Honeywell Reports First Quarter 2014 Sales Of $9.7 Billion; EPS Of $1.28 Per Share

- Organic Sales Growth 1%, Up 3% Excluding Defense & Space
- EPS Up 6% Year-Over-Year Reported, Up 10% Using Normalized Tax Rate
- $0.10 EPS Gain Funding $0.11 EPS Restructuring And Other Actions
- Increasing Proforma EPS Guidance To $5.40 - $5.55, From $5.35 - $5.55

PR Newswire

MORRIS TOWNSHIP, N.J., April 17, 2014 /PRNewswire/ -- Honeywell (HON) today announced its results for the first quarter of 2014:

Total Honeywell




($ Millions, except Earnings Per Share)

1Q 2013

1Q 2014

Change

Sales

9,328

9,679

4%





Segment Margin

16.2%

16.5%

30 bps

Operating Income Margin

14.1%

14.2%

10 bps





Earnings Per Share

$1.21

$1.28

6%

Earnings Per Share (At 26.5% Tax Rate)

$1.16

$1.28

10%





Cash Flow from Operations

341

688

102%

Free Cash Flow *

193

496

157%





* Cash Flow from Operations Less Capital Expenditures

"Honeywell had a good start to the year with strong margin expansion driving better than expected earnings," said Honeywell Chairman and CEO Dave Cote. "We saw 3% organic sales growth ex-Defense & Space, with strong execution across each of the businesses driving earnings above the high-end of our guidance. We remain cautiously optimistic on the macro environment, even with some nice momentum exiting the quarter in our short-cycle and long-cycle businesses driving organic sales growth acceleration as we progress through the year. As a result of the first quarter performance and overall favorable outlook for our key end markets, we're raising the low-end of our 2014 Proforma EPS outlook by $0.05 and our new guidance range is $5.40-$5.55. We are also increasing our cash flow forecast for the year given the strong first quarter working capital performance. We remain confident in our outlook and intend to perform better than our peers driven by our diversity of opportunity, relentless seed planting in new products and technologies, continued penetration of High Growth Regions (HGRs), and growing traction on key process initiatives. We've also proactively redeployed non-operating gains and operational earnings to fund smart new repositioning projects benefiting 2015 and beyond. Our recently announced organizational changes demonstrate the strength of our organization, add further evidence to the effectiveness of the Honeywell operating model, and reaffirm our belief that the best is yet to come for Honeywell."

The company is updating its full-year 2014 guidance and now expects:

Full-Year Guidance





2014

2014

Change


Prior Guidance

Revised Guidance

vs. 2013

Sales

$40.3 - $40.7B

$40.3 - $40.7B

3% - 4%





Segment Margin

16.6% - 16.9%

16.6% - 16.9%

30 - 60 bps3

Operating Income Margin1

15.2% - 15.5%

15.2% - 15.5%

100 - 130 bps





Earnings Per Share1

$5.35 - $5.55

$5.40 - $5.55

9% - 12%





Free Cash Flow2

$3.5 - $3.7B

$3.8 - $4.0B

~15%





1.

Proforma, V% / bps Exclude Pension Mark-to-Market Adjustment

2.

Cash Flow from Operations Less Capital Expenditures; Definition of Free Cash Flow No Longer Excludes NARCO Trust Establishment Payments, Cash Pension Contributions, and Cash Taxes Relating to the Sale of Available for Sale Investments

3.

Segment Margin ex-M&A up 50 - 80 bps

In April 2014, Honeywell announced the realignment of our Honeywell Process Solutions (HPS) business from Automation and Control Solutions (ACS) into Performance Materials and Technologies (PMT). Effective with the reporting of second quarter 2014 results, Honeywell will report its financial performance based on the inclusion of HPS in PMT. During the second quarter of 2014 Honeywell will make available segment results revised for the new reporting structure to provide financial information on a basis consistent with the new reporting structure.

First Quarter Segment Performance

Aerospace




($ Millions)

1Q 2013

1Q 2014

% Change

Sales

2,911

2,858

(2%)

Segment Profit

551

549

~Flat

Segment Margin

18.9%

19.2%

30 bps

  • Sales were down (2%) compared with the first quarter of 2013 driven by an (8%) decline in Defense & Space sales as a result of planned program ramp downs and delays, as well as lower Government Services, partially offset by Commercial growth. Commercial OE sales were up 1% in the quarter driven by continued strong OE build rates and favorable platform mix, partially offset by lower regional jet sales. Commercial Aftermarket growth of 4% was driven by a 14% increase in spares sales, partially offset by lower maintenance activities.
  • Segment profit was approximately flat, and segment margins expanded 30 bps to 19.2%, driven by commercial excellence, productivity net of inflation and favorable aftermarket mix, partially offset by lower volume.

Automation and Control Solutions




($ Millions)

1Q 2013

1Q 2014

% Change

Sales

3,786

4,074

8%

Segment Profit

523

580

11%

Segment Margin

13.8%

14.2%

40 bps

  • Sales were up 8% reported, 2% organic, compared with the first quarter of 2013, primarily driven by the favorable impact of acquisitions, growth in Energy, Safety, and Security, particularly Environmental and Combustion Controls (ECC) and Life Safety, with continued strong sales in U.S. residential end markets, new product introductions, and improving non-residential activity, partially offset by anticipated program ramp downs in Scanning & Mobility. ACS also had higher service and software sales in Process Solutions.
  • Segment profit was up 11% and segment margins expanded 40 bps to 14.2% driven by higher sales volume, commercial excellence and productivity net of inflation, partially offset by the dilutive impact of acquisitions and continued investments for growth.

Performance Materials and Technologies




($ Millions)

1Q 2013

1Q 2014

% Change

Sales

1,717

1,754

2%

Segment Profit

374

364

(3%)

Segment Margin

21.8%

20.8%

(100) bps

  • Sales were up 2% compared with the first quarter of 2013, driven by increased UOP catalyst and gas processing volume and higher volumes in Advanced Materials, partially offset by lower equipment, licensing and service sales, and pricing headwinds in Fluorine Products and Resins & Chemicals, which are expected to moderate over the remainder of the year.
  • Segment profit was down (3%) and segment margins decreased (100) bps to 20.8%, driven by unfavorable petrochemical catalyst shipment mix versus the prior year, price/raw headwinds in Fluorine Products and Resins & Chemicals, and continued investments for growth, partially offset by productivity net of inflation.

 

Transportation Systems




($ Millions)

1Q 2013

1Q 2014

% Change

Sales

914

993

9%

Segment Profit

111

154

39%

Segment Margin

12.1%

15.5%

340 bps

  • Sales were up 9% reported, 7% organic, compared with the first quarter of 2013, driven by continued growth from new platform launches, higher global turbo gas penetration and light vehicle production, and increased commercial vehicle demand globally.
  • Segment profit was up 39% and segment margins increased 340 bps to 15.5% 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 first quarter 2014 investor conference call or provide the conference code HONQ114. 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, April 17, until 11:59 p.m. EDT, April 24, by dialing (800) 839-1162 (domestic) or (402) 220-0398 (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.

Honeywell International Inc.

Consolidated Statement of Operations (Unaudited)

(Dollars in millions, except per share amounts)









Three Months Ended




March 31,




2014


2013








Product sales

$ 7,845


$ 7,474


Service sales

1,834


1,854


Net sales

9,679


9,328








Costs, expenses and other





Cost of products sold (A)

5,779


5,567


Cost of services sold (A)

1,188


1,216




6,967


6,783


Selling, general and administrative expenses (A)

1,339


1,229


Other (income) expense

(117)


(28)


Interest and other financial charges

79


84




8,268


8,068








Income before taxes

1,411


1,260


Tax expense

375


291








Net income

1,036


969








Less: Net income attributable to the noncontrolling interest

19


3








Net income attributable to Honeywell

$ 1,017


$ 966








Earnings per share of common stock - basic

$ 1.30


$ 1.23








Earnings per share of common stock - assuming dilution

$ 1.28


$ 1.21








Weighted average number of shares outstanding-basic

784.9


785.8








Weighted average number of shares outstanding - assuming dilution

796.4


797.1














(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







March 31,





Net Sales

2014


2013














Aerospace

$ 2,858


$ 2,911














Automation and Control Solutions

4,074


3,786














Performance Materials and Technologies

1,754


1,717














Transportation Systems

993


914














Total

$ 9,679


$ 9,328























Reconciliation of Segment Profit to Income Before Taxes












Three Months Ended







March 31,





Segment Profit

2014


2013














Aerospace

$ 549


$ 551














Automation and Control Solutions

580


523














Performance Materials and Technologies

364


374














Transportation Systems

154


111














Corporate

(51)


(51)














Total segment profit

1,596


1,508














Other income (expense) (A)

111


19





Interest and other financial charges

(79)


(84)





Stock compensation expense (B)

(52)


(54)





Pension ongoing income (B)

61


21





Other postretirement expense (B)

(12)


(22)





Repositioning and other charges (B)

(214)


(128)














Income before taxes

$ 1,411


$ 1,260













(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)











March 31,

December 31,




2014


2013









ASSETS







Current assets:






Cash and cash equivalents


$ 6,672


$ 6,422


Accounts, notes and other receivables


8,081


7,929


Inventories


4,407


4,293


Deferred income taxes


840


849


Investments and other current assets


1,531


1,671



Total current assets


21,531


21,164









Investments and long-term receivables


465


393


Property, plant and equipment - net


5,284


5,278


Goodwill


13,028


13,046


Other intangible assets - net


2,445


2,514


Insurance recoveries for asbestos related liabilities


584


595


Deferred income taxes


217


368


Other assets


2,223


2,077










Total assets


$ 45,777


$ 45,435









LIABILITIES AND SHAREOWNERS' EQUITY






Current liabilities:






Accounts payable


$ 5,133


$ 5,174


Short-term borrowings


88


97


Commercial paper


2,399


1,299


Current maturities of long-term debt


65


632


Accrued liabilities


6,668


6,979



Total current liabilities


14,353


14,181









Long-term debt


6,804


6,801


Deferred income taxes


757


804


Postretirement benefit obligations other than pensions


998


1,019


Asbestos related liabilities


1,156


1,150


Other liabilities


3,490


3,734


Redeemable noncontrolling interest


176


167


Shareowners' equity


18,043


17,579










Total liabilities, redeemable noncontrolling interest and shareowners' equity


$ 45,777


$ 45,435



Honeywell International Inc.

Consolidated Statement of Cash Flows (Unaudited)

(Dollars in millions)








Three Months Ended



March 31,



2014


2013

Cash flows from operating activities:





Net income


$ 1,036


$ 969

Less: Net income attributable to the noncontrolling interest


19


3

Net income attributable to Honeywell


1,017


966

Adjustments to reconcile net income attributable to Honeywell to net





cash provided by operating activities:





Depreciation and amortization


238


248

Gain on sale of available for sale investments


(105)


-

Repositioning and other charges


214


128

Net payments for repositioning and other charges


(125)


(98)

Pension and other postretirement (income) expense


(49)


1

Pension and other postretirement benefit payments


(36)


(171)

Stock compensation expense


52


54

Deferred income taxes


2


27

Excess tax benefits from share based payment arrangements


(30)


(24)

Other


(24)


(33)

Changes in assets and liabilities, net of the effects of





acquisitions and divestitures:





Accounts, notes and other receivables


(154)


(142)

Inventories


(115)


(51)

Other current assets


236


18

Accounts payable


(41)


(295)

Accrued liabilities


(392)


(287)

Net cash provided by operating activities


688


341






Cash flows from investing activities:





Expenditures for property, plant and equipment


(192)


(148)

Proceeds from disposals of property, plant and equipment


7


-

Increase in investments


(631)


(174)

Decrease in investments


410


166

Cash paid for acquisitions, net of cash acquired


-


(122)

Other


61


(33)

Net cash used for investing activities


(345)


(311)






Cash flows from financing activities:





Net increase in commercial paper


1,100


800

Net (decrease) increase in short-term borrowings


(10)


8

Proceeds from issuance of common stock


92


164

Proceeds from issuance of long-term debt


25


7

Payments of long-term debt


(602)


(600)

Excess tax benefits from share based payment arrangements


30


24

Repurchases of common stock


(320)


(139)

Cash dividends paid


(363)


(322)

Net cash used for financing activities


(48)


(58)






Effect of foreign exchange rate changes on cash and cash equivalents


(45)


(67)

Net increase (decrease) in cash and cash equivalents


250


(95)

Cash and cash equivalents at beginning of period


6,422


4,634

Cash and cash equivalents at end of period


$ 6,672


$ 4,539

 

Honeywell International Inc.



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



(Dollars in millions)
















Three Months Ended




March 31,




2014


2013









Cash provided by operating activities

$ 688


$ 341



Expenditures for property, plant and equipment

(192)


(148)









Free cash flow

$ 496


$ 193









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.






Previously, we defined free cash flow as cash provided by operating activities, less cash expenditures for property, plant and equipment, cash pension contributions, NARCO Trust establishment payments and cash taxes relating to the sale of available for sale investments

















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







(Dollars in millions)



















Three Months Ended










March 31,











2013



















Cash provided by operating activities


$ 341








Expenditures for property, plant and equipment


(148)






















$ 193



















Cash pension contributions


134



















Free cash flow


$ 327








Honeywell International Inc.




Reconciliation of Segment Profit to Operating Income and Calculation of Segment Profit and Operating Income Margins (Unaudited)


(Dollars in millions)


















Three Months Ended





March 31,





2014


2013










Segment Profit


$ 1,596


$ 1,508










Stock compensation expense (A)


(52)


(54)



Repositioning and other (A, B)


(220)


(137)



Pension ongoing income (A)


61


21



Other postretirement expense (A)


(12)


(22)










Operating Income


$ 1,373


$ 1,316










Segment Profit


$ 1,596


$ 1,508



÷ Sales


$ 9,679


$ 9,328



Segment Profit Margin %


16.5%


16.2%










Operating Income


$ 1,373


$ 1,316



÷ Sales


$ 9,679


$ 9,328



Operating Income Margin %


14.2%


14.1%










(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.

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 expense (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.

Calculation of EPS at 26.5% Tax Rate (Unaudited)

(Dollars in millions, except per share amounts)





















Three Months Ended




March 31,




2014


2013








Income before taxes


$ 1,411


$ 1,260








Taxes at 26.5%


374


334








Net income at 26.5% tax rate


$ 1,037


$ 926








Less: Net income attributable to the noncontrolling interest


19


3








Net income attributable to Honeywell at 26.5% tax rate


$ 1,018


$ 923








Weighted average number of shares outstanding - assuming dilution


796.4


797.1








EPS at 26.5% tax rate


$ 1.28


$ 1.16








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.

EPS Impact of Gain on Sale of Available for Sale Investments (Unaudited)

(Dollars in millions, except per share amounts)







Three Months Ended






March 31,






2014








Gain on sale of available for sale investments


$ 105








Taxes at 26.5%


28








After tax gain on sale of available for sale investments


$ 77








EPS impact of gain on sale of available for sale investments(1)


$ 0.10








(1) Utilizes weighted average shares of 796.4 million.



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)









Free cash flow



$ 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.
























Previously, we defined free cash flow as cash provided by operating activities, less cash expenditures for property, plant and equipment, cash pension contributions, NARCO Trust establishment payments and cash taxes relating to the sale of available for sale investments.










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









Cash pension contributions



156



NARCO Trust establishment payments



164



Cash taxes relating to the sale of available for sale investments



100









Free cash flow



$ 3,808



 

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%.




Honeywell International Inc.

Defense and Space Sales (Unaudited)

(Dollars in millions)





















Three Months Ended




March 31,




2014


2013








Defense and Space Sales


$ 1,092


$ 1,192











 

Contacts:


Media

Investor Relations

Robert C. Ferris

Elena Doom

(973) 455-3388

(973) 455-2222

rob.ferris@honeywell.com

elena.doom@honeywell.com

 

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