News Column

HONEYWELL INTERNATIONAL INC - Half-yearly Report

July 18, 2014

Honeywell Reports Second Quarter 2014 Sales Up 6% To $10.3 Billion; EPS Of $1.38 Per Share; Raising 2014 EPS Guidance -- Organic Sales Growth 3%; Strong Execution Across The Portfolio -- EPS Up 8% Reported, Up 12% Using Normalized Tax Rate -- Raising Low-End Proforma EPS Guidance To $5.45 - $5.55, From $5.40 - $5.55MORRIS TOWNSHIP, N.J., July 18, 2014 -- Honeywell (NYSE: HON) today announced its results for the second quarter of 2014: Total Honeywell ($ Millions, except Earnings Per Share) 2Q 2013 2Q 2014 Change Sales 9,693 10,253 6% Segment Margin 16.1% 16.7% 60 bps Operating Income Margin 14.3% 15.4% 110 bps Earnings Per Share $1.28$1.38 8% Earnings Per Share (At 26.5% Tax Rate) $1.22$1.37 12% Cash Flow from Operations 1,256 1,341 7% Free Cash Flow * 1,060 1,112 5% * Cash Flow from Operations Less Capital Expenditures "Honeywell had another terrific quarter and a very good first half of 2014," said Honeywell Chairman and CEO Dave Cote. "Strong execution across our businesses and continued momentum across the portfolio helped us to deliver stronger than expected earnings. We saw 6% sales growth and margin expansion in every business as our key growth and productivity initiatives continue to make a difference. Our short-cycle businesses, particularly Energy, Safety and Security, and Turbo Technologies, are benefiting from improving end markets, new product introductions, and geographic expansion, while our long-cycle businesses are growing robust backlogs supported by favorable macro trends and strong win rates. Our recently announced closing of the sale of Friction Materials was a significant step in our effort to align the Honeywell portfolio around Great Positions in Good Industries. We believe that our portfolio is well positioned for continued growth. As a result of our first half performance, we are raising the low end of our 2014 proforma EPS guidance by $0.05 with the expectation of improved organic growth and continued margin expansion in the second half of the year." The company is updating its full-year 2014 guidance and now expects: Full-Year Guidance 2014 2014 Change Prior Guidance Revised Guidance(3) vs. 2013 Sales $40.3 - $40.7B$40.2 - $40.4B 3% - 4% Segment Margin 16.6% - 16.9% 16.8% - 17.0% 50 - 70 bps Operating Income Margin(1) 15.2% - 15.5% 15.4% - 15.6% 120 - 140 bps Earnings Per Share(1) $5.40 - $5.55$5.45 - $5.55 10% - 12% Free Cash Flow(2) $3.8 - $4.0B$3.8 - $4.0B ~15% 1. Proforma, V% / bps Exclude Pension Mark-to-Market Adjustment 2. Cash Flow from Operations Less Capital Expenditures 3. Reflects Absence Of (~$300M) Friction Materials Sales in 2H 2014 On July 14, Honeywell announced that it will realign its Transportation Systems business segment with its Aerospace business segment to better take advantage of the engineering and technology similarities and the shared business models between these two business segments. Under the realigned segment reporting structure, the Company will have three business segments: Aerospace, Automation and Control Solutions, and Performance Materials and Technologies. This realignment has no impact on the Company's historical consolidated financial position, results of operations or cash flows. Effective with the reporting of third quarter 2014 results, the Company will report its financial performance based on the inclusion of Transportation Systems in Aerospace. To provide historical information on a basis consistent with its new reporting structure, the Company will make available during the third quarter of 2014 certain historical segment results recast to conform to the new reporting structure. The recasted financial information will not represent a restatement of previously issued financial statements. Second Quarter Segment Performance Aerospace ($ Millions) 2Q 2013 2Q 2014 % Change Sales 2,997 2,991 ~Flat Segment Profit 583 592 2% Segment Margin 19.5% 19.8% 30 bps * Sales were approximately flat compared with the second quarter of 2013 driven by 1% Commercial sales growth, offset by a (1%) decline in Defense & Space. Commercial OE sales were approximately flat in the quarter reflecting continued growth in OE build rates, offset by higher BGA OEM payments and engine shipment timing. Commercial Aftermarket growth of 1% was driven by an increase in spares sales, partially offset by fewer maintenance events. Defense & Space sales declined (1%) as a result of lower sales to the U.S. government, partially offset by strong international growth. * Segment profit was up 2%, and segment margins expanded 30 bps to 19.8%, driven by commercial excellence and productivity net of inflation, partially offset by BGA OEM payments, higher OE mix, and continued investments for growth. Automation and Control Solutions ($ Millions) 2Q 2013 2Q 2014 % Change Sales 3,270 3,607 10% Segment Profit 467 533 14% Segment Margin 14.3% 14.8% 50 bps * Sales were up 10% reported, 3% organic, compared with the second quarter of 2013, primarily driven by the favorable impact of acquisitions net of divestitures and growth in Energy, Safety, and Security, particularly Environmental and Combustion Controls and Honeywell Scanning & Mobility. ACS benefitted from strength in U.S. residential end markets and new product introductions, as well as continued growth in fire, gas, and the Americas Distribution business. * Segment profit was up 14% and segment margins expanded 50 bps to 14.8% driven by commercial excellence, productivity net of inflation, and higher volume, partially offset by the dilutive impact of acquisitions and continued investments for growth. Performance Materials and Technologies ($ Millions) 2Q 2013 2Q 2014 % Change Sales 2,479 2,636 6% Segment Profit 438 475 8% Segment Margin 17.7% 18.0% 30 bps * Sales were up 6% compared with the second quarter of 2013, driven by UOP catalyst and gas processing growth and higher sales in Advanced Materials, particularly Fluorine Products. * Segment profit was up 8% and segment margins increased 30 bps to 18.0%, driven by productivity net of inflation and higher volume, partially offset by price/raw headwinds in Resins & Chemicals, unfavorable UOP catalyst shipment mix versus the prior year, and continued investments for growth. Transportation Systems ($ Millions) 2Q 2013 2Q 2014 % Change Sales 947 1,019 8% Segment Profit 126 167 33% Segment Margin 13.3% 16.4% 310 bps * Sales were up 8% reported, 4% organic, compared with the second quarter of 2013, driven by continued growth from new platform launches, higher global automotive production, and increased commercial vehicle demand in Europe. * Segment profit was up 33% and segment margins increased 310 bps to 16.4% primarily driven by strong Turbo productivity and volume leverage, and operational improvements. Honeywell will discuss its results during its investor conference call today starting at 9:30 a.m. EDT. To participate, please dial (800) 862-9098 (domestic) or (785) 424-1051 (international) a few minutes before the 9:30 a.m. EDT start. Please mention to the operator that you are dialing in for Honeywell's second quarter 2014 investor conference call or provide the conference code HONQ214. 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 (http://www.honeywell.com/investor ). Investors can access a replay of the conference call from 12:00 p.m. EDT, July 18, until 11:59 p.m. EDT, July 25, by dialing (800) 757-4768 (domestic) or (402) 220-7227 (international). 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. Based in Morris Township, N.J., Honeywell's shares are traded on the New York, London, and Chicago Stock Exchanges. 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. Contacts: Media Investor Relations Robert C. Ferris Elena Doom (973) 455-3388 (973) 455-2222 rob.ferris@honeywell.comelena.doom@honeywell.com 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, 2014 2013 2014 2013 Product sales $ 8,278$ 7,744$ 16,123$ 15,218 Service sales 1,975 1,949 3,809 3,803 Net sales 10,253 9,693 19,932 19,021 Costs, expenses and other Cost of products sold (A) 6,047 5,750 11,826 11,317 Cost of services sold (A) 1,249 1,277 2,437 2,493 7,296 7,027 14,263 13,810 Selling, general and administrative expenses (A) 1,375 1,281 2,714 2,510 Other (income) expense (21) (24) (138) (52) Interest and other financial charges 80 80 159 164 8,730 8,364 16,998 16,432 Income before taxes 1,523 1,329 2,934 2,589 Tax expense 397 307 772 598 Net income 1,126 1,022 2,162 1,991 Less: Net income attributable to the noncontrolling interest 27 1 46 4 Net income attributable to Honeywell $ 1,099$ 1,021$ 2,116$ 1,987 Earnings per share of common stock - basic $ 1.40$ 1.30$ 2.70$ 2.53 Earnings per share of common stock - assuming dilution $ 1.38$ 1.28$ 2.66$ 2.49 Weighted average number of shares outstanding-basic 784.5 787.6 784.7 786.7 Weighted average number of shares outstanding - assuming dilution 795.4 798.1 795.9 797.6 (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 2014 2013 2014 2013 Aerospace $ 2,991$ 2,997$ 5,849$ 5,908 Automation and Control Solutions 3,607 3,270 6,969 6,349 Performance Materials and Technologies 2,636 2,479 5,102 4,903 Transportation Systems 1,019 947 2,012 1,861 Total $ 10,253$ 9,693$ 19,932$ 19,021 Reconciliation of Segment Profit to Income Before Taxes Three Months Ended Six Months Ended June 30, June 30, Segment Profit 2014 2013 2014 2013 Aerospace $ 592$ 583$ 1,141$ 1,134 Automation and Control Solutions 533 467 1,004 890 Performance Materials and Technologies 475 438 948 912 Transportation Systems 167 126 321 237 Corporate (58) (55) (109) (106) Total segment profit 1,709 1,559 3,305 3,067 Other income (expense) (A) 10 13 121 32 Interest and other financial charges (80) (80) (159) (164) Stock compensation expense (B) (50) (37) (102) (91) Pension ongoing income (B) 64 25 125 46 Other postretirement income (expense) (B) (13) 20 (25) (2) Repositioning and other charges (B) (117) (171) (331) (299) Income before taxes $ 1,523$ 1,329$ 2,934$ 2,589 (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, 2014 2013 ASSETS Current assets: Cash and cash equivalents $ 6,582$ 6,422 Accounts, notes and other receivables 8,350 7,929 Inventories 4,511 4,293 Deferred income taxes 803 849 Investments and other current assets 2,207 1,671 Total current assets 22,453 21,164 Investments and long-term receivables 488 393 Property, plant and equipment - net 5,316 5,278 Goodwill 13,049 13,046 Other intangible assets - net 2,378 2,514 Insurance recoveries for asbestos related liabilities 432 595 Deferred income taxes 176 368 Other assets 2,304 2,077 Total assets $ 46,596$ 45,435 LIABILITIES AND SHAREOWNERS' EQUITY Current liabilities: Accounts payable $ 5,276$ 5,174 Short-term borrowings 96 97 Commercial paper 2,249 1,299 Current maturities of long-term debt 60 632 Accrued liabilities 6,643 6,979 Total current liabilities 14,324 14,181 Long-term debt 6,839 6,801 Deferred income taxes 795 804 Postretirement benefit obligations other than pensions 978 1,019 Asbestos related liabilities 1,146 1,150 Other liabilities 3,508 3,734 Redeemable noncontrolling interest 189 167 Shareowners' equity 18,817 17,579 Total liabilities, redeemable noncontrolling interest and shareowners' equity $ 46,596$ 45,435 Honeywell International Inc Consolidated Statement of Cash Flows (Unaudited) (Dollars in millions) Three Months Ended Six Months Ended June 30, June 30, 2014 2013 2014 2013 Cash flows from operating activities: Net income $ 1,126$ 1,022$ 2,162$ 1,991 Less: Net income attributable to the noncontrolling interest 27 1 46 4 Net income attributable to Honeywell 1,099 1,021 2,116 1,987 Adjustments to reconcile net income attributable to Honeywell to net cash provided by operating activities: Depreciation and amortization 233 247 471 495 Loss on sale of non-strategic businesses and assets 10 - 10 - Gain on sale of available for sale investments - - (105) - Repositioning and other charges 117 171 331 299 Net payments for repositioning and other charges (9) (199) (134) (297) Pension and other postretirement income (51) (45) (100) (44) Pension and other postretirement benefit payments (49) (42) (85) (213) Stock compensation expense 50 37 102 91 Deferred income taxes 66 158 68 185 Excess tax benefits from share based payment arrangements (19) (57) (49) (81) Other 91 (101) 67 (134) Changes in assets and liabilities, net of the effects of acquisitions and divestitures: Accounts, notes and other receivables (271) (53) (425) (195) Inventories (107) 15 (222) (36) Other current assets (104) (14) 132 4 Accounts payable 141 265 100 (30) Accrued liabilities 144 (147) (248) (434) Net cash provided by operating activities 1,341 1,256 2,029 1,597 Cash flows from investing activities: Expenditures for property, plant and equipment (229) (196) (421) (344) Proceeds from disposals of property, plant and equipment 4 6 11 6 Increase in investments (1,093) (286) (1,724) (460) Decrease in investments 533 210 943 376 Cash paid for acquisitions, net of cash acquired (2) (338) (2) (460) Proceeds from sales of businesses, net of fees paid 1 - 1 - Other (74) 52 (13) 19 Net cash used for investing activities (860) (552) (1,205) (863) Cash flows from financing activities: Net (decrease) increase in commercial paper (150) - 950 800 Net increase (decrease) in short-term borrowings 4 13 (6) 21 Proceeds from issuance of common stock 69 139 161 303 Proceeds from issuance of long-term debt 20 6 45 13 Payments of long-term debt (4) (1) (606) (601) Excess tax benefits from share based payment arrangements 19 57 49 81 Repurchases of common stock (231) (463) (551) (602) Cash dividends paid (373) (343) (736) (665) Net cash used for financing activities (646) (592) (694) (650) Effect of foreign exchange rate changes on cash and cash equivalents 75 (102) 30 (169) Net (decrease) increase in cash and cash equivalents (90) 10 160 (85) Cash and cash equivalents at beginning of period 6,672 4,539 6,422 4,634 Cash and cash equivalents at end of period $ 6,582$ 4,549$ 6,582$ 4,549 Honeywell International Inc Reconciliation of Cash Provided by Operating Activities to Free Cash Flow (Unaudited) (Dollars in millions) Three Months Ended June 30, 2014 2013 Cash provided by operating activities $ 1,341$ 1,256 Expenditures for property, plant and equipment (229) (196) Free cash flow $ 1,112$ 1,060 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 June 30, 2014 2013 Segment Profit $ 1,709$ 1,559 Stock compensation expense (A) (50) (37) Repositioning and other (A, B) (128) (182) Pension ongoing income (A) 64 25 Other postretirement income (expense) (A) (13) 20 Operating Income $ 1,582$ 1,385 Segment Profit $ 1,709$ 1,559 Sales $ 10,253$ 9,693 Segment Profit Margin % 16.7% 16.1% Operating Income $ 1,582$ 1,385 Sales $ 10,253$ 9,693 Operating Income Margin % 15.4% 14.3% (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, 2014 2013 Income before taxes $ 1,523$ 1,329 Taxes at 26.5% 404 352 Net income at 26.5% tax rate $ 1,119$ 977 Less: Net income attributable to the noncontrolling interest 27 1 Net income attributable to Honeywell at 26.5% tax rate $ 1,092$ 976 Weighted average number of shares outstanding - assuming dilution 795.4 798.1 EPS at 26.5% tax rate $ 1.37$ 1.22 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 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, 2013 Segment Profit $ 6,351 Stock compensation expense (A) (170) Repositioning and other (A, B) (699) Pension ongoing income (A) 90 Pension mark-to-market adjustment (A) (51) Other postretirement expense (A) (20) Operating Income $ 5,501 Pension mark-to-market adjustment (A) $ (51) Operating Income excluding pension mark-to-market adjustment $ 5,552 Segment Profit $ 6,351 Sales $ 39,055 Segment Profit Margin % 16.3% Operating Income $ 5,501 Sales $ 39,055 Operating Income Margin % 14.1% Operating Income excluding pension mark-to-market adjustment $ 5,552 Sales $ 39,055 Operating Income Margin excluding pension mark-to-market adjustment % 14.2% (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 billions) 2014 Guidance Segment Profit $6.7 - 6.9 Stock compensation expense (A) ~(0.2) Repositioning and other (A, B) ~(0.6) Pension ongoing income (A) ~0.2 Pension mark-to-market adjustment (A) TBD Other postretirement expense (A) ~(0.1) Operating Income $6.1 - 6.3 Pension mark-to-market adjustment (A) TBD Operating Income excluding pension mark-to-market adjustment $6.1 - 6.3 Segment Profit $6.7 - 6.9 Sales $40.2 - 40.4 Segment Profit Margin % 16.8% - 17.0% Operating Income $6.1 - 6.3 Sales $40.2 - 40.4 Operating Income Margin % 15.4% - 15.6% Operating Income excluding pension mark-to-market adjustment $6.1 - 6.3 Sales $40.2 - 40.4 Operating Income Margin excluding pension mark-to-market adjustment % 15.4% - 15.6% (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 Cash Provided by Operating Activities to Free Cash Flow (Unaudited) (Dollars in millions) Twelve Months Ended December 31, 2013 Cash provided by operating activities $ 4,335 Expenditures for property, plant and equipment (947) $ 3,388 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, 2013 EPS $ 4.92 Pension mark-to-market adjustment 0.05 EPS, excluding pension mark-to-market adjustment $ 4.97 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 797.3 million. Mark-to-market uses a blended tax rate of 25.5%. SOURCE Honeywell




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