Honeywell Delivers Margin Expansion Of Over 140 Basis Points And Earnings Per Share Of $2.21, Up 15%

CHARLOTTE, N.C., May 1, 2020 /PRNewswire/ -- 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 Flow(1)     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

    ---

(1)Adjusted 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 sold (1)                                                                                                       4,374                               4,622



     Cost of services sold (1)                                                                                                       1,160                               1,257



                                                                                                                                      5,534                               5,879



     Selling, general and administrative expenses (1)                                                                                1,238                               1,363



     Other (income) expense                                                                                                          (317)                              (285)



     Interest and other financial charges                                                                                               73                                  85



                                                                                                                                      6,528                               7,042




     Income before taxes                                                                                                             1,935                               1,842



     Tax expense (benefit)                                                                                                             329                                 406




     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




     Earnings per share of common stock - basic                                                                                             $
       2.23                           $
      1.94




     Earnings per share of common stock - assuming dilution                                                                                 $
       2.21                           $
      1.92




     Weighted average number of shares outstanding - basic                                                                           709.6                               729.7



     Weighted average number of shares outstanding - assuming dilution                                                               717.0                               738.8





              (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 Building Technologies                                             1,281                                        1,389



       Performance Materials and Technologies                                      2,397                                        2,572



       Safety and Productivity Solutions                                           1,424                                        1,582




       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 Building Technologies                                               262                                          271



       Performance Materials and Technologies                                        512                                          564



       Safety and Productivity Solutions                                             178                                          212



       Corporate                                                                    (41)                                        (76)




       Total segment profit                                                        1,848                                        1,809



       Interest and other financial charges                                         (73)                                        (85)



       Stock compensation expense (1)                                               (44)                                        (41)



       Pension ongoing income (2)                                                    198                                          151



       Other postretirement income (2)                                                13                                           12



       Repositioning and other charges (3,4)                                        (62)                                        (84)



       Other (5)                                                                      55                                           80




       Income before taxes                                                                 $
              1,935                          $
       1,842





              (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 31,
                                                                                                                                        2020                     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 shareowners' equity                                                          $
      57,422                      $
      58,679


                                                                                                                    
          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 short-term borrowings                                                                                           3,455                              3,318



     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 equivalents                                                                                                 (189)                                48




     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 costs (4)                                                                                            (39)                                             (33)




              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

    ---

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SOURCE Honeywell