Honeywell Reports Third Quarter 2013 Sales of $9.6 Billion; EPS of $1.24 Per Share
-- EPS Up 3% Year-Over-Year Reported, Up 10% Using Normalized Tax Rate
-- Continued Proactive Funding Of Repositioning To Align With Global Growth
Outlook
-- Increasing EPS Guidance To $4.90 - $4.95, From $4.85 - $4.95
MORRIS TOWNSHIP, N.J., Oct. 18, 2013 -- Honeywell (NYSE: HON) today announced its results for the third
quarter of 2013:
Total Honeywell
---------------
($ Millions, except Earnings Per Share) 3Q 2012 3Q 2013 Change
------- ------- ------
Sales 9,342 9,647 3%
Segment Margin 15.8% 16.7% 90 bps
Operating Income Margin 13.9% 15.2% 130 bps
Earnings Per Share (EPS) $1.20 $1.24 3%
Earnings Per Share (At 26.5% Tax Rate) $1.14 $1.25 10%
Cash Flow from Operations 999 1,070 7%
Free Cash Flow * 1,021 937 (8%)
* Free Cash Flow (cash flow from operations less capital expenditures) prior to
any NARCO Trust establishment payments and cash pension contributions
"Honeywell executed well in the quarter, building on the momentum we've seen
throughout 2013," said Honeywell Chairman and CEO Dave Cote. "We delivered
another quarter of double digit EPS growth (when normalized for tax). Despite
lower than expected sales in the quarter, primarily related to the delay in
closing Intermec and lower Defense & Space sales, strong execution across the
portfolio helped drive earnings at the high-end of our guidance range. Our
short-cycle businesses, particularly Energy, Safety and Security, and Turbo
Technologies, are benefitting from improving end markets, new product
introductions, and geographic expansion, while our long-cycle businesses are
maintaining a robust backlog, driven by favorable macro trends and strong win
rates. Productivity was impressive across the portfolio, enabling further
segment margin expansion in all four businesses and continued proactive funding
of new repositioning projects. As a result of the year-to-date performance, we
are raising the low-end of our 2013 EPS outlook by $0.05 to $4.90-4.95, which
is the high-end of the initial guidance range we provided almost a year ago.
Looking ahead to 2014, we are planning for a continued slow growth macro
environment, but see a path to strong earnings growth driven by our relentless
seed planting in new products and technologies, continued penetration of high
growth regions, and growing traction on key process initiatives."
Third quarter 2013 EPS reflect a 27.2% effective tax rate compared to 22.7%
last year. Using the 2012 actual / 2013 expected full-year tax rate of 26.5%
before any pension mark-to-market adjustment, EPS growth was 10%.
The company is updating its full-year 2013 guidance and now expects:
Full-Year Guidance
------------------
2013 2013 Change
Prior Guidance Revised Guidance vs. 2012
-------------- ---------------- --------
Sales $38.9 - $39.3B $38.8 - $39.0B 3 - 4%
Segment Margin 16.0 - 16.2% 16.2 - 16.3% 60 - 70 bps
Operating Income Margin(1) 14.5 - 14.7% 14.7 - 14.8% 110 - 120 bps
Earnings Per Share(1) $4.85 - $4.95 $4.90 - $4.95 9 - 11%
Free Cash Flow(2) ~$3.7B ~$3.7B ~ Flat
1. Proforma, V% / BPS exclude any pension mark-to-market adjustment
2. Free Cash Flow (cash flow from operations less capital expenditures) prior
to any NARCO Trust establishment payments and cash pension contributions
Third Quarter Segment Performance
---------------------------------
Aerospace
---------
($ Millions) 3Q 2012 3Q 2013 % Change
------- ------- --------
Sales 3,043 2,973 (2%)
Segment Profit 582 602 3%
Segment Margin 19.1% 20.2% 110 bps
* Sales were down (2%) compared with the third quarter of 2012 driven by an
(11%) decline in Defense & Space sales as a result of planned ramp downs
and program delays, as well as supply chain constraints, partially offset
by Commercial growth. Commercial OE sales were up 3% in the quarter driven
by continued strong OE build rates and favorable platform mix. Commercial
Aftermarket growth of 5% was driven by improved flight hour growth and
strong RMU (Repairs, Modifications, and Upgrades) sales.
* Segment profit was up 3%, and segment margins expanded 110 bps to 20.2%,
driven by commercial growth, including productivity net of inflation and
commercial excellence, partially offset by lower Defense & Space volume.
Automation and Control Solutions
--------------------------------
($ Millions) 3Q 2012 3Q 2013 % Change
------- ------- --------
Sales 3,958 4,129 4%
Segment Profit 571 631 11%
Segment Margin 14.4% 15.3% 90 bps
* Sales were up 4% reported, 3% organic, compared with the third quarter of
2012, primarily driven by growth in Energy, Safety, and Security due to
strong residential end markets, improving commercial retrofit activity, new
product introductions, and the favorable impact of acquisitions net of
divestitures.
* Segment profit was up 11% and segment margins expanded 90 bps to 15.3%
driven by strong sales conversion, commercial excellence, and productivity
net of inflation.
Performance Materials and Technologies
--------------------------------------
($ Millions) 3Q 2012 3Q 2013 % Change
------- ------- --------
Sales 1,478 1,629 10%
Segment Profit 275 305 11%
Segment Margin 18.6% 18.7% 10 bps
* Sales were up 10% reported, but down (1%) organic, compared with the third
quarter of 2012, driven by the favorable impact of the Thomas Russell
acquisition, partially offset by challenging global market conditions in
Advanced Materials.
* Segment profit was up 11% and segment margins increased 10 bps to 18.7%,
driven by the favorable margin impact of higher UOP licensing and
productivity partially offset by inflation and continued investments for
growth.
Transportation Systems
----------------------
($ Millions) 3Q 2012 3Q 2013 % Change
------- ------- --------
Sales 863 916 6%
Segment Profit 104 128 23%
Segment Margin 12.1% 14.0% 190 bps
* Sales were up 6% reported, 5% organic, compared with the third quarter of
2012, driven by strong growth from new platform launches and higher turbo
gas penetration in all regions, partially offset by slightly lower European
light vehicle production and lower off-highway sales in the U.S.
* Segment profit was up 23% and segment margins increased 190 bps to 14.0%
primarily driven by strong Turbo material productivity and volume leverage,
and operational improvements in Friction Materials, partially offset by
unfavorable price.
Honeywell will discuss its results during its investor conference call today
starting at 9:30 a.m. EDT. To participate, please dial (800) 862-9098
(domestic) or (785) 424-1051 (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 third quarter 2013 investor conference call or provide the
conference code HONQ313. 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 (http://www.honeywell.com/investor ).
Investors can access a replay of the conference call from 12:00 p.m. EDT,
October 18, until 11:59 p.m. EDT, October 25, by dialing (800) 283-4799
(domestic) or (402) 220-0860 (international).
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. 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. 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.
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)
-----------------------------------------------
(Dollars in millions, except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
2013 2012 2013 2012
---- ---- ---- ----
Product sales $7,693 $7,332 $22,911 $22,184
Service sales 1,954 2,010 5,757 5,900
----- ----- ----- -----
Net sales 9,647 9,342 28,668 28,084
----- ----- ------ ------
Costs, expenses and other
Cost of products sold (A) 5,722 5,474 17,039 16,627
Cost of services sold (A) 1,220 1,334 3,713 3,983
----- ----- ----- -----
6,942 6,808 20,752 20,610
Selling, general and administrative expenses (A) 1,242 1,238 3,752 3,695
Other (income) expense (1) (16) (53) (54)
Interest and other financial charges 80 88 244 264
--- --- --- ---
8,263 8,118 24,695 24,515
----- ----- ------ ------
Income before taxes 1,384 1,224 3,973 3,569
Tax expense 377 278 975 893
--- --- --- ---
Net income 1,007 946 2,998 2,676
Less: Net income attributable to the noncontrolling interest 17 (4) 21 1
--- --- --- ---
Net income attributable to Honeywell $990 $950 $2,977 $2,675
==== ==== ====== ======
Earnings per share of common stock - basic $1.26 $1.21 $3.78 $3.43
===== ===== ===== =====
Earnings per share of common stock - assuming dilution $1.24 $1.20 $3.73 $3.38
===== ===== ===== =====
Weighted average number of shares outstanding-basic 786.3 783.6 786.6 780.7
===== ===== ===== =====
Weighted average number of shares outstanding -
assuming dilution 797.1 792.5 797.5 790.4
===== ===== ===== =====
(A) Cost of products and services sold and selling, general and administrative expenses include amounts for
repositioning and other charges, pension and other postretirement (income) 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 2013 2012 2013 2012
--------- ---- ---- ---- ----
Aerospace $2,973 $3,043 $8,881 $9,020
Automation and Control Solutions 4,129 3,958 11,980 11,708
Performance Materials and Technologies 1,629 1,478 5,030 4,639
Transportation Systems 916 863 2,777 2,717
Total $9,647 $9,342 $28,668 $28,084
====== ====== ======= =======
Reconciliation of Segment Profit to Income Before Taxes
-------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
Segment Profit 2013 2012 2013 2012
-------------- ---- ---- ---- ----
Aerospace $602 $582 $1,736 $1,678
Automation and Control Solutions 631 571 1,739 1,587
Performance Materials and Technologies 305 275 999 944
Transportation Systems 128 104 365 338
Corporate (51) (57) (157) (164)
--- --- ---- ----
Total segment profit 1,615 1,475 4,682 4,383
Other income (expense) (A) (10) 4 22 18
Interest and other financial charges (80) (88) (244) (264)
Stock compensation expense (B) (38) (40) (129) (131)
Pension ongoing income (expense) (B) 22 (7) 68 (29)
Other postretirement expense (B) (5) (20) (7) (52)
Repositioning and other charges (B) (120) (100) (419) (356)
---- ---- ---- ----
Income before taxes $1,384 $1,224 $3,973 $3,569
====== ====== ====== ======
(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,
2013 2012
---- ----
ASSETS
Current assets:
Cash and cash equivalents $5,499 $4,634
Accounts, notes and other receivables 7,950 7,429
Inventories 4,455 4,235
Deferred income taxes 707 669
Investments and other current assets 693 631
Total current assets 19,304 17,598
Investments and long-term receivables 830 623
Property, plant and equipment - net 5,107 5,001
Goodwill 13,230 12,425
Other intangible assets - net 2,590 2,449
Insurance recoveries for asbestos related liabilities 653 663
Deferred income taxes 1,457 1,889
Other assets 1,235 1,205
----- -----
Total assets $44,406 $41,853
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities:
Accounts payable $4,791 $4,736
Short-term borrowings 88 76
Commercial paper 2,099 400
Current maturities of long-term debt 632 625
Accrued liabilities 7,053 7,208
Total current liabilities 14,663 13,045
Long-term debt 5,789 6,395
Deferred income taxes 719 628
Postretirement benefit obligations other than pensions 995 1,365
Asbestos related liabilities 1,089 1,292
Other liabilities 5,917 5,913
Redeemable noncontrolling interest 161 150
Shareowners' equity 15,073 13,065
------ ------
Total liabilities, redeemable noncontrolling
interest and shareowners' equity $44,406 $41,853
Honeywell International Inc
Consolidated Statement of Cash Flows (Unaudited)
-----------------------------------------------
(Dollars in millions)
Three Months Nine Months
Ended Ended
September 30, September 30,
------------- -------------
2013 2012 2013 2012
---- ---- ---- ----
Cash flows from operating activities:
Net income $1,007 $946 $2,998 $2,676
Less: Net income attributable to the noncontrolling interest 17 (4) 21 1
--- --- --- ---
Net income attributable to Honeywell 990 950 2,977 2,675
Adjustments to reconcile net income attributable to Honeywell to net
cash provided by operating activities:
Depreciation and amortization 245 226 740 681
Gain on sale of non-strategic businesses and assets - (4) - (3)
Repositioning and other charges 120 100 419 356
Net payments for repositioning and other charges (220) (126) (517) (352)
Pension and other postretirement (income) expense (17) 27 (61) 81
Pension and other postretirement benefit payments (40) (291) (253) (888)
Stock compensation expense 38 40 129 131
Deferred income taxes 72 130 257 319
Excess tax benefits from share based payment arrangements (20) (12) (101) (28)
Other 169 143 35 39
Changes in assets and liabilities, net of the effects of
acquisitions and divestitures:
Accounts, notes and other receivables (187) (140) (382) (160)
Inventories (58) 25 (94) (53)
Other current assets (32) (62) (28) (77)
Accounts payable (2) (29) (32) (220)
Accrued liabilities 12 22 (422) (333)
Net cash provided by operating activities 1,070 999 2,667 2,168
----- --- ----- -----
Cash flows from investing activities:
Expenditures for property, plant and equipment (203) (234) (547) (586)
Proceeds from disposals of property, plant and equipment 1 1 7 2
Increase in investments (243) (237) (703) (482)
Decrease in investments 272 129 648 287
Cash paid for acquisitions, net of cash acquired (603) 2 (1,063) (62)
Proceeds from sales of businesses, net of fees paid - - - 18
Other 85 17 104 (42)
Net cash used for investing activities (691) (322) (1,554) (865)
---- ---- ------ ----
Cash flows from financing activities:
Net increase (decrease) in commercial paper 899 (49) 1,699 300
Net (decrease) increase in short-term borrowings (3) 8 18 19
Proceeds from issuance of common stock 59 63 362 179
Proceeds from issuance of long-term debt 14 44 27 86
Payments of long-term debt (3) - (604) -
Excess tax benefits from share based payment arrangements 20 12 101 28
Repurchases of common stock (167) - (769) -
Cash dividends paid (330) (298) (995) (880)
Other 28 - 28 -
Net cash provided by (used for) financing activities 517 (220) (133) (268)
--- ---- ---- ----
Effect of foreign exchange rate changes on cash and cash equivalents 54 82 (115) 27
--- --- ---- ---
Net increase in cash and cash equivalents 950 539 865 1,062
Cash and cash equivalents at beginning of period 4,549 4,221 4,634 3,698
Cash and cash equivalents at end of period $5,499 $4,760 $5,499 $4,760
====== ====== ====== ======
Honeywell International Inc
Calculation of EPS at 26.5% Tax Rate (Unaudited)
-----------------------------------------------
(Dollars in millions, except per share amounts)
Three Months Ended
September 30,
-------------
2013 2012
---- ----
Income before taxes $1,384 $1,224
Taxes at 26.5% 367 324
--- ---
Net income at 26.5% tax rate $1,017 $900
Less: Net income attributable to the noncontrolling interest 17 (4)
--- ---
Net income attributable to Honeywell at 26.5% tax rate $1,000 $904
====== ====
Weighted average number of shares outstanding - assuming dilution 797.1 792.5
===== =====
EPS at 26.5% tax rate $1.25 $1.14
===== =====
We believe EPS adjusted to expected full-year tax rate at 26.5% is a measure that is useful to investors and
management in understanding our ongoing operations and in analysis of ongoing operating trends.
Honeywell International Inc
Reconciliation of Cash Provided by Operating Activities to Free Cash Flow (Unaudited)
------------------------------------------------------------------------------------
(Dollars in millions)
Three Months Ended
September 30,
-------------
2013 2012
---- ----
Cash provided by operating activities $1,070 $999
Expenditures for property, plant and equipment (203) (234)
---- ----
$867 $765
Cash pension contributions 8 256
NARCO Trust establishment payments 62 -
--- ---
Free cash flow $937 $1,021
==== ======
We define free cash flow as cash provided by operating activities, less cash expenditures for property,
plant and equipment, cash pension contributions and NARCO Trust establishment payments.
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, or repay
debt obligations prior to their maturities. 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.
Honeywell International Inc
Reconciliation of Cash Provided by Operating Activities to Free Cash Flow (Unaudited)
------------------------------------------------------------------------------------
(Dollars in millions)
Twelve Months Ended
December 31,
2012 2013 Guidance
---- -------------
Cash provided by operating activities $3.5 ~$4.4
Expenditures for property, plant and equipment (0.9) ~(1.0)
---- -----
$2.6 ~$3.4
Cash pension contributions 1.1 ~0.2
NARCO Trust establishment payments - ~0.2
--- ----
Free cash flow $3.7 ~$3.7
==== =====
We define free cash flow as cash provided by operating activities, less cash expenditures for property, plant
and equipment, cash pension contributions and NARCO Trust establishment payments.
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, or repay debt
obligations prior to their maturities. 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.
Honeywell International Inc
Reconciliation of Segment Profit to Operating Income and Calculation of
Segment Profit and Operating Income Margins (Unaudited)
(Dollars in millions)
Three Months Ended
September 30,
2013 2012
---- ----
Segment Profit $ 1,615 $ 1,475
Stock compensation expense (A) (38) (40)
Repositioning and other (A, B) (131) (112)
Pension ongoing income (expense) (A) 22 (7)
Other postretirement expense (A) (5) (20)
--- ---
Operating Income $ 1,463 $ 1,296
Segment Profit $ 1,615 $ 1,475
÷ Sales $ 9,647 $ 9,342
------ -----
Segment Profit Margin % 16.7% 15.8%
Operating Income $ 1,463 $ 1,296
÷ Sales $ 9,647 $ 9,342
Operating Income Margin % 15.2% 13.9%
==== ====
(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.
We believe these measures are useful to investors and management in
understanding our operations and in analysis of ongoing operating trends.
Honeywell International Inc
Reconciliation of Segment Profit to Operating Income Excluding Pension
Mark-to-Market Adjustment and Calculation of Segment Profit and Operating
Income Margins Excluding Pension Mark-to-Market Adjustment (Unaudited)
(Dollars in millions)
Twelve Months Ended
December 31,
2012
----
Segment Profit $ 5,879
Stock compensation expense (A) (170)
Repositioning and other (A, B) (488)
Pension ongoing expense (A) (36)
Pension mark-to-market adjustment (A) (957)
Other postretirement expense (A) (72)
---
Operating Income $ 4,156
Pension mark-to-market adjustment (A) $ (957)
---
Operating Income excluding pension mark-to-market adjustment $ 5,113
------
Segment Profit $ 5,879
÷ Sales $ 37,665
------
Segment Profit Margin % 15.6%
----
Operating Income $ 4,156
÷ Sales $ 37,665
------
Operating Income Margin % 11.0%
====
Operating Income excluding pension mark-to-market adjustment $ 5,113
÷ Sales $ 37,665
------
Operating Income Margin excluding pension mark-to-market adjustment % 13.6%
====
(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.
We believe these measures are useful to investors and management in
understanding our ongoing operations and in analysis of ongoing operating
trends.
Honeywell International Inc
Reconciliation of Segment Profit to Operating Income Excluding Pension
Mark-to-Market Adjustment and Calculation of Segment Profit and Operating
Income Margins Excluding Pension Mark-to-Market Adjustment (Unaudited)
(Dollars in billions)
2013 Guidance
-------------
Segment Profit ~$6.3
Stock compensation expense (A) ~(0.2)
Repositioning and other (A, B) ~(0.5)
Pension ongoing income (A) ~0.1
Pension mark-to-market adjustment (A) TBD
Other postretirement expense (A) ~(0.0)
----
Operating Income ~$5.7
Pension mark-to-market adjustment (A) TBD
---
Operating Income excluding pension mark-to-market adjustment ~$5.7
====
Segment Profit ~$6.3
÷ Sales $38.8 - 39.0
------------
Segment Profit Margin % 16.2 - 16.3%
===========
Operating Income ~$5.7
÷ Sales $38.8 - 39.0
------------
Operating Income Margin % 14.7 - 14.8%
===========
Operating Income excluding pension mark-to-market adjustment ~$5.7
÷ Sales $38.8 - 39.0
------------
Operating Income Margin excluding pension mark-to-market adjustment % 14.7 - 14.8%
===========
(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.
We believe these measures are useful to investors and management in
understanding our ongoing operations and in analysis of ongoing operating
trends.
Honeywell International Inc
Reconciliation of Earnings Per Share to Earnings Per Share, Excluding Pension Mark-to-Market Adjustment
(Unaudited)
------------------------------------------------------------------------------------------------------------------
Twelve Months Ended
December 31,
2012
----
EPS $3.69
Pension mark-to-market adjustment 0.79
----
EPS, excluding pension mark-to-market adjustment $4.48
=====
We believe EPS, excluding pension mark-to-market adjustment is a measure 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 - assuming dilution of 791.9 million. Mark-to-market uses
a blended tax rate of 35.0%.