Honeywell International Inc. (NASDAQ:HON)

The common-size income statement reveals a significant shift in the company’s revenue mix and profitability profile over the five-year period. Product sales demonstrate a consistent decline as a percentage of net sales, while service sales exhibit a corresponding increase. This suggests a strategic move towards a more service-oriented business model.

Revenue Composition

Product sales decreased from 74.56% of net sales in 2021 to 65.47% in 2025. Conversely, service sales increased from 25.44% to 34.53% over the same period. Net sales remained constant at 100% throughout the period, indicating the changes reflect internal shifts in revenue sources rather than overall sales volume fluctuations.

Cost structure analysis indicates improvements in cost of products sold as a percentage of net sales, but a rise in cost of services sold. Overall, the cost of products and services sold initially decreased but then increased slightly in 2025.

Cost of Sales

Cost of products sold decreased from -49.67% to -43.14% of net sales, suggesting improved production efficiency or sourcing. However, cost of services sold increased from -14.48% to -19.92%, likely related to the growing proportion of service revenue. The combined cost of products and services sold decreased from -64.15% to -61.91% before increasing to -63.07% in 2025.

Gross profit as a percentage of net sales generally improved, but experienced a decline in the most recent year. Operating income showed a similar pattern, peaking in 2023 before decreasing substantially in 2025.

Profitability

Gross profit increased from 35.85% to 38.09% before falling to 36.93% in 2025. Operating income rose from 18.03% to 19.33% and then decreased significantly to 14.88% in 2025. This decline in operating income in 2025 is a key area for further investigation.

Several non-operating items impacted net income, with increasing prominence in later years. These include impairments, gains/losses on sales of businesses, and various other income and expenses.

Non-Operating Items

Impairment charges, specifically impairment of goodwill and assets held for sale, were absent in early years but became significant in 2025, totaling -3.86% of net sales. Gains on the Resideo indemnification agreement contributed 2.14% to net sales in 2025. Divestiture and acquisition-related costs also emerged in 2025, totaling -1.22% of net sales. These items contributed to the overall decline in profitability in 2025.

Interest and other financial charges increased as a percentage of net sales throughout the period, while interest income and non-service pension income fluctuated. Tax expense remained relatively stable as a percentage of net sales.

Financial Expenses & Taxes

Interest and other financial charges increased from -1.00% to -3.59% of net sales. Tax expense remained relatively consistent, ranging from -3.83% to -4.72% of net sales. Income from continuing operations before taxes decreased from 21.04% to 14.63%.

Net income attributable to Honeywell decreased from 16.11% to 12.63% of net sales. The inclusion of net income from discontinued operations in 2025 (0.81%) partially offset the decline in income from continuing operations.

Net Income

Net income decreased from 16.31% to 12.75% of net sales. The decrease in 2025 is particularly notable, driven by a combination of lower operating income and increased non-operating expenses, including impairments and transaction-related costs.