Honeywell Beats Guidance And Delivers 8% Reported Sales Growth And 29% Operating Cash Flow Growth; Raises High End Of 2018 Earnings Guidance(1) By 10 Cents

Honeywell Beats Guidance And Delivers 8% Reported Sales Growth And 29% Operating Cash Flow Growth; Raises High End Of 2018 Earnings Guidance(1) By 10 Cents

- Reported Earnings per Share of $1.68; EPS(2) of $2.12 (Excl. Separation Costs and Other Items), Up 18%

- Organic Sales Up 6% Driven by Widespread Growth Across the Business

- Free Cash Flow (Excl. Separation Cost Impacts) Up 42%, Conversion(3) 108%

- Also Raising Full-Year Sales, Segment Margin, and Free Cash Flow(4) Guidance

PR Newswire

MORRIS PLAINS, N.J., July 20, 2018 /PRNewswire/ -- Honeywell (NYSE: HON) today announced financial results for the second quarter of 2018 and raised its full-year sales, segment margin, earnings per share1, and free cash flow4 guidance.

"Honeywell delivered another outstanding quarter with continued top-line growth, strong margin expansion, and double-digit earnings per share and free cash flow growth. Organic sales grew 6 percent, driven by continued strength in Aerospace; demand for Intelligrated warehouse automation solutions; and growth in residential thermal solutions, thermostats and ADI global distribution in our Homes business. We also saw continued robust short-cycle demand for our process automation solutions. The increased volumes, combined with our operational excellence initiatives, drove 60 basis points of segment margin expansion, above the high end of the guidance we provided in April. Our operational performance resulted in earnings per share2 (excluding separation costs and other items) of $2.12, up 18 percent, exceeding the high end of our guidance range," said Darius Adamczyk, Chairman and Chief Executive Officer of Honeywell. "We generated approximately $1.7 billion of free cash flow (excluding separation costs) in the quarter, up 42 percent, with conversion3 of 108 percent, and we continued to put our strong balance sheet to work by repurchasing about $800 million in Honeywell shares in the second quarter. In the first half of the year, we repurchased approximately $1.7 billion in Honeywell shares.

"Given our strong second-quarter performance and confident outlook, we are raising our 2018 guidance. For the full year, we now expect organic sales growth to be 5 to 6 percent, segment margin expansion to be 40 to 60 basis points, earnings per share1 to be $8.05 to $8.15, and free cash flow4 to be $5.6 to $6.2 billion," Adamczyk said.

"Our software and Connected offerings continue to gain traction. Across our segments, Connected software sales have grown double-digits year-to-date. The portfolio transformation activities we announced last year are nearly complete, with the spin of our Transportation Systems business, Garrett, expected to be complete by the end of the third quarter, and the spin of our Homes business on track for completion by the end of the year. Our long-cycle orders and backlog grew 11 and 14 percent respectively, which positions us well for the rest of 2018 and into 2019. We are committed to delivering outstanding returns for our shareowners over the long term," Adamczyk concluded.

A summary of the Company's full-year guidance changes can be found in Table 1.

Honeywell will discuss the results during an investor conference call today starting at 9:30 a.m. Eastern Daylight Time.

Second Quarter Performance
Honeywell sales for the second quarter were up 8 percent on a reported basis and up 6 percent on an organic basis. The difference between reported and organic sales relates to the impact of foreign currency translation. The second-quarter financial results can be found in Tables 2 and 3.

Aerospace sales for the second quarter were up 8 percent on an organic basis driven by growth in business aviation OE, demand in the commercial aftermarket, strength in U.S. and international defense, and demand for light vehicle gas and commercial vehicle turbochargers in Transportation Systems. Segment margin expanded 30 basis points to 22.6 percent, primarily driven by volume, commercial excellence, and lower customer incentives, partially offset by higher volumes of lower-margin OE shipments.

Home and Building Technologies sales for the second quarter were up 3 percent on an organic basis driven by continued strength in residential thermal products and thermostats, commercial fire and software, as well as global growth in the ADI distribution business. Segment margin expanded 60 basis points to 16.8 percent, primarily driven by commercial excellence, the benefits from previously funded and executed restructuring, and higher sales volumes.

Performance Materials and Technologies sales for the second quarter were up 3 percent on an organic basis driven by strong backlog conversion and short-cycle demand in Process Solutions, catalyst and engineering growth in UOP, and continued demand for Solstice® low global warming materials. Segment margin expanded 50 basis points to 22.1 percent, primarily driven by commercial excellence, benefits from previously funded and executed restructuring, and higher volumes, partially offset by inflation.

Safety and Productivity Solutions sales for the second quarter were up 11 percent on an organic basis driven by continued double-digit sales growth in Intelligrated, strong demand for new Mobility products, and higher volumes in Sensing and IoT. Segment margin expanded 150 basis points to 16.5 percent, primarily driven by higher sales volumes and commercial excellence.

To participate on the conference call, please dial (866) 548-4713 (domestic) or (323) 794-2093 (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 2018 earnings call or provide the conference code HON2Q18. 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 1:30 p.m. EDT, July 20, until 1:30 p.m. EDT, July 27, by dialing (888) 203-1112 (domestic) or (719) 457-0820 (international). The access code is 5576508.

TABLE 1: FULL-YEAR 2018 GUIDANCE5


Previous Guidance

Current Guidance

Sales

$42.7B - $43.5B

$43.1B - $43.6B

Organic Growth

3% - 5%

5% - 6%

Segment Margin

19.3% - 19.6%

19.4% - 19.6%

Expansion

Up 30 - 60 bps

Up 40 - 60 bps

Earnings Per Share

$7.85 - $8.05

$8.05 - $8.15

Earnings Growth

10% - 13%

13% - 15%

Free Cash Flow

$5.3B - $5.9B

$5.6B - $6.2B

Growth

7% - 20%

13% - 26%

 

TABLE 2: SUMMARY OF FINANCIAL RESULTS – TOTAL HONEYWELL


2Q 2017

2Q 2018

Change

Sales

10,078

10,919

8%

Organic



6%

Segment Margin

19.0%

19.6%

60 bps

Operating Income Margin

15.9%

16.3%

40 bps

Earnings Per Share




Reported

$1.80

$1.68

(7%)

Excluding Separation Costs of $346M and $12M Adjustment to the 4Q17 U.S. Tax Legislation Charge

$1.80

$2.12

18%

Cash Flow from Operations

1,447

1,861

29%

Free Cash Flow (Excluding Separation Cost Impacts of $67M)

1,214

1,729

42%





 

TABLE 3: SUMMARY OF FINANCIAL RESULTS – SEGMENTS









AEROSPACE

2Q 2017

2Q 2018

Change

Sales

3,674

4,058

10%

Organic



8%

Segment Profit

819

918

12%

Segment Margin

22.3%

22.6%

30 bps









HOME AND BUILDING TECHNOLOGIES








Sales

2,414

2,546

5%

Organic



3%

Segment Profit

391

427

9%

Segment Margin

16.2%

16.8%

60 bps









PERFORMANCE MATERIALS AND TECHNOLOGIES




Sales

2,561

2,698

5%

Organic



3%

Segment Profit

553

597

8%

Segment Margin

21.6%

22.1%

50 bps













SAFETY AND PRODUCTIVITY SOLUTIONS




Sales

1,429

1,617

13%

Organic



11%

Segment Profit

214

267

25%

Segment Margin

15.0%

16.5%

150 bps









 

Honeywell (www.honeywell.com) is a Fortune 100 software-industrial company that delivers industry specific solutions that include aerospace and automotive products and services; control technologies for buildings, homes, and industry; and performance materials globally. Our technologies help everything from aircraft, cars, homes and buildings, manufacturing plants, supply chains, and workers become more connected to make our world smarter, safer, and more sustainable.  For more news and information on Honeywell, please visit www.honeywell.com/newsroom.

This release contains certain statements that may be deemed "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934. All statements, other than statements of historical fact, that address activities, events or developments that we or our management intends, expects, projects, believes or anticipates will or may occur in the future are forward-looking statements. Such statements are based upon certain assumptions and assessments made by our management in light of their experience and their perception of historical trends, current economic and industry conditions, expected future developments and other factors they believe to be appropriate. The forward-looking statements included in this release are also subject to a number of material risks and uncertainties, including but not limited to economic, competitive, governmental, and technological factors affecting our operations, markets, products, services and prices, as well as the ability to effect the separations. 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, including with respect to any changes in or abandonment of the proposed separations. 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, acquisitions and divestitures for the first 12 months following transaction date, and impacts from adoption of the new accounting guidance on revenue from contracts with customers that arise solely due to non-comparable accounting treatment of contracts existing in the prior period; 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 the Homes and Transportation Systems businesses, if and as noted in the release; free cash flow conversion, which we define as free cash flow divided by net income attributable to Honeywell, excluding pension mark-to-market expenses, separation costs related to the spin-offs, the 4Q17 U.S. tax legislation charge, and adjustments to such charge, if and as noted in the release; and earnings per share, which we adjust to exclude pension mark-to-market expenses, as well as for other components, such as separation costs related to the spin-offs, the 4Q17 U.S. tax legislation charge, and adjustments to such charge, if and as noted in the release. Other than references to reported earnings per share, all references to earnings per share in this release are so adjusted. 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.

____________________

1 EPS guidance excludes pension mark-to-market, separation costs related to the spin-offs of the Homes and Transportation Systems businesses, and adjustments to the 4Q17 U.S. tax legislation charge. We do not publish forward-looking EPS guidance on a GAAP basis as management cannot reliably predict or estimate, without unreasonable effort, pension mark-to-market expense as it is dependent on macroeconomic factors, such as changing interest rates and the return generated on invested pension plan assets, separation costs given the inherent uncertainty of any such estimates, and any adjustments to the 4Q17 U.S. tax legislation charge as the amounts are provisional and subject to change.   
2 EPS excludes separation costs related to the spin-offs and adjustments to the 4Q17 U.S. tax legislation charge.
3 Free cash flow conversion excludes impacts from separation costs related to the spin-offs and adjustments to the 4Q17 U.S. tax legislation charge.
4 Free cash flow guidance excludes impacts from separation costs related to the spin-offs.
5 Guidance for EPS and EPS V% excludes pension mark-to-market, separation costs related to the spin-offs of the Homes and Transportation Systems businesses, the 4Q17 U.S. tax legislation charge and adjustments to such charge; guidance for free cash flow and free cash flow V% excludes impacts from separation costs related to the spin-offs.

Contacts:




Media

Investor Relations

Scott Sayres

Mark Macaluso

(480) 257-8921

(973) 455-2222

scott.sayres@honeywell.com 

mark.macaluso@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,



2018


2017


2018


2017










Product sales

$        8,703


$    8,079


$    16,937


$    15,619

Service sales

2,216


1,999


4,374


3,951

Net sales

10,919


10,078


21,311


19,570










Costs, expenses and other








    Cost of products sold  (A)

6,202


5,807


12,107


11,188

    Cost of services sold  (A)

1,411


1,217


2,699


2,365



7,613


7,024


14,806


13,553

    Selling, general and administrative expenses (A)

1,528


1,456


3,003


2,878

    Other (income) expense

(316)


(259)


(584)


(517)

    Interest and other financial charges

95


79


178


154



8,920


8,300


17,403


16,068










Income before taxes

1,999


1,778


3,908


3,502

Tax expense

719


378


1,177


770










Net income

1,280


1,400


2,731


2,732










Less: Net income attributable to the noncontrolling interest

13


8


26


14










Net income attributable to Honeywell

$        1,267


$    1,392


$      2,705


$      2,718










Earnings per share of common stock - basic

$          1.70


$      1.82


$        3.62


$        3.56










Earnings per share of common stock - assuming dilution

$          1.68


$      1.80


$        3.57


$        3.51










Weighted average number of shares outstanding - basic

745.5


764.2


748.0


763.6










Weighted average number of shares outstanding - assuming dilution

755.0


774.0


758.0


774.0










(A) 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


Six Months Ended


June 30,


June 30,

Net Sales

2018


2017


2018


2017









Aerospace

$        4,058


$        3,674


$        8,035


$        7,220









Home and Building Technologies

2,546


2,414


4,979


4,683









Performance Materials and Technologies

2,698


2,561


5,232


4,914









Safety and Productivity Solutions

1,617


1,429


3,065


2,753









     Total

$     10,919


$     10,078


$     21,311


$     19,570









Reconciliation of Segment Profit to Income Before Taxes










Three Months Ended


Six Months Ended


June 30,


June 30,

Segment Profit

2018


2017


2018


2017









Aerospace

$           918


$           819


$        1,811


$        1,615









Home and Building Technologies

427


391


843


768









Performance Materials and Technologies

597


553


1,116


1,036









Safety and Productivity Solutions

267


214


498


408









Corporate

(64)


(67)


(128)


(128)









     Total segment profit

2,145


1,910


4,140


3,699









Interest and other financial charges

(95)


(79)


(178)


(154)

Stock compensation expense (A)

(38)


(44)


(90)


(94)

Pension ongoing income (B)

250


184


498


363

Other postretirement income (B)

6


6


12


10

Repositioning and other charges (C,D)

(265)


(224)


(458)


(353)

Other (E)

(4)


25


(16)


31









Income before taxes

$        1,999


$        1,778


$        3,908


$        3,502










(A)

Amounts included in Selling, general and administrative expenses.

(B)

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).

(C)

Amounts included in Cost of products and services sold, Selling, general and administrative expenses, and Other income/expense.

(D)

Includes repositioning, asbestos, and environmental expenses.

(E)

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)










June 30,


December 31,




2018


2017

ASSETS





Current assets:





    Cash and cash equivalents


$        8,082


$        7,059

    Short-term investments


1,768


3,758

    Accounts receivable - net


8,600


8,866

    Inventories


4,792


4,613

    Other current assets


1,537


1,706


     Total current assets


24,779


26,002







Investments and long-term receivables


897


667

Property, plant and equipment - net


5,968


5,926

Goodwill


18,137


18,277

Other intangible assets - net


4,261


4,496

Insurance recoveries for asbestos related liabilities


409


411

Deferred income taxes


355


236

Other assets


5,054


3,372








     Total assets


$     59,860


$     59,387







LIABILITIES AND SHAREOWNERS' EQUITY





Current liabilities:





    Accounts payable


$        6,808


$        6,584

    Commercial paper and other short-term borrowings


4,447


3,958

    Current maturities of long-term debt


133


1,351

    Accrued liabilities


6,630


6,968


     Total current liabilities


18,018


18,861







Long-term debt


12,504


12,573

Deferred income taxes


2,751


2,894

Postretirement benefit obligations other than pensions


497


512

Asbestos related liabilities


1,178


1,173

Other liabilities


7,134


5,930

Redeemable noncontrolling interest


5


5

Shareowners' equity


17,773


17,439








     Total liabilities, redeemable noncontrolling interest and shareowners' equity


$     59,860


$     59,387


 

 

Honeywell International Inc.

 Consolidated Statement of Cash Flows (Unaudited)

(Dollars in millions)












Three Months Ended


Six Months Ended



June 30,


June 30,



2018


2017


2018


2017

Cash flows from operating activities:









    Net income


$    1,280


$   1,400


$   2,731


$   2,732

    Less: Net income attributable to the noncontrolling interest


13


8


26


14

    Net income attributable to Honeywell


1,267


1,392


2,705


2,718

    Adjustments to reconcile net income attributable to Honeywell to net









    cash provided by operating activities:









        Depreciation


193


184


372


354

        Amortization


95


92


204


193

        Repositioning and other charges


265


224


458


353

        Net payments for repositioning and other charges


(187)


(127)


(328)


(264)

        Pension and other postretirement income


(256)


(190)


(510)


(373)

        Pension and other postretirement benefit payments


(8)


(23)


(44)


(47)

        Stock compensation expense


38


44


90


94

        Deferred income taxes


68


(50)


114


(92)

        Other


76


(22)


78


(8)

           Accounts receivable


158


(299)


97


(276)

           Inventories


(26)


(12)


(189)


(298)

           Other current assets


217


22


174


(3)

           Accounts payable


167


199


224


314

           Accrued liabilities


(206)


13


(448)


(278)

Net cash provided by operating activities


1,861


1,447


2,997


2,387










Cash flows from investing activities:









    Expenditures for property, plant and equipment


(199)


(233)


(339)


(401)

    Proceeds from disposals of property, plant and equipment


1


1


3


25

    Increase in investments


(1,204)


(1,073)


(1,787)


(2,329)

    Decrease in investments


1,670


1,016


3,508


1,841

    Cash paid for acquisitions, net of cash acquired


-


(15)


-


(15)

    Other


343


(84)


220


(113)

Net cash provided by (used for) investing activities


611


(388)


1,605


(992)










Cash flows from financing activities:









    Proceeds from issuance of commercial paper and other short-term borrowings


6,073


2,568


12,749


5,036

    Payments of commercial paper and other short-term borrowings


(6,823)


(2,368)


(12,152)


(4,835)

    Proceeds from issuance of common stock


67


155


127


376

    Proceeds from issuance of long-term debt


2


5


5


16

    Payments of long-term debt


(31)


(25)


(1,277)


(30)

    Repurchases of common stock


(764)


(682)


(1,704)


(992)

    Cash dividends paid


(560)


(546)


(1,116)


(1,049)

    Other


(2)


(72)


(118)


(105)

Net cash used for by financing activities


(2,038)


(965)


(3,486)


(1,583)










Effect of foreign exchange rate changes on cash and cash equivalents


(249)


73


(93)


222

Net increase in cash and cash equivalents


185


167


1,023


34

Cash and cash equivalents at beginning of period


7,897


7,710


7,059


7,843

Cash and cash equivalents at end of period


$    8,082


$   7,877


$   8,082


$   7,877

 

 

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,



2018


2017


2018


2017










Segment Profit


$       2,145


$      1,910


$        4,140


$        3,699










Stock compensation expense (A)


(38)


(44)


(90)


(94)

Repositioning and other (B,C)


(278)


(209)


(441)


(344)

Pension and other postretirement service costs (C)


(51)


(59)


(107)


(122)

Operating Income


$       1,778


$      1,598


$        3,502


$        3,139










Segment Profit


$       2,145


$      1,910


$        4,140


$        3,699

÷ Net Sales


$     10,919


$    10,078


$      21,311


$      19,570

Segment Profit Margin %


19.6%


19.0%


19.4%


18.9%










Operating Income


$       1,778


$      1,598


$        3,502


$        3,139

÷ Net Sales


$     10,919


$    10,078


$      21,311


$      19,570

Operating Income Margin %


16.3%


15.9%


16.4%


16.0%










(A) Included in Selling, general and administrative expenses.
(B) Includes repositioning, asbestos, environmental expenses and equity income adjustment.
(C) Included in Cost of products and services sold, Selling, general and administrative expenses and Other income/expense.


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 Organic Sales % Change (Unaudited)






 Three Months Ended



June 30, 2018

Honeywell



Reported sales % change


8%

Less: Foreign currency translation


2%

Less: Acquisitions, divestitures and other, net


-

Organic sales % change


6%




Aerospace



Reported sales % change


10%

Less: Foreign currency translation


1%

Less: Acquisitions, divestitures and other, net


1%

Organic sales % change


8%




Home and Building Technologies



Reported sales % change


5%

Less: Foreign currency translation


2%

Less: Acquisitions, divestitures and other, net


-

Organic sales % change


3%




Performance Materials and Technologies



Reported sales % change


5%

Less: Foreign currency translation


2%

Less: Acquisitions, divestitures and other, net


-

Organic sales % change


3%




Safety and Productivity Solutions



Reported sales % change


13%

Less: Foreign currency translation


2%

Less: Acquisitions, divestitures and other, net


-

Organic sales % change


11%




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, acquisitions, net of divestitures, and non-comparable impacts from adoption of the new revenue recognition standard.  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 Cash Provided by Operating Activities to Free Cash Flow, Excluding Separation Cost Payments and Calculation of Free Cash Flow Conversion, Excluding Separation Costs and Adjustments to 4Q17 U.S. Tax Legislation Charge
(Unaudited)

(Dollars in millions)






Three Months Ended


 Three Months Ended


June 30, 2018


June 30, 2017





Cash provided by operating activities

$                            1,861


$                            1,447

Expenditures for property, plant and equipment

(199)


(233)

Free cash flow

1,662


1,214

Separation cost payments

67


-

Free cash flow, excluding separation cost payments

$                            1,729


$                            1,214





Net income attributable to Honeywell

$                            1,267


$                            1,392

Separation costs, net of tax

346


-

Adjustments to 4Q17 U.S tax legislation charge

(12)


-


Net income attributable to Honeywell, excluding separation costs and adjustments to 4Q17 U.S. tax legislation charge

$                            1,601


$                            1,392





Cash provided by operating activities

$                            1,861


$                            1,447

÷ Net income attributable to Honeywell

$                            1,267


$                            1,392

Operating cash flow conversion

147%


104%





Free cash flow, excluding separation cost payments

$                            1,729


$                            1,214





÷ Net income attributable to Honeywell, excluding separation costs and adjustments to 4Q17 U.S. tax legislation charge

$                            1,601


$                            1,392

Free cash flow conversion %, excluding separation costs and adjustments to 4Q17 U.S tax legislation charge

108%


87%









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 Earnings per Share to Earnings per Share, Excluding Separation Costs and Adjustments to 4Q17 U.S. Tax Legislation Charge (Unaudited)



Three Months Ended


June 30,


2018


2017





Earnings per share of common stock - assuming dilution (1)

$                1.68


$               1.80

Separation costs (2)

0.46


-

Adjustments to 4Q17 U.S. tax legislation charge

(0.02)


-

Earnings per share of common stock - assuming dilution, excluding separation costs and adjustments to 4Q17 U.S. tax legislation charge

$                2.12


$               1.80













(1) For the three months ended June 30, 2018 and 2017, utilizes weighted average shares of approximately 755 million and 774 million.





(2) Separation costs of $354 million ($346 million net of tax) includes $291 million of tax costs we incurred in the restructuring of the ownership of various legal entities in anticipation of the spin-off transactions ("frictional tax costs") and $63 million ($55 million net of tax)of other separation costs.





We believe earnings per share, excluding separation costs and adjustments to 4Q17 U.S. tax legislation charge 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 Earnings per Share to Earnings per Share at 24% Effective Tax Rate, Excluding Separation Costs and Adjustments to 4Q17 U.S. Tax Legislation Charge (Unaudited)



Three Months Ended


June 30, 2018

Earnings per share of common stock - assuming dilution (1)

$                  1.68

Separation costs (2)

0.46

Adjustments to 4Q17 U.S. tax legislation charge

(0.02)

Earnings per share of common stock - assuming dilution, excluding separation costs and adjustments to 4Q17 U.S. tax legislation charge

2.12

Income tax impact at 24% effective tax rate (3)

(0.06)

Earnings per share of common stock - assuming dilution at 24% effective tax rate, excluding separation costs and adjustments to 4Q17 U.S. tax legislation charge

$                  2.06







(1) Utilizes weighted average shares of approximately 755 million.



(2) Separation costs of $354 million ($346 million net of tax) includes $291 million of frictional tax costs and $63 million ($55 million net of tax)of other separation costs.



(3) Income tax impact at 24% effective tax rate, approximately $47 million, is provided to align our effective tax rate with previously issued guidance.



We believe earnings per share at 24% effective tax rate excluding separation costs and adjustments to 4Q17 U.S. tax legislation charge 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 and Calculation of Segment Profit and Operating Income Margins (Unaudited)

(Dollars in millions)




Twelve Months Ended
December 31, 2017



Segment Profit

$                          7,690



Stock compensation expense (A)

(176)

Repositioning and other (B,C)

(1,010)

Pension and other postretirement service costs (C)

(247)

Operating Income

$                          6,257



Segment Profit

$                          7,690

÷ Net Sales

$                        40,534

Segment Profit Margin %

19.0%



Operating Income

$                          6,257

÷ Net Sales

$                        40,534

Operating Income Margin %

15.4%



(A) Included in Selling, general and administrative expenses.
(B) Includes repositioning, asbestos, environmental expenses and equity income adjustment.
(C) 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, particularly 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.  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 Earnings Per Share, Excluding Pension Mark-to-Market Expense, Separation Costs and Adjustments to 4Q17 U.S. Tax Legislation Charge (Unaudited)






Twelve Months Ended


Twelve Months Ended


December 31,


December 31,


2017 (1)


2018





Earnings per share of common stock - assuming dilution (EPS)

$                            2.14


 TBD

Pension mark-to-market expense

0.09


 TBD

Separation costs

0.02


 TBD

Adjustments to 4Q17 U.S. tax legislation charge

4.86


 TBD


EPS, excluding pension mark-to-market expense, separation costs, and adjustments to 4Q17 U.S. tax legislation charge

$                            7.11


 $8.05 - $8.15









(1) Utilizes weighted average shares of approximately 772.1 million for full year. Pension mark-to-market expense uses a blended tax rate of 23%.





We believe earnings per share, excluding pension mark-to-market expense, separation costs and adjustments to 4Q17 U.S. tax legislation charge 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, the separation costs given the inherent uncertainty in the estimates, and any adjustments to the 4Q17 U.S. tax legislation charge as the amounts are provisional.  We therefore do not include an estimate for the pension mark-to-market expense, separation costs, or adjustments to 4Q17 U.S. tax legislation charge in this reconciliation. 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 Free Cash Flow, Excluding Separation Cost Payments (Unaudited)





Twelve Months Ended

Twelve Months Ended


December 31, 2017 ($M)

December 31, 2018 ($B)




Cash provided by operating activities

$                             5,966

TBD

Expenditures for property, plant and equipment

(1,031)

~(0.9)

Free cash flow

4,935

TBD

Separation cost payments

-

TBD

Free cash flow, excluding separation cost payments

$                             4,935

~$5.6 - $6.2




We define free cash flow as cash provided by operating activities less cash expenditures for property, plant and equipment.




We believe that this metric is useful to investors and management as a measure of cash generated by business operations that will be used to repay scheduled debt maturities and can be used to invest in future growth through new business development activities or acquisitions, pay dividends, repurchase stock or repay debt obligations prior to their maturities. This metric can also be used to evaluate our ability to generate cash flow from business operations and the impact that this cash flow has on our liquidity. For forward looking information, management cannot reliably predict or estimate, without unreasonable effort, the separation cost payments given the inherent uncertainty of the estimates.  We therefore do not include an estimate for the separation cost payments in this reconciliation.

 

 

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SOURCE Honeywell