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Honeywell Reports Third Quarter 2016 Sales Of $9.8 Billion, Up 2%; Earnings Per Share Of $1.60

MORRIS PLAINS, N.J., Oct. 21, 2016 /PRNewswire/ -- Honeywell (NYSE: HON) today announced its results for the third quarter of 2016:

Total Honeywell

($ Millions, Except Earnings Per Share)

3Q 2015

3Q 2016

Change

Sales

9,611

9,804

2%

Segment Margin

19.3%

17.5%

(180) bps

Operating Income Margin

18.3%

15.6%

(270) bps

Earnings Per Share

$1.60

$1.60

Flat

Earnings Per Share (Excluding $0.07 Deployed to Restructuring)

$1.67

4%

Cash Flow from Operations

1,693

1,554

(8%)

Free Cash Flow2

1,416

1,280

(10%)

__________________________

1 Excludes Impact From Contemplated Q4 Debt Refinancing

2 Cash Flow from Operations Less Capital Expenditures

Throughout this press release, core organic sales growth refers to reported sales growth less the impacts from foreign currency translation, M&A and raw materials pass-through pricing in the Resins & Chemicals business of PMT. The raw materials pricing impact is excluded in instances where raw materials costs are passed through to customers, which drives fluctuations in selling prices not tied to volume growth. A reconciliation of core organic sales growth to reported sales growth is provided in the attached financial tables.

"The third-quarter results came in as we outlined on our October 7 conference call. We are well-positioned for double-digit earnings growth in the fourth quarter, leading to 8%-9% earnings growth in 2016," said Honeywell Chairman and CEO Dave Cote. "It was a quarter of important changes in many areas. We split the former Automation and Control Solutions business into two new reporting segments; closed the acquisition of Intelligrated and sold Honeywell Technology Solutions, Inc.; and spun off our Resins and Chemicals business as a freestanding publicly-traded company named AdvanSix Inc. (NYSE: ASIX). We also funded approximately $250 million in restructuring and other actions from a $0.07 increase in first- and second-quarter EPS caused by an accounting standard adoption, and the $0.14 gain related to the sale of our government services business. These actions will drive more than $175 million of benefits in 2017 alone. We also intend in the fourth quarter to refinance outstanding debt maturing in 2017-2019, which will lower interest expense by approximately $60 million annually beginning in 2017."

"Combined with our ongoing productivity initiatives driven by the Honeywell Operating System, and the strength of our underlying portfolio, the actions we announced this quarter position Honeywell for future outperformance," continued Cote. "Moving ahead, we are targeting low single-digit core organic sales growth, continued segment margin improvement, and a double-digit increase in EPS in 2017. Darius Adamczyk, Chief Operating Officer, and Tom Szlosek, Chief Financial Officer, will provide more details about 2017 during our annual outlook call in December."

"We are committed to creating sustainable long-term shareowner value," concluded Cote. "We remain focused on disciplined capital deployment, aggressive organic sales growth, seed planting for new products and technologies, penetrating High Growth Regions, and executing on our key process initiatives. 2017 will be an inflection year for several core business units: growing demand for our UOP catalysts and modular equipment, Jetwave' and other products and services tied to connected aircraft, further turbo penetration, and strong sales growth from Solstice® (HFOs), our line of low-global-warming refrigerants and blowing agents. Revenue and earnings from the nearly $8 billion in M&A investments during the past two years should also be a significant contributor to 2017 performance. We are confident in our position and expect to continue to outperform."

The Company's current 2016 full-year guidance, which reflects our October 6, 2016 announcement, is as follows:

2016 Full-Year Guidance

Current Guidance

Change vs. 2015

Sales

$39.4 - $39.6

2% - 3%

Core Organic Growth

(1%)-(2%)

Segment Margin

~18.1%

~(70) bps3

Operating Income Margin (Ex-Pension MTM)

~17.6%

~(30) bps4

Earnings Per Share (Ex-Pension MTM)5

$6.60 - $6.64

8% - 9%

Free Cash Flow6

$4.2 - $4.3B

(2%) - (5%)

__________________________

3 Segment Margin ex-M&A Down ~(10) bps

4 Operating Margin ex-M&A Up ~30 bps

5 Excludes Impact From Contemplated Q4 Debt Refinancing

6 Cash Flow From Operations Less Capital Expenditures

Segment Performance

Aerospace

($ Millions)

3Q 2015

3Q 2016

% Change

Sales

3,820

3,601

(6%)

Segment Profit

833

663

(20%)

Segment Margin

21.8%

18.4%

(340) bps

  • Sales for the third quarter were down (6%) on a reported and core organic basis. The decrease was primarily driven by the unfavorable impact of third-quarter OEM incentives, lower volumes in Business and General Aviation, program completions in the U.S. Space and international Defense businesses, and continued weakness in the commercial helicopter business. This was partially offset by increased Air Transport OE deliveries and repair and overhaul activities, and new turbo platform launches on passenger vehicles in Transportation Systems.
  • Segment profit was down (20%) and segment margin declined (340) bps to 18.4%, due to higher Aerospace OEM incentives and lower volumes in Business Jet and Defense, partially offset by productivity net of inflation and commercial excellence.

Home and Building Technologies

($ Millions)

3Q 2015

3Q 2016

% Change

Sales

2,313

2,701

17%

Segment Profit

408

441

8%

Segment Margin

17.6%

16.3%

(130) bps7

__________________________

7 Segment Profit Down (20) bps Ex-M&A

  • Sales for the third quarter were up 17% reported and up 5% on a core organic basis. The increase was primarily driven by continued strength in our Distribution and Building Solutions businesses, and Products growth in Environmental & Energy Solutions and in China. The difference between reported and core organic sales was due to the favorable impact from acquisitions, primarily Elster.
  • Segment profit was up 8% and segment margin declined (130) bps to 16.3%, driven by acquisition amortization and integration costs, continued growth investments in salespeople and research and development, and the unfavorable mix impact of increased sales in Building Solutions and Distribution, partially offset by benefits from previously-funded restructuring, higher sales volumes, and commercial excellence.

Performance Materials and Technologies

($ Millions)

3Q 2015

3Q 2016

% Change

Sales

2,279

2,329

2%

Segment Profit

474

503

6%

Segment Margin

20.8%

21.6%

80 bps

  • Sales for the third quarter were up 2% reported. Core organic sales were down (3%) primarily driven by declines in UOP gas processing, licensing, and engineering, partially offset by strong catalyst shipments and conversion of global mega projects in Process Solutions. The difference between reported and core organic sales was due to the favorable impact from acquisitions, partially offset by the unfavorable impact of foreign currency and market pricing headwinds in Resins & Chemicals.
  • Segment profit was up 6% and segment margins expanded 80 bps to 21.6%, driven by productivity net of inflation, higher catalyst volumes, and acquisition integration excellence, partially offset by continued investments for growth.

Safety and Productivity Solutions

($ Millions)

3Q 2015

3Q 2016

% Change

Sales

1,199

1,173

(2%)

Segment Profit

193

172

(11%)

Segment Margin

16.1%

14.7%

(140) bps

  • Sales for the third quarter were down (2%) reported. Core organic sales were down (8%) in the quarter as a result of lower volume in Productivity Solutions associated with the USPS contract (which was completed in the third quarter of 2015), continued channel headwinds, and lower volumes in our Safety business. The difference between reported and core organic sales was due to the favorable impact from acquisitions, primarily Intelligrated.
  • Segment profit was down (11%) and segment margin contracted (140) bps to 14.7%, primarily driven by lower volumes and acquisition amortization and integration costs, partially offset by restructuring benefits and commercial excellence.

Honeywell will discuss its results during its investor conference call today starting at 9:30 a.m. EDT. To participate on the conference call, please dial (877) 795-3635 (domestic) or (719) 325-4816 (international) approximately ten minutes before the 9:30 a.m. EDT start. Please mention to the operator that you are dialing in for Honeywell's third quarter 2016 earnings call or provide the conference code HON3Q16. The live webcast of the investor call as well as related presentation materials will be available through the "Investor Relations" section of the company's Website (www.honeywell.com/investor). Investors can hear a replay of the conference call from 12:30 p.m. EDT, October 21, until 12:30 p.m. EDT, October 28, by dialing (888) 203-1112 (domestic) or (719) 457-0820 (international). The access code is 7056857.

Honeywell (www.honeywell.com) is a Fortune 100 diversified technology and manufacturing leader, serving customers worldwide with aerospace products and services; control technologies for buildings, homes, and industry; turbochargers; and performance materials. For more news and information on Honeywell, please visit www.honeywell.com/newsroom.

This release contains certain statements that may be deemed "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934. All statements, other than statements of historical fact, that address activities, events or developments that we or our management intends, expects, projects, believes or anticipates will or may occur in the future are forward-looking statements. Such statements are based upon certain assumptions and assessments made by our management in light of their experience and their perception of historical trends, current economic and industry conditions, expected future developments and other factors they believe to be appropriate. The forward-looking statements included in this release are also subject to a number of material risks and uncertainties, including but not limited to economic, competitive, governmental, and technological factors affecting our operations, markets, products, services and prices. Such forward-looking statements are not guarantees of future performance, and actual results, developments and business decisions may differ from those envisaged by such forward-looking statements. We identify the principal risks and uncertainties that affect our performance in our Form 10-K and other filings with the Securities and Exchange Commission.

Contacts:

Media

Investor Relations

Robert C. Ferris

Mark Macaluso

(973) 455-3388

(973) 455-2222

rob.ferris@honeywell.com

mark.macaluso@honeywell.com

Honeywell International Inc.

Consolidated Statement of Operations (Unaudited)

(Dollars in millions, except per share amounts)

Three Months Ended

Nine Months Ended

September 30,

September 30,

2016

2015

2016

2015

Product sales

$ 7,744

$ 7,573

$ 23,398

$ 22,735

Service sales

2,060

2,038

5,919

5,864

Net sales

9,804

9,611

29,317

28,599

Costs, expenses and other

Cost of products sold (A)

5,594

5,372

16,545

16,126

Cost of services sold (A)

1,309

1,282

3,726

3,704

6,903

6,654

20,271

19,830

Selling, general and administrative expenses (A)

1,367

1,202

3,976

3,674

Other (income) expense

(180)

(24)

(197)

(64)

Interest and other financial charges

82

72

252

226

8,172

7,904

24,302

23,666

Income before taxes

1,632

1,707

5,015

4,933

Tax expense

384

431

1,214

1,289

Net income

1,248

1,276

3,801

3,644

Less: Net income attributable to the noncontrolling interest

8

12

26

70

Net income attributable to Honeywell

$ 1,240

$ 1,264

$ 3,775

$ 3,574

Earnings per share of common stock - basic

$ 1.62

$ 1.62

$ 4.93

$ 4.57

Earnings per share of common stock - assuming dilution

$ 1.60

$ 1.60

$ 4.86

$ 4.51

Weighted average number of shares outstanding - basic

763.7

780.4

765.0

782.5

Weighted average number of shares outstanding - assuming dilution

774.4

789.5

776.3

792.1

(A) Cost of products and services sold and selling, general and administrative expenses include amounts for repositioning and other charges, pension and other postretirement (income) expense, and stock compensation expense

Honeywell International Inc

Segment Data (Unaudited)

(Dollars in millions)

Three Months Ended

Nine Months Ended

September 30,

September 30,

Net Sales

2016

2015

2016

2015

Aerospace

$ 3,601

$ 3,820

$ 11,085

$ 11,254

Home and Building Technologies

2,701

2,313

7,854

6,686

Performance Materials and Technologies

2,329

2,279

7,044

7,137

Safety and Productivity Solutions

1,173

1,199

3,334

3,522

Corporate

-

-

-

-

Total

$ 9,804

$ 9,611

$ 29,317

$ 28,599

Reconciliation of Segment Profit to Income Before Taxes

Three Months Ended

Nine Months Ended

September 30,

September 30,

Segment Profit

2016

2015

2016

2015

Aerospace

$ 663

$ 833

$ 2,252

$ 2,362

Home and Building Technologies

441

408

1,213

1,088

Performance Materials and Technologies

503

474

1,484

1,517

Safety and Productivity Solutions

172

193

495

565

Corporate

(59)

(56)

(157)

(156)

Total segment profit

1,720

1,852

5,287

5,376

Other income (expense) (A)

169

15

174

39

Interest and other financial charges

(82)

(72)

(252)

(226)

Stock compensation expense (B)

(49)

(41)

(145)

(132)

Pension ongoing income (B)

146

96

447

299

Other postretirement income (expense) (B)

7

(10)

24

(30)

Repositioning and other charges (B)

(279)

(133)

(520)

(393)

Income before taxes

$ 1,632

$ 1,707

$ 5,015

$ 4,933

(A) Equity income (loss) of affiliated companies is included in segment profit

(B) Amounts included in cost of products and services sold and selling, general and administrative expenses

Honeywell International Inc

Consolidated Balance Sheet (Unaudited)

(Dollars in millions)

September 30,

December 31,

2016

2015

ASSETS

Current assets:

Cash and cash equivalents

$ 6,431

$ 5,455

Accounts, notes and other receivables

8,627

8,075

Inventories

4,587

4,420

Investments and other current assets

2,189

2,103

Total current assets

21,834

20,053

Investments and long-term receivables

639

517

Property, plant and equipment - net

5,725

5,789

Goodwill

17,846

15,895

Other intangible assets - net

4,847

4,577

Insurance recoveries for asbestos related liabilities

433

426

Deferred income taxes

335

283

Other assets

1,897

1,776

Total assets

$ 53,556

$ 49,316

LIABILITIES AND SHAREOWNERS' EQUITY

Current liabilities:

Accounts payable

$ 5,418

$ 5,580

Commercial paper and other short-term borrowings

5,601

5,937

Current maturities of long-term debt

649

577

Accrued liabilities

6,545

6,277

Total current liabilities

18,213

18,371

Long-term debt

9,608

5,554

Deferred income taxes

701

558

Postretirement benefit obligations other than pensions

477

526

Asbestos related liabilities

1,278

1,251

Other liabilities

3,905

4,348

Redeemable noncontrolling interest

3

290

Shareowners' equity

19,371

18,418

Total liabilities, redeemable noncontrolling interest and shareowners' equity

$ 53,556

$ 49,316

Honeywell International Inc

Consolidated Statement of Cash Flows (Unaudited)

(Dollars in millions)

Three Months Ended

Nine Months Ended

September 30,

September 30,

2016

2015

2016

2015

Cash flows from operating activities:

Net income

$ 1,248

$ 1,276

$ 3,801

$ 3,644

Less: Net income attributable to the noncontrolling interest

8

12

26

70

Net income attributable to Honeywell

1,240

1,264

3,775

3,574

Adjustments to reconcile net income attributable to Honeywell to net

cash provided by operating activities:

Depreciation

182

168

546

503

Amortization

78

51

227

158

Gain on sale of non-strategic businesses and assets

(176)

(1)

(176)

(1)

Repositioning and other charges

302

133

567

393

Net payments for repositioning and other charges

(154)

(114)

(420)

(329)

Pension and other postretirement income

(153)

(86)

(471)

(269)

Pension and other postretirement benefit payments

(29)

(36)

(110)

(84)

Stock compensation expense

49

41

145

132

Deferred income taxes

(36)

158

146

284

Excess tax benefits from share based payment arrangements

-

(13)

-

(69)

Other

(8)

14

(33)

151

Changes in assets and liabilities, net of the effects of

acquisitions and divestitures:

Accounts, notes and other receivables

(57)

302

(570)

52

Inventories

(21)

5

(233)

(20)

Other current assets

60

(73)

78

(111)

Accounts payable

(18)

11

(18)

(13)

Accrued liabilities

295

(131)

3

(795)

Net cash provided by operating activities

1,554

1,693

3,456

3,556

Cash flows from investing activities:

Expenditures for property, plant and equipment

(274)

(277)

(749)

(685)

Proceeds from disposals of property, plant and equipment

3

-

4

3

Increase in investments

(1,262)

(1,835)

(3,083)

(5,701)

Decrease in investments

873

1,991

2,658

4,050

Cash paid for acquisitions, net of cash acquired

(1,484)

-

(2,568)

(185)

Proceeds from sales of businesses, net of fees paid

304

1

304

3

Other

106

81

158

(69)

Net cash used for investing activities

(1,734)

(39)

(3,276)

(2,584)

Cash flows from financing activities:

Net increase (decrease) in commercial paper and other short-term borrowings

1,799

882

(425)

2,011

Proceeds from issuance of common stock

143

25

386

150

Proceeds from issuance of long-term debt

37

34

4,510

48

Payments of long-term debt

(8)

(91)

(478)

(148)

Excess tax benefits from share based payment arrangements

-

13

-

69

Repurchases of common stock

(233)

(1,235)

(1,866)

(1,721)

Cash dividends paid

(453)

(410)

(1,410)

(1,261)

Payments to purchase the noncontrolling interest

-

-

(238)

-

AdvanSix pre-separation funding

269

-

269

-

AdvanSix pre-spin borrowing

38

-

38

-

AdvanSix cash at spin-off

(38)

-

(38)

-

Other

(25)

(27)

(40)

(61)

Net cash provided by (used for) financing activities

1,529

(809)

708

(913)

Effect of foreign exchange rate changes on cash and cash equivalents

37

(236)

88

(455)

Net increase (decrease) in cash and cash equivalents

1,386

609

976

(396)

Cash

5,045

5,954

5,455

6,959

Cash and cash equivalents at end of period

$ 6,431

$ 6,563

$ 6,431

$ 6,563

Honeywell International Inc

Reconciliation of Cash Provided by Operating Activities to Free Cash Flow (Unaudited)

(Dollars in millions)

Three Months Ended

Twelve Months Ended

September 30,

December 31,

2016

2015

2015

Cash provided by operating activities

$ 1,554

$ 1,693

$ 5,519

Expenditures for property, plant and equipment

(274)

(277)

(1,073)

Free cash flow

$ 1,280

$ 1,416

$ 4,446

We define free cash flow as cash provided by operating activities less cash expenditures for property, plant and equipment.

We believe that this metric is useful to investors and management as a measure of cash generated by business operations that will be used to repay scheduled debt maturities and can be used to invest in future growth through new business development activities or acquisitions, and to pay dividends, repurchase stock, or repay debt obligations prior to their maturities. This metric can also be used to evaluate our ability to generate cash flow from business operations and the impact that this cash flow has on our liquidity.

Honeywell International Inc

Reconciliation of Segment Profit to Operating Income and Calculation of Segment Profit and Operating Income Margins (Unaudited)

(Dollars in millions)

Three Months Ended

September 30,

2016

2015

Segment Profit

$ 1,720

$ 1,852

Stock compensation expense (A)

(49)

(41)

Repositioning and other (A, B)

(290)

(142)

Pension ongoing income (A)

146

96

Other postretirement income (expense) (A)

7

(10)

Operating Income

$ 1,534

$ 1,755

Segment Profit

$ 1,720

$ 1,852

√∑ Sales

$ 9,804

$ 9,611

Segment Profit Margin %

17.5%

19.3%

Operating Income

$ 1,534

$ 1,755

√∑ Sales

$ 9,804

$ 9,611

Operating Income Margin %

15.6%

18.3%

(A) Included in cost of products and services sold and selling, general and administrative expenses.

(B) Includes repositioning, asbestos, environmental expenses and equity income adjustment.

We believe these measures are useful to investors and management in understanding our ongoing operations and in analysis of ongoing operating trends.

Honeywell International Inc

Reconciliation of Segment Profit to Operating Income Excluding Pension Mark-to-Market Adjustment and

Calculation of Segment Profit and Operating Income Margins Excluding Pension Mark-to-Market Adjustment (Unaudited)

(Dollars in millions)

Twelve Months Ended

December 31,

2015

Segment Profit

$ 7,256

Stock compensation expense (A)

(175)

Repositioning and other (A, B)

(576)

Pension ongoing income (A)

430

Pension mark-to-market adjustment (A)

(67)

Other postretirement expense (A)

(40)

Operating Income

$ 6,828

Pension mark-to-market adjustment (A)

(67)

Operating Income excluding pension mark-to-market adjustment

$ 6,895

Segment Profit

$ 7,256

√∑ Sales

$ 38,581

Segment Profit Margin %

18.8%

Operating Income

$ 6,828

√∑ Sales

$ 38,581

Operating Income Margin %

17.7%

Operating Income excluding pension mark-to-market adjustment

$ 6,895

√∑ Sales

$ 38,581

Operating Income Margin excluding pension mark-to-market adjustment %

17.9%

(A) Included in cost of products and services sold and selling, general and administrative expenses.

(B) Includes repositioning, asbestos, environmental expenses and equity income adjustment.

We believe these measures are useful to investors and management in understanding our ongoing operations and in analysis of ongoing operating trends.

Honeywell International Inc

Reconciliation of Earnings Per Share to Earnings Per Share, Excluding Pension Mark-to-Market Adjustment and Debt Refinancing Expenses (Unaudited)

Three Months Ended

Twelve Months Ended

December 31,

December 31,

2015 (1)

2015 (2)

Earnings per share of common stock - assuming dilution

$ 1.53

$ 6.04

Pension mark-to-market adjustment

0.05

Debt refinancing expenses

-

-

Earnings per share of common stock - assuming dilution,

excluding pension mark-to-market and debt refinancing expenses

$ 1.58

$ 6.10

(1) Utilizes weighted average shares of 780.8 million. Mark-to-market uses a blended tax rate of 36.1%

(2) Utilizes weighted average shares of 789.3 million. Mark-to-market uses a blended tax rate of 36.1%

We believe earnings per share, excluding pension mark-to-market and debt refinancing expenses, is a measure that is useful to investors and management in understanding our ongoing operations and in analysis of ongoing operating trends.

Honeywell International Inc

Calculation of SBG Segment Profit Margin Excluding Mergers and Acquisitions (Unaudited)

(Dollars in millions)

Three Months Ended

September 30,

2016

Aerospace

Segment Profit excluding mergers and acquisitions

$ 658

√∑ Sales excluding mergers and acquisitions

$ 3,559

Segment Profit Margin excluding mergers and acquisitions %

18.5%

Home and Building Technologies

Segment Profit excluding mergers and acquisitions

$ 416

√∑ Sales excluding mergers and acquisitions

$ 2,384

Segment Profit Margin excluding mergers and acquisitions %

17.4%

Performance Materials and Technologies

Segment Profit excluding mergers and acquisitions

$ 473

√∑ Sales excluding mergers and acquisitions

$ 2,195

Segment Profit Margin excluding mergers and acquisitions %

21.5%

Safety and Productivity Solutions

Segment Profit excluding mergers and acquisitions

$ 166

√∑ Sales excluding mergers and acquisitions

$ 1,092

Segment Profit Margin excluding mergers and acquisitions %

15.2%

We believe these measures are useful to investors and management in understanding our ongoing operations and in analysis of ongoing operating trends.

Honeywell International Inc

Reconciliation of Core Organic Sales Growth (Unaudited)

Three Months Ended

September 30,

2016

Honeywell

Reported sales growth

2%

Less: Foreign currency translation, acquisitions, divestitures and other

5%

Less: Raw materials pricing in R&C

-

Core organic sales growth

(3%)

PMT

Reported sales growth

2%

Less: Foreign currency translation, acquisitions, divestitures and other

5%

Less: Raw materials pricing in R&C

-

Core organic sales growth

(3%)

Throughout this press release, core organic sales growth refers to reported sales growth less the impacts from foreign currency translation, M&A and raw materials pass-through pricing in the Resins & Chemicals business of PMT. The raw materials pricing impact is excluded in instances where raw materials costs are passed through to customers, which drives fluctuations in selling prices not tied to volume growth.

We believe core organic sales growth is a measure that is useful to investors and management in understanding our ongoing operations and in analysis of ongoing operating trends.

SOURCE Honeywell