Honeywell International (HON) is apparently laying off people in its aerospace division because it is too efficient.
"When you look at the layoffs and furloughs ... a lot of that is being driven by just better and better efficiency within our aerospace business," said CEO David Cote in a conference call Friday.
Real Money confirmed Tuesday that the company is implementing a small reduction of positions in certain areas of aerospace this year.
"Tim (Mahoney, divisional CEO for the aerospace segment) has been doing a remarkable job of making all our processes work better, whether it's how we engineer or how we manufacture, how we run our staff functions," said Cote. "It's really just being driven by doing a better job overall, which is a good sign, certainly puts us in a better position to grow."
The company said the reduction will better align costs with current demand. The number of jobs to be cut has not been disclosed.
But the aerospace area has struggled this year. Honeywell noted that its aerospace sales were down 1%.
Analysts with Jefferies said in a research note Friday that aerospace revenues of $3.78 billion were below their estimates of $3.9 billion. They noted that organic volumes fell 2% with commercial aviation (original equipment) down 9%. Commercial aviation after-market partially offset those losses as sales were up 6%. But organic defense and space revenues were down 7%, "partly due to tougher international comparisons, some weakness in services and a difficult commercial helicopter market," the Jefferies analysts said.
The analysts also said operating margins of 20.9% were below their forecasts of 21.2%, but Honeywell would have shown a bigger basis points expansion had it not been for the impact of acquisitions. Despite the weaker-than-expected margins, the aerospace segment's profit was up 2%.
"It didn't feel like a typical Honeywell quarter," Edward Jones analyst Jeff Windau said in a Thursday interview with Real Money, noting the company improved operating margins but organic sales growth is down on the year.
"It was again highlighting that the resource-end markets have been pretty tough," he added, emphasizing the recent decline in oil and gas prices.
Still, as a result of the company's first-half performance, Honeywell raised the low end of its full-year earnings guidance range to $6.60 to $6.70 per share.
- For more on HON, see the latest charts from Bruce Kamich here.