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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) today announced financial results for the fourth quarter and full year of 2017, and raised its 2018 earnings2 guidance by 20 cents to a new range of $7.75 - $8.00 to reflect an expected lower tax rate due to the U.S. Tax Cuts and Jobs Act of 2017.

“Honeywell delivered a strong fourth quarter, capping an exceptional year for the company,” said Darius Adamczyk, president and chief executive officer of Honeywell. “Fourth-quarter sales grew six percent organically, leading to full-year organic sales growth of four percent, driven by robust growth in Aerospace aftermarket, UOP, Advanced Materials, and Intelligrated. We leveraged HOS Gold to drive outstanding growth and expand segment margins by 70 basis points for the year. Earnings per share3 were $1.85 in the fourth quarter and $7.11 for the full year, up 10 percent year over year, excluding the fourth-quarter charge related to U.S. tax reform and other items, as a result of our strong focus on growth and productivity. Our businesses achieved exceptional free cash flow, with 123 percent conversion in the fourth quarter and 90 percent conversion for the full year, exceeding the high end of our guidance for 2017.

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

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

“I am confident in Honeywell’s future, and our ability to continue to deliver for our shareowners and our employees. Our strong performance in 2017, together with the enactment of new U.S. tax legislation, 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. We believe that enhancing this benefit is extremely valuable and important to our employees over the long term,” Adamczyk concluded.

The Company recorded a provisional charge of $3.8 billion in the fourth quarter to reflect the estimated impacts of the U.S. Tax Cuts and Jobs Act of 2017, including the U.S. tax on deemed repatriated earnings of non-U.S. subsidiaries, the writedown of net U.S. deferred tax liabilities at lower enacted corporate tax rates, and the effects of the implementation of the territorial tax system. The impacts of the legislation may differ from this estimate, possibly materially (and the amount of the provisional charge may accordingly be adjusted over the course of 2018), due to changes in interpretations and assumptions the Company has made, guidance that may be issued, and actions the Company may take as a result of the tax legislation. Honeywell has been a strong supporter of this legislation and is encouraged by the significantly enhanced capital mobility, lower U.S. corporate income tax rates, and more appealing investment environment in the U.S., which the legislation enables.

Honeywell updated its 2018 guidance to reflect 2017 results and the anticipated impact of the U.S. tax reform. The company now expects 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 changes can be found in the table below. 

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

Fourth-Quarter Performance

Honeywell sales for the fourth quarter were up six percent on an organic basis and up nine percent on a reported basis. The difference between reported and organic sales relates to the impact of foreign currency translation. The fourth-quarter financial results can be found in Tables 2 and 3, below.

Aerospace sales for the fourth quarter were up five percent on an organic basis driven by growth in the commercial aftermarket and U.S. defense, and demand for light vehicle gas and commercial vehicle turbochargers in Transportation Systems. Segment margin expanded 270 bps to 22.9 percent, primarily driven by higher Commercial Aftermarket volumes, productivity net of inflation, lower year-over-year customer incentives, and commercial excellence.

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

Performance Materials and Technologies sales for the fourth quarter were up nine percent on an organic basis driven by strong growth across all businesses. UOP grew 12 percent on an organic basis driven by robust gas processing, catalyst, and equipment growth, and Advanced Materials grew 19 percent on an organic basis driven by continued demand for Solstice® low-global-warming products. Short-cycle demand in Process Solutions was strong as well. Segment margin contracted 180 bps to 21.3 percent, primarily driven by an unplanned plant outage and a different year-over-year mix impact of catalyst sales combined with stronger equipment volumes in UOP versus our guidance, partly offset by productivity net of inflation and commercial excellence.

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

To participate on the conference call, please dial (866) 548-4713 (domestic) or (323) 794-2093 (international) approximately ten minutes before the 8 a.m. EST start. Please mention to the operator that you are dialing in for Honeywell’s fourth quarter 2017 earnings call or provide the conference code HON4Q17. 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 1 p.m. EST, January 26, until 1 p.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 FINANCIAL RESULTS – 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 FINANCIAL RESULTS – 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

9,490

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

 

 

 


1Free cash flow is cash flow from operations less capital expenditures; free cash flow conversion is free cash flow divided by net income attributable to Honeywell excluding pension mark-to-market expenses, separation costs related to the spin-offs of the Homes and Transportation Systems businesses and the provisional charge related to the Tax Cuts and Jobs Act of 2017
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% 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; free cash flow, free cash flow V% exclude separation costs and impacts from the Tax Cuts and Jobs Act of 2017
6Cash flow from operations less capital expenditures

Honeywell (www.honeywell.com) is a Fortune 100 software-industrial company that delivers industry specific solutions that include aerospace and automotive products and services; control technologies for buildings, homes, and industry; and performance materials globally. Our technologies help everything from aircraft, cars, homes and 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, as well as the ability to effect the separations. 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, including with respect to any changes in or abandonment of the proposed separations. 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.

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

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; 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; free cash flow, which we define as cash flow from operations less capital expenditures and which we adjust to exclude separation costs and with respect to forward looking measures, adjustments to the provisional charge related to Tax Legislation, if and as noted in the release; free cash flow conversion, which we define as free cash flow divided by net income attributable to Honeywell excluding pension mark-to-market expenses, separation costs, the provisional charge related to Tax Legislation, and with respect to forward looking measures, adjustments to such provisional charge; and earnings per share, which we adjust to exclude pension mark-to-market expenses, as well as for other components, such as divestitures, debt refinancings, and exclusion of separation costs, the provisional charge related to Tax Legislation, and with respect to forward looking measures, adjustments to such provisional charge, if and as noted in the release. Other than references to reported earnings per share, all references to earnings per share in this release are so adjusted. 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. Forward looking quantitative reconciliations herein exclude separation costs because management cannot reliably predict or precisely estimate, without unreasonable effort, those costs given the preliminary nature of the estimates and exclude any adjustments to the provisional charge related to Tax Legislation as such charge is provisional.


Q4 2017 Press Release Financials.pdf