Check icon

Success

Your request has been successfully submitted.

Honeywell Delivers Strong Earnings With 370 Basis Points of Operating Margin Expansion and 180 Basis Points of Segment Margin Expansion; Raises 2019 Full-Year Earnings and Margin Guidance

  • Reported Earnings per Share of $2.23; Adjusted Earnings per Share2 of $2.08, up 9% Ex-Spins2
  • Reported Sales Down 16% Due to Impact of 2018 Spin-Offs; Organic Sales up 3% Driven by Aerospace, Process Solutions, and Building Technologies
  • Operating Income Margin up 370 Basis Points to 19.3%; Segment Margin up 180 Basis Points to 21.2%
  • Deployed $1.0 Billion in Capital to Share Repurchases; Announced 10% Dividend Increase

 

CHARLOTTE, N.C., October 17, 2019 -- Honeywell (NYSE: HON) today announced its financial results for the third quarter of 2019 and raised its full-year segment margin and adjusted earnings per share financial guidance1, narrowed its sales guidance and reaffirmed its cash flow guidance. 

“We continue to deliver strong results and returns for our shareowners, even with the ongoing uncertainty in the macroeconomic environment," said Darius Adamczyk, chairman and chief executive officer of Honeywell. "We delivered adjusted earnings per share2 of $2.08, up 9%, excluding the impact of the spin-offs2, which was above the high end of our third-quarter guidance range. Organic sales growth of 3% was driven by strength across Aerospace, continued demand for commercial fire products in Building Technologies, and broad-based growth in Process Solutions. In addition, Honeywell Connected Enterprise drove double-digit connected software growth, continuing our transformation into a premier software industrial company. Our productivity rigor and the favorable impact of the 2018 spin-offs also contributed to our strong results and expanded segment margin, which was up 180 basis points to 21.2% in the quarter.

“We remain on track to meet our cash flow commitments for the year, and we continued to execute on our capital deployment strategy in the third quarter. We repurchased $1.0 billion in Honeywell shares, bringing total repurchases in the first nine months of 2019 to $3.7 billion. We also acquired TruTrak Flight Systems, made three strategic investments within Honeywell Ventures, and announced a 10% dividend increase, the tenth consecutive double-digit dividend increase. Additionally, during the quarter, we issued $2.7 billion of senior notes to refinance October debt maturities at attractive rates, further strengthening our balance sheet," said Adamczyk.

“Overall, we had a strong third quarter, which was a continuation of very strong performance year-to-date.  We are well positioned in attractive end markets with multiple levers for value creation heading into 2020. We remain committed to delivering outstanding returns for our customers, shareowners, and employees over the long-term,” concluded Adamczyk.

As a result of the company's performance in the first three quarters and management’s outlook for the remainder of the year, Honeywell updated its full-year financial guidance1. Organic sales growth is now expected to be in the range of 4% to 5%; segment margin1 is now expected to be 20.9% to 21.0%, up 20 basis points from the low end of the prior guidance range; and adjusted earnings per share1 is now expected to be $8.10 to $8.15, up fifteen cents from the low end of the prior guidance range.

A summary of the company’s full-year guidance changes can be found in Table 1.

Third-Quarter Performance

Honeywell sales for the third quarter were down 16% on a reported basis and up 3% on an organic basis. The difference between reported and organic sales primarily relates to the spin-offs of the Transportation Systems business (formerly in Aerospace) and the Homes and ADI Global Distribution business (formerly in Honeywell Building Technologies) as well as the impact of foreign currency translation. The third-quarter financial results can be found in Tables 2 and 3.

Aerospace sales for the third quarter were up 10% on an organic basis driven by continued double-digit growth in the Defense and Space business, strength in the commercial aftermarket, and original equipment demand across air transport and business aviation. Segment margin expanded 350 basis points to 25.6%, primarily driven by commercial excellence, productivity, net of inflation, and the favorable impact from the spin-off of the Transportation Systems business in 2018.

Honeywell Building Technologies sales for the third quarter were up 3% on an organic basis driven by continued demand for commercial fire and building management products, and building projects across the Americas. Segment margin expanded 390 basis points to 21.0% driven by the favorable impact from the spin-off of the Homes and ADI Global Distribution business in 2018.

Performance Materials and Technologies sales for the third quarter were up 3% on an organic basis driven by robust demand for services, gas products, and automation projects in Process Solutions, double-digit software growth driven by demand for Honeywell Forge for Industrial, and strength in licensing and refining catalysts in UOP. This was partially offset by lower gas processing sales in UOP and declines in Advanced Materials, which was impacted by continued illegal imports of hydrofluorocarbons (HFCs) into Europe. Segment margin expanded 60 basis points to 21.8%, primarily driven by productivity, net of inflation, and commercial excellence.

Safety and Productivity Solutions sales for the third quarter were down 8% on an organic basis driven by distributor destocking that resulted in lower sales volumes in productivity products and the impact of major systems project timing in Intelligrated, which more than offset continued demand for gas sensing and detection products. Segment margin contracted 320 basis points to 13.4%, primarily driven by lower sales volumes in productivity products and higher sales of lower-margin products.

Conference Call Details

Honeywell will discuss its third-quarter results and updated full-year guidance during an investor conference call starting at 8:30 a.m. Eastern Daylight Time today. To participate on the conference call, please dial (800) 239-9838 (domestic) or (323) 794-2551 (international) approximately ten minutes before the 8:30 a.m. EDT start. Please mention to the operator that you are dialing in for Honeywell’s third-quarter 2019 earnings call or provide the conference code HON3Q19. 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 17, until 12:30 p.m. EDT, October 24, by dialing (888) 203-1112 (domestic) or (719) 457-0820 (international). The access code is 7673176.

 
TABLE 1: FULL-YEAR 2019 GUIDANCE1
 

 

Previous Guidance

Current Guidance

Sales

$36.7B - $37.2B

$36.7B - $36.9B

   Organic Growth

4% - 6%

4% - 5%

Segment Margin

20.7% - 21.0%

20.9% - 21.0%

   Expansion

Up 110 - 140 bps

Up 130 - 140 bps

   Expansion Ex-Spins3

Up 30 - 60 bps

Up 50 - 60 bps

Adjusted Earnings Per Share4

$7.95 - $8.15

$8.10 - $8.15

   Earnings Growth Ex-Spins

8% - 10%

~ 10%

Operating Cash Flow

$6.2B - $6.5B

$6.2B - $6.5B

Adjusted Free Cash Flow5

$5.7B - $6.0B

$5.7B - $6.0B

   Conversion

98% - 100%

98% - 100%

 

TABLE 2: SUMMARY OF HONEYWELL FINANCIAL RESULTS

 

3Q 2018

3Q 2019

Change

Sales

10,762

9,086

(16)%

   Organic Growth

 

 

3%

Segment Margin

19.4%

21.2%

180 bps

Operating Income Margin

15.6%

19.3%

370 bps

Reported Earnings Per Share

$3.11

$2.23

(28)%

Adjusted Earnings Per Share Ex-Spins6

$1.90

$2.08

9%

Cash Flow from Operations

1,878

1,471

(22)%

Adjusted Free Cash Flow7

1,809

1,286

(29)%

 

TABLE 3: SUMMARY OF SEGMENT FINANCIAL RESULTS

AEROSPACE

3Q 2018

3Q 2019

Change

Sales

4,030

3,544

(12)%

   Organic Growth

 

 

10%

Segment Profit

891

908

2%

Segment Margin

22.1%

25.6%

350 bps

HONEYWELL BUILDING TECHNOLOGIES

 

 

 

Sales

2,517

1,415

(44)%

   Organic Growth

 

 

3%

Segment Profit

430

297

(31)%

Segment Margin

17.1%

21.0%

390 bps

PERFORMANCE MATERIALS AND TECHNOLOGIES

 

 

 

Sales

2,640

2,670

1%

   Organic Growth

 

 

3%

Segment Profit

560

582

4%

Segment Margin

21.2%

21.8%

60 bps

SAFETY AND PRODUCTIVITY SOLUTIONS

 

 

 

Sales

1,575

1,457

(7)%

   Organic Growth

 

 

(8)%

Segment Profit

262

195

(26)%

Segment Margin

16.6%

13.4%

(320) bps

 

1As discussed in the notes to the attached reconciliations, we do not provide guidance for margin or EPS on a GAAP basis.

2Adjusted EPS and adjusted EPS V% ex-spins exclude 3Q18 after-tax separation costs related to the spin-offs of Resideo and Garrett, the 3Q18 after-tax segment profit contribution from Resideo and Garrett, net of the spin indemnification impacts assuming both indemnification agreements were effective in 3Q18, and adjustments to the charges taken in connection with the 4Q17 U.S. tax legislation charge.

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

4Adjusted EPS and adjusted EPS V%, ex-spins, guidance excludes pension mark-to-market, adjustments to the charges taken in connection with the 4Q17 U.S. tax legislation charge, 2018 after-tax separation costs related to the spin-offs of Resideo and Garrett, and the 2018 after-tax segment profit contribution from the spin-offs, net of spin indemnification impacts assuming both indemnification agreements were effective for all of 2018, of $0.62.

5Adjusted free cash flow guidance and associated conversion exclude estimated payments of ~$0.3B for separation costs incurred in 2018 related to the spin-offs of Resideo and Garrett. Adjusted free cash flow conversion guidance also excludes pension mark-to-market and adjustments to the charges taken in connection with the 4Q17 U.S. tax legislation charge.  As discussed in the notes to the attached reconciliations, we do not provide cash flow conversion guidance on a GAAP basis.

6Adjusted EPS ex-spins and adjusted EPS V% ex-spins exclude 3Q18 after-tax separation costs related to the spin-offs of Resideo and Garrett of $233M, and the favorable adjustments to the charges taken in connection with the 4Q17 U.S. tax legislation charge of $114M in 3Q19 and $1,047M in 3Q18. Also excludes the 3Q18 after-tax segment profit contribution from the spin-offs, net of spin indemnification impacts assuming both indemnification agreements were effective in 3Q18, of $0.13.

7Adjusted free cash flow and adjusted free cash flow V% exclude impacts from separation costs related to the spin-offs of $7M in 3Q19 and $114M in 3Q18.

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, and acquisitions and divestitures for the first 12 months following transaction date; 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 charges taken in connection with 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, adjustments to the charges taken in connection with the 4Q17 U.S. tax legislation 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.

Q3 2019 Press Release Financials 

Nina Krauss
Mark Bendza
Investor Relations