TIDMHON
Honeywell Delivers Margin Expansion Of Over 140 Basis Points And Earnings Per
Share Of $2.21, Up 15%
- Operating Income Margin up 150 Basis Points to 20.0%; Segment Margin up 140
Basis Points to 21.8%
- Earnings per Share of $2.21, up 15%
- Generated $0.9 Billion of Operating Cash Flow, $0.8 Billion of Free Cash
Flow; Further Strengthened Balance Sheet
- Suspended Full Year Guidance Due to Uncertainty Related to the COVID-19
Pandemic
CHARLOTTE, N.C., May 1, 2020 -- Honeywell (NYSE: HON) today announced strong
earnings growth for the first quarter of 2020 despite significant impacts from
the COVID-19 pandemic.
The company reported first-quarter earnings per share of $2.21, above guidance,
operating profit growth of 3%, segment profit growth of 2%, and segment margin
expansion of 140 basis points, all of which were at or above first-quarter
guidance, with sales down 5%, or 4% organically.
"Honeywell delivered on our original earnings commitment for the first quarter,
with EPS growth of 15% despite the substantial challenges we faced due to the
COVID-19 pandemic. We remain focused on the strong operational excellence
principles that underlie everything we do, and that discipline enabled us to
achieve earnings growth in a challenging first quarter," said Darius Adamczyk,
chairman and chief executive officer of Honeywell. "As the COVID-19 pandemic
rapidly escalated and the global economy deteriorated, we faced headwinds
across our businesses, including rapid changes in our supply chain, constraints
at customer sites, and significant impacts on the commercial aerospace and oil
and gas end markets. These challenges drove an organic sales decline in the
quarter. However, we acted quickly to mitigate the impacts and we continued to
serve our customers, including those involved in the COVID-19 response efforts,
while ensuring the safety of our employees."
"The safety of our employees is our top priority," Adamczyk said. "We have
announced that Honeywell will pay for COVID-19 testing costs that are not
covered by our employees' insurance and will pay out-of-pocket treatment costs
for those enrolled in the Honeywell medical plan. We have also provided a full
year of paid sick time up-front to U.S. non-exempt employees and have announced
a $10 million relief fund to help employees that are in financial distress. In
addition, Honeywell is playing a critical role in keeping medical professionals
safe. We have announced two new manufacturing sites for N95 respiratory masks
in the United States. Between these two locations, we will produce 20 million
respiratory masks per month and create about 1,000 new jobs. We are also
quickly ramping up production of other personal protective equipment, including
safety eyewear and face shields. Our medical sensors are widely used in
ventilators, and we have significantly increased our sensor production to
address demand. In addition, we are shifting manufacturing operations at two
facilities to produce and donate hand sanitizer to government agencies. Within
the United States, our donation will go to the Federal Emergency Management
Agency (FEMA)."
Adamczyk continued, "We are well-prepared to manage the downturn with a strong
balance sheet and execution rigor focused on cost control and cash generation.
We have nearly $9 billion of cash and short-term investments on hand and, in
March, we further enhanced our financial flexibility by entering into a $6
billion two-year term loan and refinanced EUR1 billion of bonds at attractive
rates. Our pension plan remains overfunded, requiring no additional
contributions for the foreseeable future."
Adamczyk concluded, "I am proud of Honeywell's longstanding ability to adapt to
and deliver in any type of economic environment, and I am confident in our
ability to execute in these uncertain times. Our businesses serve a diverse set
of end markets and we continue to invest in innovation for long-term growth,
including quantum computing, the Honeywell Forge enterprise performance
management software platform, and sustainable next-generation products.
Honeywell is actively managing through the downturn and is well-positioned for
the economic recovery to come."
Due to the evolving nature of the COVID-19 pandemic and related supply chain
and market disruptions, Honeywell announced that it has temporarily suspended
its full-year financial guidance until the economic impact of COVID-19
stabilizes. The company expects ongoing top-line challenges due to the current
market conditions, particularly in the aerospace and oil and gas sectors.
First-Quarter Performance
Honeywell sales for the first quarter were down 5% on a reported basis and down
4% on an organic basis. The difference between reported and organic sales
primarily relates to the impact of foreign currency translation. The
first-quarter financial results can be found in Tables 1 and 2.
Aerospace sales for the first quarter were up 1% on an organic basis driven by
continued strength in the Defense and Space business and growth in air
transport commercial aftermarket, partially offset by lower air transport
original equipment demand. Segment margin expanded 280 basis points to 27.9%,
primarily driven by favorable sales mix and commercial excellence.
Honeywell Building Technologies sales for the first quarter were down 6% on an
organic basis as flat sales in commercial fire were offset by softness in
building solutions projects and volume declines in security and building
management products. Segment margin expanded 100 basis points to 20.5%,
primarily driven by commercial and operational excellence.
Performance Materials and Technologies sales for the first quarter were down 5%
on an organic basis driven by supply chain disruptions and decreased products
demand in Process Solutions; headwinds related to the continued illegal imports
of hydrofluorocarbons (HFCs) into Europe, and lower automotive refrigerant
volumes in Advanced Materials; and lower gas processing volumes in UOP,
partially offset by higher demand for equipment. Segment margin contracted 50
basis points to 21.4%, primarily driven by unfavorable sales mix related to
higher equipment demand, partially offset by commercial excellence.
Safety and Productivity Solutions sales for the first quarter were down 9% on
an organic basis driven by lower sales volumes in sensing and IoT, the impact
of major systems project timing in Intelligrated, and lower demand for gas
sensing products, more than offsetting increased demand for respiratory
personal protective equipment. SPS orders were up double-digits in the first
quarter, led by demand for PPE and strong Intelligrated bookings, resulting in
backlog that is up over 30% year-over-year. Segment margin contracted 90 basis
points to 12.5%, primarily driven by lower sales volumes, partially offset by
productivity, net of inflation.
Conference Call Details
Honeywell will discuss its first-quarter results and second-quarter outlook
during an investor conference call starting at 8:30 a.m. Eastern Daylight Time
today. To participate on the conference call, please dial (866) 548-4713
(domestic) or (323) 794-2093 (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 first-quarter 2020 earnings call or provide the conference code
HON1Q20. 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, May 1, until 12:30 p.m. EDT, May 8, by
dialing (888) 203-1112 (domestic) or (719) 457-0820 (international). The access
code is 4293414.
TABLE 1: SUMMARY OF HONEYWELL FINANCIAL RESULTS
1Q 2020 1Q 2019 Change
Sales 8,463 8,884 (5%)
Organic Growth (4%)
Segment Margin 21.8% 20.4% 140 bps
Operating Income Margin 20.0% 18.5% 150 bps
Earnings Per Share $2.21 $1.92 15%
Cash Flow from Operations 939 1,134 (17%)
Free Cash Flow 800 993 (19%)
Adjusted Free Cash Flow1 800 1,158 (31%)
TABLE 2: SUMMARY OF SEGMENT FINANCIAL RESULTS
AEROSPACE 1Q 2020 1Q 2019 Change
Sales 3,361 3,341 1%
Organic Growth 1%
Segment Profit 937 838 12%
Segment Margin 27.9% 25.1% 280 bps
HONEYWELL BUILDING TECHNOLOGIES
Sales 1,281 1,389 (8%)
Organic Growth (6%)
Segment Profit 262 271 (3%)
Segment Margin 20.5% 19.5% 100 bps
PERFORMANCE MATERIALS AND TECHNOLOGIES
Sales 2,397 2,572 (7%)
Organic Growth (5%)
Segment Profit 512 564 (9%)
Segment Margin 21.4% 21.9% -50 bps
SAFETY AND PRODUCTIVITY SOLUTIONS
Sales 1,424 1,582 (10%)
Organic Growth (9%)
Segment Profit 178 212 (16%)
Segment Margin 12.5% 13.4% -90 bps
1Adjusted free cash flow and adjusted free cash flow V% exclude impacts from
separation costs related to the spin-offs of $165M in 1Q19
Honeywell (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, technological, and COVID-19 public health
factors affecting our operations, markets, products, services and prices. Such
forward-looking statements are not guarantees of future performance, and actual
results, and other developments, including the potential impact of the COVID-19
pandemic, and business decisions may differ from those envisaged by such
forward-looking statements. Any forward-looking plans described herein are not
final and may be modified or abandoned at any time. 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; 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; free cash flow, which we define as cash flow from
operations less capital expenditures; and 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. 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 March 31,
2020 2019
Product sales $ 6,305 $ 6,713
Service sales 2,158 2,171
Net sales 8,463 8,884
Costs, expenses and
other
Cost of products 4,374 4,622
sold (1)
Cost of services 1,160 1,257
sold (1)
5,534 5,879
Selling, general and 1,238 1,363
administrative
expenses (1)
Other (income) (317) (285)
expense
Interest and other 73 85
financial charges
6,528 7,042
Income before taxes 1,935 1,842
Tax expense 329 406
(benefit)
Net income 1,606 1,436
Less: Net income 25 20
attributable to the
noncontrolling
interest
Net income $ 1,581 $ 1,416
attributable to
Honeywell
Earnings per share $ 2.23 $ 1.94
of common stock -
basic
Earnings per share $ 2.21 $ 1.92
of common stock -
assuming dilution
Weighted average 709.6 729.7
number of shares
outstanding - basic
Weighted average 717.0 738.8
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 March 31,
Net Sales 2020 2019
Aerospace $ 3,361 $ 3,341
Honeywell 1,281 1,389
Building
Technologies
Performance 2,397 2,572
Materials and
Technologies
Safety and 1,424 1,582
Productivity
Solutions
Total $ 8,463 $ 8,884
Reconciliation of Segment Profit to Income Before Taxes
Three Months Ended March 31,
Segment Profit 2020 2019
Aerospace $ 937 $ 838
Honeywell 262 271
Building
Technologies
Performance 512 564
Materials and
Technologies
Safety and 178 212
Productivity
Solutions
Corporate (41) (76)
Total segment 1,848 1,809
profit
Interest and (73) (85)
other financial
charges
Stock (44) (41)
compensation
expense (1)
Pension ongoing 198 151
income (2)
Other 13 12
postretirement
income (2)
Repositioning (62) (84)
and other
charges (3,4)
Other (5) 55 80
Income before $ 1,935 $ 1,842
taxes
(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)
March 31, December
2020 31,
2019
ASSETS
Current assets:
Cash and cash equivalents $ 7,721 $ 9,067
Short-term investments 1,070 1,349
Accounts receivable - net 7,452 7,493
Inventories 4,584 4,421
Other current assets 1,786 1,973
Total current assets 22,613 24,303
Investments and long-term receivables 613 588
Property, plant and equipment - net 5,214 5,325
Goodwill 15,282 15,563
Other intangible assets - net 3,580 3,734
Insurance recoveries for asbestos related liabilities 383 392
Deferred income taxes 71 86
Other assets 9,666 8,688
Total assets $ 57,422 $ 58,679
LIABILITIES
Current liabilities:
Accounts payable $ 5,676 $ 5,730
Commercial paper and other short-term borrowings 3,528 3,516
Current maturities of long-term debt 1,042 1,376
Accrued liabilities 7,131 7,476
Total current liabilities 17,377 18,098
Long-term debt 11,542 11,110
Deferred income taxes 1,670 1,670
Postretirement benefit obligations other than pensions 314 326
Asbestos related liabilities 1,948 1,996
Other liabilities 6,699 6,766
Redeemable noncontrolling interest 7 7
Shareowners' equity 17,865 18,706
Total liabilities, redeemable noncontrolling interest and $ 57,422 $ 58,679
shareowners' equity
Honeywell International Inc.
Consolidated Statement of Cash Flows (Unaudited)
(Dollars in millions)
Three Months Ended
March 31,
2020 2019
Cash flows from operating activities:
Net income $ 1,606 $ 1,436
Less: Net income attributable to the noncontrolling interest 25 20
Net income attributable to Honeywell 1,581 1,416
Adjustments to reconcile net income attributable to
Honeywell to net cash provided by operating activities:
Depreciation 153 163
Amortization 90 98
Repositioning and other charges 62 84
Net payments for repositioning and other charges (111) (34)
Pension and other postretirement income (212) (163)
Pension and other postretirement benefit payments (14) (30)
Stock compensation expense 44 41
Deferred income taxes (58) 80
Other (179) (4)
Changes in assets and liabilities, net of the effects of
acquisitions and divestitures:
Accounts receivable 41 198
Inventories (163) (221)
Other current assets 166 (217)
Accounts payable (54) (29)
Accrued liabilities (407) (248)
Net cash provided by (used for) operating activities 939 1,134
Cash flows from investing activities:
Expenditures for property, plant and equipment (139) (141)
Proceeds from disposals of property, plant and equipment 7 2
Increase in investments (648) (1,226)
Decrease in investments 843 796
Receipts (payments) from settlements of derivative contracts 287 (40)
Net cash provided by (used for) investing activities 350 (609)
Cash flows from financing activities:
Proceeds from issuance of commercial paper and other 3,455 3,318
short-term borrowings
Payments of commercial paper and other short-term borrowings (3,373) (3,319)
Proceeds from issuance of common stock 66 145
Proceeds from issuance of long-term debt 1,127 20
Payments of long-term debt (1,125) (13)
Repurchases of common stock (1,923) (750)
Cash dividends paid (635) (606)
Other (38) (30)
Net cash provided by (used for) financing activities (2,446) (1,235)
Effect of foreign exchange rate changes on cash and cash (189) 48
equivalents
Net increase (decrease) in cash and cash equivalents (1,346) (662)
Cash and cash equivalents at beginning of period 9,067 9,287
Cash and cash equivalents at end of period $ 7,721 $ 8,625
Honeywell International Inc.
Reconciliation of Organic Sales % Change (Unaudited)
Three Months
Ended March 31,
2020
Honeywell
Reported sales % change (5)%
Less: Foreign currency translation (1)%
Less: Acquisitions, divestitures and other, net -%
Organic sales % change (4)%
Aerospace
Reported sales % change 1%
Less: Foreign currency translation -%
Less: Acquisitions, divestitures and other, net -%
Organic sales % change 1%
Honeywell Building Technologies
Reported sales % change (8)%
Less: Foreign currency translation (2)%
Less: Acquisitions, divestitures and other, net -%
Organic sales % change (6)%
Performance Materials and Technologies
Reported sales % change (7)%
Less: Foreign currency translation (2)%
Less: Acquisitions, divestitures and other, net -%
Organic sales % change (5)%
Safety and Productivity Solutions
Reported sales % change (10)%
Less: Foreign currency translation (1)%
Less: Acquisitions, divestitures and other, net -%
Organic sales % change (9)%
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.
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 March 31,
2020 2019
Segment profit $ 1,848 $ 1,809
Stock compensation expense (1) (44) (41)
Repositioning, Other (2,3) (74) (93)
Pension and other postretirement service (39) (33)
costs (4)
Operating income $ 1,691 $ 1,642
Segment profit $ 1,848 $ 1,809
÷ Net sales $ 8,463 $ 8,884
Segment profit margin % 21.8 % 20.4 %
Operating income $ 1,691 $ 1,642
÷ Net sales $ 8,463 $ 8,884
Operating income margin % 20.0 % 18.5 %
(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 Cash Provided by Operating Activities to Adjusted Free Cash
Flow (Unaudited)
(Dollars in millions)
Three Months Three Months
Ended Ended
March 31, 2020 March 31, 2019
Cash provided by operating activities $ 939 $ 1,134
Expenditures for property, plant and equipment (139) (141)
Free cash flow 800 993
Separation cost payments - 165
Adjusted free cash flow $ 800 $ 1,158
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.
Contacts:
Media Investor Relations
Nina Krauss Mark Bendza
(704) 627-6035 (704) 627-6200
nina.krauss@honeywell.com mark.bendza@honeywell.com
END
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May 01, 2020 06:30 ET (10:30 GMT)
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