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Honeywell Reports Strong Fourth Quarter And 2017 Results, Raises 2018 Guidance To Reflect Lower Tax Rate

•Exceeded Fourth-Quarter Earnings Per Share Guidance on Stronger Margins
•Fourth-Quarter Reported Sales Up 9%; Organic Sales Up 6%, Driven by Strength in Aerospace Aftermarket, UOP, Advanced Materials, and Intelligrated
•Segment Margin Expansion Driven by Strong Top-Line Growth, Productivity, and Repositioning Benefits
•Fourth-Quarter Operating Cash Flow of $2.2B; Free Cash Flow of $1.8B, Conversion of 123% in the Fourth Quarter and 90% for the Full Year1
•Funded More Than $350 Million in Repositioning, Repurchased $2.9B of Honeywell Shares in 2017

 

MORRIS PLAINS, N.J., January 26, 2018 --Honeywell (NYSE: HON) todayannounced financial results for the fourth quarter and full year of 2017, and raisedits 2018 earnings2 guidance by 20 cents to a new range of $7.75 - $8.00 to reflect an expectedlower tax rate due to the U.S. Tax Cuts and Jobs Act of 2017.

“Honeywelldelivered a strong fourth quarter, capping an exceptional year for thecompany,” said Darius Adamczyk, president and chief executive officer ofHoneywell. “Fourth-quarter sales grew six percent organically, leading tofull-year organic sales growth of four percent, driven by robust growth inAerospace aftermarket, UOP, Advanced Materials, and Intelligrated. We leveragedHOS Gold to drive outstanding growth and expand segment margins by 70 basispoints for the year. Earnings per share3 were $1.85 in the fourthquarter and $7.11 for the full year, up 10 percent year over year, excludingthe fourth-quarter charge related to U.S. tax reform and other items, as aresult of our strong focus on growth and productivity. Our businesses achievedexceptional free cash flow, with 123 percent conversion in the fourth quarterand 90 percent conversion for the full year, exceeding the high end of ourguidance for 2017.

“While delivering outstanding 2017 results, wealso made significant investments in our future, including funding more than $350million in restructuring projects,” Adamczyk continued. “We generated significantvalue for our shareowners in 2017 through a 12 percent increase in our dividend;$2.9 billion in sharerepurchases, including $1.6 billion in the fourth quarter; and the closing ofthree acquisitions. Our financial performance and aggressive capital deploymentled to a total shareowner return of 35 percent, wellahead of the S&P’s total shareowner return of 22 percent and the median returnof our multi-industry peers of 24 percent.

“Honeywell’s transformation to a software-industrialleader is well underway, and in 2018, we expect to complete the spin-offs ofour Homes and Global Distribution business, and our Transportation Systemsbusiness, which will position Honeywell for future growth and margin expansion.After the spins, these businesses will be better positioned to maximizeshareowner value through focused strategic decision making and capitalallocation tailored for their end markets,” Adamczyk said.

“I am confident in Honeywell’s future, and ourability to continue to deliver for our shareowners and our employees. Ourstrong performance in 2017, together with the enactment of new U.S. taxlegislation, has enabled us to increase our 401(k) match in the U.S. This is a sustained,annual benefit that will provide a more secure retirement for our employees. Webelieve that enhancing this benefit is extremely valuable and important to ouremployees over the long term,” Adamczyk concluded.

The Company recorded a provisional charge of $3.8billion in the fourth quarter to reflect the estimated impacts of the U.S. TaxCuts and Jobs Act of 2017, including the U.S. tax on deemed repatriatedearnings of non-U.S. subsidiaries, the writedown of net U.S. deferred taxliabilities at lower enacted corporate tax rates, and the effects of theimplementation of the territorial tax system. The impacts of the legislationmay differ from this estimate, possibly materially (and the amount of theprovisional charge may accordingly be adjusted over the course of 2018), due tochanges in interpretations and assumptions the Company has made, guidance thatmay be issued, and actions the Company may take as a result of the taxlegislation. Honeywell has been a strong supporter of this legislation and isencouraged by the significantly enhanced capital mobility, lower U.S. corporateincome tax rates, and more appealing investment environment in the U.S., whichthe legislation enables.

Honeywell updated its 2018 guidance to reflect2017 results and the anticipated impact of the U.S. tax reform. The company nowexpects that its 2018 effective tax rate will be between 22 percent and 23 percent.Full-year earnings per share4 are now expected to be between$7.75 and $8.00, up 9 percent to 13 percent. A summary of the guidance changescan be found in the table below.

Honeywell will discuss its results during aninvestor conference call today starting at 8 a.m. Eastern Standard Time.

Fourth-QuarterPerformance

Honeywellsales for the fourth quarter were up six percent on an organic basis and up ninepercent on a reported basis. The difference between reported and organic sales relatesto the impact of foreign currency translation. The fourth-quarter financialresults can be found in Tables 2 and 3, below.

Aerospace sales for the fourth quarterwere up five percent on an organic basis driven by growth in the commercial aftermarketand U.S. defense, and demand for light vehicle gas and commercial vehicleturbochargers in Transportation Systems. Segment margin expanded 270 bps to22.9 percent, primarily driven by higher Commercial Aftermarket volumes,productivity net of inflation, lower year-over-year customer incentives, andcommercial excellence.

Homeand Building Technologies sales forthe fourth quarter were up three percent on an organic basis driven bycontinued demand in Products for fire and building offeringsin Europe, as well as continued strength in Global Distribution and robust growthin China. Segment margin contracted 40 bps to 17.6 percent, driven by lower Securityvolumes and investments for growth, partially offset by commercial excellence.

Performance Materials andTechnologies sales for the fourth quarter were up ninepercent on an organic basis driven by strong growth across all businesses. UOP grew 12 percent on an organic basis driven by robustgas processing, catalyst, and equipment growth, andAdvanced Materials grew 19 percent on an organic basis driven by continueddemand for Solstice® low-global-warming products. Short-cycle demand in Process Solutions was strong aswell. Segment margin contracted 180 bps to 21.3 percent, primarilydriven by an unplanned plant outage and a different year-over-year mix impactof catalyst sales combined with stronger equipment volumesin UOP versus our guidance, partly offset by productivity net of inflation andcommercial excellence.

Safety and Productivity Solutions salesfor the fourth quarter were up 12 percent on an organic basis driven by double-digitorganic sales growth at Intelligrated; higher volumes in industrial safetyproducts, sensing controls, and voice-enabled workflow solutions; and strongRetail demand. Segment margin expanded 140 bps to 15.7 percent, primarilydriven by higher volumes and productivity net of inflation.

Toparticipate on the conference call, please dial (866) 548-4713 (domestic) or (323)794-2093 (international) approximately ten minutes before the 8 a.m. ESTstart. Please mention to the operator that you are dialing in forHoneywell’s fourth quarter 2017 earnings call or provide the conference codeHON4Q17. The live webcast of the investor call as well as related presentationmaterials will be available through the “Investor Relations” section of thecompany’s Website (www.honeywell.com/investor). Investorscan hear a replay of the conference call from 1 p.m. EST, January 26, until 1p.m. EST, February 2, by dialing (888) 203-1112 (domestic) or (719) 457-0820(international). The access code is 9224317.

Table 1: FULL-YEAR 2018 GUIDANCE5

 

Previous Guidance

Current Guidance

Sales

$41.8B - $42.5B

$41.8B - $42.5B

Organic Growth

2% - 4%

2% - 4%

Segment Margin

19.2% - 19.5%

19.3% - 19.6%

Expansion

Up 30 - 60 bps

Up 30 - 60 bps

Earnings Per Share 

$7.55 - $7.80

$7.75 - $8.00

Earnings Growth

6% - 10%

9% - 13%

Free Cash Flow6

$5.2B - $5.9B

$5.2B - $5.9B



TABLE 2: SUMMARY OF FINANCIALRESULTS – TOTAL HONEYWELL

(Sales,Cash Flow In $ Millions)

 

FY 2016

FY 2017

Change

Sales

39,302

40,534

3%

Organic

 

 

4%

Segment Margin

18.3%

19.0%

70 bps

Operating Income Margin

17.0%

17.6%

60 bps

Earnings Per Share

 

 

 

Reported

$6.20

$2.14

(65%)

Ex-Pension MTM, 2016 Divestitures, Separation Costs, 
4Q16 Debt Refinancing and Tax Reform Charge

$6.46 

$7.11 

10%

Cash Flow From Operations

5,498

5,966

9%

Free Cash Flow6

4,403

4,935

12%

 

4Q 2016

4Q 2017

Change

Sales

9,985

10,843

9%

Organic

 

 

6%

Segment Margin

19.0%

19.3%

30 bps

Operating Income Margin

16.2%

15.8%

(40) bps

Earnings/Loss Per Share

 

 

 

Reported

$1.34

($3.18)

(337%)

Ex-Pension MTM, Separation Costs, 
4Q16 Debt Refinancing and Tax Reform Charge

$1.74

$1.85

6%

Cash Flow From Operations

2,042

2,172

6%

Free Cash Flow6

1,696

1,754

3%

 

 

 

 



TABLE 3: SUMMARY OF FINANCIALRESULTS – SEGMENTS

(Sales,Segment Profit In $ Millions)

AEROSPACE

FY 2016

FY 2017

Change

Sales

14,751

14,779

~Flat

Organic

 

 

2%

Segment Profit 

2,991

3,288

10%

Segment Margin

20.3%

22.2%

190 bps

 

 

 

 

 

4Q 2016

4Q 2017

 

Sales

3,666

3,902

6%

Organic

 

 

5%

Segment Profit 

739

893

21%

Segment Margin

20.2%

22.9%

270 bps

 

HOME AND BUILDING TECHNOLOGIES

 

FY 2016

FY 2017

Change

Sales

9,777

3%

 

Sales

9,490

9,777

3%

Organic

 

 

2%

Segment Profit 

1,621

1,650

2%

Segment Margin

17.1%

16.9%

(20) bps

 

4Q 2016

4Q 2017

 

Sales

2,488

2,615

5%

Organic

 

 

 

3%

Segment Profit 

449

461

3%

Segment Margin

18.0%

17.6%

(40) bps

 

PERFORMANCE MATERIALS AND TECHNOLOGIES

 

FY 2016

FY 2017

Change

Sales

10,436

10,339

(1)%

Organic

 

 

8%

Segment Profit 

2,112

2,206

4%

Segment Margin

20.2%

21.3%

110 bps

 

4Q 2016

4Q 2017

 

Sales

2,540

2,854

12%

Organic

 

 

>

9%

Segment Profit 

587

607

3%

Segment Margin

23.1%

21.3%

(180) bps

 

SAFETY AND PRODUCTIVITY SOLUTIONS

 

FY 2016

FY 2017

Change

Sales

4,625

5,639

22%

Organic

 

 

5%

Segment Profit 

680

852

25%

Segment Margin

14.7%

15.1%

40 bps

 

4Q 2016

4Q 2017

Sales

1,291

1,472

14%

Organic

 

 

12%

Segment Profit 

185

231

25%

Segment Margin

14.3%

15.7%

140 bps

2EPS excludes pension mark-to-market, separation costs, and adjustments to the provisional charge related to the Tax Cuts and Jobs Act of 2017 

3EPS, EPS V% exclude pension mark-to-market, 2016 divestitures, 4Q16 debt refinancing, separation costs, and the provisional charge related to the Tax Cuts and Jobs Act of 2017 

4EPS, EPS V% exclude pension mark-to-market, 2016 divestitures, 4Q16 debt refinancing, separation costs related to the spin-offs of the Homes and Transportation Systems businesses, the provisional charge related to the Tax Cuts and Jobs Act of 2017 and adjustments to such charge 
5EPS, EPS V% excludepension mark-to-market, 2016 divestitures, 4Q16 debt refinancing, separationcosts related to the spin-offs of the Homes and Transportation Systemsbusinesses, the provisional charge related to the Tax Cuts and Jobs Act of 2017and adjustments to such charge; free cash flow, free cash flow V% excludeseparation costs and impacts from the Tax Cuts and Jobs Act of 2017 
6Cash flow from operations less capitalexpenditures 

Honeywell (www.honeywell.com) is a Fortune 100 software-industrial company thatdelivers industry specific solutions that include aerospace and automotiveproducts and services; control technologies for buildings, homes, and industry;and performance materials globally. Our technologies help everything fromaircraft, cars, homes and buildings, manufacturing plants, supply chains, andworkers become more connected to make our world smarter, safer, and more sustainable. For more news and information on Honeywell,please visit www.honeywell.com/newsroom.

Thisrelease contains certain statements that may be deemed “forward-lookingstatements” within the meaning of Section 21E of the Securities Exchange Act of1934. All statements, other than statements of historical fact, that addressactivities, events or developments that we or our management intends, expects,projects, believes or anticipates will or may occur in the future areforward-looking statements. Such statements are based upon certain assumptionsand assessments made by our management in light of their experience and theirperception 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 anumber of material risks and uncertainties, including but not limited toeconomic, competitive, governmental, and technological factors affecting ouroperations, markets, products, services and prices, as well as the ability toeffect the separations. Such forward-looking statements are not guarantees offuture performance, and actual results, developments and business decisions maydiffer from those envisaged by such forward-looking statements, including withrespect to any changes in or abandonment of the proposed separations. Weidentify the principal risks and uncertainties that affect our performance inour Form 10-K and other filings with the Securities and Exchange Commission.

Informationregarding the impact of the Tax Cuts and Jobs Act of 2017 (“Tax Legislation”)consists of preliminary estimates which are forward-looking statements and aresubject to change, possibly materially, as the firm completes its financialstatements. Information regarding the impact of Tax Legislation is based on ourcurrent calculations, as well our current interpretations, assumptions andexpectations relating to Tax Legislation, which are subject to further change.

This releasecontains financial measures presented on a non-GAAP basis. Honeywell’s non-GAAPfinancial measures used in this release are as follows: segment profit, on anoverall Honeywell basis, a measure by which we assess operating performance,which we define as operating income adjusted for certain items as presented inthe Appendix; segment margin, on an overall Honeywell basis, which we define assegment profit divided by sales; organic sales growth, which we define as salesgrowth less the impacts from foreign currency translation and acquisitions anddivestitures for the first 12 months following transaction date; free cashflow, which we define as cash flow from operations less capital expendituresand which we adjust to exclude separation costs and with respect to forwardlooking measures, adjustments to the provisional charge related to TaxLegislation, if and as noted in the release; free cash flow conversion, whichwe define as free cash flow divided by net income attributable to Honeywellexcluding pension mark-to-market expenses, separation costs, the provisional chargerelated to Tax Legislation, and with respect to forward looking measures,adjustments to such provisional charge; and earnings per share, which we adjustto exclude pension mark-to-market expenses, as well as for other components,such as divestitures, debt refinancings, and exclusion of separation costs, theprovisional charge related to Tax Legislation, and with respect to forwardlooking measures, adjustments to such provisional charge, if and as noted inthe release. Other than references to reported earnings per share, allreferences to earnings per share in this release are so adjusted. Therespective tax rates applied when adjusting earnings per share for these itemsare identified in the release or in the reconciliations presented in theAppendix. Management believes that, when considered together with reportedamounts, these measures are useful to investors and management in understandingour ongoing operations and in the analysis of ongoing operating trends. Thesemetrics should be considered in addition to, and not as replacements for, themost comparable GAAP measure. Refer to the Appendix attached to this releasefor reconciliations of non-GAAP financial measures to the most directlycomparable GAAP measures. Forward looking quantitative reconciliations hereinexclude separation costs because management cannot reliably predict orprecisely estimate, without unreasonable effort, those costs given thepreliminary nature of the estimates and exclude any adjustments to the provisionalcharge related to Tax Legislation as such charge is provisional.


Q4 2017 Press Release Financials.pdf

 

Mark Macaluso
Investor Relations
Scott Sayres
+1 480-257-8921  - Mobile