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Honeywell Reports Strong Finish to 2018; Expects 2019 Earnings Per Share of $7.80 - $8.10

 • Continued Strength in Fourth Quarter led by Commercial Aerospace, Defense, and Warehouse Automation 
• Fourth Quarter Reported Sales Down 10% Due to Impact of Spin-Offs, Organic Sales up 6% 
• Fourth Quarter Reported Earnings Per Share of $2.31; Adjusted EPS1 of $1.91, up 12% Ex-Spins1 
• Full Year Operating Cash Flow up 8%, Conversion 95%; Adj. Free Cash Flow2 up 22%, Conversion 100% 
• Expect Strong Sales, Margin and Cash Flow Growth in 2019 Following Portfolio Transformation 

 

MORRIS PLAINS, N.J., February 1, 2019 -- Honeywell (NYSE: HON) today announced financial results for the fourth quarter and full year 2018 and also announced its outlook for 2019.

“Honeywell delivered a strong fourth quarter to finish out what was an incredible year for our customers, our employees, and our shareowners. Organic sales were up 6 percent in the fourth quarter and full year, primarily driven by continued strength in our long-cycle businesses in commercial aerospace, U.S. defense, and warehouse automation. Our long-cycle orders and backlog were up over 15 percent for the year, which positions us well for 2019 and beyond. Our focus on generating profitable growth combined with productivity rigor drove 80 basis points of segment margin expansion this quarter, and 60 basis points for the full year, exceeding the long-term targets we set forth in 2017. This momentum resulted in adjusted earnings per share1 of $1.91, up 12 percent1 year-over-year, excluding the impact of the spin-offs completed in 2018. For the full year, we exceeded the high end of our original adjusted earnings per share and adjusted free cash flow guidance even after dilution from the spin-offs, while at the same time returning value to shareowners in the form of the spin dividends.” said Darius Adamczyk, Chairman and Chief Executive Officer of Honeywell. “We generated over $6 billion of cash for the year and reached 100 percent conversion2, a milestone for the company and proof that our initiatives are working. We expect to remain at similar levels for cash conversion in 2019, principally driven by continued working capital improvements.”

Adamczyk continued, “We have good momentum exiting 2018 after an exciting year. We continue to transform the portfolio, as we demonstrated with the successful spin-offs of our Homes and Transportation Systems businesses. We now have a simpler, more focused portfolio spread across six attractive end markets with approximately 60 percent of the portfolio growing sales at or above 5 percent organically for the full year. We effectively deployed capital to dividends, capital expenditures, acquisitions, and repurchases of Honeywell shares. Our dividend increase in September marked the ninth consecutive double-digit increase since 2010.”

The company also announced its outlook for 2019. Honeywell expects sales of $36.0 billion to $36.9 billion, representing organic sales growth of 2 to 5 percent; segment margin expansion of 110 to 140 basis points, or 30 to 60 basis points excluding the favorable impact of the 2018 spin-offs3; earnings per share of $7.80 to $8.10; operating cash flow of $5.9 billion to $6.5 billion and adjusted free cash flow4 of $5.4 billion to $6.0 billion, representing conversion of approximately 100 percent. A summary of the company’s 2019 guidance can be found in Table 1.

“We have an established software business and strategy in our connected enterprises which continues to grow at double-digit rates as our shift to a software-industrial company continues. We continue to make improvements in our supply chain and working capital to drive better sales, margin and free cash flow; and we have begun the digitization of Honeywell processes to improve organizational efficiency and enable enhanced analytics to drive better decision making. It’s an exciting time to be part of Honeywell, and we look forward to continuing our track record of matching our say with our do in 2019,” Adamczyk concluded. 

Fourth-Quarter Performance

        Honeywell sales for the fourth quarter were down 10 percent on a reported basis and up 6 percent on an organic basis. The difference between reported and organic sales primarily relates to the spin-offs of the former Transportation Systems business (formerly in Aerospace) and the former Homes and ADI Global Distribution business (formerly in Honeywell Building Technologies), partially offset by the favorable impact of foreign currency translation. Fourth-quarter reported earnings per share was $2.31, which includes a $435 million favorable adjustment to the fourth quarter 2017 charge related to U.S. tax legislation, $104 million of separation costs (including net tax impacts) associated with the spin-offs, and a $28 million pension mark-to-market expense. The fourth-quarter financial results can be found in Tables 2 and 3.

        Aerospace sales for the fourth quarter were up 10 percent on an organic basis driven by continued double-digit organic growth in the U.S. and international defense business and business aviation OE, and demand in the air transport and business aviation aftermarket. Segment margin expanded 50 basis points to 23.4 percent, primarily driven by commercial excellence, lower customer incentives, and the favorable impact from the spin-off of the former Transportation Systems business, partially offset by higher volumes of lower-margin OE shipments.

        Honeywell Building Technologies sales for the fourth quarter were up 1 percent on an organic basis driven by continued demand for commercial fire products, strength in the former Homes and ADI Global Distribution business (now Resideo) prior to its spin-off effective October 29, offset by declines in the China air and water products business and Building Management Systems. Sales in Building Solutions were flat on an organic basis, with growth in projects offset by declines in the energy vertical. Segment margin expanded 100 basis points to 18.6 percent, primarily driven by commercial excellence, the favorable impact following the spin-off of the former Homes and ADI Global Distribution business, and benefits from repositioning.

        Performance Materials and Technologies sales for the fourth quarter were flat on an organic basis. The result was driven by strong licensing, engineering and catalyst demand in UOP, short-cycle maintenance and migration services demand in Process Solutions, and growth in Solstice® low global warming products, largely offset by volume declines for specialty products in Advanced Materials. Segment margin expanded 200 basis points to 23.3 percent, primarily driven by the favorable impact of higher catalyst shipments in UOP, commercial excellence, and benefits from repositioning.

Safety and Productivity Solutions sales for the fourth quarter were up 15 percent on an organic basis driven by continued double-digit sales growth in the Intelligrated warehouse automation business, robust volumes across sensing and IoT, and demand for new mobility launches in productivity products. Segment margin expanded 30 basis points to 16.0 percent, primarily driven by commercial excellence, productivity and higher sales volumes.

Conference Call Details

Honeywell will discuss the 2018 results and 2019 outlook during an investor conference call today starting at 8:30 a.m. Eastern Standard Time. To participate on the conference call, please dial (800) 289-0438 (domestic) or (323) 794-2423 (international) approximately ten minutes before the 8:30 a.m. EST start. Please mention to the operator that you are dialing in for Honeywell’s fourth quarter 2018 earnings and 2019 outlook call or provide the conference code HON2019. 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. EST, February 1, until 12:30 p.m. EST, February 8, by dialing (888) 203-1112 (domestic) or (719) 457-0820 (international). The access code is 4116151.

 

TABLE 1: FULL-YEAR 2019 GUIDANCE

Sales

$36.0B - $36.9B

Organic Growth

2% - 5%

Segment Margin

20.7% - 21.0%

Expansion

Up 110 - 140 bps

Expansion Ex-Spins5

Up 30 - 60 bps

Earnings Per Share

$7.80 - $8.10

Earnings Growth Ex-Spins6

6% - 10%

Operating Cash Flow

$5.9B - $6.5B

Adjusted Free Cash Flow7

$5.4B - $6.0B

Conversion

95% - 100%

 

TABLE 2: SUMMARY OF HONEYWELL FINANCIAL RESULTS

 

FY 2017

FY 2018

Change

Sales

40,534

41,802

3%

Organic Growth

 

 

6%

Segment Margin

19.0%

19.6%

60 bps

Operating Income Margin

15.6%

16.0%

40 bps

Reported Earnings Per Share

$2.00

$8.98

349%

Adjusted Earnings Per Share8

$7.15

$8.01

12%

Cash Flow from Operations

5,966

6,434

8%

Adjusted Free Cash Flow9

4,935

6,030

22%

 

 

 

 

 

4Q 2017

4Q 2018

Change

Sales

10,843

9,729

(10%)

Organic Growth

 

 

6%

Segment Margin

19.3%

20.1%

80 bps

Operating Income Margin

14.9%

15.6%

70 bps

Reported Earnings Per Share

($3.32)

$2.31

170%

Adjusted Earnings Per Share8

$1.89

$1.91

1%

Cash Flow from Operations

2,172

1,559

(28%)

Adjusted Free Cash Flow9

1,754

1,486

(15%)

 

 

TABLE 3: SUMMARY OF SEGMENT FINANCIAL RESULTS

       
       

AEROSPACE

FY 2017

FY 2018

Change

Sales

14,779

15,493

5%

Organic Growth

 

 

9%

Segment Profit

3,288

3,503

7%

Segment Margin

22.2%

22.6%

40 bps

 

 

 

 

 

4Q 2017

4Q 2018

 

Sales

3,902

3,428

(12%)

Organic Growth

 

 

10%

Segment Profit

893

801

(10%)

Segment Margin

22.9%

23.4%

50 bps

 

 

 

 

   

 

 

HONEYWELL BUILDING TECHNOLOGIES

FY 2017

FY 2018

Change

Sales

9,777

9,298

(5%)

Organic Growth

 

 

3%

Segment Profit

1,650

1,608

(3%)

Segment Margin

16.9%

17.3%

40 bps

 

 

 

 

 

4Q 2017

4Q 2018

 

Sales

2,615

1,802

(31%)

Organic Growth

 

 

1%

Segment Profit

461

335

(27%)

Segment Margin

17.6%

18.6%

100 bps

 

 

 

 

 

 

 

 

PERFORMANCE MATERIALS AND TECHNOLOGIES

FY 2017

FY 2018

Change

Sales

10,339

10,674

3%

Organic Growth

 

 

2%

Segment Profit

2,206

2,328

6%

Segment Margin

21.3%

21.8%

50 bps

 

 

 

 

 

4Q 2017

4Q 2018

 

Sales

2,854

2,802

(2%)

Organic Growth

 

 

~Flat

Segment Profit

607

652

7%

Segment Margin

21.3%

23.3%

200 bps

 

 

 

 

 

 

 

 

SAFETY AND PRODUCTIVITY SOLUTIONS

FY 2017

FY 2018

Change

Sales

5,639

6,337

12%

Organic Growth

 

 

11%

Segment Profit

852

1,032

21%

Segment Margin

15.1%

16.3%

120 bps

 

 

 

 

 

4Q 2017

4Q 2018

 

Sales

1,472

1,697

15%

Organic Growth

 

 

15%

Segment Profit

231

272

18%

Segment Margin

15.7%

16.0%

30 bps

 

 

 

 

 

1 Adjusted EPS and Adjusted EPS V% exclude pension mark-to-market, after-tax separation costs related to the spin-offs of Resideo and Garrett, the 4Q17 U.S. tax legislation charge and 2018 adjustments to such charge; adjusted EPS V% ex-spins also excludes after-tax segment profit from Garrett in 4Q17 and after-tax segment profit from Resideo in the months of November and December 2017, net of the spin indemnification impacts assuming both indemnification agreements were effective during these periods.

2 Adjusted free cash flow, associated conversion and adjusted free cash flow V% exclude impacts from separation costs related to the spin-offs. Associated conversion also excludes pension mark-to-market and 2018 adjustments to the 4Q17 U.S. tax legislation charge.

3 Segment margin expansion ex-spins guidance excludes sales and segment profit contribution from Resideo and Garrett in 2018.

4 Adjusted free cash flow guidance and associated conversion excludes estimated payments of ~$0.3B for separation costs incurred in 2018 related to the spin-offs of Resideo and Garrett.

5 Segment margin expansion ex-spins guidance excludes sales and segment profit contribution from Resideo and Garrett in 2018.

6 EPS growth ex-spins guidance excludes pension mark-to-market in 2018, after-tax separation costs related to the spin-offs of Resideo and Garrett. Also excludes the after-tax segment profit contribution from the spin-offs in 2018, net of spin indemnification impacts assuming both indemnification agreements were effective for all of 2018, of $0.62.

7 Adjusted free cash flow guidance and associated conversion excludes estimated payments of ~$0.3B for separation costs incurred in 2018 related to the spin-offs of Resideo and Garrett.

8 Adjusted EPS and adjusted EPS V% exclude pension mark-to-market, the 4Q17 U.S. tax legislation charge, the favorable adjustment to such charge of $1.5B in FY18 and $435M in 4Q18, and after-tax separation costs related to the spin-offs of Resideo and Garrett of $732M in FY18 and $104M in 4Q18.

9 Adjusted free cash flow and adjusted free cash flow V% exclude impacts from separation costs related to the spin-offs of $424M in FY18 and $233M in 4Q18.

Honeywell (www.honeywell.com) is a Fortune 100 technology company that delivers industry specific solutions that include aerospace products and services; control technologies for buildings and industry; and performance materials globally. Our technologies help everything from aircraft, buildings, manufacturing plants, supply chains, and workers 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.

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.

This release contains financial measures presented on a non-GAAP basis. Honeywell’s non-GAAP financial measures used in this release are as follows: segment profit, on an overall Honeywell basis, a measure by which we assess operating performance, which we define as operating income adjusted for certain items as presented in the Appendix; segment margin, on an overall Honeywell basis, which we define as segment profit divided by sales and which we adjust to exclude sales and segment profit contribution from Resideo and Garrett in 2018, if and as noted in the release; organic sales growth, which we define as sales growth less the impacts from foreign currency translation, acquisitions and divestitures for the first 12 months following transaction date, and impacts from adoption of the new accounting guidance on revenue from contracts with customers that arise solely due to non-comparable accounting treatment of contracts existing in the prior period; adjusted free cash flow, which we define as cash flow from operations less capital expenditures and which we adjust to exclude the impact of separation costs related to the spin-offs of Resideo and Garrett, if and as noted in the release; adjusted free cash flow conversion, which we define as adjusted free cash flow divided by net income attributable to Honeywell, excluding pension mark-to-market expenses, separation costs related to the spin-offs, and adjustments to the 4Q17 U.S. tax legislation charge, if and as noted in the release; and adjusted earnings per share, which we adjust to exclude pension mark-to-market expenses, as well as for other components, such as separation costs related to the spin-offs, the 4Q17 U.S. tax legislation charge, adjustments to such charge, and after-tax segment profit contribution from Resideo and Garrett in the periods noted in the release, net of spin indemnification impacts assuming both indemnification agreements were effective in such periods, if and as noted in the release. The respective tax rates applied when adjusting earnings per share for these items are identified in the release or in the reconciliations presented in the Appendix. Management believes that, when considered together with reported amounts, these measures are useful to investors and management in understanding our ongoing operations and in the analysis of ongoing operating trends. These metrics should be considered in addition to, and not as replacements for, the most comparable GAAP measure. Refer to the Appendix attached to this release for reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures.

Q4 2018 Press Release Financials

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