increased $186 million due to higher organic sales of $144 million in Advanced Materials driven by higher demand for fluorine products. Additionally, the acquisition of LNG contributed $64 million to sales in 2024.
Segment profit increased $35 million and segment margin percentage decreased 10 basis points to 23.7% compared to 23.8% for the same period of 2023.
On October 8, 2024, the Company announced its intention to spin off its Advanced Materials business into an independent, U.S. publicly traded company.
CORPORATE AND ALL OTHER
Corporate and All Other primarily includes unallocated corporate costs, interest expense on holding-company debt, and the controlling majority-owned interest in Quantinuum. Corporate and All Other is not a separate reportable business segment as segment reporting criteria is not met. The Company continues to monitor the activities in Corporate and All Other to determine the need for further reportable business segment disaggregation.
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REPOSITIONING CHARGES
See Note 4 Repositioning and Other Charges of Notes to Consolidated Financial Statements for a discussion of our repositioning actions and related charges incurred in 2024, 2023, and 2022. Cash spending related to our repositioning actions was $195 million, $294 million, and $275 million in 2024, 2023, and 2022, respectively, and was funded through operating cash flows.
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