April 23 (Reuters) – Honeywell on Thursday forecast second-quarter revenue below Wall Street estimates as conflict in the Middle East weighed on the U.S. industrial giant’s business, sending shares down 2.3% in morning trade.
The U.S.-Israeli war with Iran is driving up raw material and energy costs across U.S. manufacturing, while disrupting logistics.
Honeywell Aerospace, set to spin off on June 29, also wrestled with supply chain challenges this year that affected key products, but the company now sees improvements. One executive said demand for commercial aftermarket services and business aviation remains robust despite high oil prices.
“Our growth is constrained by supply and not demand,” Honeywell Aerospace CEO Jim Currier told analysts.
Last month, Charlotte, North Carolina-based Honeywell warned that delays in Middle East shipments could defer some first-quarter revenue into later periods, even as demand remained stable.
REVENUE DROP DUE TO WAR
Honeywell CEO Vimal Kapur told analysts the Middle East conflict caused a 0.5% reduction in revenue during the first quarter and that he expects roughly a 1% drop during the second quarter, largely in its process automation and technology segment.
The company expects second-quarter sales to range between $9.4 billion and $9.6 billion, below the $9.73 billion consensus estimate compiled by LSEG.
Currier said Honeywell Aerospace had difficulties with some key suppliers toward the end of January and early February that adversely affected its engines and control systems businesses.
“It was purely supplier-centric,” Currier said. “The lack of certain critical-piece parts from high-critical suppliers.”
Currier said the aerospace unit started to see recovery around March, which has carried into April.
Honeywell, which produces engines for private jets, saw even stronger growth in business aviation than in commercial air transport, despite higher fuel prices, Currier said.
For the quarter ended March 31, total Honeywell sales increased 2% from a year ago to $9.14 billion, but fell below analysts’ estimates of $9.31 billion.
The company is breaking up into three independent companies focused on automation, aerospace and advanced materials, and is divesting assets ahead of the separation.
On Thursday, Honeywell announced the sale of its warehouse and workflow solutions business to American Industrial Partners in an all-cash transaction for an undisclosed price.
Higher costs related to the spinoff, along with Flexjet litigation expenses, led to a 71% decline in free cash flow during the quarter to $56 million.
Quarterly profit fell 35% on higher restructuring costs to $1.29 per share. On an adjusted basis, profit rose 11% to $2.45 per share and beat estimates of $2.32.
(Reporting by Aatreyee Dasgupta and Allison Lampert; Editing by Tasim Zahid, Rod Nickel)
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