Honeywell Overdelivers On Sales, Announces Four Acquisitions In The Fourth Quarter; Issues 2021 Guidance
CHARLOTTE, N.C., Jan. 29, 2021 /PRNewswire/ -- Honeywell (NYSE: HON) today announced results for the fourth quarter and full year 2020 that exceeded investor expectations, as well as its outlook for 2021.
The company reported a fourth-quarter year-over-year sales decline of 6%, down 7% on an organic basis, and a full-year sales decline of 11% on a reported and organic basis. For the full year, operating margin contracted 120 basis points and segment margin contracted 70 basis points, with earnings per share of $6.72 and adjusted earnings per share(4) of $7.10, above the high end of our guidance.
"We finished a challenging 2020 with another quarter of sequential improvements in sales growth, margin expansion, and adjusted earnings per share," said Darius Adamczyk, chairman and chief executive officer of Honeywell. "Our focus on delivering differentiated solutions drove double-digit organic sales growth in our defense and space, warehouse automation, personal protective equipment, and recurring connected software businesses for the second consecutive quarter. We continued to prudently reduce costs in the quarter, bringing our full-year total fixed cost savings to $1.5 billion. Our fourth quarter adjusted earnings per share was $2.07, flat year-over-year on an adjusted basis(1) and above the high end of our guidance. We also continued our focus on generating cash and achieved 170% adjusted free cash flow conversion(2) in the quarter. For the year, we generated $6.2 billion in operating cash flow with 130% conversion and $5.3 billion in free cash flow with 105% adjusted free cash flow conversion(5).
"Honeywell's strong balance sheet put us in a good position to weather the challenges of 2020 while investing for future growth. We invested in high-return capital expenditures, repurchased $3.7 billion of Honeywell shares, completed three acquisitions, made six new investments within Honeywell Ventures, and announced our 11th consecutive dividend increase. Even with this level of cash deployment, we ended 2020 with $15.2 billion of cash and short-term investments on hand," Adamczyk said.
The company also announced its outlook for 2021. Honeywell expects sales of $33.4 billion to $34.4 billion, representing year-over-year organic growth of 1% to 4%; segment margin expansion of 30 to 70 basis points; earnings per share of $7.60 to $8.00, up 7% to 13% adjusted(3); operating cash flow of $5.7 billion to $6.1 billion, and free cash flow(6) of $5.1 billion to $5.5 billion. A summary of the company's 2021 guidance can be found in Table 1.
Adamczyk concluded, "I am very proud of the way Honeywell responded to the crisis in 2020. We quickly focused on liquidity, cost management, and execution, while rapidly innovating and ramping up production of a wide array of offerings to help the world recover, including critical personal protective equipment. We also remained focused on growth and investing in new markets and technologies. We entered 2021 with positive momentum following two quarters of sequential improvement. I am confident we are well-positioned for the economic recovery and will continue to perform for our shareowners, our customers, and our employees in the short and long term."
Fourth-Quarter Performance
Honeywell sales for the fourth quarter were down 6% on a reported basis and down 7% on an organic basis. The fourth-quarter financial results can be found in Tables 2 and 3.
Aerospace sales for the fourth quarter were down 19% on an organic basis driven by lower commercial aftermarket demand due to the ongoing impact of reduced flight hours and lower volumes in commercial original equipment, partially offset by double-digit growth in Defense and Space. Segment margin expanded 150 basis points to 27.6% driven by productivity actions and commercial excellence.
Honeywell Building Technologies sales for the fourth quarter were down 4% on an organic basis driven by timing of Building Solutions projects and lower demand for security products and building management systems, partially offset by growth in commercial fire. Building Solutions orders were up double digits year-over-year, driven by large project bookings in the Americas and Europe. Segment margin expanded 110 basis points to 21.4%. Margin performance was driven by commercial excellence and productivity actions.
Performance Materials and Technologies sales for the fourth quarter were down 12% on an organic basis driven by continued delays in Process Solutions automation projects as well as volume declines in smart energy and thermal solutions, and lower gas processing projects, catalyst shipments, licensing, and engineering due to softness in the oil and gas sector in UOP, partially offset by return to growth in Advanced Materials driven by demand for fluorine products. Segment margin contracted 380 basis points to 18.7% driven by the impact of lower sales volumes and mix, partially offset by productivity actions.
Safety and Productivity Solutions sales for the fourth quarter were up 27% on an organic basis driven by double-digit Intelligrated and personal protective equipment growth as well as strength in productivity solutions and services. Orders were up double digits year-over-year for the fifth straight quarter, driven by strong personal protective equipment and productivity solutions and services orders growth. Backlog remained at a record high. Segment margin expanded 260 basis points to 15.3% driven by productivity actions and higher volumes.
Conference Call Details
Honeywell will discuss its fourth-quarter and full-year results as well as its 2021 outlook during an investor conference call starting at 8:30 a.m. Eastern Standard 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. EST start. Please mention to the operator that you are dialing in for Honeywell's fourth quarter 2020 earnings and 2021 outlook call or provide the conference code HON2021. 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. EST January 29 until 12:30 p.m. EST February 5 by dialing (888) 203-1112 (domestic) or (719) 457-0820 (international). The access code is 1005277.
TABLE 1: FULL-YEAR 2021 GUIDANCE
Sales
$33.4B - $34.4B
Organic Growth 1% - 4%
Segment Margin 20.7% - 21.1%
Expansion Up 30 -70 bps
Earnings Per Share
$7.60 - $8.00
Adjusted Earnings Growth(3) 7% - 13%
Operating Cash Flow
$5.7B - $6.1B
Free Cash Flow6
$5.1B - $5.5B
---
TABLE 2: SUMMARY OF HONEYWELL FINANCIAL RESULTS
FY 2020 FY 2019 Change
Sales 32,637 36,709 (11)%
Organic Growth (11)%
Segment Margin 20.4% 21.1%
-70 bps
Operating Income
Margin 17.5% 18.7%
-120 bps
Reported
Earnings Per
Share $6.72 $8.41 (20)%
Adjusted
Earnings Per
Share4 $7.10 $8.16 (13)%
Cash Flow from
Operations 6,208 6,897 (10)%
Conversion 130% 112% 18%
Adjusted Free
Cash Flow7 5,302 6,271 (15)%
Adjusted Free
Cash Flow
Conversion5 105% 105% -%
---
4Q 2020 4Q 2019 Change
Sales 8,900 9,496 (6)%
Organic Growth (7)%
Segment Margin 21.1% 21.4%
-30 bps
Operating Income
Margin 18.8% 17.8%
100 bps
Reported
Earnings Per
Share $1.91 $2.16 (12)%
Adjusted
Earnings Per
Share1 $2.07 $2.06 -%
Cash Flow from
Operations 2,782 2,614 6%
Conversion 205% 167% 38%
Adjusted Free
Cash Flow7 2,491 2,292 9%
Adjusted Free
Cash Flow
Conversion(2) 170% 154% 16%
---
TABLE 3: SUMMARY OF SEGMENT FINANCIAL RESULTS
AEROSPACE FY 2020 FY 2019 Change
Sales 11,544 14,054 (18)%
Organic Growth (18)%
Segment Profit 2,904 3,607 (19)%
Segment Margin 25.2% 25.7%
-50 bps
4Q 2020 4Q 2019
Sales 2,978 3,661 (19)%
Organic Growth (19)%
Segment Profit 822 954 (14)%
Segment Margin 27.6% 26.1%
150 bps
---
HONEYWELL BUILDING
TECHNOLOGIES FY 2020 FY 2019 Change
Sales 5,189 5,717 (9)%
Organic Growth (9)%
Segment Profit 1,099 1,165 (6)%
Segment Margin 21.2% 20.4%
80 bps
4Q 2020 4Q 2019
Sales 1,426 1,463 (3)%
Organic Growth (4)%
Segment Profit 305 297 3%
Segment Margin 21.4% 20.3%
110 bps
---
PERFORMANCE
MATERIALS AND
TECHNOLOGIES FY 2020 FY 2019 Change
Sales 9,423 10,834 (13)%
Organic Growth (13)%
Segment Profit 1,851 2,433 (24)%
Segment Margin 19.6% 22.5%
-290 bps
4Q 2020 4Q 2019
Sales 2,556 2,857 (11)%
Organic Growth (12)%
Segment Profit 478 643 (26)%
Segment Margin 18.7% 22.5%
-380 bps
---
SAFETY AND
PRODUCTIVITY
SOLUTIONS FY 2020 FY 2019 Change
Sales 6,481 6,104 6%
Organic Growth 6%
Segment Profit 907 790 15%
Segment Margin 14.0% 12.9%
110 bps
4Q 2020 4Q 2019
Sales 1,940 1,515 28%
Organic Growth 27%
Segment Profit 297 192 55%
Segment Margin 15.3% 12.7%
260 bps
---
(1)Adjusted EPS and adjusted EPS V%
exclude pension mark-to-market,
non-cash charges associated with
the reduction in value of
reimbursement receivables due from
Garrett Motion Inc. (Garrett), net
of proceeds from settlement of
related hedging transaction, and
2019 adjustments to the charges
taken in connection with the 4Q17
U.S. tax legislation charge.
(2)Adjusted free cash flow conversion
excludes impacts from 2019
separation cost payments related to
the spin-offs, pension mark-to-
market, non-cash charges associated
with the reduction in value of
reimbursement receivables due from
Garrett, net of proceeds from
settlement of related hedging
transaction, and 2019 adjustments to
the charges taken in connection with
the 4Q17 U.S. tax legislation
charge, if applicable.
(3)Adjusted EPS V% guidance excludes
pension mark-to-market, non-cash
charges associated with the
reduction in value of reimbursement
receivables due from Garrett, net of
proceeds from settlement of related
hedging transaction, and 2Q20
favorable resolution of a foreign
tax matter related to the spin-off
transactions.
4Adjusted EPS and adjusted EPS V%
exclude pension mark-to-market,
non-cash charges associated with
the reduction in value of
reimbursement receivables due from
Garrett, net of proceeds from
settlement of related hedging
transaction, 2Q20 favorable
resolution of a foreign tax matter
related to the spin-off
transactions, and 2019 adjustments
to the charges taken in connection
with the 4Q17 U.S. tax legislation
charge.
5Adjusted free cash flow conversion
excludes impacts from 2019
separation cost payments related to
the spin-offs, pension mark-to-
market, non-cash charges associated
with the reduction in value of
reimbursement receivables due from
Garrett, net of proceeds from
settlement of related hedging
transaction, 2Q20 favorable
resolution of a foreign tax matter
related to the spin-off
transactions, and 2019 adjustments
to the charges taken in connection
with the 4Q17 U.S. tax legislation
charge, if applicable.
6Free cash flow guidance assumes
proposed reorganization plan
contemplated in the plan support
agreement signed by Garrett is
confirmed; should such plan be
confirmed free cash flow definition
would be revised to include cash
payment from Garrett to Honeywell
under such proposed reorganization
plan. See appendix for details.
7Adjusted free cash flow excludes
impacts from 2019 separation cost
payments related to the spin-offs.
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 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 should the proposed reorganization plan contemplated in the plan support agreement signed by Garrett be confirmed, free cash flow definition would be revised to include cash payment from Garrett to Honeywell under such proposed reorganization plan; 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, adjustments to the charges taken in connection with the 4Q17 U.S. tax legislation charge, non-cash charges associated with the reduction in value of reimbursement receivables due from Garrett, net of proceeds from settlement of related hedging transaction, and 2Q20 favorable resolution of a foreign tax matter related to the spin-off transactions, if and as noted in the release; and adjusted earnings per share, which we adjust to exclude pension mark-to-market, adjustments to the charges taken in connection with the 4Q17 U.S. tax legislation charge, non-cash charges associated with the reduction in value of reimbursement receivables due from Garrett, net of proceeds from settlement of related hedging transaction, and 2Q20 favorable resolution of a foreign tax matter related to the spin-off transactions, 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 Twelve Months Ended
December 31, December 31,
---
2020 2019 2020 2019
---
Product sales $
6,804 $
7,133 $
24,737 $
27,629
Service sales 2,096 2,363 7,900 9,080
Net sales 8,900 9,496 32,637 36,709
Costs, expenses and other
Cost of products sold (1) 4,786 5,025 17,638 19,269
Cost of services sold (1) 1,190 1,303 4,531 5,070
5,976 6,328 22,169 24,339
Selling, general and administrative expenses (1) 1,248 1,473 4,772 5,519
Other (income) expense (129) (164) (675) (1,065)
Interest and other financial charges 95 91 359 357
7,190 7,728 26,625 29,150
Income before taxes 1,710 1,768 6,012 7,559
Tax expense 331 178 1,147 1,329
Net income 1,379 1,590 4,865 6,230
Less: Net income attributable to the noncontrolling interest 20 28 86 87
Net income attributable to Honeywell $
1,359 $
1,562 $
4,779 $
6,143
Earnings per share of common stock - basic $
1.94 $
2.19 $
6.79 $
8.52
Earnings per share of common stock - assuming dilution $
1.91 $
2.16 $
6.72 $
8.41
Weighted average number of shares outstanding - basic 701.8 713.5 704.1 721.0
Weighted average number of shares outstanding - 710.0 722.6 711.2 730.3
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 Twelve Months Ended
December 31, December 31,
---
Net Sales 2020 2019 2020 2019
--- ---
Aerospace $
2,978 $
3,661 $
11,544 $
14,054
Honeywell Building Technologies 1,426 1,463 5,189 5,717
Performance Materials and Technologies 2,556 2,857 9,423 10,834
Safety and Productivity Solutions 1,940 1,515 6,481 6,104
Total $
8,900 $
9,496 $
32,637 $
36,709
Reconciliation of Segment Profit to Income Before Taxes
---
Three Months Ended Twelve Months Ended
December 31, December 31,
---
Segment Profit 2020 2019 2020 2019
--- ---
Aerospace $
822 $
954 $
2,904 $
3,607
Honeywell Building Technologies 305 297 1,099 1,165
Performance Materials and Technologies 478 643 1,851 2,433
Safety and Productivity Solutions 297 192 907 790
Corporate (23) (54) (96) (256)
Total segment profit 1,879 2,032 6,665 7,739
Interest and other financial charges (95) (91) (359) (357)
Stock compensation expense (1) (50) (41) (168) (153)
Pension ongoing income (2) 192 143 785 592
Pension mark-to-market expense (44) (123) (44) (123)
Other postretirement income (2) 17 12 57 47
Repositioning and other charges (3,4) (89) (240) (575) (546)
Other (5) (100) 76 (349) 360
Income before taxes $
1,710 $
1,768 $
6,012 $
7,559
(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)
December 31, December 31,
2020 2019
---
ASSETS
Current assets:
Cash and cash equivalents $
14,275 $
9,067
Short-term investments 945 1,349
Accounts receivable-net 6,827 7,493
Inventories 4,489 4,421
Other current assets 1,639 1,973
Total current assets 28,175 24,303
Investments and long-term receivables 685 588
Property, plant and equipment-net 5,570 5,325
Goodwill 16,058 15,563
Other intangible assets-net 3,560 3,734
Insurance recoveries for asbestos related liabilities 366 392
Deferred income taxes 760 86
Other assets 9,412 8,688
Total assets $
64,586 $
58,679
LIABILITIES
Current liabilities:
Accounts payable $
5,750 $
5,730
Commercial paper and other short-term borrowings 3,597 3,516
Current maturities of long-term debt 2,445 1,376
Accrued liabilities 7,405 7,476
Total current liabilities 19,197 18,098
Long-term debt 16,342 11,110
Deferred income taxes 2,113 1,670
Postretirement benefit obligations other than pensions 242 326
Asbestos related liabilities 1,920 1,996
Other liabilities 6,975 6,766
Redeemable noncontrolling interest 7 7
Shareowners' equity 17,790 18,706
Total liabilities, redeemable noncontrolling interest and shareowners' equity $
64,586 $
58,679
Honeywell International Inc.
Consolidated Statement of Cash Flows (Unaudited)
---
(Dollars in millions)
Three Months Ended Twelve Months Ended
December 31, December 31,
---
2020 2019 2020 2019
---
Cash flows from operating activities:
Net income $
1,379 $
1,590 $
4,865 $
6,230
Less: Net income attributable to the noncontrolling interest 20 28 86 87
Net income attributable to Honeywell 1,359 1,562 4,779 6,143
Adjustments to reconcile net income attributable to Honeywell to net cash provided by
operating activities:
Depreciation 164 173 644 673
Amortization 90 96 358 415
Repositioning and other charges 89 240 575 546
Net payments for repositioning and other charges (181) (219) (833) (376)
Pension and other postretirement income (165) (32) (798) (516)
Pension and other postretirement benefit payments (10) (28) (47) (78)
Stock compensation expense 50 41 168 153
Deferred income taxes 114 477 (175) 179
Reimbursement receivables charge 159 509
Other 34 (384) (335) (286)
Changes in assets and liabilities, net of the effects of acquisitions and divestitures:
Accounts receivable 54 89 669 11
Inventories 217 176 (67) (100)
Other current assets (55) (362) 191 (430)
Accounts payable 475 207 15 118
Accrued liabilities 388 578 555 445
Net cash provided by (used for) operating activities 2,782 2,614 6,208 6,897
Cash flows from investing activities:
Expenditures for property, plant and equipment (291) (335) (906) (839)
Proceeds from disposals of property, plant and equipment 40 2 57 43
Increase in investments (865) (1,035) (3,236) (4,253)
Decrease in investments 874 1,146 3,508 4,464
Receipts (payments) from settlements of derivative contracts (74) (143) (149) 102
Cash paid for acquisitions, net of cash acquired (261) (46) (261) (50)
Net cash provided by (used for) investing activities (577) (411) (987) (533)
Cash flows from financing activities:
Proceeds from issuance of commercial paper and other short-term borrowings 1,897 3,907 10,474 14,199
Payments of commercial paper and other short-term borrowings (1,888) (3,906) (10,400) (14,199)
Proceeds from issuance of common stock 230 73 393 498
Proceeds from issuance of long-term debt 20 1 10,125 2,726
Payments of long-term debt (71) (2,783) (4,308) (2,903)
Repurchases of common stock (1,565) (750) (3,714) (4,400)
Cash dividends paid (671) (644) (2,592) (2,442)
Other (5) (7) (59) (79)
Net cash provided by (used for) financing activities (2,053) (4,109) (81) (6,600)
Effect of foreign exchange rate changes on cash and cash equivalents 87 65 68 16
Net increase (decrease) in cash and cash equivalents 239 (1,841) 5,208 (220)
Cash and cash equivalents at beginning of period 14,036 10,908 9,067 9,287
Cash and cash equivalents at end of period $
14,275 $
9,067 $
14,275 $
9,067
Honeywell International Inc.
Reconciliation of Organic Sales % Change (Unaudited)
---
Three Months
Twelve Months
Ended Ended
December 31, December 31,
2020 2020
---
Honeywell
Reported sales % change (6)% (11)%
Less: Foreign currency translation 1% -%
Less: Acquisitions, divestitures and other, net -% -%
---
Organic sales % change (7)% (11)%
Aerospace
Reported sales % change (19)% (18)%
Less: Foreign currency translation -% -%
Less: Acquisitions, divestitures and other, net -% -%
---
Organic sales % change (19)% (18)%
Honeywell Building Technologies
Reported sales % change (3)% (9)%
Less: Foreign currency translation 1% -%
Less: Acquisitions, divestitures and other, net -% -%
---
Organic sales % change (4)% (9)%
Performance Materials and Technologies
Reported sales % change (11)% (13)%
Less: Foreign currency translation 1% -%
Less: Acquisitions, divestitures and other, net -% -%
---
Organic sales % change (12)% (13)%
Safety and Productivity Solutions
Reported sales % change 28% 6%
Less: Foreign currency translation 1% -%
Less: Acquisitions, divestitures and other, net -% -%
---
Organic sales % change 27% 6%
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 Three Months Twelve Months Ended
December 31, Ended December 31,
September 30,
2020
---
2020 2019 2020 2019
---
Segment profit $
1,879 $
2,032 $
1,553 $
6,665 $
7,739
Stock compensation expense (1) (50) (41) (40) (168) (153)
Repositioning, Other (2,3) (111) (259) (161) (641) (598)
Pension and other postretirement service costs (4) (42) (37) (41) (160) (137)
Operating income $
1,676 $
1,695 $
1,311 $
5,696 $
6,851
Segment profit $
1,879 $
2,032 $
1,553 $
6,665 $
7,739
÷ Net sales $
8,900 $
9,496 $
7,797 $
32,637 $
36,709
Segment profit margin % 21.1 21.4 19.9 20.4 21.1
% % % % %
===
Operating income $
1,676 $
1,695 $
1,311 $
5,696 $
6,851
÷ Net sales $
8,900 $
9,496 $
7,797 $
32,637 $
36,709
Operating income margin % 18.8 17.8 16.8 17.5 18.7
% % % % %
===
(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, on an overall Honeywell basis, to operating income has not been provided for all forward-looking measures of segment profit and segment margin included herewithin. Management cannot reliably predict or estimate, without unreasonable effort, the impact and timing on future operating results arising from items excluded from segment profit. The information that is unavailable to provide a quantitative reconciliation could have a significant impact on our reported financial results. To the extent quantitative information becomes available without unreasonable effort in the future, and closer to the period to which the forward-looking measures pertain, a reconciliation of segment profit to operating income will be included within future filings.
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 Three Months Twelve Months Ended
December 31, Ended
December 31,
September
30, 2020
---
2020 2019 2020 2019
---
Earnings per share of common stock - $
1.91 $
2.16 $
1.07 $
6.72 $
8.41
assuming dilution (1)
Pension mark-to-market expense (2) 0.05 0.13 0.04 0.13
Separation related tax adjustment (3) - (0.26)
Impacts from U.S. Tax Reform - (0.23) (0.38)
Garrett related adjustment (4)(5) 0.11 0.49 0.60
Adjusted earnings per share of common stock $
2.07 $
2.06 $
1.56 $
7.10 $
8.16
- assuming dilution
(1) For the three months ended December
31, 2020 and 2019, adjusted earnings
per share utilizes weighted average
shares of approximately 710.0
million and 722.6 million. For the
twelve months ended December 31,
2020 and 2019, adjusted earnings per
share utilizes weighted average
shares of approximately 711.2
million and 730.3 million. For the
three months ended September 30,
2020, adjusted earnings per share
utilizes weighted average shares of
approximately 709.6 million.
(2) Pension mark-to-market expense uses
a blended tax rate of 25% and 24%
for 2020 and 2019.
(3) For the twelve months ended December
31, 2020, separation-related tax
adjustment of $186 million ($186
million net of tax) includes the
favorable resolution of a foreign
tax matter related to the spin-off
transactions.
(4) For the three months ended September
30, 2020, the adjustment was $350
million net of tax due to the non-
cash charge associated with the
reduction in value of reimbursement
receivables due from Garrett.
(5) For the three and twelve months ended
December 31, 2020, adjustments were
$77 million and $427 million net of
tax due to the non-cash charges
associated with the reduction in
value of reimbursement receivables
due from Garrett, net of proceeds
from settlement of related hedging
transactions.
We believe adjusted earnings per share, excluding spin-off impact, is a measure that is useful to investors and management in understanding our ongoing operations and in analysis of ongoing operating trends. For forward looking information, management cannot reliably predict or estimate, without unreasonable effort, the pension mark-to-market expense as it is dependent on macroeconomic factors, such as interest rates and the return generated on invested pension plan assets. We therefore do not include an estimate for the pension mark-to-market expense. Based on economic and industry conditions, future developments and other relevant factors, these assumptions are subject to change.
Honeywell International Inc.
Reconciliation of Cash Provided by Operating Activities to Adjusted Free Cash Flow and Calculation of Adjusted
Free Cash Flow Conversion (Unaudited)
---
(Dollars in millions)
Three Months Three Months Three Months Twelve Twelve
Ended Ended Ended Months Ended Months Ended
December 31, December 31, September 30, December 31, December 31,
2020 2019 2020 2020 2019
---
Cash provided by operating activities $
2,782 $
2,614 $
1,007 $
6,208 $
6,897
Expenditures for property, plant and equipment (291) (335) (249) (906) (839)
Free cash flow 2,491 2,279 758 5,302 6,058
Separation cost payments - 13 213
Adjusted free cash flow $
2,491 $
2,292 $
758 $
5,302 $
6,271
Net income attributable to Honeywell $
1,359 $
1,562 $
758 $
4,779 $
6,143
Separation related tax adjustment - (186)
Impacts from U.S. Tax Reform - (167) (281)
Pension mark-to-market 33 94 33 94
Garrett related adjustment(1)(2) 77 350 427
Adjusted net income attributable to Honeywell $
1,469 $
1,489 $
1,108 $
5,053 $
5,956
Cash provided by operating activities $
2,782 $
2,614 $
1,007 $
6,208 $
6,897
÷ Net income (loss) attributable to Honeywell $
1,359 $
1,562 $
758 $
4,779 $
6,143
Operating cash flow conversion 205 167 133 130 112
% % % % %
===
Adjusted free cash flow $
2,491 $
2,292 $
758 $
5,302 $
6,271
÷ Adjusted net income attributable to Honeywell $
1,469 $
1,489 $
1,108 $
5,053 $
5,956
Adjusted free cash flow conversion % 170 154 68
% 105 105
% % % %
===
(1) For the three months ended
September 30, 2020, the adjustment
was $350 million net of tax due to
the non-cash charge associated with
the reduction in value of
reimbursement receivables due from
Garrett.
(2) For the three and twelve months
ended December 31, 2020, adjustments
were $77 million and $427 million
net of tax due to the non-cash
charges associated with the
reduction in value of reimbursement
receivables due from Garrett, net of
proceeds from settlement of related
hedging transactions.
We define free cash flow as cash provided by operating activities less cash expenditures for property, plant and equipment.
We believe that this metric is useful to investors and management as a measure of cash generated by business operations that will be used to repay scheduled debt maturities and can be used to invest in future growth through new business development activities or acquisitions, pay dividends, repurchase stock or repay debt obligations prior to their maturities. This metric can also be used to evaluate our ability to generate cash flow from business operations and the impact that this cash flow has on our liquidity.
Honeywell International Inc.
Reconciliation of Cash Provided by Operating
Activities to Adjusted Free Cash Flow (Unaudited)
---
Twelve Months
Ended
December 31,
2021(E) ($B)
Cash provided
by operating
activities
~$5.7 - $6.1
Expenditures
for property,
plant and
equipment
~(1)
Garrett cash
receipts 0.4
Free cash flow
~$5.1 - $5.5
We define free cash flow as cash provided by operating activities less cash expenditures for property, plant and equipment plus Garrett cash receipts.
We believe that free cash flow is a non-GAAP metric that is useful to investors and management as a measure of cash generated by 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 operations and the impact that this cash flow has on our liquidity. For forward looking information, we do not provide cash flow conversion guidance on a GAAP basis as management cannot reliably predict or estimate, without unreasonable effort, the pension mark-to-market expense as it is dependent on macroeconomic factors, such as interest rates and the return generated on invested pension plan assets.
Should the proposed reorganization plan contemplated in the Plan Support Agreement signed by Centerbridge, Oaktree, Honeywell, Garrett and certain other parties thereto (the "Reorganization Plan") be confirmed by the bankruptcy court, we will revise our definition of free cash flow to include cash payments from Garrett to Honeywell. We believe this revised definition will be useful to investors and management because, under the IRA and TMA, cash reimbursements from Garret were classified as cash flow from operations, which offset cash payments made by the Company for asbestos and tax related matters. Should the Reorganization Plan be confirmed, the IRA and TMA will terminate, and instead of reimbursements classified as cash flow from operations, Honeywell will receive the cash payment stream contemplated under the Reorganization Plan. However, because the underlying reason for a cash payment stream from Garrett will not have changed, we believe that continuing to include cash payments from Garrett in free cash flow is useful to investors and management for comparability to prior periods.
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
