Trader Talk

Why Honeywell is the poster child for multinational problems

Pisani's market open: Energy decline continues

Honeywell is a good example of the problems facing multinational corporations.

The strong dollar is really hurting multinationals. Even Honeywell.

Honeywell is one of the most-praised multinationals, and with good reason. It has strong management, and it plays in all the right spaces. Aerospace. Environmental controls. High performance materials.

Yet all three major segments saw declines in revenues year-over-year, largely because of the impact of foreign currency.

Here are the year-over year stats for Honeywell:

  • Earnings: up 9.4 percent
  • Revenues: down 4.5 percent
  • Organic sales: up 3 percent

A 9.4-percent rise in earnings is fantastic, but revenues down 4.5 percent while organic sales are up 3 percent? That's strange.

Most, but not all, of that mismatch was unfavorable currency.

I don't want to blame everything on currency problems. The bigger picture is most multinationals—including Honeywell—have had a tough time growing revenues. Honeywell has seen almost no growth for several years.

Honeywell revenues (billions):

  • 2013: $39.0
  • 2014: $40.3
  • 2015 (est.): $39.3
  • 2016 (est.): $41.1

The Street is very well aware of this problem. The sectors most exposed to the global economy—energy, materials, and industrials—have had a tough time in the last month as the global growth story again stalls out, largely on worries over China (though Honeywell has relatively low exposure there).

Sector laggards (one month):

  • Energy: down 4.4 percent
  • Materials: down 4.4 percent
  • Industrials: down 0.9 percent

This is reflected in the poor performance of Honeywell's global industrial brethren.

Global Industrials (one month):

Bottom line: The "revenue recession" is very real, but when you throw in dollar strength, you have a double whammy for multinationals.