REG-Honeywell Intl: Half-year Report
23/07/2021 11:35
Honeywell Beats Guidance And Delivers Outstanding Second-Quarter Results
Driven By Sales And Profit Growth; Raises Midpoint Of Adjusted EPS Guidance By
15 Cents
- Sales Growth and Margin Expansion in All Four Segments; Orders up Over 20%
- Reported Sales up 18%, Organic Sales up 15%
- Operating Margin up 450 Basis Points to 18.1%; Segment Margin up 190 Basis
Points to 20.4%
- Earnings Per Share of $2.04, Adjusted Earnings Per Share¹ of $2.02, up 60%
- Generated $1.3 Billion in Operating Cash Flow with Conversion of 89%, $1.5
Billion of Free Cash Flow with Adjusted Conversion² of 103%
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.
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"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
share(1) 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
conversion(2) 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 share(3) 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 GUIDANCE(5)
Previous Guidance Current Guidance
Sales $34.0B - $34.8B $34.6B - $35.2B
Organic Growth 3% - 5% 4% - 6%
Segment Margin 20.7% - 21.1% 20.8% - 21.1%
Expansion Up 30 - 70 bps Up 40 - 70 bps
Adjusted Earnings Per Share (3) $7.75 - $8.00 $7.95 - $8.10
Adjusted Earnings Growth (4) 9% - 13% 12% - 14%
Operating Cash Flow $5.8B - $6.1B $5.9B - $6.2B
Free Cash Flow $5.2B - $5.5B $5.3B - $5.6B
TABLE 2: SUMMARY OF HONEYWELL FINANCIAL RESULTS
2Q 2021 2Q 2020 Change
Sales 8,808 7,477 18%
Organic Growth 15%
Segment Margin 20.4% 18.5% 190 bps
Operating Income Margin 18.1% 13.6% 450 bps
Earnings Per Share $2.04 $1.53 33%
Adjusted Earnings Per Share (1) $2.02 $1.26 60%
Cash Flow from Operations 1,278 1,480 (14%)
Operating Cash Flow Conversion 89% 137% (48%)
Free Cash Flow 1,468 1,253 17%
Adjusted Free Cash Flow Conversion (2) 103% 140% (37%)
TABLE 3: SUMMARY OF SEGMENT FINANCIAL RESULTS
AEROSPACE 2Q 2021 2Q 2020 Change
Sales 2,766 2,543 9%
Organic Growth 7%
Segment Profit 710 528 34%
Segment Margin 25.7% 20.8% 490 bps
HONEYWELL BUILDING TECHNOLOGIES
Sales 1,407 1,177 20%
Organic Growth 13%
Segment Profit 315 250 26%
Segment Margin 22.4% 21.2% 120 bps
PERFORMANCE MATERIALS AND TECHNOLOGIES
Sales 2,552 2,218 15%
Organic Growth 10%
Segment Profit 530 419 26%
Segment Margin 20.8% 18.9% 190 bps
SAFETY AND PRODUCTIVITY SOLUTIONS
Sales 2,083 1,539 35%
Organic Growth 35%
Segment Profit 292 213 37%
Segment Margin 14.0% 13.8% 20 bps
(1)Adjusted EPS and adjusted EPS V% exclude 2Q20 favorable resolution of a foreign tax matter related to the spin-off transactions, changes in fair value for Garrett Motion Inc. (Garrett) equity securities, 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
(2)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 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 from net income attributable to Honeywell
(3)Adjusted EPS guidance excludes the $0.11 impact of the sale of the retail footwear business, 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 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
(4)Adjusted EPS V% guidance excludes the $0.11 impact of the sale of the retail footwear business, a non-cash charge 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
(5)As discussed in the notes to the attached reconciliations, we do not provide guidance for margin or EPS on a GAAP basis
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.
Honeywell International Inc.
Consolidated Statement of Operations (Unaudited)
(Dollars in millions, except per share amounts)
Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
Product sales $ 6,639 $ 5,743 $ 13,048 $ 12,048
Service sales 2,169 1,734 4,214 3,892
Net sales 8,808 7,477 17,262 15,940
Costs, expenses and other
Cost of products sold ((1)) 4,734 4,163 9,285 8,537
Cost of services sold ((1)) 1,269 1,113 2,427 2,273
6,003 5,276 11,712 10,810
Selling, general and administrative expenses ((1)) 1,207 1,183 2,443 2,421
Other (income) expense (366) (291) (808) (608)
Interest and other financial charges 83 90 173 163
6,927 6,258 13,520 12,786
Income before taxes 1,881 1,219 3,742 3,154
Tax expense (benefit) 434 120 847 449
Net income 1,447 1,099 2,895 2,705
Less: Net income attributable to the noncontrolling interest 17 18 38 43
Net income attributable to Honeywell $ 1,430 $ 1,081 $ 2,857 $ 2,662
Earnings per share of common stock - basic $ 2.06 $ 1.54 $ 4.11 $ 3.77
Earnings per share of common stock - assuming dilution $ 2.04 $ 1.53 $ 4.06 $ 3.74
Weighted average number of shares outstanding - basic 693.8 702.3 695.0 705.9
Weighted average number of shares outstanding - assuming dilution 702.5 708.1 703.5 712.6
(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 June 30, Six Months Ended June 30,
Net Sales 2021 2020 2021 2020
Aerospace $ 2,766 $ 2,543 $ 5,398 $ 5,904
Honeywell Building Technologies 1,407 1,177 2,765 2,458
Performance Materials and Technologies 2,552 2,218 4,898 4,615
Safety and Productivity Solutions 2,083 1,539 4,201 2,963
Total $ 8,808 $ 7,477 $ 17,262 $ 15,940
Reconciliation of Segment Profit to Income Before Taxes
Three Months Ended June 30, Six Months Ended June 30,
Segment Profit 2021 2020 2021 2020
Aerospace $ 710 $ 528 $ 1,472 $ 1,465
Honeywell Building Technologies 315 250 620 512
Performance Materials and Technologies 530 419 964 931
Safety and Productivity Solutions 292 213 595 391
Corporate (54) (25) (83) (66)
Total segment profit 1,793 1,385 3,568 3,233
Interest and other financial charges (83) (90) (173) (163)
Stock compensation expense ((1)) (39) (34) (116) (78)
Pension ongoing income ((2)) 272 198 548 396
Other postretirement income ((2)) 18 14 35 27
Repositioning and other charges ((3,4)) (101) (280) (242) (342)
Other ((5)) 21 26 122 81
Income before taxes $ 1,881 $ 1,219 $ 3,742 $ 3,154
(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)
June 30, 2021 December 31, 2020
ASSETS
Current assets:
Cash and cash equivalents $ 11,427 $ 14,275
Short-term investments 891 945
Accounts receivable - net 6,947 6,827
Inventories 4,723 4,489
Other current assets 1,664 1,639
Total current assets 25,652 28,175
Investments and long-term receivables 1,358 685
Property, plant and equipment - net 5,520 5,570
Goodwill 17,135 16,058
Other intangible assets - net 3,748 3,560
Insurance recoveries for asbestos related liabilities 342 366
Deferred income taxes 762 760
Other assets 9,428 9,412
Total assets $ 63,945 $ 64,586
LIABILITIES
Current liabilities:
Accounts payable $ 6,139 $ 5,750
Commercial paper and other short-term borrowings 3,573 3,597
Current maturities of long-term debt 1,645 2,445
Accrued liabilities 6,786 7,405
Total current liabilities 18,143 19,197
Long-term debt 16,138 16,342
Deferred income taxes 2,302 2,113
Postretirement benefit obligations other than pensions 225 242
Asbestos-related liabilities 1,819 1,920
Other liabilities 7,109 6,975
Redeemable noncontrolling interest 7 7
Shareowners' equity 18,202 17,790
Total liabilities, redeemable noncontrolling interest and shareowners' equity $ 63,945 $ 64,586
Honeywell International Inc.
Consolidated Statement of Cash Flows (Unaudited)
(Dollars in millions)
Three Months Ended Six Months Ended
June 30, June 30,
2021 2020 2021 2020
Cash flows from operating activities:
Net income $ 1,447 $ 1,099 $ 2,895 $ 2,705
Less: Net income attributable to the noncontrolling interest 17 18 38 43
Net income attributable to Honeywell 1,430 1,081 2,857 2,662
Adjustments to reconcile net income attributable to Honeywell to net cash provided by operating activities:
Depreciation 164 161 335 314
Amortization 120 89 290 179
Gain on sale of non-strategic businesses and assets — — (90) —
Repositioning and other charges 101 280 242 342
Net payments for repositioning and other charges (163) (198) (358) (309)
Pension and other postretirement income (290) (211) (583) (423)
Pension and other postretirement benefit payments (13) (9) (27) (23)
Stock compensation expense 39 34 116 78
Deferred income taxes 38 (219) 101 (277)
Other (181) (106) (277) (285)
Changes in assets and liabilities, net of the effects of acquisitions and divestitures:
Accounts receivable (270) 735 (127) 776
Inventories (113) (168) (271) (331)
Other current assets (32) (60) (98) 106
Accounts payable 345 (310) 402 (364)
Accrued liabilities 103 381 (256) (26)
Net cash provided by (used for) operating activities 1,278 1,480 2,256 2,419
Cash flows from investing activities:
Expenditures for property, plant and equipment (185) (227) (406) (366)
Proceeds from disposals of property, plant and equipment — — 14 7
Increase in investments (661) (1,023) (1,397) (1,671)
Decrease in investments 719 746 1,331 1,589
Receipts from Garrett Motion Inc. 375 — 375 —
Receipts (payments) from settlements of derivative contracts (163) (204) (23) 83
Cash paid for acquisitions, net of cash acquired (24) — (1,327) —
Proceeds from sales of businesses, net of fees paid — — 190 —
Net cash provided by (used for) investing activities 61 (708) (1,243) (358)
Cash flows from financing activities:
Proceeds from issuance of commercial paper and other short-term borrowings 1,090 3,710 2,358 7,165
Payments of commercial paper and other short-term borrowings (1,089) (3,721) (2,355) (7,094)
Proceeds from issuance of common stock 47 31 114 97
Proceeds from issuance of long-term debt 4 5,974 27 7,101
Payments of long-term debt (18) (93) (835) (1,218)
Repurchases of common stock (1,027) (62) (1,849) (1,985)
Cash dividends paid (664) (650) (1,304) (1,285)
Other (3) (2) (33) (40)
Net cash provided by (used for) financing activities (1,660) 5,187 (3,877) 2,741
Effect of foreign exchange rate changes on cash and cash equivalents 30 98 16 (91)
Net increase (decrease) in cash and cash equivalents (291) 6,057 (2,848) 4,711
Cash and cash equivalents at beginning of period 11,718 7,721 14,275 9,067
Cash and cash equivalents at end of period $ 11,427 $ 13,778 $ 11,427 $ 13,778
Honeywell International Inc.
Reconciliation of Organic Sales % Change (Unaudited)
Three Months Ended
June 30, 2021
Honeywell
Reported sales % change 18%
Less: Foreign currency translation 3%
Less: Acquisitions, divestitures and other, net —%
Organic sales % change 15%
Aerospace
Reported sales % change 9%
Less: Foreign currency translation 1%
Less: Acquisitions, divestitures and other, net 1%
Organic sales % change 7%
Honeywell Building Technologies
Reported sales % change 20%
Less: Foreign currency translation 7%
Less: Acquisitions, divestitures and other, net —%
Organic sales % change 13%
Performance Materials and Technologies
Reported sales % change 15%
Less: Foreign currency translation 4%
Less: Acquisitions, divestitures and other, net 1%
Organic sales % change 10%
Safety and Productivity Solutions
Reported sales % change 35%
Less: Foreign currency translation 3%
Less: Acquisitions, divestitures and other, net (3)%
Organic sales % change 35%
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 June 30, Twelve Months
Ended December 31,
2021 2020 2020
Segment profit $ 1,793 $ 1,385 $ 6,665
Stock compensation expense ((1)) (39) (34) (168)
Repositioning, Other ((2,3)) (119) (295) (641)
Pension and other postretirement service costs ((4)) (37) (38) (160)
Operating income $ 1,598 $ 1,018 $ 5,696
Segment profit $ 1,793 $ 1,385 $ 6,665
÷ Net sales $ 8,808 $ 7,477 $ 32,637
Segment profit margin % 20.4 % 18.5 % 20.4 %
Operating income $ 1,598 $ 1,018 $ 5,696
÷ Net sales $ 8,808 $ 7,477 $ 32,637
Operating income margin % 18.1 % 13.6 % 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 June 30, Twelve Months
Ended December 31,
2021 2020 2020
Earnings per share of common stock - assuming dilution ((1)) $ 2.04 $ 1.53 $ 6.72
Pension mark-to-market expense ((2)) — — 0.04
Separation related tax adjustment ((3)) — (0.27) (0.26)
Changes in fair value for Garrett equity securities ((4)) (0.03) — —
Garrett-related adjustments ((5)) 0.01 — 0.60
Adjusted earnings per share of common stock - assuming dilution $ 2.02 $ 1.26 $ 7.10
(1) For the three months ended June 30, 2021 and 2020, adjusted earnings per share utilizes weighted average shares of approximately 702.5 million and 708.1 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 three months ended June 30, 2020 and twelve months ended December 31, 2020, separation related tax adjustment of $186 million ($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 June 30, 2021, the adjustment was $16 million net of tax due to changes in fair value for Garrett equity securities.
(5) For the three months ended June 30, 2021, the 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. 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.
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.
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 June 30, 2021 Ended June 30, 2020
Cash provided by operating activities $ 1,278 $ 1,480
Expenditures for property, plant and equipment (185) (227)
Garrett cash receipts 375 —
Free cash flow 1,468 1,253
Net income attributable to Honeywell 1,430 1,081
Separation related tax adjustment — (186)
Changes in fair value for Garrett equity securities ((1)) (16) —
Garrett related adjustment ((2)) 7 —
Adjusted net income attributable to Honeywell $ 1,421 $ 895
Cash provided by operating activities $ 1,278 $ 1,480
÷ Net income (loss) attributable to Honeywell $ 1,430 $ 1,081
Operating cash flow conversion % 89 % 137 %
Free cash flow $ 1,468 $ 1,253
÷ Adjusted net income attributable to Honeywell $ 1,421 $ 895
Adjusted free cash flow conversion % 103 % 140 %
(1) The adjustment due to changes in fair value for Garrett equity securities.
(2) For the three months ended June 30, 2021, the adjustment was $7 million net of tax due to a non-cash charge associated with a further reduction in value of reimbursement receivables following Garrett's emergence from bankruptcy on April 30, 2021.
We define free cash flow as cash provided by operating activities less cash
expenditures for property, plant and equipment plus cash receipts from
Garrett.
We believe that free cash flow is a non-GAAP metric that is useful to
investors and management as a measure of cash generated by operations that
will be used to repay scheduled debt maturities and can be used to invest in
future growth through new business development activities or acquisitions, pay
dividends, repurchase stock or repay debt obligations prior to their
maturities. This metric can also be used to evaluate our ability to generate
cash flow from operations and the impact that this cash flow has on our
liquidity. For forward looking information, we do not provide cash flow
conversion guidance on a GAAP basis as management cannot reliably predict or
estimate, without unreasonable effort, the pension mark-to-market expense and
the changes in fair value for Garrett equity securities. Pension
mark-to-market is dependent on macroeconomic factors, such as interest rates
and the return generated on invested pension plan assets. Based on economic
and industry conditions, future developments and other relevant factors, these
assumptions are subject to change. Changes in fair value of Garrett equity
securities cannot be forecasted due to the inherent nature of changing
conditions in the overall market.
Honeywell International Inc.
Reconciliation of Cash Provided by Operating Activities to Free Cash Flow (Unaudited)
Twelve Months
Ended
December 31,
2021(E) ($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)) $8.05 - $8.20
Gain on sale of retail footwear business ((2)) (0.11)
Garrett-related adjustments ((3)) 0.01
Adjusted earnings per share of common stock - assuming dilution $7.95 - $8.10
(1) For the twelve months ended December 31, 2021, expected earnings per share utilizes weighted average shares of approximately 703 million.
(2) For the twelve months ended December 31, 2021, the adjustment was $72 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.
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.
Contacts:
Media Investor Relations
Nina Krauss Reena Vaidya
(704) 627-6035 (704) 627-6200
nina.krauss@honeywell.com reena.vaidya@honeywell.com
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