TIDMHON
Honeywell Delivers Strong Earnings With 370 Basis Points Of Operating Margin
Expansion And 180 Basis Points Of Segment Margin Expansion; Raises 2019
Full-Year Earnings And Margin Guidance(1)
- Reported Earnings per Share of $2.23; Adjusted Earnings per Share(2) of
$2.08, up 9% Ex-Spins(2)
- Reported Sales Down 16% Due to Impact of 2018 Spin-Offs; Organic Sales up 3%
Driven by Aerospace, Process Solutions, and Building Technologies
- Operating Income Margin up 370 Basis Points to 19.3%; Segment Margin up 180
Basis Points to 21.2%
- Deployed $1.0 Billion in Capital to Share Repurchases; Announced 10% Dividend
Increase
CHARLOTTE, N.C., Oct. 17, 2019 /PRNewswire/ -- Honeywell (NYSE: HON) today
announced its financial results for the third quarter of 2019 and raised its
full-year segment margin and adjusted earnings per share financial guidance1,
narrowed its sales guidance and reaffirmed its cash flow guidance.
"We continue to deliver strong results and returns for our shareowners, even
with the ongoing uncertainty in the macroeconomic environment," said Darius
Adamczyk, chairman and chief executive officer of Honeywell. "We delivered
adjusted earnings per share2 of $2.08, up 9%, excluding the impact of the
spin-offs2, which was above the high end of our third-quarter guidance range.
Organic sales growth of 3% was driven by strength across Aerospace, continued
demand for commercial fire products in Building Technologies, and broad-based
growth in Process Solutions. In addition, Honeywell Connected Enterprise drove
double-digit connected software growth, continuing our transformation into a
premier software industrial company. Our productivity rigor and the favorable
impact of the 2018 spin-offs also contributed to our strong results and
expanded segment margin, which was up 180 basis points to 21.2% in the
quarter."
"We remain on track to meet our cash flow commitments for the year, and we
continued to execute on our capital deployment strategy in the third quarter.
We repurchased $1.0 billion in Honeywell shares, bringing total repurchases in
the first nine months of 2019 to $3.7 billion. We also acquired TruTrak Flight
Systems, made three strategic investments within Honeywell Ventures, and
announced a 10% dividend increase, the tenth consecutive double-digit dividend
increase. Additionally, during the quarter, we issued $2.7 billion of senior
notes to refinance October debt maturities at attractive rates, further
strengthening our balance sheet," said Adamczyk.
"Overall, we had a strong third quarter, which was a continuation of very
strong performance year-to-date. We are well positioned in attractive end
markets with multiple levers for value creation heading into 2020. We remain
committed to delivering outstanding returns for our customers, shareowners, and
employees over the long-term," concluded Adamczyk.
As a result of the company's performance in the first three quarters and
management's outlook for the remainder of the year, Honeywell updated its
full-year financial guidance1. Organic sales growth is now expected to be in
the range of 4% to 5%; segment margin1 is now expected to be 20.9% to 21.0%, up
20 basis points from the low end of the prior guidance range; and adjusted
earnings per share1 is now expected to be $8.10 to $8.15, up fifteen cents from
the low end of the prior guidance range.
A summary of the company's full-year guidance changes can be found in Table 1.
Third-Quarter Performance
Honeywell sales for the third quarter were down 16% on a reported basis and up
3% on an organic basis. The difference between reported and organic sales
primarily relates to the spin-offs of the Transportation Systems business
(formerly in Aerospace) and the Homes and ADI Global Distribution business
(formerly in Honeywell Building Technologies) as well as the impact of foreign
currency translation. The third-quarter financial results can be found in
Tables 2 and 3.
Aerospace sales for the third quarter were up 10% on an organic basis driven by
continued double-digit growth in the Defense and Space business, strength in
the commercial aftermarket, and original equipment demand across air transport
and business aviation. Segment margin expanded 350 basis points to 25.6%,
primarily driven by commercial excellence, productivity, net of inflation, and
the favorable impact from the spin-off of the Transportation Systems business
in 2018.
Honeywell Building Technologies sales for the third quarter were up 3% on an
organic basis driven by continued demand for commercial fire and building
management products, and building projects across the Americas. Segment margin
expanded 390 basis points to 21.0% driven by the favorable impact from the
spin-off of the Homes and ADI Global Distribution business in 2018.
Performance Materials and Technologies sales for the third quarter were up 3%
on an organic basis driven by robust demand for services, gas products, and
automation projects in Process Solutions, double-digit software growth driven
by demand for Honeywell Forge for Industrial, and strength in licensing and
refining catalysts in UOP. This was partially offset by lower gas processing
sales in UOP and declines in Advanced Materials, which was impacted by
continued illegal imports of hydrofluorocarbons (HFCs) into Europe. Segment
margin expanded 60 basis points to 21.8%, primarily driven by productivity, net
of inflation, and commercial excellence.
Safety and Productivity Solutions sales for the third quarter were down 8% on
an organic basis driven by distributor destocking that resulted in lower sales
volumes in productivity products and the impact of major systems project timing
in Intelligrated, which more than offset continued demand for gas sensing and
detection products. Segment margin contracted 320 basis points to 13.4%,
primarily driven by lower sales volumes in productivity products and higher
sales of lower margin products.
Conference Call Details
Honeywell will discuss its third-quarter results and updated full-year guidance
during an investor conference call starting at 8:30 a.m. Eastern Daylight Time
today. To participate on the conference call, please dial (800) 239-9838
(domestic) or (323) 794-2551 (international) approximately ten minutes before
the 8:30 a.m. EDT start. Please mention to the operator that you are dialing in
for Honeywell's third-quarter 2019 earnings call or provide the conference code
HON3Q19. 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 17, until 12:30 p.m. EDT,
October 24, by dialing (888) 203-1112 (domestic) or (719) 457-0820
(international). The access code is 7673176.
TABLE 1: FULL-YEAR 2019 GUIDANCE1
Previous Guidance Current Guidance
Sales $36.7B - $37.2B $36.7B - $36.9B
Organic Growth 4% - 6% 4% - 5%
Segment Margin 20.7% - 21.0% 20.9% - 21.0%
Expansion Up 110 - 140 bps Up 130 - 140 bps
Expansion Ex-Spins3 Up 30 - 60 bps Up 50 - 60 bps
Adjusted Earnings Per Share4 $7.95 - $8.15 $8.10 - $8.15
Earnings Growth Ex-Spins 8% - 10% 10%
Operating Cash Flow $6.2B - $6.5B $6.2B - $6.5B
Adjusted Free Cash Flow5 $5.7B - $6.0B $5.7B - $6.0B
Conversion 98% - 100% 98% - 100%
TABLE 2: SUMMARY OF HONEYWELL FINANCIAL RESULTS
3Q 2018 3Q 2019 Change
Sales 10,762 9,086 (16)%
Organic Growth 3%
Segment Margin 19.4% 21.2% 180 bps
Operating Income Margin 15.6% 19.3% 370 bps
Reported Earnings Per Share $3.11 $2.23 (28)%
Adjusted Earnings Per Share Ex-Spins6 $1.90 $2.08 9%
Cash Flow from Operations 1,878 1,471 (22)%
Adjusted Free Cash Flow7 1,809 1,286 (29)%
TABLE 3: SUMMARY OF SEGMENT FINANCIAL RESULTS
AEROSPACE 3Q 2018 3Q 2019 Change
Sales 4,030 3,544 (12)%
Organic Growth 10%
Segment Profit 891 908 2%
Segment Margin 22.1% 25.6% 350 bps
HONEYWELL BUILDING TECHNOLOGIES
Sales 2,517 1,415 (44)%
Organic Growth 3%
Segment Profit 430 297 (31)%
Segment Margin 17.1% 21.0% 390 bps
PERFORMANCE MATERIALS AND TECHNOLOGIES
Sales 2,640 2,670 1%
Organic Growth 3%
Segment Profit 560 582 4%
Segment Margin 21.2% 21.8% 60 bps
SAFETY AND PRODUCTIVITY SOLUTIONS
Sales 1,575 1,457 (7)%
Organic Growth (8)%
Segment Profit 262 195 (26)%
Segment Margin 16.6% 13.4% (320) bps
1As discussed in the notes to the attached reconciliations, we do not provide
guidance for margin or EPS on a GAAP basis.
2Adjusted EPS and adjusted EPS V% ex-spins exclude 3Q18 after-tax separation
costs related to the spin-offs of Resideo and Garrett, the 3Q18 after-tax
segment profit contribution from Resideo and Garrett, net of the spin
indemnification impacts assuming both indemnification agreements were effective
in 3Q18, and adjustments to the charges taken in connection with the 4Q17 U.S.
tax legislation charge.
3Segment margin expansion ex-spins guidance excludes sales and segment profit
contribution from Resideo and Garrett in 2018.
4Adjusted EPS and adjusted EPS V%, ex-spins, guidance excludes pension
mark-to-market, adjustments to the charges taken in connection with the 4Q17
U.S. tax legislation charge, 2018 after-tax separation costs related to the
spin-offs of Resideo and Garrett, and the 2018 after-tax segment profit
contribution from the spin-offs, net of spin indemnification impacts assuming
both indemnification agreements were effective for all of 2018, of $0.62.
5Adjusted free cash flow guidance and associated conversion exclude estimated
payments of $0.3B for separation costs incurred in 2018 related to the
spin-offs of Resideo and Garrett. Adjusted free cash flow conversion guidance
also excludes pension mark-to-market and adjustments to the charges taken in
connection with the 4Q17 U.S. tax legislation charge. As discussed in the notes
to the attached reconciliations, we do not provide cash flow conversion
guidance on a GAAP basis.
6Adjusted EPS ex-spins and adjusted EPS V% ex-spins exclude 3Q18 after-tax
separation costs related to the spin-offs of Resideo and Garrett of $233M, and
the favorable adjustments to the charges taken in connection with the 4Q17 U.S.
tax legislation charge of $114M in 3Q19 and $1,047M in 3Q18. Also excludes the
3Q18 after-tax segment profit contribution from the spin-offs, net of spin
indemnification impacts assuming both indemnification agreements were effective
in 3Q18, of $0.13.
7Adjusted free cash flow and adjusted free cash flow V% exclude impacts from
separation costs related to the spin-offs of $7M in 3Q19 and $114M in 3Q18.
Honeywell (http://www.honeywell.com/) is a Fortune 100 technology company that
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.
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.
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 and which we adjust
to exclude sales and segment profit contribution from Resideo and Garrett in
2018, if and as noted in the release; organic sales growth, which we define as
sales growth less the impacts from foreign currency translation, and
acquisitions and divestitures for the first 12 months following transaction
date; adjusted 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 Resideo and Garrett, if and as
noted in the release; adjusted free cash flow conversion, which we define as
adjusted free cash flow divided by net income attributable to Honeywell,
excluding pension mark-to-market expenses, separation costs related to the
spin-offs, and adjustments to the charges taken in connection with the 4Q17
U.S. tax legislation charge, if and as noted in the release; and adjusted
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, adjustments to the charges taken in connection with the 4Q17 U.S.
tax legislation charge, and after-tax segment profit contribution from Resideo
and Garrett in the periods noted in the release, net of spin indemnification
impacts assuming both indemnification agreements were effective in such
periods, if and as noted in the release. 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 International Inc.
Consolidated Statement of Operations (Unaudited)
(Dollars in millions, except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
2019 2018 2019 2018
Product sales $ 6,793 $ 8,477 $ 20,496 $ 25,414
Service sales 2,293 2,285 6,717 6,659
Net sales 9,086 10,762 27,213 32,073
Costs, expenses
and other
Cost of products 4,775 6,127 14,244 18,234
sold (1)
Cost of services 1,263 1,429 3,767 4,127
sold (1)
6,038 7,556 18,011 22,361
Selling, general 1,296 1,524 4,046 4,527
and
administrative
expenses (1)
Other (income) (311) (275) (901) (859)
expense
Interest and 96 99 266 277
other financial
charges
7,119 8,904 21,422 26,306
Income before 1,967 1,858 5,791 5,767
taxes
Tax expense 319 (498) 1,151 679
(benefit)
Net income 1,648 2,356 4,640 5,088
Less: Net income 24 18 59 44
attributable to
the
noncontrolling
interest
Net income $ 1,624 $ 2,338 $ 4,581 $ 5,044
attributable to
Honeywell
Earnings per $ 2.26 $ 3.15 $ 6.33 $ 6.76
share of common
stock - basic
Earnings per $ 2.23 $ 3.11 $ 6.25 $ 6.67
share of common
stock - assuming
dilution
Weighted average 717.6 741.8 723.5 746.0
number of shares
outstanding -
basic
Weighted average 726.7 752.0 732.8 756.0
number of shares
outstanding -
assuming
dilution
(1) Cost of products and services sold and selling,
general and administrative expenses include amounts
for repositioning and other charges, the service cost
component of 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 2019 2018 2019 2018
Aerospace $ 3,544 $ 4,030 $ 10,393 $ 12,065
Honeywell Building 1,415 2,517 4,254 7,496
Technologies
Performance 2,670 2,640 7,977 7,872
Materials and
Technologies
Safety and 1,457 1,575 4,589 4,640
Productivity
Solutions
Total $ 9,086 $ 10,762 $ 27,213 $ 32,073
Reconciliation of Segment Profit to Income Before Taxes
Three Months Ended Nine Months Ended
September 30, September 30,
Segment Profit 2019 2018 2019 2018
Aerospace $ 908 $ 891 $ 2,653 $ 2,702
Honeywell Building 297 430 868 1,273
Technologies
Performance 582 560 1,790 1,676
Materials and
Technologies
Safety and 195 262 598 760
Productivity
Solutions
Corporate (54) (53) (202) (181)
Total segment 1,928 2,090 5,707 6,230
profit
Interest and other (96) (99) (266) (277)
financial charges
Stock compensation (37) (41) (112) (131)
expense (1)
Pension ongoing 150 247 449 745
income (2)
Other 12 12 35 24
postretirement
income (2)
Repositioning and (96) (299) (306) (756)
other charges (3,4)
Other (5) 106 (52) 284 (68)
Income before taxes $ 1,967 $ 1,858 $ 5,791 $ 5,767
(1) Amounts included in Selling, general and administrative expenses.
(2) Amounts included in Cost of products and services sold and Selling,
general and administrative expenses (service costs) and Other income/
expense (non-service cost components).
(3) Amounts included in Cost of products and services sold, Selling, general
and administrative expenses, and Other income/expense.
(4) Includes repositioning, asbestos, and environmental expenses.
(5) Amounts include the other components of Other income/expense not included
within other categories in this reconciliation. Equity income (loss) of
affiliated companies is included in segment profit.
Honeywell International Inc.
Consolidated Balance Sheet (Unaudited)
(Dollars in millions)
September December
30, 31,
2019 2018
ASSETS
Current assets:
Cash and cash equivalents $ 10,908 $ 9,287
Short-term investments 1,456 1,623
Accounts receivable - net 7,583 7,508
Inventories 4,601 4,326
Other current assets 1,640 1,618
Total current assets 26,188 24,362
Investments and long-term receivables 631 742
Property, plant and equipment - net 5,240 5,296
Goodwill 15,426 15,546
Other intangible assets - net 3,787 4,139
Insurance recoveries for asbestos related liabilities 412 437
Deferred income taxes 241 382
Other assets 8,179 6,869
Total assets $ 60,104 $ 57,773
LIABILITIES
Current liabilities:
Accounts payable $ 5,522 $ 5,607
Commercial paper and other short-term borrowings 3,422 3,586
Current maturities of long-term debt 4,088 2,872
Accrued liabilities 6,883 6,859
Total current liabilities 19,915 18,924
Long-term debt 11,101 9,756
Deferred income taxes 1,366 1,713
Postretirement benefit obligations other than pensions 329 344
Asbestos related liabilities 2,195 2,269
Other liabilities 6,885 6,402
Redeemable noncontrolling interest 7 7
Shareowners' equity 18,306 18,358
Total liabilities, redeemable noncontrolling interest $ 60,104 $ 57,773
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,
2019 2018 2019 2018
Cash flows from operating activities:
Net income $ 1,648 $ 2,356 $ 4,640 $ 5,088
Less: Net income attributable to the 24 18 59 44
noncontrolling interest
Net income attributable to Honeywell 1,624 2,338 4,581 5,044
Adjustments to reconcile net income
attributable to Honeywell to net cash
provided by operating activities:
Depreciation 165 186 500 558
Amortization 98 100 319 304
Repositioning and other charges 96 299 306 756
Net payments for repositioning and (72) (191) (157) (519)
other charges
Pension and other postretirement (162) (259) (484) (769)
income
Pension and other postretirement (5) (23) (50) (67)
benefit payments
Stock compensation expense 37 41 112 131
Deferred income taxes (342) (596) (298) (482)
Other 93 (241) 98 (163)
Changes in assets and liabilities,
net of the effects of acquisitions
and divestitures:
Accounts receivable (176) 34 (78) 131
Inventories (3) (270) (276) (459)
Other current assets 171 182 (68) 356
Accounts payable (81) 242 (89) 466
Accrued liabilities 28 36 (133) (412)
Net cash provided by (used for) 1,471 1,878 4,283 4,875
operating activities
Cash flows from investing activities:
Expenditures for property, plant and (192) (183) (504) (522)
equipment
Proceeds from disposals of property, 31 1 41 4
plant and equipment
Increase in investments (944) (1,095) (3,218) (2,882)
Decrease in investments 1,155 1,126 3,318 4,634
Cash paid for acquisitions, net of (4) (51) (4) (51)
cash acquired
Other 175 30 245 250
Net cash provided by (used for) 221 (172) (122) 1,433
investing activities
Cash flows from financing activities:
Proceeds from issuance of commercial 3,178 6,551 10,292 19,300
paper and other short-term borrowings
Payments of commercial paper and (3,178) (7,001) (10,293) (19,153)
other short-term borrowings
Proceeds from issuance of common 47 115 425 242
stock
Proceeds from issuance of long-term 2,696 21 2,725 26
debt
Payments of long-term debt (36) (26) (120) (1,303)
Repurchases of common stock (1,000) (604) (3,650) (2,308)
Cash dividends paid (595) (553) (1,798) (1,669)
Pre-separation funding - 1,604 - 1,604
Other (40) (23) (72) (141)
Net cash provided by (used for) 1,072 84 (2,491) (3,402)
financing activities
Effect of foreign exchange rate (81) (69) (49) (162)
changes on cash and cash equivalents
Net increase (decrease) in cash and 2,683 1,721 1,621 2,744
cash equivalents
Cash and cash equivalents at 8,225 8,082 9,287 7,059
beginning of period
Cash and cash equivalents at end of $ 10,908 $ 9,803 $ 10,908 $ 9,803
period
Honeywell International Inc.
Reconciliation of Organic Sales % Change (Unaudited)
Three Months
Ended September
30, 2019
Honeywell
Reported sales % change (16)%
Less: Foreign currency translation (1)%
Less: Acquisitions, divestitures and other, net (18)%
Organic sales % change 3%
Aerospace
Reported sales % change (12)%
Less: Foreign currency translation -%
Less: Acquisitions, divestitures and other, net (22)%
Organic sales % change 10%
Honeywell Building Technologies
Reported sales % change (44)%
Less: Foreign currency translation (1)%
Less: Acquisitions, divestitures and other, net (46)%
Organic sales % change 3%
Performance Materials and Technologies
Reported sales % change 1%
Less: Foreign currency translation (2)%
Less: Acquisitions, divestitures and other, net -%
Organic sales % change 3%
Safety and Productivity Solutions
Reported sales % change (7)%
Less: Foreign currency translation (1)%
Less: Acquisitions, divestitures and other, net 2%
Organic sales % change (8)%
We define organic sales percent as the year-over-year change in reported sales
relative to the comparable period, excluding the impact on sales from foreign
currency translation and acquisitions, net of divestitures. We believe this
measure is useful to investors and management in understanding our ongoing
operations and in analysis of ongoing operating trends.
A quantitative reconciliation of reported sales percent change to organic sales
percent change has not been provided for forward-looking measures of organic
sales percent change because management cannot reliably predict or estimate,
without unreasonable effort, the fluctuations in global currency markets that
impact foreign currency translation, nor is it reasonable for management to
predict the timing, occurrence and impact of acquisition and divestiture
transactions, all of which could significantly impact our reported sales
percent change.
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,
2019 2018
Segment profit $ 1,928 $ 2,090
Stock compensation expense (1) (37) (41)
Repositioning, Other (2,3) (109) (313)
Pension and other postretirement (30) (54)
service costs (4)
Operating income $ 1,752 $ 1,682
Segment profit $ 1,928 $ 2,090
÷ Net sales $ 9,086 $ 10,762
Segment profit margin % 21.2 % 19.4 %
Operating income $ 1,752 $ 1,682
÷ Net sales $ 9,086 $ 10,762
Operating income margin % 19.3 % 15.6 %
(1) Included in Selling, general and
administrative expenses.
(2) Includes repositioning, asbestos,
environmental expenses and equity income
adjustment.
(3) Included in Cost of products and services
sold, Selling, general and administrative
expenses and Other income/expense.
(4) Included in Cost of products and services
sold and Selling, general and
administrative expenses.
We define segment profit as operating income, excluding stock compensation
expense, pension and other postretirement service costs, and repositioning and
other charges. 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 Adjusted Earnings per Share and
Adjusted Earnings per Share Excluding Spin-off Impact (Unaudited)
Three Months Ended September 30, Twelve Months
Ended
December 31,
2019 2018 2018
Earnings per $ 2.23 $ 3.11 $ 8.98
share of
common stock -
assuming
dilution (1)
Pension - - 0.04
mark-to-market
expense (2)
Separation - 0.31 0.97
costs (3)
Impacts from (0.15) (1.39) (1.98)
U.S. Tax
Reform
Adjusted $ 2.08 $ 2.03 $ 8.01
earnings per
share of
common stock -
assuming
dilution
Less: EPS, 0.13 0.62
attributable
to spin-offs
Adjusted $ 1.90 $ 7.39
earnings per
share of
common stock -
assuming
dilution,
excluding
spin-off
impact
(1) For the three months ended September 30, 2019 and 2018, adjusted earnings
per share utilizes weighted average shares of approximately 726.7 million
and 752.0 million. For the twelve months ended December 31, 2018, adjusted
earnings per share utilizes weighted average shares of approximately 753.0
million.
(2) Pension mark-to-market expense uses a blended tax rate of 24% for 2018.
(3) For the three months ended September 30, 2018, separation costs of $248
million ($233 million net of tax) includes $132 million of tax costs we
incurred in the restructuring of the ownership of various legal entities in
anticipation of the spin-off transactions ("frictional tax costs") and $116
million ($101 million net of tax) of other separation costs. For the twelve
months ended December 31, 2018, separation costs of $732 million including
net tax impacts.
We believe adjusted earnings per share, excluding spin-off impact, is a measure
that is useful to investors and management in understanding our ongoing
operations and in analysis of ongoing operating trends. For forward looking
information, management cannot reliably predict or estimate, without
unreasonable effort, the pension mark-to-market expense as it is dependent on
macroeconomic factors, such as interest rates and the return generated on
invested pension plan assets. We therefore do not include an estimate for the
pension mark-to-market expense. Based on economic and industry conditions,
future developments and other relevant factors, these assumptions are subject
to change.
Honeywell International Inc.
Reconciliation of Cash Provided by Operating Activities to Adjusted Free Cash
Flow and Calculation of Adjusted Free Cash Flow Conversion (Unaudited)
(Dollars in millions)
Three Months Three Months
Ended Ended
September 30, September 30,
2019 2018
Cash provided by operating activities $ 1,471 $ 1,878
Expenditures for property, plant and equipment (192) (183)
Free cash flow 1,279 1,695
Separation cost payments 7 114
Adjusted free cash flow $ 1,286 $ 1,809
Net income attributable to Honeywell $ 1,624 $ 2,338
Separation costs, includes net tax impacts - 233
Impacts from U.S. Tax Reform (114) (1,047)
Adjusted net income attributable to Honeywell $ 1,510 $ 1,524
Cash provided by operating activities $ 1,471 $ 1,878
÷ Net income (loss) attributable to Honeywell $ 1,624 $ 2,338
Operating cash flow conversion 91 % 80 %
Adjusted free cash flow $ 1,286 $ 1,809
÷ Adjusted net income attributable to Honeywell $ 1,510 $ 1,524
Adjusted free cash flow conversion % 85 % 119 %
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, 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)
Twelve Months
Ended
December 31,
2018
Segment profit $ 8,190
Stock compensation expense (1) (175)
Repositioning, Other (2,3) (1,100)
Pension and other postretirement service (210)
costs (4)
Operating income $ 6,705
Segment profit $ 8,190
÷ Net sales $ 41,802
Segment profit margin % 19.6 %
Operating income $ 6,705
÷ Net sales $ 41,802
Operating income margin % 16.0 %
(1) Included in Selling, general and
administrative expenses.
(2) Includes repositioning, asbestos,
environmental expenses and equity
income adjustment.
(3) Included in Cost of products and
services sold, Selling, general and
administrative expenses and Other
income/expense.
(4) Included in Cost of products and
services sold and Selling, general
and administrative expenses.
We define segment profit as operating income, excluding stock compensation
expense, pension and other postretirement service costs, and repositioning and
other charges. We believe these measures are useful to investors and management
in understanding our ongoing operations and in analysis of ongoing operating
trends.
A quantitative reconciliation of segment profit margin, on an overall Honeywell
basis, to operating income margin has not been provided for all forward-looking
measures of segment profit margin included herewithin, however, operating
income margin is expected to be up 230 to 240 bps in 2019 full year, with the
differences between segment profit margin and operating income margin driven by
expected full year stock compensation expense, repositioning and other, and
pension and other postretirement service costs. For forward looking
information, a reconciliation of segment profit margin to operating income
margin is not provided as management cannot reliably predict or estimate,
without unreasonable effort, the apportionment of the amount attributable to
the reconciling items between segment profit margin and operating income margin
due to the uncertainty of each respective item.
Honeywell International Inc.
Calculation of Segment Profit Excluding Spin-off Impact and Segment Margin
Excluding Spin-off Impact
(Dollars in millions)
Twelve Months
Ended
December 31,
2018
Segment profit $ 8,190
Spin-off impact (1) (1,011)
Segment profit excluding spin-off impact $ 7,179
Sales $ 41,802
Spin-off impact (1) (6,551)
Sale excluding spin-off impact $ 35,251
Segment profit margin % excluding 20.4 %
spin-off impact
(1) Amount computed as the portion of
Aerospace and Honeywell Building
Technologies segment profit and sales
in the applicable prior year period
for Transportation Systems and Homes
and Global Distribution spin-off
businesses.
Honeywell International Inc.
Reconciliation of Cash Provided by Operating Activities to Adjusted Free Cash
Flow (Unaudited)
Twelve Months
Ended
December 31,
2019(E) ($B)
Cash provided by operating activities $6.2 - $6.5
Expenditures for property, plant and equipment (0.8)
Free cash flow 5.4 - 5.7
Separation cost payments 0.3
Adjusted free cash flow $5.7 - $6.0
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, 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. For forward looking
information, we do not provide cash flow conversion guidance on a GAAP basis as
management cannot reliably predict or estimate, without unreasonable effort,
the pension mark-to-market expense as it is dependent on macroeconomic factors,
such as interest rates and the return generated on invested pension plan
assets.
Contacts:
Media Investor Relations
Nina Krauss Mark Bendza
(704) 627-6035 (704) 627-6200
nina.krauss@honeywell.com mark.bendza@honeywell.com
END
(END) Dow Jones Newswires
October 17, 2019 06:30 ET (10:30 GMT)
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