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Honeywell Reports Strong Finish To 2016


• Fourth-Quarter Growth Led By UOP, Solstice®, And Home And Building Technologies
• Strong Fourth-Quarter Segment Margin Expansion Driven By Productivity And Repositioning Benefits
• Fourth-Quarter Free Cash Flow Conversion Of 126%1
• Full-Year Sales of $39.3 Billion, Up 2%, Driven By Acquisitions


MORRIS PLAINS, N.J., January 27, 2017 -- Honeywell (NYSE: HON) today announced results for the fourth quarter and full-year of 2016, and reaffirmed 2017 earnings guidance. 

“We finished 2016 with a strong fourth quarter, achieving 14% earnings growth (excluding divestitures and charges for pension mark-to-market and debt refinancing), 90 basis points of segment margin expansion excluding M&A, and free cash flow conversion of 126%,” said Honeywell Chairman and CEO Dave Cote. “For the full year, we delivered earnings growth of 8% (excluding charges for pension mark-to-market and debt refinancing) and drove strong operational segment margin expansion while making significant investments for the future, including over $250 million in incremental Aerospace OEM incentives (the equivalent of four percentage points of EPS). We funded high-return capital projects through more than $1 billion in capital expenditures, marking the third consecutive year of reinvesting at over 150% of depreciation, and we continued to upgrade our growth profile through acquisitions totaling more than $2.5 billion and divestitures with aggregate annual revenues in excess of $1 billion. To better drive top-line growth and improve our overall decision-making speed, we realigned our business segments and funded more than $250 million in internal restructuring projects. In addition, our debt refinancing will reduce our expected 2017 interest expense by about 8% despite increasing total borrowings by $4 billion, and we returned nearly $4.5 billion to our shareowners through dividends and share repurchases.”  

Cash Flow From Operations Less Capital Expenditures; Free Cash Flow Conversion = Free Cash Flow / Net Income, Excluding Pension Mark-To-Market Adjustment And Debt Refinancing Charges

Cote concluded, “We delivered outstanding returns again in 2016 with a total shareowner return of 15%, which exceeded the S&P’s total shareowner return by 300 basis points. More importantly, we set the stage for a successful 2017. I am confident in our ability to continue to outperform under Darius Adamczyk. It has been an honor to lead Honeywell for the past 15 years, and I know that our best days are ahead of us.”


Darius Adamczyk, President and Chief Operating Officer said, “Our business will benefit in the future from the investments we made in 2016. All of these actions, combined with our focus on enhancing organic growth, and the power of our connected businesses, make us optimistic about 2017 and beyond. We are reaffirming our 2017 earnings guidance today. As I discussed on our December outlook call, Honeywell will continue our focus on driving organic growth and margin expansion through new software opportunities, breakthrough initiatives, and an improved customer experience. We look forward to discussing this more at our annual investor conference on March 1 in New York City.”

Honeywell will discuss the results during its investor conference call today starting at 9:30 a.m. EST.

Fourth Quarter Performance 

Honeywell
sales for the fourth quarter were flat on a reported basis and down 1% on a core organic basis. The difference between reported and core organic sales is due to the impact of acquisitions, primarily Elster and Intelligrated, partially offset by the spin-off of Resins and Chemicals in Performance Materials and Technologies and the divestiture of the Aerospace government services business. The fourth-quarter and full-year 2016 financial results can be found in Tables 1 and 2 below. 

Aerospace sales for the fourth quarter were down 5% on a core organic basis. The decrease was primarily driven by lower volumes in Business and General Aviation, higher OEM incentives, program completions in U.S. Space and International Defense, and continued weakness in the commercial helicopter business, as expected. This was partially offset by global gas turbo penetration in passenger vehicles in Transportation Systems. Segment margin declined 130 bps to 20.2%, due to higher OEM incentives, product mix, and lower volumes, partially offset by productivity net of inflation and commercial excellence.  Excluding the impact of acquisitions and higher OEM incentives, segment margin contracted by 10 basis points.

Home and Building Technologies
sales for the fourth quarter were up 2% on a core organic basis driven by continued strength in our Building Solutions and Distribution businesses, double-digit growth in China and India, and new product introductions in Environmental and Energy Solutions. Segment margin declined 30 bps to 16.8%, primarily driven by acquisition amortization and integration costs. Excluding the impact of acquisitions, segment margin expanded 60 basis points driven by benefits from previously-funded restructuring and commercial excellence, partially offset by the unfavorable impact of higher Distribution sales and growth investments. 

Performance Materials and Technologies sales for the fourth quarter were up 5% on a core organic basis driven by strong catalyst, licensing, and equipment growth in UOP and a continued ramp in Solstice® sales in Advanced Materials. Segment margin expanded 520 bps to 25.4%, driven by productivity net of inflation, the favorable impact from the spin-off of AdvanSix, higher catalyst volumes, and commercial excellence. Excluding the impact of acquisitions, segment margin expanded by 560 bps.

Safety and Productivity Solutions sales for the fourth quarter were down 6% on a core organic basis as a result of lower volumes in the Productivity and Safety businesses and supply chain delays. Segment margin contracted 100 bps to 14.3%, primarily driven by acquisition amortization and integration costs. Excluding the impact of acquisitions, segment margin expanded by 100 bps driven by restructuring benefits and commercial excellence, partially offset by lower volumes across the portfolio.

To participate in today’s conference call, please dial (800) 263-0877 (domestic) or (719) 457-1036 (international) approximately ten minutes before the 9:30 a.m. EST start. Please mention to the operator that you are dialing in for Honeywell’s fourth quarter 2016 earnings call or provide the conference code HON4Q16. 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, January 27, until 12:30 p.m. EST, February 3, by dialing (888) 203-1112 (domestic) or (719) 457-0820 (international). The access code is 2675177.

TABLE 1: SUMMARY OF FINANCIAL RESULTS – TOTAL HONEYWELL


($ Millions, except Earnings Per Share)    FY 2015
FY 2016
Change
Sales   38,581   39,302   2%
   Core Organic           (1%)
Segment Margin   18.8%   18.3%   (50) bps
   Ex-M&A           10 bps
Operating Income Margin   17.7%   17.0%   (70) bps
  Ex-Pension MTM And Debt Refinancing   17.9%   18.0%   10 bps
Earnings Per Share            
  Reported   $6.04   $6.20   3%
  Ex-Pension MTM And Debt Refinancing   $6.10   $6.60   8%
Cash Flow From Operations   5,519   5,498   ~Flat
Free Cash Flow2   4,446   4,403   (1%)
             
    4Q 2015   4Q 2016    
Sales   9,982   9,985   ~Flat
  Core Organic           (1%)
Segment Margin   18.8%   19.0%   20 bps
  Ex-M&A           90 bps
Operating Income Margin   17.4%   16.2%   (120) bps
  Ex-Pension MTM And Debt Refinancing   18.0%   20.2%   220 bps
Earnings Per Share            
  Reported   $1.53   $1.34   (12%)
  Ex-Pension MTM And Debt Refinancing   $1.58   $1.74   10%
  Ex-Divestitures, Pension MTM, Debt Refinancing    $1.53   $1.74   14%
Cash Flow From Operations   1,963   2,042   4%
Free Cash Flow2   1,575   1,696   8%

Cash Flow From Operations Less Capital Expenditures

TABLE 2: SUMMARY OF FINANCIAL RESULTS – SEGMENTS

AEROSPACE   FY 2015
FY 2016
Change
Sales   15,237   14,751   (3%)
Segment Profit    3,218   2,991   (7%)
Segment Margin   21.10%   20.30%   (80) bps
  Ex-M&A           (60) bps
             
    4Q 2015
4Q 2016    
Sales   3,983   3,666   (8%)
Segment Profit    856   739   (14%)
Segment Margin   21.5%   20.2%   (130) bps
  Ex-M&A, Other3           (10) bps
             
             
HOME AND BUILDING TECHNOLOGIES   FY 2015
FY 2016
Change
Sales   9,161   10,654   16%
Segment Profit    1,512   1,683   11%
Segment Margin   16.5%   15.8%   (70) bps
  Ex-M&A           40 bps
             
    4Q 2015
4Q 2016    
Sales   2,475   2,800   13%
Segment Profit    424   470   11%
Segment Margin   17.1%   16.8%   (30) bps
  Ex-M&A           60 bps
             
             
PERFORMANCE MATERIALS AND TECHNOLOGIES
FY 2015
FY 2016
Change
Sales   9,475   9,272   (2%)
Segment Profit    1,990   2,050   3%
Segment Margin   21.0%   22.1%   110 bps
  Ex-M&A           150 bps
             
 
4Q 2015
4Q 2016    
Sales   2,338   2,228   (5%)
Segment Profit    473   566   20%
Segment Margin   20.2%   25.4%   520 bps
  Ex-M&A           560 bps
             
             
SAFETY AND PRODUCTIVITY SOLUTIONS   FY 2015
FY 2016
Change
Sales   4,708   4,625   (2%)
Segment Profit    746   680   (9%)
Segment Margin   15.8%   14.7%   (110) bps
  Ex-M&A           (40) bps
             
    4Q 2015
4Q 2016    
Sales   1,186   1,291   9%
Segment Profit    181   185   2%
Segment Margin   15.3%   14.3%   (100) bps
  Ex-M&A           100 bps
             

Excludes ~$48M Increase In Aero OEM Incentives YoY

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.

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 former Resins & Chemicals business previously part of Performance Materials and Technologies. 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.

4Q 2016 Press Release Financials.pdf