Honeywell Reports Second Quarter 2015 Sales Of $9.8 Billion; EPS Of $1.51 Per Share; Raising 2015 EPS Guidance

- EPS Up 9% Reported, Up 10% Normalized at 26.5% Tax Rate

- Core Organic Sales Growth 3%* Driven By Commercial Aero, ESS and Advanced Materials

- Reported Sales Decline 5% Due to Foreign Currency and FM Divestiture

- Segment Margin Improvement of 170 bps to 18.4%

- Raising 2015 EPS Guidance Range to $6.05 - $6.15, Up 9%-11%

Jul 17, 2015, 07:00 ET from Honeywell

MORRIS TOWNSHIP, N.J., July 17, 2015 /PRNewswire/ -- Honeywell (NYSE: HON) today announced its results for the second quarter of 2015:

Total Honeywell

($ Millions, except Earnings Per Share)

2Q 2014

2Q 2015

Change

Sales

10,253

9,775

(5%)

Segment Margin

16.7%

18.4%

170 bps

Operating Income Margin

15.4%

17.6%

220 bps

Earnings Per Share

$1.38

$1.51

9%

Earnings Per Share (At 26.5% Tax Rate)

$1.37

$1.51

10%

Cash Flow from Operations

1,341

1,408

5%

Free Cash Flow (1)

1,112

1,165

5%

(1)  Cash Flow from Operations Less Capital Expenditures

 

"Honeywell had a terrific second quarter capping off a strong first half of 2015," said Honeywell Chairman and CEO Dave Cote.  "We delivered 3% core organic sales growth and had another quarter of double-digit earnings growth when normalized for tax.  We saw growth acceleration in both the short- and long-cycle businesses within Aerospace, continued growth in our commercial and industrial businesses within ACS, and higher volume across our Advanced Materials portfolio, particularly in Fluorine Products.  We saw margin expansion in each segment, with a significant portion from gross margin, as our new products, process focus, disciplined cost management, and restructuring continue to distinguish Honeywell's performance.  We remain committed to seed planting and process improvements throughout our portfolio.  Once again we proactively funded repositioning actions that will improve our cost position and drive the efficiencies necessary for winning in a slow growth global economy.  Our great first half performance gives us confidence to again raise the low end of our full-year EPS guidance range by $0.05 to $6.05-$6.15, and we remain committed to our full-year core organic sales growth and free cash flow estimates.  We believe that our balanced portfolio of short- and long-cycle businesses, penetration in High Growth Regions, and the deployment of our key process initiatives will continue to drive results this year and over the long term."

The company is updating its full-year 2015 guidance and now expects:

2015 Full-Year Guidance

Change

Prior Guidance

Revised Guidance

vs. 2014 

Sales

 $39.0 - $39.6B

 $39.0 - $39.6B

(2%) - (3%)

Core Organic Growth

~3%

~3%

Segment Margin

18.3% - 18.6%

18.4% - 18.6%

180 - 200 bps (2)

Operating Income Margin (Ex-Pension MTM)

17.4% - 17.7%

17.5% - 17.7%

240 - 260 bps (3)

Earnings Per Share (Ex-Pension MTM)

$6.00 - $6.15

$6.05 - $6.15

9% - 11%

Free Cash Flow (1)

 $4.2 - $4.3B

 $4.2 - $4.3B

8% - 10%

1. Cash Flow from Operations Less Capital Expenditures

2. Segment Margin ex-4Q14 $184M OEM Incentives Up 140 - 160 bps

3. Operating Margin ex-4Q14 $184M OEM Incentives Up 200 - 220 bps

 

Second Quarter Segment Performance

Aerospace

($ Millions)

2Q 2014

2Q 2015

% Change

Sales

4,010

3,827

(5%)

Segment Profit

759

777

2%

Segment Margin

18.9%

20.3%

140 bps

  • Sales for the second quarter were up 3% on a core organic basis, and were down 5% reported driven by the Friction Materials divestiture and the unfavorable impact of foreign currency in Transportation Systems. Commercial OE sales were up 6% on a reported and core organic basis driven by strong Business and General Aviation (BGA) engine shipments. Commercial Aftermarket sales were up 3% on a core organic basis (2% reported) driven by continued growth in repair and overhaul activities and Air Transport and Regional (ATR) spares growth, partially offset by a decline in RMU (Retrofit, Modifications, and Upgrades) sales in BGA. Defense & Space sales increased 1% on a core organic basis (flat reported) driven by strong international growth, partially offset by lower sales to the U.S. government. Transportation Systems sales were up 5% on a core organic basis driven by new platform launches and higher gas turbo penetration globally. TS sales were down 25% reported due to the Friction Materials divestiture and the unfavorable impact of foreign currency.
  • Segment profit was up 2% and segment margins expanded 140 bps to 20.3%, driven by commercial excellence, the favorable impact of the Friction Materials divestiture, foreign currency hedges, and productivity net of inflation, partially offset by the margin impact of higher OE shipments.

Automation and Control Solutions

($ Millions)

2Q 2014

2Q 2015

% Change

Sales

3,607

3,553

(1%)

Segment Profit

533

567

6%

Segment Margin

14.8%

16.0%

120 bps

  • Sales for the second quarter were up 4% on a core organic basis and down 1% reported driven by the unfavorable impact of foreign currency. Energy, Safety, and Security (ESS) sales increased 5% on a core organic basis (flat reported) driven primarily by continued growth in Scanning & Mobility, Security, and Fire Safety. Building Solutions & Distribution (BSD) sales increased 3% on a core organic basis (down 4% reported) driven by continued strength in Americas Distribution.
  • Segment profit was up 6% and segment margins expanded 120 bps to 16.0% driven by productivity net of inflation and higher volume, partially offset by continued investments for growth.

Performance Materials and Technologies

($ Millions)

2Q 2014

2Q 2015

% Change

Sales

2,636

2,395

(9%)

Segment Profit

475

509

7%

Segment Margin

18.0%

21.3%

330 bps

  • Sales were down 1% on a core organic basis and down 9% reported driven by the unfavorable impact of foreign currency and raw materials pricing in Resins & Chemicals. The decrease in core organic sales was primarily driven by lower volume in UOP and HPS associated with delays in customer projects and lower UOP catalyst shipments, partially offset by higher volume across Advanced Materials, particularly in Fluorine Products.
  • Segment profit was up 7% and segment margins increased 330 bps to 21.3%, driven by productivity net of inflation, commercial excellence, and the impact of raw materials pricing in Resins & Chemicals.

Honeywell will discuss its results during its investor conference call today starting at 9:30 a.m. EDT.  To participate, please dial (888) 298-3451 (domestic) or (719) 457-2605 (international) approximately ten minutes before the 9:30 a.m. EDT start. Please mention to the operator that you are dialing in for Honeywell's second quarter 2015 earnings call or provide the conference code HON2Q15.  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, July 17, until 12:30 p.m. EDT, July 24, by dialing (888) 203-1112 (domestic) or (719) 457-0820 (international). The access code is 8213026.

Honeywell (www.honeywell.com) is a Fortune 100 diversified technology and manufacturing leader, serving customers worldwide with aerospace products and services; control technologies for buildings, homes, and industry; turbochargers; and performance materials.  For more news and information on Honeywell, please visit www.honeywellnow.com.

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.

*Throughout this press release, core organic sales growth refers to reported sales growth less the impacts from foreign currency movement, M&A and raw materials pricing in the Resins & Chemicals business of PMT. The raw materials pricing impact is excluded in instances where raw materials costs are passed through to customers, which drives fluctuations in selling prices not necessarily tied to volume growth.  A reconciliation of core organic sales growth to reported sales growth is provided in the attached financial tables.

 

Honeywell International Inc.

Consolidated Statement of Operations (Unaudited)

(Dollars in millions, except per share amounts)

Three Months Ended

 Six Months Ended

June 30,

June 30,

2015

2014

2015

2014

Product sales

$         7,798

$      8,278

$      15,162

$      16,123

Service sales

1,977

1,975

3,826

3,809

Net sales

9,775

10,253

18,988

19,932

Costs, expenses and other

    Cost of products sold  (A)

5,541

6,047

10,754

11,826

    Cost of services sold  (A)

1,273

1,249

2,422

2,437

6,814

7,296

13,176

14,263

    Selling, general and administrative expenses (A)

1,242

1,375

2,472

2,714

    Other (income) expense

(20)

(21)

(40)

(138)

    Interest and other financial charges

77

80

154

159

8,113

8,730

15,762

16,998

Income before taxes

1,662

1,523

3,226

2,934

Tax expense

440

397

858

772

Net income

1,222

1,126

2,368

2,162

Less: Net income attributable to the noncontrolling interest

28

27

58

46

Net income attributable to Honeywell

$         1,194

$      1,099

$        2,310

$        2,116

Earnings per share of common stock - basic

$           1.52

$        1.40

$          2.95

$          2.70

Earnings per share of common stock - assuming dilution

$           1.51

$        1.38

$          2.91

$          2.66

Weighted average number of shares outstanding - basic

783.3

784.5

783.5

784.7

Weighted average number of shares outstanding - assuming dilution

792.9

795.4

793.4

795.9

 

(A) Cost of products and services sold and selling, general and administrative expenses include amounts for repositioning and other charges, pension and other postretirement (income) expense, and stock compensation expense.

 

Honeywell International Inc.

Segment Data (Unaudited)

(Dollars in millions)

Three Months Ended

Six Months Ended

June 30,

June 30,

Net Sales

2015

2014

2015

2014

Aerospace

$         3,827

$         4,010

$         7,434

$         7,861

Automation and Control Solutions

3,553

3,607

6,817

6,969

Performance Materials and Technologies

2,395

2,636

4,737

5,102

     Total

$         9,775

$       10,253

$       18,988

$       19,932

Reconciliation of Segment Profit to Income Before Taxes

Three Months Ended

Six Months Ended

June 30,

June 30,

Segment Profit

2015

2014

2015

2014

Aerospace

$            777

$            759

$         1,529

$         1,462

Automation and Control Solutions

567

533

1,083

1,004

Performance Materials and Technologies

509

475

1,012

948

Corporate

(50)

(58)

(100)

(109)

     Total segment profit

1,803

1,709

3,524

3,305

Other income (A)

12

10

24

121

Interest and other financial charges

(77)

(80)

(154)

(159)

Stock compensation expense (B)

(39)

(50)

(91)

(102)

Pension ongoing income (B)

103

64

203

125

Other postretirement expense (B)

(11)

(13)

(20)

(25)

Repositioning and other charges (B)

(129)

(117)

(260)

(331)

Income before taxes

$         1,662

$         1,523

$         3,226

$         2,934

(A)

Equity income (loss) of affiliated companies is included in segment profit.

(B)

Amounts included in cost of products and services sold and selling, general and administrative expenses.

 

Honeywell International Inc.

Consolidated Balance Sheet (Unaudited)

(Dollars in millions)

June 30,

December 31,

2015

2014

ASSETS

Current assets:

    Cash and cash equivalents

$      5,954

$      6,959

    Accounts, notes and other receivables

8,237

7,960

    Inventories

4,447

4,405

    Deferred income taxes

659

722

    Investments and other current assets

3,883

2,145

Total current assets

23,180

22,191

Investments and long-term receivables

491

465

Property, plant and equipment - net

5,381

5,383

Goodwill

12,763

12,788

Other intangible assets - net

2,141

2,208

Insurance recoveries for asbestos related liabilities

433

454

Deferred income taxes

365

404

Other assets

1,658

1,558

Total assets

$    46,412

$    45,451

LIABILITIES AND SHAREOWNERS' EQUITY

Current liabilities:

    Accounts payable

$      5,352

$      5,365

    Short-term borrowings

25

51

    Commercial paper

2,795

1,647

    Current maturities of long-term debt

1,337

939

    Accrued liabilities

6,065

6,771

Total current liabilities

15,574

14,773

Long-term debt

5,562

6,046

Deferred income taxes

300

236

Postretirement benefit obligations other than pensions

921

911

Asbestos related liabilities

1,198

1,200

Other liabilities

4,001

4,282

Redeemable noncontrolling interest

259

219

Shareowners' equity

18,597

17,784

Total liabilities, redeemable noncontrolling interest and shareowners' equity

$    46,412

$    45,451

 

 

Honeywell International Inc.

 Consolidated Statement of Cash Flows (Unaudited)

(Dollars in millions)

Three Months Ended

Six Months Ended

June 30,

June 30,

2015

2014

2015

2014

Cash flows from operating activities:

    Net income

$   1,222

$   1,126

$  2,368

$ 2,162

    Less: Net income attributable to the noncontrolling interest

28

27

58

46

    Net income attributable to Honeywell

1,194

1,099

2,310

2,116

    Adjustments to reconcile net income attributable to Honeywell to net

    cash provided by operating activities:

        Depreciation

172

165

335

333

        Amortization

54

68

107

138

        Loss on sale of non-strategic businesses and assets

-

10

-

10

        Gain on sale of available for sale investments

-

-

-

(105)

        Repositioning and other charges

129

117

260

331

        Net payments for repositioning and other charges

(115)

(9)

(215)

(134)

        Pension and other postretirement income

(92)

(51)

(183)

(100)

        Pension and other postretirement benefit payments

(39)

(49)

(48)

(85)

        Stock compensation expense

39

50

91

102

        Deferred income taxes

33

66

126

68

        Excess tax benefits from share based payment arrangements

(9)

(19)

(56)

(49)

        Other

205

91

103

67

        Changes in assets and liabilities, net of the effects of

        acquisitions and divestitures:

           Accounts, notes and other receivables

(80)

(271)

(250)

(425)

           Inventories

61

(107)

(25)

(222)

           Other current assets

(96)

(104)

(38)

132

           Accounts payable

88

141

(24)

100

           Accrued liabilities

(136)

144

(664)

(248)

Net cash provided by operating activities

1,408

1,341

1,829

2,029

Cash flows from investing activities:

    Expenditures for property, plant and equipment

(243)

(229)

(408)

(421)

    Proceeds from disposals of property, plant and equipment

2

4

3

11

    Increase in investments

(2,365)

(1,093)

(3,866)

(1,724)

    Decrease in investments

953

533

2,059

943

    Cash paid for acquisitions, net of cash acquired

-

(2)

(185)

(2)

    Proceeds from sales of businesses, net of fees paid

-

1

2

1

    Other

28

(74)

(150)

(13)

Net cash used for investing activities

(1,625)

(860)

(2,545)

(1,205)

Cash flows from financing activities:

    Net increase (decrease) in commercial paper

100

(150)

1,148

950

    Net (decrease) increase in short-term borrowings

(23)

4

(19)

(6)

    Proceeds from issuance of common stock

47

69

125

161

    Proceeds from issuance of long-term debt

11

20

14

45

    Payments of long-term debt

(22)

(4)

(57)

(606)

    Excess tax benefits from share based payment arrangements

9

19

56

49

    Repurchases of common stock

(123)

(231)

(486)

(551)

    Cash dividends paid

(436)

(373)

(851)

(736)

Net cash used for financing activities

(437)

(646)

(70)

(694)

Effect of foreign exchange rate changes on cash and cash equivalents

33

75

(219)

30

Net (decrease) increase in cash and cash equivalents

(621)

(90)

(1,005)

160

Cash and cash equivalents at beginning of period

6,575

6,672

6,959

6,422

Cash and cash equivalents at end of period

$   5,954

$   6,582

$  5,954

$ 6,582

 

 

Honeywell International Inc.

Reconciliation of Cash Provided by Operating Activities to Free Cash Flow (Unaudited)

(Dollars in millions)

Three Months Ended

June 30,

2015

2014

Cash provided by operating activities

$         1,408

$         1,341

Expenditures for property, plant and equipment

(243)

(229)

Free cash flow

$         1,165

$         1,112

 

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, and to 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)

Three Months Ended

 Six Months Ended

June 30,

June 30,

2015

2014

2015

2014

Segment Profit

$         1,803

$        1,709

$      3,524

$      3,305

Stock compensation expense (A)

(39)

(50)

(91)

(102)

Repositioning and other (A, B)

(137)

(128)

(276)

(348)

Pension ongoing income (A)

103

64

203

125

Other postretirement expense (A)

(11)

(13)

(20)

(25)

Operating Income

$         1,719

$        1,582

$      3,340

$      2,955

Segment Profit

$         1,803

$        1,709

$      3,524

$      3,305

÷ Sales

$         9,775

$      10,253

$    18,988

$    19,932

Segment Profit Margin %

18.4%

16.7%

18.6%

16.6%

Operating Income

$         1,719

$        1,582

$      3,340

$      2,955

÷ Sales

$         9,775

$      10,253

$    18,988

$    19,932

Operating Income Margin %

17.6%

15.4%

17.6%

14.8%

(A) Included in cost of products and services sold and selling, general and administrative expenses.

(B) Includes repositioning, asbestos, environmental expenses and equity income adjustment.

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 Segment Profit to Operating Income Excluding Pension Mark-to-Market Adjustment and

Calculation of Segment Profit and Operating Income Margins Excluding Pension Mark-to-Market Adjustment (Unaudited)

(Dollars in millions)

Twelve Months Ended

December 31,

2014

Segment Profit

$        6,696

Stock compensation expense (A)

(187)

Repositioning and other (A, B)

(634)

Pension ongoing income (A)

254

Pension mark-to-market adjustment (A)

(249)

Other postretirement expense (A)

(49)

Operating Income

$        5,831

Pension mark-to-market adjustment (A)

(249)

Operating Income excluding pension mark-to-market adjustment

$        6,080

Segment Profit

$        6,696

÷ Sales

$      40,306

Segment Profit Margin %

16.6%

Operating Income

$        5,831

÷ Sales

$      40,306

Operating Income Margin %

14.5%

Operating Income excluding pension mark-to-market adjustment

$        6,080

÷ Sales

$      40,306

Operating Income Margin excluding pension mark-to-market adjustment %

15.1%

(A) Included in cost of products and services sold and selling, general and administrative expenses.

(B) Includes repositioning, asbestos, environmental expenses and equity income adjustment.

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.

Calculation of EPS at 26.5% Tax Rate (Unaudited)

(Dollars in millions, except per share amounts)

Three Months Ended

June 30,

2015

2014

Income before taxes

$       1,662

$       1,523

Taxes at 26.5%

440

404

Net income at 26.5% tax rate

1,222

1,119

Less: Net income attributable to the noncontrolling interest

28

27

Net income attributable to Honeywell at 26.5% tax rate

$       1,194

$       1,092

Weighted average number of shares outstanding - assuming dilution

792.9

795.4

EPS at 26.5% tax rate

$         1.51

$         1.37

We believe EPS adjusted to expected full-year tax rate at 26.5% is a measure that is useful to investors and management in understanding our ongoing operations and in analysis of ongoing operating trends.

 

Honeywell International Inc.

Reconciliation of Core Organic Sales Growth (Unaudited)

Three Months Ended

June 30,

2015

Honeywell

Reported sales growth

(5%)

Foreign currency, acquisitions, divestitures and other

7%

Raw Materials Pricing in R&C

1%

Core organic sales growth

3%

PMT

Reported sales growth

(9%)

Foreign currency, acquisitions, divestitures and other

4%

Raw Materials Pricing in R&C

4%

Core organic sales growth

(1%)

 

Throughout this press release, core organic sales growth refers to reported sales growth less the impacts from foreign currency movement, M&A and raw materials pricing in the Resins & Chemicals business of PMT. The raw materials pricing impact is excluded in instances where raw materials costs are passed through to customers, which drives fluctuations in selling prices not necessarily tied to volume growth.

We believe core organic sales growth is a measure that is 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 Free Cash Flow (Unaudited)

(Dollars in millions)

Twelve Months Ended

December 31,

2014

Cash provided by operating activities

$      5,024

Expenditures for property, plant and equipment

(1,094)

Free cash flow

$      3,930

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, and to 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 Earnings Per Share to Earnings Per Share, Excluding Pension Mark-to-Market Adjustment (Unaudited)

Twelve Months Ended

December 31,

2014

EPS

$          5.33

Pension mark-to-market adjustment

0.23

EPS, excluding pension mark-to-market adjustment                                                            

$          5.56

 

We believe EPS, excluding pension mark-to-market adjustment is a measure that is useful to investors and management in understanding our ongoing operations and in analysis of ongoing operating trends.   

EPS utilizes weighted average shares outstanding - assuming dilution of 795.2 million. Pension mark-to-market adjustment uses a blended tax rate of 28.1%. 

 

Contacts:

Media

Investor Relations

Robert C. Ferris

Mark Macaluso

(973) 455-3388

(973) 455-2222

rob.ferris@honeywell.com

mark.macaluso@honeywell.com

 

SOURCE Honeywell



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