Honeywell Delivers Strong Second Quarter Results and Raises Full-Year Sales, Segment Margin, and Adjusted EPS Guidance

CHARLOTTE, N.C., July 27, 2023 /PRNewswire/ -- Honeywell (NASDAQ: HON) today announced results for the second quarter that met or exceeded the company's guidance. The company also raised its full-year organic¹ growth, segment margin², and adjusted EPS² guidance ranges.

The company reported second-quarter year-over-year sales growth of 2% and organic¹ sales growth of 3%, led by double-digit organic sales growth in commercial aerospace, process solutions, and UOP. Operating margin expanded 270 basis points to 20.6% and segment margin¹ expanded by 150 basis points to 22.4%, with expansion in Safety and Productivity Solutions, Honeywell Building Technologies, and Aerospace. Earnings per share for the second quarter was $2.22, up 21% year over year, and adjusted earnings per share¹ was $2.23, up 6% year over year. Operating cash flow was $1.4 billion and free cash flow¹ was $1.1 billion, driven by strong net income and improved working capital.

"Honeywell performed exceptionally well in the second quarter, meeting or exceeding guidance for all metrics," said Vimal Kapur, president and chief executive officer of Honeywell. "Organic¹ sales growth was underpinned by double-digit growth in our commercial aerospace, process solutions, and UOP businesses. This marked the ninth consecutive quarter of double-digit growth in commercial aerospace, and strength in our overall Aerospace portfolio continues to support Honeywell's short-term and long-term growth outlook. Our backlog remains at a record level, ending the second quarter at $30.5 billion, up 4% year over year. Our continued focus on commercial excellence enabled us to remain ahead of the inflation curve and expand margins beyond the high end of our guidance range. These operational efforts enabled us to grow adjusted earnings per share¹ 6% year over year to $2.23 despite a 15-cent non-cash pension headwind. Our strong balance sheet allowed us to execute on our capital deployment strategy with meaningful portfolio updates, deploying $2.1 billion in the quarter to dividends, M&A, share repurchases, and high-return capex. We invested in multiple new technologies and adjacencies utilizing our robust M&A playbook, including completing our acquisition of Compressor Controls Corporation for approximately $700 million."

Kapur continued, "Honeywell's Accelerator operating system continues to drive outstanding results and maximize shareowner value as we navigate a challenging macro environment. This operating system, along with continued growth in our key end markets and our technologically differentiated portfolio of solutions, is enabling us to raise our full-year 2023 guidance."

As a result of the company's second-quarter performance and management's outlook for the remainder of the year, Honeywell raised its full-year sales, segment margin², and adjusted earnings per share^2,3 guidance. Full-year sales are now expected to be $36.7 billion to $37.3 billion with organic¹ sales growth in the range of 4% to 6%. Segment margin² is now expected to be in the range of 22.4% to 22.6%, with segment margin expansion² of 70 to 90 basis points. Adjusted earnings per share^2,3 is now expected to be in the range of $9.05 to $9.25, up 5 cents on the low end from the prior guidance range. Operating cash flow is still expected to be in the range of $4.9 billion to $5.3 billion. Free cash flow¹ is still expected to be in the range of $3.9 billion to $4.3 billion, or $5.1 billion to $5.5 billion excluding the net impact of settlements signed in the fourth quarter of 2022. A summary of the company's full-year guidance changes can be found in Table 1.

Second-Quarter Performance

Honeywell sales for the second quarter were up 2% year over year on a reported basis and 3% year over year on an organic¹ basis. The second-quarter financial results can be found in Tables 2 and 3.

Aerospace sales for the second quarter were up 16% year over year on an organic¹ basis, the fourth consecutive quarter of double-digit organic growth, led by sustained strength in commercial aviation. Commercial aftermarket demand remained strong as flight hours continued to recover in air transport, enabling commercial aviation aftermarket sales growth of over 25%. Commercial original equipment sales grew approximately 15% year over year in the quarter. Defense and space sales grew for a second consecutive quarter as we worked through our robust backlog. Segment margin expanded 120 basis points to 27.7%, driven by commercial excellence and higher volume leverage partially offset by cost inflation.

Honeywell Building Technologies sales for the second quarter were flat on an organic¹ basis year over year. Building solutions grew 2% organically as a result of continued growth in services. Building products sales declined 1% organically as growth in our fire offerings was offset by softer volumes in security and building management systems. Segment margin expanded 200 basis points to 25.5% due to commercial excellence and productivity actions, partially offset by cost inflation.

Performance Materials and Technologies sales for the second quarter were up 7% on an organic¹ basis year over year. HPS sales grew 11% organically, with strength in projects and in lifecycle solutions and services. UOP grew double digits for the third consecutive quarter, up 11% organically as a result of continued strength in gas processing solutions and refining catalyst shipments. In advanced materials, growth in fluorine products was offset by expected softness in electronic materials, leading to flat organic growth in the quarter. Segment margin contracted 60 basis points to 21.7% as favorable price / cost was more than offset by challenges in advanced materials, including lower volumes and the previously communicated disruption in one of our plants.

Safety and Productivity Solutions sales for the second quarter decreased 21% on an organic¹ basis year over year. Sales declines were led by lower volumes in productivity solutions and services and warehouse and workflow solutions, which continues to be impacted by softness in the warehouse automation market despite double-digit growth in the aftermarket services business. Segment margin expanded 410 basis points year over year to 16.7%, driven by productivity actions and commercial excellence, partially offset by lower volume leverage and cost inflation.

Conference Call Details

Honeywell will discuss its second-quarter results and updated full-year 2023 guidance during an investor conference call starting at 8:30 a.m. Eastern Daylight Time today. A 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). A replay of the webcast will be available for 30 days following the presentation.

TABLE 1: FULL-YEAR 2023 GUIDANCE²

TABLE 2: SUMMARY OF HONEYWELL FINANCIAL RESULTS

TABLE 3: SUMMARY OF SEGMENT FINANCIAL RESULTS

_{¹See additional information at the end of this release regarding non-GAAP financial measures.}

_{²Segment margin and adjusted EPS are non-GAAP financial measures. Management cannot reliably predict or estimate, without unreasonable effort, the impact and timing on future operating results arising from items excluded from segment margin or adjusted EPS. We therefore, do not present a guidance range, or a reconciliation to, the nearest GAAP financial measures of operating margin or EPS.}

_{³Adjusted EPS and adjusted EPS V% guidance excludes items identified in the non-GAAP reconciliation of adjusted EPS at the end of this release, and any potential future one-time items that we cannot reliably predict or estimate such as pension mark-to-market.}

Honeywell (www.honeywell.com) 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.

Honeywell uses our Investor Relations website, www.honeywell.com/investor, as a means of disclosing information which may be of interest or material to our investors and for complying with disclosure obligations under Regulation FD. Accordingly, investors should monitor our Investor Relations website, in addition to following our press releases, SEC filings, public conference calls, webcasts, and social media.

We describe many of the trends and other factors that drive our business and future results in this release. Such discussions contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). Forward-looking statements are those that address activities, events, or developments that management intends, expects, projects, believes or anticipates will or may occur in the future. They are based on management's assumptions and assessments in light of past experience and trends, current economic and industry conditions, expected future developments and other relevant factors. They are not guarantees of future performance, and actual results, developments and business decisions may differ significantly from those envisaged by our forward-looking statements. We do not undertake to update or revise any of our forward-looking statements, except as required by applicable securities law. Our forward-looking statements are also subject to material risks and uncertainties that can affect our performance in both the near- and long-term. In addition, no assurance can be given that any plan, initiative, projection, goal, commitment, expectation, or prospect set forth in this release can or will be achieved. These forward-looking statements should be considered in light of the information included in this release, our Form 10-K and other filings with the Securities and Exchange Commission. Any forward-looking plans described herein are not final and may be modified or abandoned at any time.

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;
• Segment profit margin, on an overall Honeywell basis;
• Organic sales growth;
• Free cash flow;
• Free cash flow excluding impact of settlements;
• Adjusted earnings per share; and
• Adjusted earnings per share excluding pension headwind.

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 measures should be considered in addition to, and not as replacements for, the most comparable GAAP measure. Certain measures presented on a non-GAAP basis represent the impact of adjusting items net of tax. The tax-effect for adjusting items is determined individually and on a case-by-case basis. Refer to the Appendix attached to this release for reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures.

Q2 2023 Earnings Release Financial