Financial Release
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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 - $5.55

MORRIS TOWNSHIP, N.J., July 18, 2014 /PRNewswire/ -- 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 Guidance3

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 Margin1

15.2% - 15.5%

15.4% - 15.6%

120 - 140 bps





Earnings Per Share1

$5.40 - $5.55

$5.45 - $5.55

10% - 12%





Free Cash Flow2

 $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.com  

  elena.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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