HON Honeywell International Incorporated

HONEYWELL DELIVERS STRONG FIRST QUARTER RESULTS, ADJUSTED EPS EXCEEDS HIGH END OF GUIDANCE RANGE; RAISES FULL-YEAR ADJUSTED EPS RANGE BY 10 CENTS AND MIDPOINT OF SALES GUIDANCE

• Sales of $8.4 Billion at High End of Previous Guidance, Down 1% Year Over Year, Up 1% on an Organic Basis
• Earnings Per Share of $1.64, Adjusted Earnings Per Share¹ of $1.91, Exceeding High End of Guidance Range
• Deployed $2.0 Billion in Capital, including $1.0 Billion to Share Repurchases as Part of $4 Billion Commitment in 2022
• Company Raises 2022 Adjusted EPS Range and Midpoint of Sales Guidance

CHARLOTTE, N.C., April 29, 2022 /PRNewswire/ -- Honeywell (NASDAQ: HON) today announced results for the first quarter that met or exceeded the company's guidance in a challenging operating environment. The company also raised the midpoint of its full-year sales guidance and increased its full-year adjusted earnings per share guidance.

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The company reported first quarter organic sales growth of 1%, or 3% excluding the impact of lower COVID-mask volumes. Operating margin contracted by 260 basis points to 15.2% due to a $183 million charge related to the substantial suspension of its operations in Russia, which translated to a loss of approximately $30M in sales in the first quarter. Segment margin expanded by 10 basis points to 21.1%, or 40 basis points excluding the year over year Quantinuum impact, exceeding the high end of the company's guidance range by 10 basis points as a result of the company's commercial excellence efforts. Adjusted earnings per share¹ was $1.91, down 1% year over year but one cent above the high end of the company's guidance range.

"Honeywell delivered a strong start to 2022, meeting or exceeding expectations in the first quarter despite considerable new macroeconomic challenges and the ongoing impact of supply chain constraints," said Darius Adamczyk, chairman and chief executive officer of Honeywell. "Organic sales growth was underpinned by double-digit growth in our commercial aviation aftermarket, building products, productivity solutions and services, and advanced materials businesses. Demand remained strong, with orders up 13% year over year and long-cycle orders growth of over 20%, which will help drive growth as we progress through 2022. Closing backlog was $28.5 billion², up 9% year over year, led by strength in Aero, HBT, and PMT. Our strategic pricing actions allowed us to continue to stay ahead of the inflation curve, enabling us to expand segment margins and exceed the high end of our EPS guidance range. We also continued to leverage our strong balance sheet, deploying $2.0 billion of total capital in the quarter with $1.0 billion allocated to share repurchases as we executed on our updated commitment to buy back $4 billion in shares in 2022. From an M&A perspective, we closed the acquisition of U.S. Digital Designs, a public safety communications hardware and software solutions provider."

Adamczyk continued, "As we look toward the rest of 2022, we are well positioned to navigate the macroeconomic environment and remain confident in our ability to execute on our rigorous operating principles and deliver strong results. We see solid recovery in our key commercial aerospace and energy end markets, and our ongoing investments in areas like our sustainable technology solutions business will provide additional sources of growth. Our operational excellence is enabling us to absorb the impact of external macroeconomic factors, and today I am pleased to announce that we are raising the midpoint of our sales guidance and improving our EPS outlook."

As a result of the company's first-quarter performance and management's outlook for the remainder of the year, full-year sales are now expected to be in the range of $35.5 billion to $36.4 billion, up 4% to 7% organically, or up 6% to 9% excluding the one-point impact of COVID-driven mask sales declines and one-point impact of lost Russian sales. Segment margin expansion³ is expected to be in the range of 10 to 50 basis points, including an approximate (30) basis point impact from investments in the Quantinuum business. Adjusted earnings per share³ is now expected to be in the range of $8.50 to $8.80, up 10 cents on both ends to reflect the updated share repurchase target announced at our investor day. Operating cash flow is expected to be in the range of $5.7 billion to $6.1 billion, and free cash flow is expected to be $4.7 billion to $5.1 billion. A summary of the company's full year guidance changes can be found in Table 1.

"As discussed in our recent investor day, we are turning our focus to the next phase of Honeywell's growth, including driving innovation that builds on our long-standing expertise in controls, automation, and software, as well as successful breakthrough initiatives," Adamczyk concluded. "We are executing on the capital deployment commitments we announced in March, which will help us achieve faster growth and innovation while delivering significant value to our shareholders now and in the future."

First-Quarter Performance

Honeywell sales for the first quarter were down 1% year over year on a reported basis and up 1% year over year on an organic basis. The first-quarter financial results can be found in Tables 2 and 3.

Aerospace sales for the first quarter were up 5% year over year on an organic basis. Both air transport aftermarket and business and general aviation aftermarket sales grew by over 25% in the first quarter as flight hours continued to improve. Commercial original equipment grew double digits in the first quarter as air transport original equipment returned to growth, partially offset by lower volumes in business and general aviation original equipment. Growth in commercial aerospace was partially offset by lower defense volumes. Segment margin contracted 160 basis points in the first quarter to 27.4%, driven by increased sales mix from lower margin original equipment products, cost inflation, and the absence of a one-time gain in 2021, partially offset by favorable pricing.

Honeywell Building Technologies sales for the first quarter were up 8% on an organic basis year over year driven by strength across the building products portfolio, partially offset by lower projects volume. Orders were up double digits as a result of strong demand for fire products and building management systems. Segment margin expanded 100 basis points to 23.5% due to pricing actions and favorable sales mix, partially offset by cost inflation.

Performance Materials and Technologies  sales for the first quarter were up 6% on an organic basis year over year despite an approximately 1% headwind from Russia. Sales growth was led by strength across the advanced materials portfolio and demand for thermal solutions and lifecycle solutions and services within process solutions. This growth was partially offset by lower process technologies equipment within UOP. Orders increased double digits year over year, headlined by over 20% growth in process solutions. Segment margin expanded 230 basis points to 20.8% led by favorable pricing and sales mix, partially offset by cost inflation.

Safety and Productivity Solutions sales for the first quarter decreased 15% on an organic basis year over year due to lower personal protective equipment and warehouse automation volume. Excluding the impact of lower COVID-mask volumes, sales decreased by 6% in the quarter. However, productivity solutions and services, advanced sensing technologies, and gas detection sales all grew at double-digit rates in the quarter, highlighting the strength in much of the underlying SPS portfolio. Segment margin expanded 20 basis points to 14.5% led by favorable pricing and sales mix, partially offset by lower volume leverage and cost inflation.

Conference Call Details

Honeywell will discuss its first-quarter results and updated full-year guidance during an investor conference call starting at 8:30 a.m. Eastern Daylight Time today. 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 GUIDANCE³

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 and the Russia-Ukraine conflict, 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 profit excluding Quantinuum, which we define as segment profit excluding segment profit attributable to Quantinuum;
• Segment margin, on an overall Honeywell basis, which we define as segment profit divided by net sales;
• Segment margin excluding Quantinuum, which we define as segment profit excluding Quantinuum divided by net sales excluding Quantinuum;
• Expansion in segment profit margin percentage, which we define as the year-over-year increase in segment profit margin percentage;
• Expansion in segment profit margin percentage excluding Quantinuum, which we define as the year-over-year increase in segment profit margin percentage excluding Quantinuum;
• Year-over-year segment profit margin percentage impact of Quantinuum, which we define as the difference in expansion in segment profit margin percentage excluding Quantinuum and expansion in segment profit margin percentage;
• 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;
• Organic sales growth excluding COVID-driven mask sales and lost Russian sales, which we define as organic sales growth excluding any sales attributable to COVID-driven mask sales and substantial suspension of operations in Russia;
• 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: a charge to reserve against outstanding accounts receivable, contract assets, and impairments of other assets due to the Russia-Ukraine conflict and the gain on the sale of the retail footwear business, 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; and
• Adjusted earnings per share, which we adjust to exclude a charge to reserve against outstanding accounts receivable, contract assets, and impairments of other assets due to the Russia-Ukraine conflict, pension mark-to-market, changes in fair value for Garrett equity securities, a non-cash charge associated with the 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, 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 define organic sales growth excluding COVID-driven mask sales and lost Russian sales as organic sales growth excluding any sales attributable to COVID-driven mask sales and substantial suspension of operations in Russia. We believe organic sales growth excluding COVID-driven mask sales, and organic sales growth excluding COVID-driven mask sales and lost Russian sales are 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, organic sales percent change excluding COVID-driven masks or organic sales percent change excluding COVID-driven masks and lost Russian sales 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 define segment profit excluding Quantinuum as segment profit excluding segment profit attributable to Quantinuum. We believe these measures are useful to investors and management in understanding our ongoing operations and in analysis of ongoing operating trends.

We define expansion in segment profit margin percentage as the year-over-year increase in segment profit margin percentage. We define expansion in segment profit margin percentage excluding Quantinuum as the year-over-year increase in segment profit margin percentage excluding Quantinuum. We define year-over-year segment profit margin percentage impact of Quantinuum as the difference in expansion in segment profit margin percentage excluding Quantinuum and expansion in segment profit margin percentage. 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 and segment profit excluding the impact of Quantinuum, 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.

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