Earnings Release

CHARLOTTE, N.C., July 23, 2021 /PRNewswire/ -- Honeywell (NASDAQ: HON) today announced outstanding results for the second quarter that were driven by sales and segment margin growth in all four businesses. The company also raised its full-year sales, segment margin, adjusted earnings per share, and cash flow guidance.

"Building on our first-quarter momentum, we executed extremely well in the second quarter. Our results were driven by top-line growth and margin expansion in all four segments. Organic sales grew 15%, led by double-digit growth in Performance Materials and Technologies, Honeywell Building Technologies, and Safety and Productivity Solutions," said Darius Adamczyk, chairman and chief executive officer of Honeywell. "Our increased volumes, streamlined cost base, and relentless focus on execution enabled us to expand segment margin by 190 basis points to 20.4%, exceeding the high end of our guidance by 10 basis points. As a result, we delivered adjusted earnings per share¹ of $2.02, up 60% year over year and above the high end of our second-quarter guidance range. Our cash performance in the second quarter was strong, as we generated $1.5 billion of free cash flow with adjusted conversion² of 103%, all while repurchasing $1.0 billion in Honeywell shares."

Adamczyk continued, "Our strong performance in the second quarter took place in a recovering but challenging global environment. We are especially pleased to see a turnaround in several of our key end markets that were hardest hit by the pandemic, with commercial aerospace aftermarket and the UOP business returning to growth in the quarter. We are well positioned to capitalize on improving conditions as they unfold around the world and to execute on near-term growth opportunities across our portfolio, including in the warehouse automation, productivity, building products, and advanced materials markets."

As a result of the company's second-quarter performance and management's outlook for the remainder of the year, Honeywell raised its full-year sales, adjusted earnings per share, and cash flow guidance and raised the midpoint of its segment margin guidance. Full-year sales are now expected to be in the range of $34.6 billion to $35.2 billion with organic sales growth in the range of 4% to 6%. Segment margin is expected to be in the range of 20.8% - 21.1%. Adjusted earnings per share³ is expected to be $7.95 to $8.10, up 10 cents from the high end of the prior guidance range. Operating cash flow is now expected to be in the range of $5.9 billion to $6.2 billion and free cash flow is now expected to be in the range of $5.3 billion to $5.6 billion. A summary of the company's full-year guidance changes can be found in Table 1.

Second-Quarter Performance
Honeywell sales for the second quarter were up 18% on a reported basis and up 15% on an organic basis. The second-quarter financial results can be found in Tables 2 and 3.

Aerospace sales for the second quarter were up 7% on an organic basis driven by a strong recovery in business and general aviation aftermarket demand as flight hours returned to 2019 levels, partially offset by lower defense volumes and a more gradual recovery in commercial original equipment build rates. Air transport aftermarket returned to growth as increased flight hours drove aftermarket demand. Segment margin expanded 490 basis points to 25.7%.

Honeywell Building Technologies sales for the second quarter were up 13% on an organic basis driven by broad-based global strength across the portfolio. Orders were up over 35% year over year, driven by strong bookings for building products and solutions. The buildings solutions services backlog was up over 30% year over year driven by strong bookings in North America and Asia. In addition, demand continued for our portfolio of healthy buildings solutions, with approximately $150 million of orders in the first half. Segment margin expanded 120 basis points to 22.4%.

Performance Materials and Technologies sales for the second quarter were up 10% on an organic basis driven by demand for process solutions products and thermal solutions, higher equipment volumes, licensing, and petrochemical catalyst shipments in UOP, and continued strong growth across advanced materials. Orders were up 20% year over year driven by robust demand for services, thermal solutions, catalysts, and fluorine products. Segment margin expanded 190 basis points to 20.8%.

Safety and Productivity Solutions sales for the second quarter were up 35% on an organic basis driven by another quarter of double-digit growth in the warehouse and workflow solutions, personal protective equipment, and productivity solutions and services businesses. In addition, short-cycle demand accelerated in the gas analysis and advanced sensing businesses, which both grew by high single-digits sequentially from the first quarter. Orders were up triple digits year over year in productivity solutions and services, giving us confidence in continued growth for that business. Segment margin expanded 20 basis points to 14.0%.

Conference Call Details
Honeywell will discuss its second-quarter results and updated full-year guidance during an investor conference call starting at 8:30 a.m. Eastern Daylight Time today. To participate on the conference call, please dial (866) 548-4713 (domestic) or (323) 794-2093 (international) approximately ten minutes before the 8:30 a.m. EDT start. Please mention to the operator that you are dialing in for Honeywell's second-quarter 2021 earnings call or provide the conference code HON2Q21. The live webcast of the investor call as well as related presentation materials will be available through the Investor Relations section of the company's website (www.honeywell.com/investor). Investors can hear a replay of the conference call from 12:30 p.m. EDT July 23 until 12:30 p.m. EDT July 30 by dialing (888) 203-1112 (domestic) or (719) 457-0820 (international). The access code is 7208292.

TABLE 1: FULL-YEAR 2021 GUIDANCE⁵

TABLE 2: SUMMARY OF HONEYWELL FINANCIAL RESULTS

TABLE 3: SUMMARY OF SEGMENT FINANCIAL RESULTS

Honeywell (www.honeywell.com) is a Fortune 100 technology company that delivers industry specific solutions that include aerospace products and services; control technologies for buildings and industry; and performance materials globally. Our technologies help everything from aircraft, 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, technological, and COVID-19 public health factors affecting our operations, markets, products, services and prices. Such forward-looking statements are not guarantees of future performance, and actual results, and other developments, including the potential impact of the COVID-19 pandemic, and business decisions may differ from those envisaged by such forward-looking statements. Any forward-looking plans described herein are not final and may be modified or abandoned at any time. 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, and acquisitions and divestitures for the first 12 months following the transaction date; free cash flow, which we define as cash flow from operations less capital expenditures plus cash receipts from Garrett, if and as noted in the release; adjusted free cash flow conversion, which we define as free cash flow divided by adjusted net income attributable to Honeywell; adjusted net income attributable to Honeywell, which we define as net income attributable to Honeywell which we adjust to exclude changes in fair value for Garrett equity securities, a non-cash charge associated with a further reduction in value of reimbursement receivables following Garrett's emergence from bankruptcy on April 30, 2021, and the 2Q20 favorable resolution of a foreign tax matter related to the spin-off transactions, if and as noted in the release; and adjusted earnings per share, which we adjust to exclude pension mark-to-market, the favorable resolution of a foreign tax matter related to the spin-off transactions, non-cash charges associated with the reduction in value of reimbursement receivables due from Garrett, net of proceeds from settlement of related hedging transactions, the gain on sale of the retail footwear business, and changes in fair value for Garrett equity securities, if and as noted in the release. 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. Certain metrics presented on a non-GAAP basis represent the impact of adjusting items net of tax. The tax-effect for adjusting items is determined individually and on a case-by-case basis. Refer to the Appendix attached to this release for reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures.   

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 and acquisitions, net of divestitures, for the first 12 months following the transaction date. 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.

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.

We believe adjusted earnings per share 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 and the changes in fair value for Garrett equity securities. Pension mark-to-market expense is dependent on macroeconomic factors, such as interest rates and the return generated on invested pension plan assets. Based on economic and industry conditions, future developments and other relevant factors, these assumptions are subject to change. Changes in fair value for Garrett equity securities cannot be forecasted due to the inherent nature of changing conditions in the overall market. 

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

We believe that free cash flow is a non-GAAP metric that is useful to investors and management as a measure of cash generated by 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 operations and the impact that this cash flow has on our liquidity. For forward looking information, we do not provide cash flow conversion guidance on a GAAP basis as management cannot reliably predict or estimate, without unreasonable effort, the pension mark-to-market expense and the changes in fair value for Garrett equity securities. Pension mark-to-market is dependent on macroeconomic factors, such as interest rates and the return generated on invested pension plan assets. Based on economic and industry conditions, future developments and other relevant factors, these assumptions are subject to change. Changes in fair value of Garrett equity securities cannot be forecasted due to the inherent nature of changing conditions in the overall market.

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

We believe that free cash flow is a non-GAAP metric that is useful to investors and management as a measure of cash generated by 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 operations and the impact that this cash flow has on our liquidity. For forward looking information, we do not provide cash flow conversion guidance on a GAAP basis as management cannot reliably predict or estimate, without unreasonable effort, the pension mark-to-market expense or changes in fair value of Garrett equity securities. Pension mark-to-market is dependent on macroeconomic factors, such as interest rates and the return generated on invested pension plan assets. Based on economic and industry conditions, future developments and other relevant factors, these assumptions are subject to change. Changes in fair value of Garrett equity securities cannot be forecasted due to the inherent nature of changing conditions in the overall market.

We believe adjusted earnings per share 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 any potential future one-time items, such as pension mark-to-market or changes in fair value for Garrett equity securities, without unreasonable effort. Pension mark-to-market expense is dependent on macroeconomic factors, such as interest rates and the return generated on invested pension plan assets. Based on economic and industry conditions, future developments and other relevant factors, these assumptions are subject to change. Changes in fair value for Garrett equity securities cannot be forecasted due to the inherent nature of changing conditions in the overall market.

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