HON Honeywell International Incorporated

HONEYWELL DELIVERS STRONG FOURTH QUARTER RESULTS, FULL YEAR OPERATING CASH FLOW OF $6.0 BILLION AND FREE CASH FLOW OF $5.7 BILLION, ABOVE HIGH END OF INITIAL GUIDANCE; ISSUES 2022 GUIDANCE

- Fourth Quarter Sales of $8.7 Billion at Midpoint of Previous Guidance

- Fourth Quarter EPS of $2.05 and Adjusted EPS² of $2.09, Above Midpoint of Previous Guidance

- Full Year EPS of $7.91 and Adjusted EPS? of $8.06, Above High End of Initial Guidance

- Deployed $8.5 Billion¹ in Capital to Share Repurchases, Dividends, Capital Expenditures, and Acquisitions in 2021

- Expect 2022 Sales Growth of 4% - 7% Organically and Segment Margin of 21.1% - 21.5%, 21.4% - 21.8% Excluding the Impact of Quantinuum

CHARLOTTE, N.C., Feb. 3, 2022 /PRNewswire/ -- Honeywell (NASDAQ: HON) today announced results for the fourth quarter and full year 2021 that met or exceeded the company's guidance despite an extremely challenging operating environment. The company also provided its outlook for 2022.

The company reported a fourth-quarter year-over-year sales decline of 3%, down 2% on an organic basis, due to supply-related constraints, a tough comparison versus 2020 due to lower COVID mask volumes, and six fewer days in the quarter. Demand remained strong, with orders up high-single digits. Closing backlog was $28 billion, up 7% year over year. Fourth-quarter operating margin declined 130 basis points to 17.5% and segment margin expanded 30 basis points to 21.4% as a result of the company's commercial excellence efforts. Honeywell delivered fourth-quarter adjusted earnings per share of $2.09, above the midpoint of the company's guidance.

For the full year, sales increased by 5%, or 4% on an organic basis, and operating margin expanded 50 basis points with segment margin expanding 60 basis points. The company reported full-year adjusted earnings per share⁵ of $8.06, above the high end of its initial guidance of $7.60 to $8.00.

"Honeywell had a strong finish to another challenging year. We remained resilient, focusing on operational excellence to deliver the commitments we made to our shareowners," said Darius Adamczyk, chairman and chief executive officer of Honeywell. "Our focus on differentiated solutions drove double-digit organic sales growth in 2021 in our warehouse and workflow solutions, productivity solutions and services, business and general aviation, advanced materials, and recurring connected software businesses. Our disciplined cost management, swift pricing actions to stay ahead of the inflation curve, and improved productivity resulted in 60 basis points of segment margin expansion for the year. As a result, our full-year adjusted earnings per share⁵ increased by 14% year over year. We also were strong cash generators in 2021, delivering $6.0 billion in operating cash flow with 109% conversion and $5.7 billion of free cash flow⁶ with 102% adjusted conversion and free cash flow margin of 17%."

Adamczyk continued, "Our balance sheet remains strong, and we maintained our focus on executing our capital deployment strategy, including investing in high-return capital expenditures, repurchasing $3.4 billion of Honeywell shares, completing four acquisitions, and increasing the dividend for the 12^th time in the past 11 years. We deployed capital in excess of our operating cash flow and will continue to follow this playbook in 2022."

Adamczyk concluded, "I am proud of the way Honeywell continues to respond to the challenging macroeconomic environment. We quickly took action to mitigate supply chain challenges and inflation by bringing on alternate suppliers, redesigning parts and implementing pricing actions. We also remained focused on growth, investing in new markets and technologies such as our environmental, social and governance (ESG) enablement solutions and the creation of Quantinuum, the world's largest, most advanced integrated standalone quantum computing company. We entered 2022 with positive momentum and a strong backlog, and I am confident we are well positioned to continue to perform for our shareowners, our customers, and our employees in the short and long term."

Honeywell also announced its outlook for 2022. The company expects sales of $35.4 billion to $36.4 billion, representing year-over-year organic growth of 4% to 7%, or 5% to 8% excluding the impact of COVID-driven mask sales declines; segment margin expansion of 10 to 50 basis points, including the (30) basis point impact of its newly combined Quantinuum business; earnings per share⁵ of $8.40 to $8.70, up 4% to 8% adjusted; operating cash flow of $5.7 billion to $6.1 billion, and free cash flow of $4.7 billion to $5.1 billion. A summary of the company's 2022 guidance can be found in Table 1.

Fourth-Quarter Performance

Honeywell sales for the fourth quarter were down 3% year over year on a reported basis and down 2% year over year on an organic basis. The fourth-quarter financial results can be found in Tables 2 and 3.

Aerospace sales for the fourth quarter were down 3% year over year on an organic basis. Business and general aviation original equipment, business and general aviation aftermarket, and air transport aftermarket all grew double digits as build rates and flight hours improved, offset by lower U.S. defense volumes which were impacted by supply chain constraints and lower demand. Commercial aviation aftermarket sales were up over 16% year over year, demonstrating momentum in the aftermarket recovery. Segment margin expanded 140 basis points to 29.0% driven by pricing and productivity, partially offset by higher cost of materials.

Honeywell Building Technologies sales for the fourth quarter were down 1% on an organic basis year over year due to lower projects volume and continued supply chain constraints in the products businesses. Orders were up 4% as a result of demand for fire products, building management systems, and building projects. Building solutions backlog grew double digits year over year, positioning the business for growth in 2022. Segment margin contracted 30 basis points to 21.1% driven by lower volume leverage and cost inflation, mostly offset by favorable pricing.

Performance Materials and Technologies sales for the fourth quarter were up 2% on an organic basis year over year, driven by petrochemical catalyst and gas processing shipments in UOP, continued growth in advanced materials, and demand for thermal solutions within process solutions, partially offset by delayed projects recovery and softness in smart energy. Orders grew 10% year over year driven by double-digit growth in both UOP and process solutions projects, a positive indicator for 2022 and beyond. Segment margin expanded 430 basis points to 23.0% driven by favorable pricing and productivity, net of inflation.

Safety and Productivity Solutions sales for the fourth quarter were down 6% on an organic basis year over year, driven by lower personal protective equipment volume, partially offset by double-digit growth in productivity solutions and services and advanced sensing technologies. Backlog remained strong at over $4 billion dollars as declines in COVID-related mask demand were mostly offset by growth in advanced sensing technologies, productivity solutions and services, and gas detection. Segment margin contracted 450 basis points to 10.8% driven by lower volume leverage and Intelligrated project inefficiencies, partially offset by favorable pricing. These results exclude a $105 million charge (in Repositioning and Other) for certain long-term contract labor cost inefficiencies due to severe supply chain disruptions (attributable to the COVID-19 pandemic) related to the warehouse automation business. For more detail, please see the footnotes for the reconciliation of segment profit to operating income below.

Conference Call Details

Honeywell will discuss its fourth-quarter results and updated full-year guidance during an investor conference call starting at 8:30 a.m. Eastern Standard Time today. To participate on the conference call, please dial (301) 715-8592 approximately 10 minutes before the 8:30 a.m. EST start. The meeting ID is 922 0876 1191. The password is 576684. 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 2022 GUIDANCE

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.

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. Forward-looking statements are those that address activities, events or developments that management intends, expects, projects, believes or anticipates will or may occur in the future. They are based on management's assumptions and assessments in light of past experience and trends, current economic and industry conditions, expected future developments and other relevant factors. They are not guarantees of future performance, and actual results, developments and business decisions may differ significantly from those envisaged by our forward-looking statements. We do not undertake to update or revise any of our forward-looking statements, except as required by applicable securities law. Our forward-looking statements are also subject to risks and uncertainties, including the impact of the COVID-19 pandemic, that can affect our performance in both the near- and long-term. In addition, no assurance can be given that any plan, initiative, projection, goal commitment, expectation, or prospect set forth in this release can or will be achieved. 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 net sales;

• Organic sales growth, which we define as net sales growth less the impacts from foreign currency translation, and acquisitions and divestitures for the first 12 months following transaction date;

• Organic sales growth excluding COVID-Driven Masks, which we define as organic sales excluding any sales attributable to COVID-Driven Masks

• 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;

• Free cash flow excluding Quantinuum which we define as free cash flow less free cash flow attributable to Quantinuum;

• Adjusted net income attributable to Honeywell, which we define as net income attributable to Honeywell which we adjust to exclude: pension mark-to-market, 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, an expense related to UOP matters, gain on the sale of the retail footwear business, a 2Q20 favorable resolution of a foreign tax matter related to the spin-off transactions, and the 2020 non-cash charges associated with the reduction in value of reimbursement receivables due 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 free cash flow margin, which we define as free cash flow divided by net sales; and

• Adjusted earnings per share, which we adjust to exclude pension mark-to-market, 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, an expense related to UOP matters, gain on the sale of the retail footwear business, a 2Q20 favorable resolution of a foreign tax matter related to the spin-off transactions, and the 2020 non-cash charges associated with the reduction in value of reimbursement receivables due from Garrett, 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.

We define Organic sales growth excluding COVID-driven mask sales as Organic sales growth excluding any sales attributable to COVID-driven mask sales. We believe Organic sales growth excluding COVID-driven mask sales 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 as it is dependent on macroeconomic factors, such as interest rates and the return generated on invested pension plan assets. We therefore do not include an estimate for the pension mark-to-market expense. Based on economic and industry conditions, future developments and other relevant factors, these assumptions are subject to change.

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 define adjusted free cash flow conversion as free cash flow divided by adjusted net income attributable to Honeywell.

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 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 define free cash flow margin as free cash flow divided by net sales.

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.

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 define free cash flow excluding Quantinuum as free cash flow less free cash flow attributable to Quantinuum.

We believe that free cash flow and free cash flow excluding Quantinuum are non-GAAP metrics that are 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.