https://www.honeywell.com/us/en/search.html

Honeywell Beats Guidance and Delivers 8% Reported Sales Growth and 29% Operating Cash Flow Growth; Raises High End of 2018 Earnings Guidance(1) by 10 Cents

  • Reported Earnings per Share of $1.68; EPS2 of $2.12 (Excl. Separation Costs and Other Items), Up 18%‚
  • Organic Sales Up 6% Driven by Widespread Growth Across the Business‚
  • Free Cash Flow (Excl. Separation Cost Impacts) Up 42%, Conversion3 108%‚
  • Also Raising Full-Year Sales, Segment Margin, and Free Cash Flow4 Guidance

MORRIS PLAINS, N.J., July 20, 2018 -- Honeywell(NYSE: HON) today announcedfinancial results for the second quarter of 2018 and raised its full-yearsales, segment margin, earnings per share1, and freecash flow4 guidance.

“Honeywell delivered another outstandingquarter with continued top-line growth, strong margin expansion, anddouble-digit earnings per share and free cash flow growth. Organic sales grew 6percent, driven by continued strength in Aerospace; demand for Intelligrated warehouseautomation solutions; and growth in residential thermal solutions, thermostatsand ADI global distribution in our Homes business. We also saw continued robustshort-cycle demand for our process automation solutions. The increased volumes,combined with our operational excellence initiatives, drove 60 basis points ofsegment margin expansion, above the high end of the guidance we provided inApril. Our operational performance resulted in earnings per share2(excluding separation costs and other items) of $2.12, up 18 percent, exceedingthe high end of our guidance range,” said Darius Adamczyk, Chairman and ChiefExecutive Officer of Honeywell. “We generated approximately $1.7 billion offree cash flow (excluding separation costs) in the quarter, up 42 percent, withconversion3 of 108percent, and we continued to put our strong balance sheet to work by repurchasingabout $800 million in Honeywell shares in the second quarter. In the first halfof the year, we repurchased approximately $1.7 billion in Honeywell shares.

“Given our strong second-quarter performanceand confident outlook, we are raising our 2018 guidance. For the full year, we nowexpect organic sales growth to be 5 to 6 percent, segment margin expansion to be40 to 60 basis points, earnings per share1 to be$8.05 to $8.15, and free cash flow4 to be$5.6 to $6.2 billion,” Adamczyk said.

“Our software and Connected offerings continueto gain traction. Across our segments, Connected software sales have growndouble-digits year-to-date. The portfolio transformation activities weannounced last year are nearly complete, with the spin of our TransportationSystems business, Garrett, expected to be complete by the end of the thirdquarter, and the spin of our Homes business on track for completion by the endof the year. Our long-cycle orders and backlog grew 11 and 14 percentrespectively, which positions us well for the rest of 2018 and into 2019. Weare committed to delivering outstanding returns for our shareowners over thelong term,” Adamczyk concluded.

A summary of the Company's full-year guidancechanges can be found in Table 1.

Honeywell will discuss the results during aninvestor conference call today starting at 9:30 a.m. Eastern Daylight Time.

 

Second Quarter Performance

Honeywellsales for the second quarter were up 8 percent on a reported basis and up 6percent on an organic basis. The difference between reported and organic salesrelates to the impact of foreign currency translation. The second-quarterfinancial results can be found in Tables 2 and 3.

Aerospace sales for the second quarterwere up 8 percent on an organic basis driven by growth in business aviation OE,demand in the commercial aftermarket, strength in U.S. and international defense,and demand for light vehicle gas and commercial vehicle turbochargers inTransportation Systems. Segment margin expanded 30 basis points to 22.6percent, primarily driven by volume, commercial excellence, and lower customerincentives, partially offset by higher volumes of lower-margin OE shipments.

Homeand Building Technologies sales forthe second quarter were up 3 percent on an organic basis driven by continuedstrength in residential thermal products and thermostats, commercial fire andsoftware, as well as global growth in the ADI distribution business. Segmentmargin expanded 60 basis points to 16.8 percent, primarily driven by commercialexcellence, the benefits from previously funded and executed restructuring, andhigher sales volumes.

PerformanceMaterials and Technologies salesfor the second quarter were up 3 percent on anorganic basis driven by strong backlog conversion and short-cycle demand inProcess Solutions, catalyst and engineering growth in UOP, and continued demandfor Solstice® low global warming materials. Segment margin expanded50 basis points to 22.1 percent, primarily driven by commercial excellence, benefitsfrom previously funded and executed restructuring, and higher volumes, partiallyoffset by inflation.

Safetyand Productivity Solutions sales for the second quarter were up 11percent on an organic basis driven by continued double-digit sales growth inIntelligrated, strong demand for new Mobility products, and higher volumes inSensing and IoT. Segment margin expanded 150 basis points to 16.5 percent,primarily driven by higher sales volumes and commercial excellence.

To participate on the conference call, pleasedial (866) 548-4713 (domestic) or (323) 794-2093 (international) approximatelyten minutes before the 9:30 a.m. EDT start. Please mention to the operatorthat you are dialing in for Honeywell's second quarter 2018 earnings call orprovide the conference code HON2Q18. The live webcast of the investor call aswell as related presentation materials will be available through the “InvestorRelations” section of the company's Website (www.honeywell.com/investor). Investorscan hear a replay of the conference call from 1:30 p.m. EDT, July 20, until1:30 p.m. EDT, July 27, by dialing (888) 203-1112 (domestic) or (719) 457-0820(international). The access code is 5576508.

 

TABLE 1: FULL-YEAR 2018GUIDANCE 5

 

Previous Guidance

Current Guidance

Sales

$42.7B - $43.5B

$43.1B - $43.6B

Organic Growth

3% - 5%

5% - 6%

Segment Margin

19.3% - 19.6%

19.4% - 19.6%

Expansion

Up 30 - 60 bps

Up 40 - 60 bps

Earnings Per Share

$7.85 - $8.05

$8.05 - $8.15

Earnings Growth

10% - 13%

13% - 15%

Free Cash Flow

$5.3B - $5.9B

$5.6B - $6.2B

Growth

7% - 20%

13% - 26%

TABLE 2:SUMMARY OF FINANCIAL RESULTS; TOTAL HONEYWELL

 

2Q 2017

2Q 2018

Change

Sales

10,078

10,919

8%

Organic

 

 

6%

Segment Margin

19.0%

19.6%

60 bps

Operating Income Margin

15.9%

16.3%

40 bps

Earnings Per Share

 

 

 

Reported

$1.80

$1.68

(7%)

Excluding Separation Costs of $346M and $12M Adjustment to

the 4Q17 U.S. Tax Legislation Charge

$1.80

$2.12

18%

Cash Flow from Operations

1,447

1,861

29%

Free Cash Flow (Excluding Separation Cost Impacts of $67M)

1,214

1,729

42%

 

 

 

 

TABLE3: SUMMARY OF FINANCIAL RESULTS; SEGMENTS

AEROSPACE

2Q 2017

2Q 2018

Change

Sales

3,674

4,058

10%

Organic

 

 

8%

Segment Profit

819

918

12%

Segment Margin

22.3%

22.6%

30 bps

 

 

 

 

HOME AND BUILDING TECHNOLOGIES

 

 

 

Sales

2,414

2,546

5%

Organic

 

 

3%

Segment Profit

391

427

9%

Segment Margin

16.2%

16.8%

60 bps

 

 

 

 

PERFORMANCE MATERIALS AND TECHNOLOGIES

     

Sales

2,561

2,698

5%

Organic

 

 

3%

Segment Profit

553

597

8%

Segment Margin

21.6%

22.1%

50 bps

 

 

 

 

SAFETY AND PRODUCTIVITY SOLUTIONS

     

Sales

1,429

1,617

13%

Organic

 

 

11%

Segment Profit

214

267

25%

Segment Margin

15.0%

16.5%

150 bps

 

 

1EPS guidance excludes pension mark-to-market, separation costs related to the spin-offs of the Homes and Transportation Systems businesses, and adjustments to the 4Q17 U.S. tax legislation charge. We do not publish forward-looking EPS guidance on a GAAP basis as management cannot reliably predict or estimate, without unreasonable effort, pension mark-to-market expense as it is dependent on macroeconomic factors, such as changing interest rates and the return generated on invested pension plan assets, separation costs given the inherent uncertainty of any such estimates, and any adjustments to the 4Q17 U.S. tax legislation charge as the amounts are provisional and subject to change.

2EPS excludes separation costs related to the spin-offs and adjustments to the 4Q17 U.S. tax legislation charge.

 

4Free cash flow guidance excludes impacts from separation costs related to the spin-offs.

5Guidance for EPS and EPS V% excludes pension mark-to-market, separation costs related to the spin-offs of the Homes and Transportation Systems businesses, the 4Q17 U.S. tax legislation charge and adjustments to such charge; guidance for free cash flow and free cash flow V% excludes impacts from separation costs related to the spin-offs.

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.

This release containscertain statements that may be deemed “forward-looking statements” within themeaning of Section 21E of the Securities Exchange Act of 1934. All statements,other than statements of historical fact, that address activities, events ordevelopments that we or our management intends, expects, projects, believes oranticipates will or may occur in the future are forward-looking statements.Such statements are based upon certain assumptions and assessments made by ourmanagement in light of their experience and their perception of historicaltrends, current economic and industry conditions, expected future developmentsand other factors they believe to be appropriate. The forward-lookingstatements included in this release are also subject to a number of materialrisks 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 theseparations. Such forward-looking statements are not guarantees of futureperformance, and actual results, developments and business decisions may differfrom those envisaged by such forward-looking statements, including with respectto any changes in or abandonment of the proposed separations. We identify theprincipal risks and uncertainties that affect our performance in our Form 10-Kand other filings with the Securities and Exchange Commission.

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, acquisitions anddivestitures for the first 12 months following transaction date, and impacts fromadoption of the new accounting guidance on revenue from contracts withcustomers that arise solely due to non-comparable accounting treatment ofcontracts existing in the prior period; free cash flow, which we define as cashflow from operations less capital expenditures and which we adjust to exclude theimpact of separation costs related to the spin-offs of the Homes andTransportation Systems businesses, if and as noted in the release; free cashflow conversion, which we define as free cash flow divided by net incomeattributable to Honeywell, excluding pension mark-to-market expenses, separation costs related to the spin-offs, the 4Q17 U.S. tax legislation charge, and adjustments to such charge, if and as noted in the release; and 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, and adjustments to such 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.

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.

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, 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; 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 the Homes and Transportation Systems businesses, 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 related to the spin-offs, the 4Q17 U.S. tax legislation charge, and adjustments to such charge, if and as noted in the release; and 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, and adjustments to such 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.

____________________

1 EPS guidance excludes pension mark-to-market, separation costs related to the spin-offs of the Homes and Transportation Systems businesses, and adjustments to the 4Q17 U.S. tax legislation charge. We do not publish forward-looking EPS guidance on a GAAP basis as management cannot reliably predict or estimate, without unreasonable effort, pension mark-to-market expense as it is dependent on macroeconomic factors, such as changing interest rates and the return generated on invested pension plan assets, separation costs given the inherent uncertainty of any such estimates, and any adjustments to the 4Q17 U.S. tax legislation charge as the amounts are provisional and subject to change. 2 EPS excludes separation costs related to the spin-offs and adjustments to the 4Q17 U.S. tax legislation charge.3 Free cash flow conversion excludes impacts from separation costs related to the spin-offs and adjustments to the 4Q17 U.S. tax legislation charge.4 Free cash flow guidance excludes impacts from separation costs related to the spin-offs.5 Guidance for EPS and EPS V% excludes pension mark-to-market, separation costs related to the spin-offs of the Homes and Transportation Systems businesses, the 4Q17 U.S. tax legislation charge and adjustments to such charge; guidance for free cash flow and free cash flow V% excludes impacts from separation costs related to the spin-offs.

Mark Macaluso

Investor Relations