Honeywell International expects its Aerospace division to reach operating margins of 25% or more in coming years, the company’s chief executive reiterated Oct. 19, as the newly trimmed conglomerate doubles down on aviation, defense and aftermarket businesses there.
“We think that's very possible in that business, and we're going to continue to march forward,” Chairman and CEO Darius Adamczyk said during a teleconference over third-quarter earnings. “We haven't pulled all the levers for the 25% yet, but we're going to be ready.”
The company reported a segment margin for Aerospace of 22.1% for the recent quarter, up from 21.3% a year before.
The telecon came after the completion of the spin-off of Garrett Motion, which separated from Honeywell on Oct. 1, and the planned spinoff of Resideo Technologies on Oct. 29. Adamczyk became CEO last year and chairman earlier this year, and in the process oversaw a strategic review of the multi-industrial company that resulted in spinning off the units and focusing heavier on aerospace, building controls and advanced materials.
Honeywell Aerospace builds aircraft engines, cockpit and cabin electronics, wireless connectivity systems and mechanical components, among others. Adamczyk lauded the division’s growth and trajectory after one analyst asked about Honeywell concentrating on aero.
“There's a high level of expertise in terms of what they can accomplish, and I think they're far from done, so there's further opportunity to do that,” the CEO said. “No. 2, is they're much more installed-base focused in terms of the upgrades, enhancements, software enhancements and so on, which obviously continue to build accretion to the margin rate. And overall, I like how the team is executing. They won a lot, they've had great wins in a lot of different platforms. The execution is strong, and I particularly like the progress on the commercial side of the business. Connected Aircraft continues to be a very big opportunity, which we materialized.”
Aerospace’s sales for the latest quarter rose 10% on an organic basis, according to Honeywell, driven by demand from business aviation manufacturers, rising U.S. and allied defense business, growth in the air transport and bizav aftermarket, and demand for light vehicle gas turbochargers in Transportation Systems, although that was spun-off as Garrett.
Broken down further, commercial OEM business jumped 19%, led by engines, avionics and auxiliary power unit demand in business and general aviation; air transport deliveries on the Boeing 737 and Airbus A350; and lower customer incentives, which added roughly 1% of organic growth to Aerospace in total for the quarter. Defense and space results grew 14%, driven by Pentagon spares volume, sensors and guidance systems demand, and greater supply volumes on key programs, including the F-35 and CH-47 Chinook.
Across Honeywell, Adamczyk attributed higher results to more sales and ongoing restructuring activities. During the quarter, Honeywell funded roughly $70 million in new restructuring projects aimed at improving cost structure and optimizing footprint and supply chain.
Asked about Honeywell’s ongoing international investment strategy to be a local company in key customer markets, Adamczyk similarly indicated a continuation of strategy. “I've always said all along that I believe in being local-for-local, meaning that I want to be able to serve North America from North America,” he said. “I want to be able to serve China from China and Europe from Europe. To me, that just makes perfect sense. I want to have people that have a mindset for the local markets, from research and development, manufacturing, sales, marketing, all these perspective.”
Likewise, while Honeywell will look to grow U.S. operations and business with rising GDP at home, it will maintain efforts in select foreign growth markets because ultimately their GDP rates are expected to be even higher, Adamczyk said.