REG-Honeywell Intl: 3rd Quarter Results
22/10/2021 11:35
Honeywell Delivers 9% Sales Growth And Expands Operating Margin By 180 Basis
Points
- Earnings Per Share of $1.80, Adjusted Earnings Per Share(1) of $2.02, at
High End of Guidance
- Organic Sales up 8%; Second Straight Quarter of Sales Growth in All Four
Segments
- Operating Margin up 180 Basis Points to 18.6%; Segment Margin up 130 Basis
Points to 21.2%
- Deployed $1.5 Billion in Capital to Share Repurchases, Dividends, Capital
Expenditures, and Acquisitions
- Orders up High Single Digits, up Double Digits Ex-COVID Mask Demand; Backlog
up 7% to $27.5 Billion
CHARLOTTE, N.C., Oct. 22, 2021 /PRNewswire/ -- Honeywell (NASDAQ: HON) today
announced outstanding results for the third quarter that met or exceeded the
company's guidance.
"The third quarter was another strong one for Honeywell, with sales growth in
all four segments, significant margin expansion, and exceptional execution
even as we faced tough challenges in the supply chain environment," said
Darius Adamczyk, chairman and chief executive officer of Honeywell. "Organic
sales grew 8%, led by 38% growth in Aerospace commercial aftermarket, 21%
growth in Safety and Productivity Solutions, and 29% growth in UOP and 14%
growth in advanced materials within Performance Materials and Technologies.
Our focus on operational and commercial excellence enabled us to expand
segment margin by 130 basis points to 21.2%, exceeding the high end of our
guidance range by 60 basis points. As a result, we delivered adjusted earnings
per share(1) of $2.02, up 29% year over year, achieving the high end of our
third-quarter guidance range. Our cash performance was strong, and we remain
on track to meet our cash flow commitments for the year. We continued to
execute on our capital deployment strategy, repurchasing $0.7 billion in
shares, announcing our 12th dividend increase in the past 11 years, and
completing the acquisition of Performix Inc. to expand our portfolio of
automation solutions for the life sciences industry."
Adamczyk continued, "Our disciplined approach to productivity and pricing
helped deliver a strong third quarter despite an uncertain global environment
marked by supply chain constraints, increasing raw material inflation, and
labor market challenges. We continue to focus on mitigating these challenges
in the fourth quarter, while capitalizing on near-term growth opportunities
across our portfolio."
Honeywell updated its full-year guidance to reflect the persistent effects of
the macro-challenged environment as well as the third-quarter results.
Full-year sales are now expected to be in the range of $34.2 billion to $34.6
billion with organic sales growth in the range of 4% to 5% due to supply chain
constraints. Segment margin is expected to be in the range of 20.9% to 21.1%.
Adjusted earnings per share(2) is expected to be $8.00 to $8.10. Operating
cash flow is still expected to be in the range of $5.9 billion to $6.2 billion
and free cash flow is still 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.
Third-Quarter Performance
Honeywell sales for the third quarter were up 9% on a reported basis and up
8% on an organic basis. The third-quarter financial results can be found in
Tables 2 and 3.
Aerospace sales for the third quarter were up 2% on an organic basis driven
by an ongoing recovery in commercial aftermarket demand as flight hours
continued to increase as well as by strong growth in business and general
aviation original equipment, partially offset by lower defense volumes, which
were impacted by supply chain constraints. Commercial aftermarket sales were
up 38% year over year and air transport aftermarket sales were up double
digits sequentially from the second quarter, demonstrating momentum in the
aftermarket recovery. Segment margin expanded 390 basis points to 27.1% driven
by commercial excellence, favorable sales mix, and productivity net of
inflation.
Honeywell Building Technologies sales for the third quarter were up 3% on an
organic basis driven by strength across the building products portfolio and
continued growth in building solutions services. Orders were up double digits
year over year, driven by strong demand for building projects and products.
The services backlog was up over 35% driven by strong global bookings,
positioning the business for continued growth. Segment margin expanded 190
basis points to 23.5% driven by commercial excellence and productivity,
partially offset by inflation.
Performance Materials and Technologies sales for the third quarter were up 9%
on an organic basis driven by demand for process solutions services and
thermal solutions, petrochemical catalyst shipments and equipment volumes in
UOP, and continued double-digit growth in advanced materials driven by strong
demand across the portfolio. Robust demand for services, automation projects,
gas processing, and advanced materials drove double-digit orders growth year
over year for the second consecutive quarter. Segment margin expanded 260
basis points to 22.2% driven by commercial excellence and productivity,
partially offset by inflation.
Safety and Productivity Solutions sales for the third quarter were up 21% on
an organic basis driven by another quarter of double-digit growth in the
warehouse and workflow solutions, productivity solutions and services, and gas
analysis businesses, partially offset by lower personal protective equipment
volumes. Orders were up double digits year over year driven by over 50% orders
growth in warehouse and workflow solutions, productivity solutions and
services, and advanced sensing, which should drive continued growth. Segment
margin contracted 70 basis points to 13.2% driven by unfavorable business mix
and Intelligrated supply chain challenges, partially offset by commercial
excellence.
Conference Call Details
Honeywell will discuss its third-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 (301)
715-8592 approximately 10 minutes before the 8:30 a.m. EDT start. The meeting
ID is 996 7173 6928. The access code is 528460. A 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). A replay of the webcast will be available for 30
days following the presentation.
TABLE 1: FULL-YEAR 2021 GUIDANCE(5)
Previous Guidance Current Guidance
Sales $34.6B - $35.2B $34.2B - $34.6B
Organic Growth 4% - 6% 4% - 5%
Segment Margin 20.8% - 21.1% 20.9% - 21.1%
Expansion Up 40 - 70 bps Up 50 - 70 bps
Adjusted Earnings Per Share (2) $7.95 - $8.10 $8.00 - $8.10
Adjusted Earnings Growth (3) 12% - 14% 13% - 14%
Operating Cash Flow $5.9B - $6.2B $5.9B - $6.2B
Free Cash Flow $5.3B - $5.6B $5.3B - $5.6B
TABLE 2: SUMMARY OF HONEYWELL FINANCIAL RESULTS
3Q 2021 3Q 2020 Change
Sales 8,473 7,797 9%
Organic Growth 8%
Segment Margin 21.2% 19.9% 130 bps
Operating Income Margin 18.6% 16.8% 180 bps
Earnings Per Share $1.80 $1.07 68%
Adjusted Earnings Per Share (1) $2.02 $1.56 29%
Cash Flow from Operations 1,119 1,007 11%
Operating Cash Flow Conversion 89% 133% (44%)
Free Cash Flow 911 758 20%
Adjusted Free Cash Flow Conversion (4) 64% 68% (4%)
TABLE 3: SUMMARY OF SEGMENT FINANCIAL RESULTS
AEROSPACE 3Q 2021 3Q 2020 Change
Sales 2,732 2,662 3%
Organic Growth 2%
Segment Profit 740 617 20%
Segment Margin 27.1% 23.2% 390 bps
HONEYWELL BUILDING TECHNOLOGIES
Sales 1,370 1,305 5%
Organic Growth 3%
Segment Profit 322 282 14%
Segment Margin 23.5% 21.6% 190 bps
PERFORMANCE MATERIALS AND TECHNOLOGIES
Sales 2,510 2,252 11%
Organic Growth 9%
Segment Profit 558 442 26%
Segment Margin 22.2% 19.6% 260 bps
SAFETY AND PRODUCTIVITY SOLUTIONS
Sales 1,861 1,578 18%
Organic Growth 21%
Segment Profit 245 219 12%
Segment Margin 13.2% 13.9% -70 bps
(1)Adjusted EPS and adjusted EPS V% exclude changes in fair value for Garrett Motion Inc. (Garrett) equity securities, an expense related to UOP matters, gain on the sale of the retail footwear business, and 3Q20 non-cash charges associated with the reduction in value of reimbursement receivables due from Garrett.
(2)Adjusted EPS guidance excludes an expense related to UOP matters, gain on the sale of the retail footwear business, non-cash charges associated with a further reduction in value of reimbursement receivables following Garrett's emergence from bankruptcy on April 30, 2021, and any potential future one-time items that we cannot reliably predict or estimate such as pension mark-to-market and changes in fair value for Garrett equity securities.
(3)Adjusted EPS V% guidance excludes an expense related to UOP matters, gain on the sale of the retail footwear business, non-cash charges associated with a further reduction in value of reimbursement receivables following Garrett's emergence from bankruptcy on April 30, 2021, 4Q20 pension mark-to-market, 2Q20 favorable resolution of a foreign tax matter related to the spin-off transactions, non-cash charges associated with the 2020 reduction in value of reimbursement receivables due from Garrett, net of
proceeds from the settlement of related hedging transactions, and any potential future one-time items that we cannot reliably predict or estimate such as pension mark-to-market or changes in fair value for Garrett equity securities.
(4)Adjusted free cash flow conversion is free cash flow (cash flow from operations less capital expenditures plus cash receipts from Garrett) divided by adjusted net income attributable to Honeywell. Adjusted net income attributable to Honeywell excludes 3Q20 non-cash charges associated with the reduction in value of reimbursement receivables due from Garrett, changes in fair value for Garrett equity securities, an expense related to UOP matters, and gain on the sale of the retail footwear business.
(5)As discussed in the notes to the attached reconciliations, we do not provide guidance for margin or EPS on a GAAP basis.
Honeywell (http://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.
Honeywell uses our Investor Relations website, www.honeywell.com/investor, as
a means of disclosing information which may be of interest or material to our
investors and for complying with disclosure obligations under Regulation FD.
Accordingly, investors should monitor our Investor Relations website, in
addition to following our press releases, SEC filings, public conference
calls, webcasts, and social media.
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, an expense related to UOP matters,
gain on the sale of the retail footwear business, and the 3Q20 non-cash
charges associated with the reduction in value of reimbursement receivables
due from Garrett, if and as noted in the release; and adjusted earnings per
share, which we adjust to exclude pension mark-to-market, changes in fair
value for Garrett equity securities, an expense related to UOP matters, gain
on the sale of the retail footwear business, the 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 favorable
resolution of a foreign tax matter related to the spin-off transactions, and a
non-cash charge associated with a further reduction in value of reimbursement
receivables following Garrett's emergence from bankruptcy on April 30, 2021,
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.
Contacts:
Media Investor Relations
Nina Krauss Reena Vaidya
(704) 627-6035 (704) 627-6200
nina.krauss@honeywell.com reena.vaidya@honeywell.com
Honeywell International Inc.
Consolidated Statement of Operations (Unaudited)
(Dollars in millions, except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
2021 2020 2021 2020
Product sales $ 6,233 $ 5,885 $ 19,281 $ 17,933
Service sales 2,240 1,912 6,454 5,804
Net sales 8,473 7,797 25,735 23,737
Costs, expenses and other
Cost of products sold ((1)) 4,463 4,315 13,748 12,852
Cost of services sold ((1)) 1,283 1,068 3,710 3,341
5,746 5,383 17,458 16,193
Selling, general and administrative expenses ((1)) 1,152 1,103 3,595 3,524
Other (income) expense (215) 62 (1,023) (546)
Interest and other financial charges 90 101 263 264
6,773 6,649 20,293 19,435
Income before taxes 1,700 1,148 5,442 4,302
Tax expense (benefit) 427 367 1,274 816
Net income 1,273 781 4,168 3,486
Less: Net income attributable to the noncontrolling interest 16 23 54 66
Net income attributable to Honeywell $ 1,257 $ 758 $ 4,114 $ 3,420
Earnings per share of common stock - basic $ 1.82 $ 1.08 $ 5.93 $ 4.85
Earnings per share of common stock - assuming dilution $ 1.80 $ 1.07 $ 5.86 $ 4.81
Weighted average number of shares outstanding - basic 690.6 702.6 693.6 704.8
Weighted average number of shares outstanding - assuming dilution 698.9 709.6 702.0 711.6
(1) 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 Nine Months Ended
September 30, September 30,
Net Sales 2021 2020 2021 2020
Aerospace $ 2,732 $ 2,662 $ 8,130 $ 8,566
Honeywell Building Technologies 1,370 1,305 4,135 3,763
Performance Materials and Technologies 2,510 2,252 7,408 6,867
Safety and Productivity Solutions 1,861 1,578 6,062 4,541
Total $ 8,473 $ 7,797 $ 25,735 $ 23,737
Reconciliation of Segment Profit to Income Before Taxes
Three Months Ended Nine Months Ended
September 30, September 30,
Segment Profit 2021 2020 2021 2020
Aerospace $ 740 $ 617 $ 2,212 $ 2,082
Honeywell Building Technologies 322 282 942 794
Performance Materials and Technologies 558 442 1,522 1,373
Safety and Productivity Solutions 245 219 840 610
Corporate (72) (7) (155) (73)
Total segment profit 1,793 1,553 5,361 4,786
Interest and other financial charges (90) (101) (263) (264)
Stock compensation expense ((1)) (56) (40) (172) (118)
Pension ongoing income ((2)) 261 197 809 593
Other postretirement income ((2)) 18 13 53 40
Repositioning and other charges ((3,4)) (96) (144) (338) (486)
Other ((5)) (130) (330) (8) (249)
Income before taxes $ 1,700 $ 1,148 $ 5,442 $ 4,302
(1) Amounts included in Selling, general and administrative expenses.
(2) 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).
(3) Amounts included in Cost of products and services sold, Selling, general and administrative expenses, and Other (income) expense.
(4) Includes repositioning, asbestos, and environmental expenses.
(5) Amounts include the other components of Other (income) expense not included within other categories in this reconciliation. Equity income of affiliated companies is included in segment profit.
Honeywell International Inc.
Consolidated Balance Sheet (Unaudited)
(Dollars in millions)
September 30, 2021 December 31, 2020
ASSETS
Current assets:
Cash and cash equivalents $ 11,087 $ 14,275
Short-term investments 1,049 945
Accounts receivable - net 7,239 6,827
Inventories 4,967 4,489
Other current assets 1,691 1,639
Total current assets 26,033 28,175
Investments and long-term receivables 1,243 685
Property, plant and equipment - net 5,514 5,570
Goodwill 16,963 16,058
Other intangible assets - net 3,637 3,560
Insurance recoveries for asbestos related liabilities 330 366
Deferred income taxes 760 760
Other assets 9,711 9,412
Total assets $ 64,191 $ 64,586
LIABILITIES
Current liabilities:
Accounts payable $ 6,116 $ 5,750
Commercial paper and other short-term borrowings 3,559 3,597
Current maturities of long-term debt 3,344 2,445
Accrued liabilities 7,188 7,405
Total current liabilities 20,207 19,197
Long-term debt 14,346 16,342
Deferred income taxes 2,372 2,113
Postretirement benefit obligations other than pensions 225 242
Asbestos-related liabilities 1,765 1,920
Other liabilities 7,155 6,975
Redeemable noncontrolling interest 7 7
Shareowners' equity 18,114 17,790
Total liabilities, redeemable noncontrolling interest and shareowners' equity $ 64,191 $ 64,586
Honeywell International Inc.
Consolidated Statement of Cash Flows (Unaudited)
(Dollars in millions)
Three Months Ended Nine Months Ended
September 30, September 30,
2021 2020 2021 2020
Cash flows from operating activities:
Net income $ 1,273 $ 781 $ 4,168 $ 3,486
Less: Net income attributable to the noncontrolling interest 16 23 54 66
Net income attributable to Honeywell 1,257 758 4,114 3,420
Adjustments to reconcile net income attributable to Honeywell to net cash provided by operating activities:
Depreciation 171 166 506 480
Amortization 137 89 427 268
Gain on sale of non-strategic businesses and assets (5) — (95) —
Repositioning and other charges 96 144 338 486
Net payments for repositioning and other charges (147) (343) (505) (652)
Pension and other postretirement income (279) (210) (862) (633)
Pension and other postretirement benefit payments (2) (14) (29) (37)
Stock compensation expense 56 40 172 118
Deferred income taxes 88 (12) 189 (289)
Reimbursement receivables charge — 350 — 350
Other 171 (84) (106) (369)
Changes in assets and liabilities, net of the effects of acquisitions and divestitures:
Accounts receivable (292) (161) (419) 615
Inventories (245) 47 (516) (284)
Other current assets (226) 140 (324) 246
Accounts payable (23) (96) 379 (460)
Accrued liabilities 362 193 106 167
Net cash provided by operating activities 1,119 1,007 3,375 3,426
Cash flows from investing activities:
Expenditures for property, plant and equipment (208) (249) (614) (615)
Proceeds from disposals of property, plant and equipment 4 10 18 17
Increase in investments (592) (700) (1,989) (2,371)
Decrease in investments 575 1,045 1,906 2,634
Receipts from Garrett Motion Inc. — — 375 —
Receipts (payments) from settlements of derivative contracts 111 (158) 88 (75)
Cash paid for acquisitions, net of cash acquired (7) — (1,334) —
Proceeds from sales of businesses, net of fees paid 13 — 203 —
Net cash used for investing activities (104) (52) (1,347) (410)
Cash flows from financing activities:
Proceeds from issuance of commercial paper and other short-term borrowings 1,282 1,412 3,640 8,577
Payments of commercial paper and other short-term borrowings (1,282) (1,418) (3,637) (8,512)
Proceeds from issuance of common stock 57 66 171 163
Proceeds from issuance of long-term debt 2,482 3,004 2,509 10,105
Payments of long-term debt (2,520) (3,019) (3,355) (4,237)
Repurchases of common stock (650) (164) (2,499) (2,149)
Cash dividends paid (646) (636) (1,950) (1,921)
Other (41) (14) (74) (54)
Net cash provided by (used for) financing activities (1,318) (769) (5,195) 1,972
Effect of foreign exchange rate changes on cash and cash equivalents (37) 72 (21) (19)
Net increase (decrease) in cash and cash equivalents (340) 258 (3,188) 4,969
Cash and cash equivalents at beginning of period 11,427 13,778 14,275 9,067
Cash and cash equivalents at end of period $ 11,087 $ 14,036 $ 11,087 $ 14,036
Honeywell International Inc.
Reconciliation of Organic Sales % Change (Unaudited)
Three Months Ended
September 30, 2021
Honeywell
Reported sales % change 9%
Less: Foreign currency translation 1%
Less: Acquisitions, divestitures and other, net —%
Organic sales % change 8%
Aerospace
Reported sales % change 3%
Less: Foreign currency translation —%
Less: Acquisitions, divestitures and other, net 1%
Organic sales % change 2%
Honeywell 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 11%
Less: Foreign currency translation 1%
Less: Acquisitions, divestitures and other, net 1%
Organic sales % change 9%
Safety and Productivity Solutions
Reported sales % change 18%
Less: Foreign currency translation 1%
Less: Acquisitions, divestitures and other, net (4)%
Organic sales % change 21%
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.
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 September 30, Twelve Months
Ended
December 31,
2021 2020 2020
Segment profit $ 1,793 $ 1,553 $ 6,665
Stock compensation expense ((1)) (56) (40) (168)
Repositioning, Other ((2,3)) (117) (161) (641)
Pension and other postretirement service costs ((4)) (45) (41) (160)
Operating income $ 1,575 $ 1,311 $ 5,696
Segment profit $ 1,793 $ 1,553 $ 6,665
÷ Net sales $ 8,473 $ 7,797 $ 32,637
Segment profit margin % 21.2 % 19.9 % 20.4 %
Operating income $ 1,575 $ 1,311 $ 5,696
÷ Net sales $ 8,473 $ 7,797 $ 32,637
Operating income margin % 18.6 % 16.8 % 17.5 %
(1) Included in Selling, general and administrative expenses.
(2) Includes repositioning, asbestos, environmental expenses, and equity income adjustment.
(3) Included in Cost of products and services sold, Selling, general and administrative expenses and Other (income) expense.
(4) 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. 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 Adjusted Earnings per Share (Unaudited)
Three Months Ended September 30, Twelve Months
Ended December 31,
2021 2020 2020
Earnings per share of common stock - assuming dilution ((1)) $ 1.80 $ 1.07 $ 6.72
Pension mark-to-market expense ((2)) — — 0.04
Separation related tax adjustment ((3)) — — (0.26)
Changes in fair value for Garrett equity securities ((4)) — — —
Garrett-related adjustments ((5)) — 0.49 0.60
Gain on sale of retail footwear business ((6)) (0.01) — —
Expense related to UOP Matters ((7)) 0.23 — —
Adjusted earnings per share of common stock - assuming dilution $ 2.02 $ 1.56 $ 7.10
(1) For the three months ended September 30, 2021 and 2020, adjusted earnings per share utilizes weighted average shares of approximately 698.9 million and 709.6 million. For the twelve months ended December 31, 2020, adjusted earnings per share utilizes weighted average shares of 711.2 million.
(2) Pension mark-to-market expense uses a blended tax rate of 25% for 2020.
(3) For the twelve months ended December 31, 2020, separation related tax adjustment of $186 million, net of tax, includes the favorable resolution of a foreign tax matter related to the spin-off transactions.
(4) For the three months ended September 30, 2021, the adjustment was $2 million net of tax due to changes in fair value for Garrett equity securities.
(5) For the three months ended September 30, 2020, the adjustment was $350 million net of tax due to the non-cash charges associated with the reduction in value of reimbursement receivables due from Garrett. For the twelve months ended December 31, 2020, the adjustment was $427 million net of tax due to the non-cash charges associated with the reduction in value of reimbursement receivables due from Garrett, net of proceeds from settlement of related hedging transactions.
(6) For the three months ended September 30, 2021, the adjustment was $4 million net of tax due to the gain on sale of the retail footwear business.
(7) For the three months ended September 30, 2021, the adjustment was $160 million with no tax benefit due to an expense related to UOP matters. We continue to cooperate with investigations by the U.S. Department of Justice (DOJ), the Securities and Exchange Commission (SEC) and the Brazilian authorities relating to our use of third parties who previously worked for our UOP business in Brazil in relation to Petróleo Brasileiro S.A. (Petrobras) in connection with a project awarded in 2010. The investigations focus on compliance with the U.S. Foreign Corrupt Practices Act and similar Brazilian laws (the UOP Matters), and involve, among other things, document production and interviews with former and current management and employees. The DOJ and the SEC are also examining a matter involving a foreign subsidiary's prior contract with Unaoil S.A.M. in Algeria executed in 2011. We continue to be engaged in discussions with the authorities with respect to a potential comprehensive resolution of these matters. As the discussions are both ongoing and at different stages with regards to each respective authority, there can be no assurance as to whether we will reach a resolution with such authorities or as to the potential timing, terms, or collateral consequences of any such resolution. As a result, we cannot predict the ultimate outcome of these UOP Matters or the potential impact on the Company. Based on available information to date, we estimate that a potential comprehensive resolution of these UOP Matters would result in a probable loss of at least $160 million, and we have recorded a charge in
this amount in our Consolidated Statement of Operations, and have accrued a corresponding liability on the Consolidated Balance Sheet.
Honeywell International Inc.
Reconciliation of Cash Provided by Operating Activities to Free Cash Flow, Reconciliation of Net Income
Attributable to Honeywell to Adjusted Net Income Attributable to Honeywell , and Calculation of Adjusted Free Cash
Flow Conversion (Unaudited)
(Dollars in millions)
Three Months Three Months
Ended September 30, Ended September 30,
2021 2020
Cash provided by operating activities $ 1,119 $ 1,007
Expenditures for property, plant and equipment (208) (249)
Garrett cash receipts — —
Free cash flow 911 758
Net income attributable to Honeywell 1,257 758
Changes in fair value for Garrett equity securities ((1)) 2 —
Garrett related adjustment ((2)) — 350
Gain on sale of retail footwear business ((3)) (4) —
Expense related to UOP Matters ((4)) 160 —
Adjusted net income attributable to Honeywell $ 1,415 $ 1,108
Cash provided by operating activities $ 1,119 $ 1,007
÷ Net income (loss) attributable to Honeywell $ 1,257 $ 758
Operating cash flow conversion % 89 % 133 %
Free cash flow $ 911 $ 758
÷ Adjusted net income attributable to Honeywell $ 1,415 $ 1,108
Adjusted free cash flow conversion % 64 % 68 %
(1) The adjustment due to changes in fair value for Garrett equity securities.
(2) For the three months ended September 30, 2020, the adjustment was $350 million net of tax due to the noncash charge associated with the reduction in value of reimbursement receivables due from Garrett.
(3) The adjustment due to an after-tax gain on sale of the retail footwear business.
(4) The adjustment due to an expense related to UOP matters.
We define free cash flow as cash provided by operating activities less cash
expenditures for property, plant and equipment plus cash receipts from
Garrett.
We believe that free cash flow is a non-GAAP metric that is useful to
investors and management as a measure of cash generated by operations that
will be used to repay scheduled debt maturities and can be used to invest in
future growth through new business development activities or acquisitions, pay
dividends, repurchase stock or repay debt obligations prior to their
maturities. This metric can also be used to evaluate our ability to generate
cash flow from operations and the impact that this cash flow has on our
liquidity. For forward looking information, we do not provide cash flow
conversion guidance on a GAAP basis as management cannot reliably predict or
estimate, without unreasonable effort, the pension mark-to-market expense and
the changes in fair value for Garrett equity securities. Pension
mark-to-market is dependent on macroeconomic factors, such as interest rates
and the return generated on invested pension plan assets. Based on economic
and industry conditions, future developments and other relevant factors, these
assumptions are subject to change. Changes in fair value of Garrett equity
securities cannot be forecasted due to the inherent nature of changing
conditions in the overall market.
Honeywell International Inc.
Reconciliation of Cash Provided by Operating Activities to Free Cash Flow (Unaudited)
Twelve Months
Ended
December 31,
2021(E) ($B)
Cash provided by operating activities ~$5.9 - $6.2
Expenditures for property, plant and equipment ~(1)
Garrett cash receipts 0.4
Free cash flow ~$5.3 - $5.6
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.
Honeywell International Inc.
Reconciliation of Expected Earnings per Share to Adjusted Earnings per Share (Unaudited)
Twelve Months
Ended December 31, 2021(E)
Earnings per share of common stock - assuming dilution ((1)) $7.87 - $7.97
Gain on sale of retail footwear business ((2)) (0.11)
Garrett-related adjustments ((3)) 0.01
Expense related to UOP Matters ((4)) 0.23
Adjusted earnings per share of common stock - assuming dilution $8.00 - $8.10
(1) For the twelve months ended December 31, 2021, expected earnings per share utilizes weighted average shares of approximately 701 million.
(2) For the twelve months ended December 31, 2021, the adjustment was $76 million net of tax due to the gain on sale of the retail footwear business.
(3) For the twelve months ended December 31, 2021, adjustment was $7 million net of tax due to a non-cash charge associated with a further reduction in value of reimbursement receivables following Garrett's emergence from bankruptcy on April 30, 2021.
(4) For the twelve months ended December 31, 2021, adjustment was $160 million with no tax benefit due to an expense related to UOP matters.
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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