TIDMHON
Honeywell Reports Third Quarter 2015 Sales Of $9.6 Billion; EPS Of $1.60 Per
Share; Confirms 2015 EPS Guidance At $6.10, Up 10%
- Third Quarter EPS Up 9% Reported, Up 10% Normalized at 26.5% Tax Rate
- Core Organic Sales Growth 1%*; Segment Margin Improvement of 190 bps to 19.3%
- Reported Sales Down 5% Due to F/X, Lower Pass-Through Pricing (Resins &
Chemicals)
- Announced Acquisition of Elster, A Leader in Thermal Gas Solutions and
Metering Technology
MORRIS PLAINS, N.J., Oct. 16, 2015 -- Honeywell (NYSE: HON) today announced
results for the third quarter of 2015:
Total Honeywell
($ Millions, except Earnings Per Share) 3Q 2014 3Q 2015 Change
Sales 10,108 9,611 (5%)
Segment Margin 17.4% 19.3% 190 bps
Operating Income Margin 16.2% 18.3% 210 bps
Earnings Per Share $1.47 $1.60 9%
Earnings Per Share (At 26.5% Tax Rate) $1.43 $1.57 10%
Cash Flow from Operations 1,233 1,666 35%
Free Cash Flow (1) 974 1,389 43%
(1) Cash Flow from Operations Less Capital Expenditures
"Honeywell delivered another strong quarter of earnings growth and exceptional
margin expansion," said Honeywell Chairman and CEO Dave Cote. "On 1% core
organic sales growth, segment margins expanded 190 basis points driven by new
product introductions, our key process initiatives including HOS Gold,
continued productivity improvements, and the benefits from ongoing
restructuring projects. In a slower growth environment, we generated earnings
growth of 10% when normalized for tax, reaching the high end of our EPS
guidance range. This included $34 million in net restructuring charges in the
quarter, which position us for continued long-term margin expansion. In
addition, Free Cash Flow for the quarter of $1.4 billion increased 43%, with
Free Cash Flow conversion of 110%. We are confirming our full-year EPS
guidance at approximately $6.10, representing estimated full-year earnings
growth of approximately 10% and our sixth consecutive year of double-digit
earnings growth. We also announced the $5.1 billion acquisition of Elster in
July, and are on track to close in the first quarter of 2016. Looking ahead to
2016, we're planning for a continuation of the slow growth macro environment,
but we expect to deliver continued margin expansion and earnings outperformance
driven by our balanced portfolio, relentless seed planting in new products and
technologies, High Growth Region penetration, over $300 million of funded
restructuring, and the deployment of our key process initiatives."
2015 Full-Year Guidance
Prior Current Change
Guidance Guidance vs. 2014
Sales $39.0 - $38.7B (4%)
$39.6B
Core Organic Growth 3% 2%
Segment Margin 18.4% - 18.6% 18.8% 220 bps
(2)
Operating Income Margin (Ex-Pension 17.5% - 17.7% 17.9% 280 bps
MTM) (3)
Earnings Per Share (Ex-Pension MTM) $6.05 - $6.15 $6.10 10%
Free Cash Flow (1) $4.2 - $4.3B $4.2 - $4.3B 8% - 10%
1. Cash Flow from Operations Less Capital Expenditures
2. Segment Margin ex-4Q14 $184M OEM Incentives Up 180 bps
3. Operating Margin ex-4Q14 $184M OEM Incentives Up 240 bps
Third Quarter Segment Performance
Aerospace
($ Millions) 3Q 2014 3Q 2015 % Change
Sales 3,895 3,820 (2%)
Segment Profit 790 833 5%
Segment Margin 20.3% 21.8% 150 bps
* Sales for the third quarter were up 2% on a core organic basis, and were
down 2% reported driven by the unfavorable impact of foreign currency and
the Friction Materials divestiture. Commercial OE sales were up 4% on a
core organic basis (3% reported) driven by strong Business and General
Aviation (BGA) engine shipments. Commercial Aftermarket sales were up 3%
on a core organic basis (2% reported) driven by continued growth in repair
and overhaul activities, partially offset by a decline in RMU (Retrofit,
Modifications, and Upgrades) sales in BGA. Defense & Space sales increased
2% on a core organic basis (1% reported) driven by strong international
growth, partially offset by lower sales to the U.S. government.
Transportation Systems sales were up 1% on a core organic basis driven by
new platform launches and higher gas turbo penetration on passenger
vehicles, partially offset by lower commercial vehicle production. TS
sales were down 16% reported due to the unfavorable impact of foreign
currency and the Friction Materials divestiture.
* Segment profit was up 5% and segment margins expanded 150 bps to 21.8%,
driven by commercial excellence, productivity net of inflation, foreign
currency hedges, and the favorable impact of the Friction Materials
divestiture, partially offset by the margin impact of higher OE shipments
and continued investments for growth.
Automation and Control Solutions
($ Millions) 3Q 2014 3Q 2015 % Change
Sales 3,671 3,571 (3%)
Segment Profit 583 614 5%
Segment Margin 15.9% 17.2% 130 bps
* Sales for the third quarter were up 3% on a core organic basis and down 3%
reported driven by the unfavorable impact of foreign currency. Energy,
Safety, and Security (ESS) sales increased 4% on a core organic basis (down
1% reported) driven primarily by continued growth in Security and Fire
(HSF) and Sensing & Productivity Solutions (S&PS). Building Solutions &
Distribution (BSD) sales increased 1% on a core organic basis (down 6%
reported) driven by continued strength in Americas Distribution partially
offset by slower Building Solutions backlog conversion.
* Segment profit was up 5% and segment margins expanded 130 bps to 17.2%
driven by productivity net of inflation, higher volume, and commercial
excellence, partially offset by continued investments for growth.
* On July 28, 2015, we signed a definitive agreement to acquire the Elster
Division of Melrose Industries plc, a leading provider of thermal gas
solutions for commercial, industrial, and residential heating systems and
gas, water, and electricity meters, including smart meters and software and
data analytics solutions, for approximately $5.1 billion. Elster also
manufactures flow computers and regulators for the gas industry. Elster
had reported 2014 revenues of $1.7 billion. We anticipate the acquisition
will close in the first quarter of 2016, pending regulatory review. Upon
closing, we expect that Elster will primarily be integrated into our
Automation and Control Solutions segment.
Performance Materials and Technologies
($ Millions) 3Q 2014 3Q 2015 % Change
Sales 2,542 2,220 (13%)
Segment Profit 444 461 4%
Segment Margin 17.5% 20.8% 330 bps
* Sales were down 3% on a core organic basis and down 13% reported driven by
the unfavorable impact of foreign currency and lower raw materials
pass-through pricing in Resins & Chemicals. The decrease in core organic
sales was primarily driven by lower UOP gas processing, equipment and
licensing sales, and lower volume in HPS associated with projects and field
products weakness, partially offset by higher UOP catalyst shipments and
higher volume in Fluorine Products.
* Segment profit was up 4% and segment margins increased 330 bps to 20.8%,
driven by productivity net of inflation, commercial excellence, and the
favorable impact of raw materials pass-through pricing in Resins &
Chemicals (pricing model protects profit dollars), partially offset by
continued investments for growth.
Honeywell will discuss its results during its investor conference call today
starting at 9:30 a.m. EDT. To participate on the conference call, please dial
(888) 634-7543 (domestic) or (719) 457-2631 (international) approximately ten
minutes before the 9:30 a.m. EDT start. Please mention to the operator that you
are dialing in for Honeywell's third quarter 2015 earnings call. 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 12:30 p.m. EDT, October 16, until 12:30 p.m. EDT, October 23, by
dialing (888) 203-1112 (domestic) or (719) 457-0820 (international). The access
code is 669711.
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. For more news and information on
Honeywell, please visit http://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,
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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.
*Throughout this press release, core organic sales growth refers to reported
sales growth less the impacts from foreign currency translation, M&A and raw
materials pass-through pricing in the Resins & Chemicals business of PMT. The
raw materials pricing impact is excluded in instances where raw materials costs
are passed through to customers, which drives fluctuations in selling prices
not tied to volume growth. A reconciliation of core organic sales growth to
reported sales growth is provided in the attached financial tables.
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,
2015 2014 2015 2014
Product sales $ 7,573 $ 8,090 $ 22,735 $ 24,213
Service sales 2,038 2,018 5,864 5,827
Net sales 9,611 10,108 28,599 30,040
Costs, expenses and other
Cost of products sold (A) 5,372 5,860 16,126 17,686
Cost of services sold (A) 1,282 1,268 3,704 3,705
6,654 7,128 19,830 21,391
Selling, general and administrative expenses (A) 1,202 1,344 3,674 4,058
Other (income) expense (24) (21) (64) (159)
Interest and other financial charges 72 77 226 236
7,904 8,528 23,666 25,526
Income before taxes 1,707 1,580 4,933 4,514
Tax expense 431 388 1,289 1,160
Net income 1,276 1,192 3,644 3,354
Less: Net income attributable to the noncontrolling 12 25 70 71
interest
Net income attributable to Honeywell $ 1,264 $ 1,167 $ $
3,574 3,283
Earnings per share of common stock - basic $ $ $ $
1.62 1.49 4.57 4.18
Earnings per share of common stock - assuming $ $ $ $
dilution 1.60 1.47 4.51 4.13
Weighted average number of shares outstanding - basic 780.4 784.5 782.5 784.6
Weighted average number of shares outstanding - 789.5 795.0 792.1 795.6
assuming dilution
(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 2015 2014 2015 2014
Aerospace $ 3,820 $ 3,895 $ 11,254 $ 11,756
Automation and 3,571 3,671 10,388 10,640
Control
Solutions
Performance 2,220 2,542 6,957 7,644
Materials and
Technologies
Total $ 9,611 $ 10,108 $ 28,599 $ 30,040
Reconciliation of Segment Profit to Income Before Taxes
Three Months Ended Nine Months Ended
September 30, September 30,
Segment Profit 2015 2014 2015 2014
Aerospace $ $ $ $
833 790 2,362 2,252
Automation and 614 583 1,697 1,587
Control
Solutions
Performance 461 444 1,473 1,392
Materials and
Technologies
Corporate (56) (58) (156) (167)
Total 1,852 1,759 5,376 5,064
segment profit
Other income 15 11 39 132
(A)
Interest and (72) (77) (226) (236)
other financial
charges
Stock (41) (41) (132) (143)
compensation
expense (B)
Pension ongoing 96 62 299 187
income (B)
Other (10) (12) (30) (37)
postretirement
expense (B)
Repositioning (133) (122) (393) (453)
and other
charges (B)
Income before $ 1,707 $ 1,580 $ $
taxes 4,933 4,514
(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,
2015 2014
ASSETS
Current assets:
Cash and cash equivalents $ 6,563 $ 6,959
Accounts, notes and other receivables 7,936 7,960
Inventories 4,441 4,405
Deferred income taxes 739 722
Investments and other current assets 3,800 2,145
Total current assets 23,479 22,191
Investments and long-term receivables 471 465
Property, plant and equipment - net 5,451 5,383
Goodwill 12,684 12,788
Other intangible assets - net 2,071 2,208
Insurance recoveries for asbestos related liabilities 414 454
Deferred income taxes 329 404
Other assets 1,726 1,558
Total assets $ 46,625 $ 45,451
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities:
Accounts payable $ 5,363 $ 5,365
Short-term borrowings 4 51
Commercial paper 3,696 1,647
Current maturities of long-term debt 1,268 939
Accrued liabilities 6,036 6,771
Total current liabilities 16,367 14,773
Long-term debt 5,599 6,046
Deferred income taxes 499 236
Postretirement benefit obligations other than pensions 892 911
Asbestos related liabilities 1,198 1,200
Other liabilities 3,903 4,282
Redeemable noncontrolling interest 271 219
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Shareowners' equity 17,896 17,784
Total liabilities, redeemable noncontrolling $ 46,625 $ 45,451
interest and shareowners' equity
Honeywell International Inc.
Consolidated Statement of Cash Flows (Unaudited)
(Dollars in millions)
Three Months Ended Nine Months Ended
September 30, September 30,
2015 2014 2015 2014
Cash flows from operating activities:
Net income $ 1,276 $ 1,192 $ 3,644 $ 3,354
Less: Net income attributable to the noncontrolling interest 12 25 70 71
Net income attributable to Honeywell 1,264 1,167 3,574 3,283
Adjustments to reconcile net income attributable to Honeywell to net cash
provided by operating activities:
Depreciation 168 166 503 499
Amortization 51 61 158 199
(Gain) loss on sale of non-strategic businesses and assets (1) 1 (1) 11
Gain on sale of available for sale investments - - - (105)
Repositioning and other charges 133 122 393 453
Net payments for repositioning and other charges (114) (167) (329) (301)
Pension and other postretirement income (86) (50) (269) (150)
Pension and other postretirement benefit payments (36) (38) (84) (123)
Stock compensation expense 41 41 132 143
Deferred income taxes 158 187 284 255
Excess tax benefits from share based payment arrangements (13) (22) (69) (71)
Other (13) (274) 90 (207)
Changes in assets and liabilities, net of the effects of
acquisitions and divestitures:
Accounts, notes and other receivables 302 (104) 52 (529)
Inventories 5 (57) (20) (279)
Other current assets (73) 49 (111) 181
Accounts payable 11 54 (13) 154
Accrued liabilities (131) 97 (795) (151)
Net cash provided by operating activities 1,666 1,233 3,495 3,262
Cash flows from investing activities:
Expenditures for property, plant and equipment (277) (259) (685) (680)
Proceeds from disposals of property, plant and equipment - 1 3 12
Increase in investments (1,835) (1,415) (5,701) (3,139)
Decrease in investments 1,991 1,181 4,050 2,124
Cash paid for acquisitions, net of cash acquired - (2) (185) (4)
Proceeds from sales of businesses, net of fees paid 1 156 3 157
Other 81 (96) (69) (109)
Net cash used for investing activities (39) (434) (2,584) (1,639)
Cash flows from financing activities:
Net increase (decrease) in commercial paper 901 (400) 2,049 550
Net (decrease) increase in short-term borrowings (19) 1 (38) (5)
Proceeds from issuance of common stock 25 45 150 206
Proceeds from issuance of long-term debt 34 34 48 79
Payments of long-term debt (91) (1) (148) (607)
Excess tax benefits from share based payment arrangements 13 22 69 71
Repurchases of common stock (1,235) (138) (1,721) (689)
Cash dividends paid (410) (365) (1,261) (1,101)
Other - (7) - (7)
Net cash used for financing activities (782) (809) (852) (1,503)
Effect of foreign exchange rate changes on cash and cash equivalents (236) (144) (455) (114)
Net increase (decrease) in cash and cash equivalents 609 (154) (396) 6
Cash and cash equivalents at beginning of period 5,954 6,582 6,959 6,422
Cash and cash equivalents at end of period $ 6,563 $ 6,428 $ 6,563 $ 6,428
Honeywell International Inc.
Reconciliation of Cash Provided by Operating Activities to Free Cash Flow
(Unaudited)
(Dollars in millions)
Three Months Ended
September 30,
2015 2014
Cash provided by operating activities $ 1,666 $ 1,233
Expenditures for property, plant and (277) (259)
equipment
Free cash flow $ 1,389 $
974
Free cash flow $ 1,389 $
974
÷ Net income, attributable to Honeywell 1,264 1,167
Free cash flow conversion 110% 83%
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,
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 Nine Months Ended
September 30, September 30,
2015 2014 2015 2014
Segment Profit $ 1,852 $ 1,759 $ 5,376 $ 5,064
Stock compensation (41) (41) (132) (143)
expense (A)
Repositioning and (142) (132) (418) (480)
other (A, B)
Pension ongoing 96 62 299 187
income (A)
Other (10) (12) (30) (37)
postretirement
expense (A)
Operating Income $ 1,755 $ 1,636 $ 5,095 $ 4,591
Segment Profit $ 1,852 $ 1,759 $ 5,376 $ 5,064
÷ Sales $ 9,611 $ 10,108 $ 28,599 $ 30,040
Segment Profit 19.3% 17.4% 18.8% 16.9%
Margin %
Operating Income $ 1,755 $ 1,636 $ 5,095 $ 4,591
÷ Sales $ 9,611 $ 10,108 $ 28,599 $ 30,040
Operating Income 18.3% 16.2% 17.8% 15.3%
Margin %
(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.
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Honeywell International Inc.
Calculation of EPS at 26.5% Tax Rate (Unaudited)
(Dollars in millions, except per share amounts)
Three Months Ended
September 30,
2015 2014
Income before taxes $ $
1,707 1,580
Taxes at 26.5% 452 419
Net income at 26.5% tax rate $ $
1,255 1,161
Less: Net income attributable to the noncontrolling 12 25
interest
Net income attributable to Honeywell at 26.5% tax $ $
rate 1,243 1,136
Weighted average number of shares outstanding - 789.5 795.0
assuming dilution
EPS at 26.5% tax rate $ $
1.57 1.43
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 Core Organic Sales Growth (Unaudited)
Three Months
Ended
September 30,
2015
Honeywell
Reported sales growth (5)%
Foreign currency translation, acquisitions, divestitures and 5%
other
Raw materials pricing in R&C 1%
Core organic sales growth 1%
PMT
Reported sales growth (13)%
Foreign currency translation, acquisitions, divestitures and 5%
other
Raw materials pricing in R&C 5%
Core organic sales growth (3)%
Throughout this press release, core organic sales growth refers to reported
sales growth less the impacts from foreign currency translation, M&A and raw
materials pass-through pricing in the Resins & Chemicals business of PMT. The
raw materials pricing impact is excluded in instances where raw materials costs
are passed through to customers, which drives fluctuations in selling prices
not tied to volume growth.
We believe core organic sales growth 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 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)
2015
Guidance
Segment Profit $7.3
Stock compensation expense (A) (0.2)
Repositioning and other (A, B) (0.5)
Pension ongoing income (A) 0.4
Pension mark-to-market adjustment (A) TBD
Other postretirement expense (A) (0.0)
Operating Income $6.9
Pension mark-to-market adjustment (A) TBD
Operating Income excluding pension mark-to-market adjustment $6.9
Segment Profit $7.3
÷ Sales $38.7
Segment Profit Margin % 18.8%
Operating Income $6.9
÷ Sales $38.7
Operating Income Margin % 17.9%
Operating Income excluding pension mark-to-market adjustment $6.9
÷ Sales $38.7
Operating Income Margin excluding pension mark-to-market 17.9%
adjustment %
(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 millions)
Twelve Months Ended
December 31,
2014
Segment Profit $ 6,696
Stock compensation expense (A) (187)
Repositioning and other (A, B) (634)
Pension ongoing income (A) 254
Pension mark-to-market adjustment (A) (249)
Other postretirement expense (A) (49)
Operating Income $ 5,831
Pension mark-to-market adjustment (A) (249)
Operating Income excluding pension mark-to-market adjustment $ 6,080
Segment Profit $ 6,696
÷ Sales $ 40,306
Segment Profit Margin % 16.6%
Operating Income $ 5,831
÷ Sales $ 40,306
Operating Income Margin % 14.5%
Operating Income excluding pension mark-to-market adjustment $ 6,080
÷ Sales $ 40,306
Operating Income Margin excluding pension mark-to-market adjustment % 15.1%
(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,
2014
EPS $ 5.33
Pension mark-to-market adjustment 0.23
EPS, excluding pension mark-to-market adjustment
$ 5.56
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 795.2
million. Mark-to-market uses a blended tax rate of 28.1%.
Honeywell International Inc.
Reconciliation of Cash Provided by Operating Activities to Free Cash Flow
(Unaudited)
(Dollars in millions)
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