Honeywell Reports Third Quarter 2012 Sales of $9.3 Billion; EPS Up 9% to $1.20
Per Share
- 9% EPS Growth Driven By Strong Operational Performance And
Sales Conversion
- Continued Americas And High Growth Region Expansion, Europe As
Expected
- Segment Margin Increase Of 110 Bps To 15.8%, Operating Margin
Up 360 Bps
- Narrowing 2012 Proforma EPS Guidance To $4.45 - $4.50, From $4.40
- $4.55
MORRIS TOWNSHIP, N.J.,
Oct. 19, 2012 -- Honeywell (NYSE:
HON) today announced its results for the third quarter of 2012:
Total Honeywell
---------------
($ Millions, except Earnings Per Share) 3Q 2011 3Q 2012 Change
------- ------- ------
Sales 9,298 9,342 ~ flat
Segment Margin 14.7% 15.8% 110 bps
Operating Income Margin 10.3% 13.9% 360 bps
Earnings Per Share from Continuing Operations $0.87 $1.20 38%
Earnings Per Share $1.10 $1.20 9%
Cash Flow from Operations 661 999 51%
Free Cash Flow * 922 1,021 11%
* Free Cash Flow (cash flow from operations less capital
expenditures) prior to cash pension contributions
"Honeywell delivered 2% organic sales growth, strong sales conversion and
higher earnings per share in the third quarter," said Honeywell Chairman and
CEO Dave Cote. "Our balanced mix of long- and short-cycle businesses, combined
with growth in new products and continued expansion in high growth regions,
offset European weakness, lower demand for products in some of our short-cycle
businesses in China and the U.S., and foreign exchange headwinds in the
quarter. Further, we maintained strong backlogs with new platform wins across
a number of our businesses. We continue to be encouraged by the commercial
aerospace outlook, increasing infrastructure spending, and oil and gas
investments. These trends, combined with our great positions in good
industries, leverage to other macro-trends like safety and security, energy
efficiency, and clean energy generation are expected to drive our continued
outperformance. Looking ahead to 2013, we are planning for a continued
challenging macro environment, but expect to deliver good growth driven by new
products, geographic expansion, and traction on key initiatives. Further, we
will remain flexible and adhere to our disciplined focus on cost and
productivity."
Third quarter 2012 Earnings Per Share (EPS) reflects a 22.7% effective tax rate
compared to 23.2% last year. Adjusting for a normalized tax rate of 26.5% in
2011 and 2012, EPS growth would be 8%. The tax rate favorability in the third
quarter of this year, representing $0.06 of EPS relative to guidance, is
expected to be offset in the fourth quarter, with an estimated full year 2012
effective tax rate of 26.5%.
The company is updating its full-year 2012 sales and EPS guidance and now
expects:
Full Year Guidance
------------------
2012 2012 Change
Prior Guidance Revised Guidance vs. 2011
-------------- ---------------- --------
Sales $37.8 - $38.4B $37.5 - $37.7B ~ 3%
Segment Margin 15.4 - 15.6% 15.6 - 15.7% 90 - 100 bps
Operating Income Margin(1) 13.4 - 13.6%
13.5 - 13.7% 150 - 170 bps
Earnings Per Share from Continuing Operations(2) $4.40 - $4.55 $4.45 -
$4.50 11% - 12% Earnings Per Share(1)
$4.40 - $4.55
$4.45 - $4.50 10% - 11%
Free Cash Flow(3) ~$3.5B
~$3.5 - $3.6B ~100% Conversion
1. Proforma, V% / BPS Excludes Any Pension Mark to Market
Adjustment
2. Proforma (Cont. Operations); Excludes Any Pension Mark to
Market Adjustment; V% Also Excludes 3Q11 Repo and Other Actions
Funded by Gain on Sale of CPG Business (in Disc. Ops)
3. Free Cash Flow (Cash Flow from Operations Less Capital
Expenditures) Prior to Any NARCO Related Payments and Cash Pension
Contributions
Third Quarter Segment Performance
Aerospace
---------
($ Millions) 3Q 2011 3Q 2012 % Change
------- ------- --------
Sales 2,922 3,043 4%
Segment Profit 532 582 9%
Segment Margin 18.2% 19.1% 90 bps
* Sales were up 4% compared with the third quarter of 2011
driven by a 9%
increase in our Commercial end markets, partially offset by a
(1%) decline
in Defense and Space. Commercial original equipment (OE) sales
were up 14%
driven by increased production rates at our major OE customers.
Commercial
aftermarket sales were up 6% with growth in both business jet
spares and
repair and overhaul events.
* Segment profit was up 9%, and segment margins expanded 90 bps to 19.1%,
primarily due to higher commercial volumes and productivity net of
inflation and increased investments to support future growth.
Automation and Control Solutions
--------------------------------
($ Millions) 3Q 2011 3Q 2012 % Change
------- ------- --------
Sales 3,948 3,958 ~ flat
Segment Profit 544 571 5%
Segment Margin 13.8% 14.4% 60 bps
* Sales were approximately flat, up 2% on an organic basis,
compared with the
third quarter of 2011. Volume growth and the favorable impact
of
acquisitions were offset by foreign exchange headwinds. Process
Solutions
and Building Solutions and Distribution grew on an organic basis
reflecting
increased conversion of sales from backlog and increased sales
volume in
our Fire and Security Distribution business in the Americas.
Energy,
Safety, and Security was flat organically due to weak industrial
end
markets globally.
* Segment profit was up 5% and segment margins were up 60 bps to
14.4% driven
by commercial excellence and productivity benefits net of
inflation.
Performance Materials and Technologies
--------------------------------------
($ Millions) 3Q 2011 3Q 2012 % Change
------- ------- --------
Sales 1,468 1,478 1%
Segment Profit 254 275 8%
Segment Margin 17.3% 18.6% 130 bps
* Sales were up 1%, reported and organic, compared with the
third quarter of
2011, resulting from higher licensing and equipment sales in UOP
and new
products and applications in Specialty Products and Electronic
Materials,
partially offset by challenging global end market conditions in
Fluorine
Products and Resins and Chemicals.
* Segment profit was up 8% and segment margins increased 130 bps
to 18.6%,
primarily due to higher sales at UOP and productivity net of
inflation and
continued growth investments, partially offset by challenging
global end
market conditions in Fluorine Products and Resins and
Chemicals.
Transportation Systems
----------------------
($ Millions) 3Q 2011 3Q 2012 % Change
------- ------- --------
Sales 960 863 (10%)
Segment Profit 121 104 (14%)
Segment Margin 12.6% 12.1% (50) bps
* Sales were down (10%), down (2%) organic, compared with the
third quarter
of 2011, as new platform launches and higher turbo gas
penetration in the
U.S. nearly offset the unfavorable impact of foreign exchange,
and lower
European light vehicle production volume and aftermarket
sales.
* Segment profit was down (14%) and segment margins decreased
(50) bps to
12.1% primarily driven by unfavorable foreign exchange, lower
sales, and
ongoing projects to drive operational improvement in the
Friction Materials
business, partially offset by productivity benefits.
Honeywell will discuss its results during its investor conference call today
starting at 9:30 a.m. EDT. To participate, please dial (877) 303-4382
(domestic) or (631) 291-4830 (international) a few minutes before the 9:30 a.m.
EDT start. Please mention to the operator that you are dialing in for
Honeywell's investor conference call. The live webcast of the investor call
will be available through the "Investor Relations" section of the company's
Website (http://www.honeywell.com/investor). Investors can access a replay of
the conference call from 12:30 p.m. EDT, October 19, until midnight, October
26, dialing (855) 859-2056 (domestic) or (404) 537-3406 (international). The
access code is 18261327.
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; automotive
products; turbochargers; and specialty materials. Based in Morris Township,
N.J., Honeywell's shares are traded on the New York, London, and Chicago Stock
Exchanges. For more news and information on Honeywell, please visit
www.honeywellnow.com.
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.
Contacts:
Media Investor Relations
Robert C. Ferris Elena Doom
(973) 455-3388 (973) 455-2222
rob.ferris@honeywell.com elena.doom@honeywell.com
Honeywell International Inc.
Consolidated Statement of Operations (Unaudited)
-----------------------------------------------
(In millions, except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
2012 2011 2012 2011
---- ---- ---- ----
Product sales $7,332 $7,308 $22,184 $21,267
Service sales 2,010 1,990 5,900 5,789
----- ----- ----- -----
Net sales 9,342 9,298 28,084 27,056
----- ----- ------ ------
Costs, expenses and other
Cost of products sold (A) 5,474
5,739 16,627 16,358
Cost of services sold (A) 1,334 1,294 3,983 3,763
----- ----- ----- -----
6,808 7,033 20,610 20,121
Selling, general and administrative expenses (A) 1,238 1,303
3,695 3,783
Other (income) expense (16)
(21) (54) (72)
Interest and other financial charges 88 90 264 285
--- --- --- ---
8,118 8,405 24,515 24,117
----- ----- ------ ------
Income from continuing operations before taxes 1,224 893 3,569 2,939
Tax expense 278 207 893 767
--- --- --- ---
Income from continuing operations after taxes 946
686 2,676 2,172
Income from discontinued operations after taxes - 177 - 209
--- --- --- ---
Net income 946 863 2,676 2,381
Less: Net (loss) income attributable to the
noncontrolling interest (4) 1 1 4
--- --- --- ---
Net income attributable to Honeywell $950
$862 $2,675 $2,377
====
==== ====== ======
Amounts attributable to Honeywell:
Income from continuing operations less net income
attributable to the noncontrolling interest 950 685 2,675 2,168
Income from discontinued operations - 177 - 209
Net income attributable to Honeywell $950 $862 $2,675 $2,377
==== ==== ====== ======
Earnings per share of common stock - basic:
Income from continuing operations 1.21 0.88 3.43 2.77
Income from discontinued operations - 0.23 - 0.27
Net income attributable to Honeywell $1.21
$1.11 $3.43 $3.04
=====
===== ===== =====
Earnings per share of common stock -assuming
dilution:
Income from continuing operations 1.20 0.87 3.38 2.73
Income from discontinued operations - 0.23 - 0.26
Net income attributable to Honeywell $1.20
$1.10 $3.38 $2.99
=====
===== ===== =====
Weighted average number of shares outstanding-basic 783.6
778.2 780.7 782.9
=====
===== ===== =====
Weighted average number of shares outstanding -
assuming dilution 792.5 786.9 790.4 794.0
===== ===== ===== =====
(A) Cost of products and services sold and selling, general and administrative expenses include amounts
for repositioning and other charges, pension and other postretirement expense, and stock compensation
expense.
Honeywell International Inc.
Segment Data (Unaudited)
-----------------------
(Dollars in millions)
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
Net Sales 2012 2011 2012 2011
--------- ---- ---- ---- ----
Aerospace $3,043 $2,922 $9,020 $8,428
Automation and Control Solutions 3,958 3,948 11,708 11,484
Performance Materials and Technologies 1,478 1,468 4,639
4,229
Transportation Systems 863 960 2,717 2,915
Corporate - - - -
--- --- --- ---
Total $9,342 $9,298 $28,084 $27,056
====== ====== ======= =======
Reconciliation of Segment Profit to Income From Continuing
Operations Before Taxes
-----------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
Segment Profit 2012 2011 2012 2011
-------------- ---- ---- ---- ----
Aerospace $582 $532 $1,678 $1,450
Automation and Control Solutions 571 544 1,587
1,499
Performance Materials and Technologies 275 254 944 819
Transportation Systems 104 121 338 368
Corporate (57) (84) (164) (208)
--- --- ---- ----
Total Segment Profit 1,475 1,367 4,383 3,928
Other income (A) 4 8 18 36
Interest and other financial charges (88) (90) (264)
(285)
Stock compensation expense (B) (40) (38) (131)
(129)
Pension ongoing expense (B) (7) (26) (29)
(83)
Other postretirement income/(expense) (B) (20) 82 (52)
109
Repositioning and other charges (B) (100) (410) (356)
(637)
---- ---- ----
----
Income from continuing operations before taxes $1,224 $893
$3,569 $2,939
====== ==== ======
======
(A) Equity income/(loss) of affiliated companies is included in
Segment Profit.
(B) Amounts included in cost of products and services sold and
selling, general and administrative expenses.
Honeywell International Inc.
Consolidated Balance Sheet (Unaudited)
(Dollars in millions)
September 30, December 31,
2012 2011
---- ----
ASSETS
Current assets:
Cash and cash equivalents $4,760 $3,698
Accounts, notes and other receivables 7,388 7,228
Inventories 4,314 4,264
Deferred income taxes 573 460
Investments and other current assets 711 484
--- ---
Total current assets 17,746 16,134
Investments and long-term receivables 600
494
Property, plant and equipment - net 4,830
4,804
Goodwill 11,916
11,858
Other intangible assets - net 2,281
2,477
Insurance recoveries for asbestos related
liabilities 654 709
Deferred income taxes 1,766 2,132
Other assets 1,281 1,200
----- -----
Total assets $41,074 $39,808
======= =======
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities:
Accounts payable $4,518 $4,738
Short-term borrowings 75 60
Commercial paper 899 599
Current maturities of long-term debt 624 15
Accrued liabilities 6,597 6,863
----- -----
Total current liabilities 12,713 12,275
Long-term debt 6,391 6,881
Deferred income taxes 679
676
Postretirement benefit obligations other
than pensions 1,346 1,417
Asbestos related liabilities 1,531 1,499
Other liabilities 5,195 6,158
Shareowners' equity 13,219 10,902
------ ------
Total liabilities and shareowners' equity $41,074 $39,808
======= =======
Honeywell International Inc.
Consolidated Statement of Cash Flows (Unaudited)
-----------------------------------------------
(Dollars in millions)
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
2012 2011 2012 2011
---- ---- ---- ----
Cash flows from operating activities:
Net income attributable to Honeywell
$950 $862 $2,675
$2,377
Adjustments to reconcile net income attributable to Honeywell to
net
cash provided by operating activities:
Depreciation and amortization 226 226 681 704
Gain on sale of non-strategic businesses and assets (4) (307) (3) (353)
Repositioning and other charges 100 410 356 637
Net payments for repositioning and other charges (126) (128) (352) (335)
Pension and other postretirement expense 27 (56) 81 (24)
Pension and other postretirement benefit payments (291) (486) (888) (1,568)
Stock compensation expense 40 38 131 129
Deferred income taxes 130 39 319 197
Excess tax benefits from share based payment arrangements (12) (1) (28) (31)
Other 143 (84) 39 56
Changes in assets and liabilities, net of the effects of
acquisitions and divestitures:
Accounts, notes and other receivables (140) 104 (160) (433)
Inventories 25 (51) (53) (440)
Other current assets (62) (30) (77) (53)
Accounts payable (29) 105 (220) 365
Accrued liabilities 22 20 (333) 128
Net cash provided by operating activities
999 661 2,168 1,356
--- --- ----- -----
Cash flows from investing activities:
Expenditures for property, plant and equipment
(234) (177) (586) (466)
Proceeds from disposals of property, plant and equipment 1 - 2 3
Increase in investments (237) (93) (482) (322)
Decrease in investments 129 112 287 288
Cash paid for acquisitions, net of cash acquired
2 (619) (62) (627)
Proceeds from sales of businesses, net of fees paid
- 955 18 1,170
Other 17 9 (42) 67
Net cash (used for)/provided by investing activities
(322) 187 (865) 113
---- --- ---- ---
Cash flows from financing activities:
Net(decrease)/increase in commercial paper
(49) 350 300 401
Net increase/(decrease) in short-term borrowings
8 (2) 19 (4)
Proceeds from issuance of common stock
63 32 179 232
Proceeds from issuance of long-term debt
44 5 86 1,389
Payments of long-term debt - - - (439)
Excess tax benefits from share based payment arrangements
12 1 28 31
Repurchases of common stock
- (505) - (1,009)
Cash dividends paid (298) (266) (880) (796)
Net cash used for financing activities
(220) (385) (268) (195)
---- ---- ---- ----
Effect of foreign exchange rate changes on cash and cash
equivalents 82 (126) 27 (39)
--- ---- --- ---
Net increase in cash and cash equivalents 539 337 1,062 1,235
Cash and cash equivalents at beginning of period 4,221 3,548 3,698 2,650
Cash and cash equivalents at end of period $4,760 $3,885 $4,760 $3,885
====== ====== ====== ======
Honeywell International Inc.
Reconciliation of Cash Provided by Operating
Activities to Free Cash Flow,
Prior to Cash Pension Contributions (Unaudited)
(Dollars in millions)
---
Three Months Ended
September 30,
-------------
2012 2011 2012E
---- ---- -----
Cash provided by operating activities $999 $661 ~$3,500 - 3,600
Expenditures for property, plant and equipment (234) (177) ~(1,000)
---- ---- -------
Free cash flow $765 $484 ~$2,500 - 2,600
Cash pension contributions 256 438 ~1,000
--- --- ------
Free cash flow, prior to cash pension contributions $1,021 $922
~$3,500 - 3,600
====== ====
===============
We define free cash flow as cash provided by operating
activities, less cash expenditures for property, plant and
equipment.
We believe that this metric is useful to investors and management as a measure of cash generated by business
operations that will be used to repay scheduled debt maturities and can be used to invest in future growth
through new business development activities or acquisitions, and to pay dividends, repurchase stock, repay
debt obligations prior to their maturities, or make cash pension contributions. This metric can also be used
to evaluate our ability to generate cash flow from business operations and the impact that this cash flow
has on our liquidity.
In reference to free cash flow conversion on page 2, we define free cash flow conversion as free cash flow
prior to any NARCO related payments and cash pension contributions divided by net income attributable to
Honeywell excluding pension mark to market adjustment.
Honeywell International Inc.
Reconciliation of Segment Profit to Operating Income Excluding
Pension Mark to Market
Adjustment and Calculation of Segment Profit and Operating
Income Margin Excluding Pension
Mark to Market Adjustment (Unaudited)
(Dollars in millions)
Three Months Ended
September 30,
-------------
2012 2011
---- ----
Segment Profit $1,475 $1,367
Stock compensation expense (A) (40) (38)
Repositioning and other (A, B) (112) (423)
Pension ongoing expense (A) (7) (26)
Other postretirement income/(expense) (A) (20) 82
--- ---
Operating Income $1,296 $962
====== ====
Segment Profit $1,475 $1,367
÷ Sales $9,342 $9,298
------ ------
Segment Profit Margin % 15.8% 14.7%
==== ====
Operating Income $1,296 $962
÷ Sales $9,342 $9,298
------ ------
Operating Income Margin % 13.9% 10.3%
==== ====
2011 2012 Guidance
---- -------------
Segment Profit
$5,357 ~$5,800 - $5,900
Stock compensation expense (A) (168) ~(175)
Repositioning and other (A, B) (794) ~(425) - (450)
Pension ongoing expense (A) (105) ~(50)
Pension mark to market adjustment (A) (1,802) TBD
Other postretirement income/(expense) (A) 86 ~(75)
--- ----
Operating Income $2,574 ~$5,075 - $5,150
Pension mark to market adjustment (A) $(1,802) TBD
------- ---
Operating Income excluding pension mark to market adjustment $4,376 ~$5,075 - $5,150
Segment Profit $5,357 ~$5,800 - $5,900
÷ Sales $36,529 $37,500 - $37,700
------- -----------------
Segment Profit Margin % 14.7% 15.6 - 15.7%
==== ===========
Operating Income $2,574 ~$5,075 - $5,150
÷ Sales $36,529 $37,500 - $37,700
------- -----------------
Operating Income Margin % 7.0% 13.5 - 13.7%
=== ===========
Operating Income excluding pension mark to market adjustment $4,376 ~$5,075 - $5,150
÷ Sales $36,529 $37,500 - $37,700
------- ----------------- Operating Income Margin excluding
pension mark to market adjustment % 12.0% 13.5 - 13.7%
==== ===========
(A) Included in cost of products and services sold and selling,
general and administrative expenses. (B) Includes repositioning,
asbestos, environmental expenses and equity income adjustment.
Honeywell International Inc.
Reconciliation of Earnings Per Share to Earnings Per Share,
Excluding Pension
Mark to Market Adjustment and Third Quarter 2011 Repositioning and Other Actions
Funded by Gain on Sale of CPG Business (CPG Gain)
2011
----
EPS - continuing operations assuming dilution $2.35
Pension mark to market adjustment $1.44
-----
EPS - continuing operations assuming dilution, excluding pension
mark to market adjustment $3.79
Third quarter 2011 repositioning and other actions funded by CPG
Gain
$0.22
-----
EPS - continuing operations assuming dilution, excluding pension
mark to market
$4.01
adjustment and third quarter 2011 repositioning and other actions funded by CPG Gain
2011
----
EPS - Total Honeywell assuming dilution $2.61
Pension mark to market adjustment $1.44
-----
EPS - Total Honeywell assuming dilution, excluding pension mark
to market adjustment
$4.05
=====
We believe EPS, excluding pension mark to market adjustment and third quarter 2011 repositioning and other actions
funded by CPG Gain, is a metric that is useful to investors and management in understanding our ongoing operations and
in analysis of ongoing operating trends.
EPS utilizes weighted average shares outstanding of 791.6
million and the effective tax rate for the period. Mark to market
uses a blended tax rate of 36.9%.
SOURCE Honeywell