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)
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 guidance(1), 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 share(2) of $2.08, up 9%, excluding the impact of the spin-offs(2), 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 guidance(1). Organic sales growth is now expected to be in the range of 4% to 5%; segment margin(1) 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 share(1) 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 GUIDANCE(1)
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-
Spins(3) 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
---
(1)As discussed in the notes to the
attached reconciliations, we do not
provide guidance for margin or EPS
on a GAAP basis.
(2)Adjusted 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.
(3)Segment 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 (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 sold (1) 4,775 6,127 14,244 18,234
Cost of services sold (1) 1,263 1,429 3,767 4,127
6,038 7,556 18,011 22,361
Selling, general and administrative expenses (1) 1,296 1,524 4,046 4,527
Other (income) expense (311) (275) (901) (859)
Interest and other financial charges 96 99 266 277
7,119 8,904 21,422 26,306
Income before taxes 1,967 1,858 5,791 5,767
Tax expense (benefit) 319 (498) 1,151 679
Net income 1,648 2,356 4,640 5,088
Less: Net income attributable to the noncontrolling interest 24 18 59 44
Net income attributable to Honeywell $
1,624 $
2,338 $
4,581 $
5,044
Earnings per share of common stock - basic $
2.26 $
3.15 $
6.33 $
6.76
Earnings per share of common stock - assuming dilution $
2.23 $
3.11 $
6.25 $
6.67
Weighted average number of shares outstanding - basic 717.6 741.8 723.5 746.0
Weighted average number of shares outstanding - assuming dilution 726.7 752.0 732.8 756.0
(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 Technologies 1,415 2,517 4,254 7,496
Performance Materials and Technologies 2,670 2,640 7,977 7,872
Safety and Productivity Solutions 1,457 1,575 4,589 4,640
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 Technologies 297 430 868 1,273
Performance Materials and Technologies 582 560 1,790 1,676
Safety and Productivity Solutions 195 262 598 760
Corporate (54) (53) (202) (181)
Total segment profit 1,928 2,090 5,707 6,230
Interest and other financial charges (96) (99) (266) (277)
Stock compensation expense (1) (37) (41) (112) (131)
Pension ongoing income (2) 150 247 449 745
Other postretirement income (2) 12 12 35 24
Repositioning and other charges (3,4) (96) (299) (306) (756)
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 30, December 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 and shareowners' equity $
60,104 $
57,773
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 noncontrolling interest 24 18 59 44
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 other charges (72) (191) (157) (519)
Pension and other postretirement income (162) (259) (484) (769)
Pension and other postretirement benefit payments (5) (23) (50) (67)
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) operating activities 1,471 1,878 4,283 4,875
Cash flows from investing activities:
Expenditures for property, plant and equipment (192) (183) (504) (522)
Proceeds from disposals of property, plant and equipment 31 1 41 4
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 cash acquired (4) (51) (4) (51)
Other 175 30 245 250
Net cash provided by (used for) investing activities 221 (172) (122) 1,433
Cash flows from financing activities:
Proceeds from issuance of commercial paper and other short-term borrowings 3,178 6,551 10,292 19,300
Payments of commercial paper and other short-term borrowings (3,178) (7,001) (10,293) (19,153)
Proceeds from issuance of common stock 47 115 425 242
Proceeds from issuance of long-term debt 2,696 21 2,725 26
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) financing activities 1,072 84 (2,491) (3,402)
Effect of foreign exchange rate changes on cash and cash equivalents (81) (69) (49) (162)
Net increase (decrease) in cash and cash equivalents 2,683 1,721 1,621 2,744
Cash and cash equivalents at beginning of period 8,225 8,082 9,287 7,059
Cash and cash equivalents at end of period $
10,908 $
9,803 $
10,908 $
9,803
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
service costs (4) (30) (54)
Operating income $
1,752 $
1,682
Segment profit $
1,928 $
2,090
÷ Net sales $
9,086 $
10,762
Segment profit 21.2 19.4
margin % % %
===
Operating income $
1,752 $
1,682
÷ Net sales $
9,086 $
10,762
Operating income 19.3 15.6
margin % % %
===
(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 share of common stock - assuming dilution (1) $
2.23 $
3.11 $
8.98
Pension mark-to-market expense (2) - 0.04
Separation costs (3) - 0.31 0.97
Impacts from U.S. Tax Reform (0.15) (1.39) (1.98)
Adjusted earnings per share of common stock - assuming dilution $
2.08 $
2.03 $
8.01
Less: EPS, attributable to spin-offs 0.13 0.62
Adjusted earnings per share of common stock - assuming dilution, excluding spin-off impact $
1.90 $
7.39
(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
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 costs (4) (210)
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
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 spin-off impact 20.4
%
===
(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
Contacts:
Media
Investor Relations
Nina Krauss
Mark Bendza
(704) 627-6035
(704) 627-6200
nina.krauss@honeywell.com
mark.bendza@honeywell.com
---
SOURCE Honeywell
