- Third Quarter EPS Up 9% Reported, Up 10% Normalized at 26.5% Tax Rate
- Core Organic Sales Growth 1%*; Segment Margin Improvement of 190 bps to 19.3%
- Reported Sales Down 5% Due to F/X, Lower Pass-Through Pricing (Resins & Chemicals)
- Announced Acquisition of Elster, A Leader in Thermal Gas Solutions and Metering Technology
Honeywell (NYSE: HON) today announced results for the third quarter of 2015:
Total Honeywell
| ($ Millions, except Earnings Per Share) | 3Q 2014 | 3Q 2015 | Change |
| Sales | 10,108 | 9,611 | -5% |
| Segment Margin | 17.40% | 19.30% | 190 bps |
| Operating Income Margin | 16.20% | 18.30% | 210 bps |
| Earnings Per Share | $1.47 | $1.60 | 9% |
| Earnings Per Share (At 26.5% Tax Rate) | $1.43 | $1.57 | 10% |
| Cash Flow from Operations | 1,233 | 1,666 | 35% |
| Free Cash Flow (1) | 974 | 1,389 | 43% |
(1) Cash Flow from Operations Less Capital Expenditures
“Honeywell delivered another strong quarter of earnings growth and exceptional margin expansion,” said Honeywell Chairman and CEO Dave Cote. “On 1% core organic sales growth, segment margins expanded 190 basis points driven by new product introductions, our key process initiatives including HOS Gold, continued productivity improvements, and the benefits from ongoing restructuring projects. In a slower growth environment, we generated earnings growth of 10% when normalized for tax, reaching the high end of our EPS guidance range. This included $34 million in net restructuring charges in the quarter, which position us for continued long-term margin expansion. In addition, Free Cash Flow for the quarter of $1.4 billion increased 43%, with Free Cash Flow conversion of 110%. We are confirming our full-year EPS guidance at approximately $6.10, representing estimated full-year earnings growth of approximately 10% and our sixth consecutive year of double-digit earnings growth. We also announced the $5.1 billion acquisition of Elster in July, and are on track to close in the first quarter of 2016. Looking ahead to 2016, we’re planning for a continuation of the slow growth macro environment, but we expect to deliver continued margin expansion and earnings outperformance driven by our balanced portfolio, relentless seed planting in new products and technologies, High Growth Region penetration, over $300 million of funded restructuring, and the deployment of our key process initiatives.”
2015 Full-Year Guidance
| Prior Guidance | Current Guidance | Change vs. 2014 | |
| Sales | $39.0 – $39.6B | ~$38.7B | (~4%) |
| Core Organic Growth | ~3% | ~2% | |
| Segment Margin | 18.4% – 18.6% | ~18.8% | ~220 bps (2) |
| Operating Income Margin (Ex-Pension MTM) | 17.5% – 17.7% | ~17.9% | ~280 bps (3) |
| Earnings Per Share (Ex-Pension MTM) | $6.05 – $6.15 | ~$6.10 | ~10% |
| Free Cash Flow (1) | $4.2 – $4.3B | $4.2 – $4.3B | 8% – 10% |
1. Cash Flow from Operations Less Capital Expenditures
2. Segment Margin ex-4Q14 $184M OEM Incentives Up ~180 bps
3. Operating Margin ex-4Q14 $184M OEM Incentives Up ~240 bps
Third Quarter Segment Performance
Aerospace
| ($ Millions) | 3Q 2014 | 3Q 2015 | % Change |
| Sales | 3,895 | 3,820 | -2% |
| Segment Profit | 790 | 833 | 5% |
| Segment Margin | 20.30% | 21.80% | 150 bps |
- Sales for the third quarter were up 2% on a core organic basis, and were down 2% reported driven by the unfavorable impact of foreign currency and the Friction Materials divestiture. Commercial OE sales were up 4% on a core organic basis (3% reported) driven by strong Business and General Aviation (BGA) engine shipments. Commercial Aftermarket sales were up 3% on a core organic basis (2% reported) driven by continued growth in repair and overhaul activities, partially offset by a decline in RMU (Retrofit, Modifications, and Upgrades) sales in BGA. Defense & Space sales increased 2% on a core organic basis (1% reported) driven by strong international growth, partially offset by lower sales to the U.S. government. Transportation Systems sales were up 1% on a core organic basis driven by new platform launches and higher gas turbo penetration on passenger vehicles, partially offset by lower commercial vehicle production. TS sales were down 16% reported due to the unfavorable impact of foreign currency and the Friction Materials divestiture.
- Segment profit was up 5% and segment margins expanded 150 bps to 21.8%, driven by commercial excellence, productivity net of inflation, foreign currency hedges, and the favorable impact of the Friction Materials divestiture, partially offset by the margin impact of higher OE shipments and continued investments for growth.
Automation and Control Solutions
| ($ Millions) | 3Q 2014 | 3Q 2015 | % Change |
| Sales | 3,671 | 3,571 | -3% |
| Segment Profit | 583 | 614 | 5% |
| Segment Margin | 15.90% | 17.20% | 130 bps |
- Sales for the third quarter were up 3% on a core organic basis and down 3% reported driven by the unfavorable impact of foreign currency. Energy, Safety, and Security (ESS) sales increased 4% on a core organic basis (down 1% reported) driven primarily by continued growth in Security and Fire (HSF) and Sensing & Productivity Solutions (S&PS). Building Solutions & Distribution (BSD) sales increased 1% on a core organic basis (down 6% reported) driven by continued strength in Americas Distribution partially offset by slower Building Solutions backlog conversion.
- Segment profit was up 5% and segment margins expanded 130 bps to 17.2% driven by productivity net of inflation, higher volume, and commercial excellence, partially offset by continued investments for growth.
- On July 28, 2015, we signed a definitive agreement to acquire the Elster Division of Melrose Industries plc, a leading provider of thermal gas solutions for commercial, industrial, and residential heating systems and gas, water, and electricity meters, including smart meters and software and data analytics solutions, for approximately $5.1 billion. Elster also manufactures flow computers and regulators for the gas industry. Elster had reported 2014 revenues of $1.7 billion. We anticipate the acquisition will close in the first quarter of 2016, pending regulatory review. Upon closing, we expect that Elster will primarily be integrated into our Automation and Control Solutions segment.
Performance Materials and Technologies
| ($ Millions) | 3Q 2014 | 3Q 2015 | % Change |
| Sales | 2,542 | 2,220 | -13% |
| Segment Profit | 444 | 461 | 4% |
| Segment Margin | 17.50% | 20.80% | 330 bps |
- Sales were down 3% on a core organic basis and down 13% reported driven by the unfavorable impact of foreign currency and lower raw materials pass-through pricing in Resins & Chemicals. The decrease in core organic sales was primarily driven by lower UOP gas processing, equipment and licensing sales, and lower volume in HPS associated with projects and field products weakness, partially offset by higher UOP catalyst shipments and higher volume in Fluorine Products.
- Segment profit was up 4% and segment margins increased 330 bps to 20.8%, driven by productivity net of inflation, commercial excellence, and the favorable impact of raw materials pass-through pricing in Resins & Chemicals (pricing model protects profit dollars), partially offset by continued investments for growth.
