News Release
| Contacts: | | |
| Media | | Investor Relations |
| Robert C. Ferris | | Murray Grainger |
| (973) 455-3388 | | (973) 455-2222 |
| rob.ferris@honeywell.com | | murray.grainger@honeywell.com |
HONEYWELL REPORTS FIRST QUARTER SALES UP 11% TO $8.9
BILLION; EARNINGS UP 30% TO $0.85 PER SHARE
Organic Revenue Growth Across All Regions
Cash from Operations and Free Cash Flow Up 25%
Continued Aggressive Repositioning to Benefit Future Periods
Major Contract Wins with Embraer, Gulfstream, and Airbus
Full-Year Earnings per Share Guidance Moved to High End of Previous Range
MORRIS TOWNSHIP, N.J., April 18, 2008 -- Honeywell (NYSE: HON) today announced first quarter 2008 sales increased 11% to $8.9 billion from $8.0 billion in 2007. Earnings were up 30% to $0.85 per share, versus $0.66 per share in the prior year. Cash flow from operations was $721 million versus $578 million in the first quarter of 2007 and free cash flow (cash flow from operations less capital expenditures) was $571 million, compared to $458 million last year, in each case an increase of 25%.
“We continue to outperform with double-digit sales, EPS, and free cash flow increases in the quarter,” said Honeywell Chairman and CEO Dave Cote. “Our global reach and diversified portfolio of businesses helped to drive organic sales growth across all regions. We also continue to win major multi-year contracts that support the favorable long-term outlook for our businesses.”
“We remain confident in Honeywell’s outlook despite tougher global economic conditions,” added Cote. “We continue to invest in innovation and acquisitions while executing on productivity initiatives such as Honeywell Operating System, Velocity Product Development, and Functional Transformation. Our cash deployment strategy and focus on organic sales growth and productivity are delivering strong returns to our shareowners.”
Honeywell is increasing its previously stated 2008 sales guidance by $700 million to $36.8 - 37.4 billion and is moving its earnings per share guidance to $3.70 – 3.80, the high end of its previously stated range.
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Q1 Results - 2
First-Quarter Segment Highlights
Aerospace
Sales were up 7%, compared with the first quarter of 2007, driven by 8% growth inCommercial and 5% growth in Defense and Space sales. Commercial sales reflectedgrowth of 8% in original equipment and 8% in aftermarket spares and services. Defenseand Space sales included the positive impact of the Dimensions International acquisition.
Segment profit grew 13%, while segment margin increased by 100 bps to 18.6%, dueprimarily to increased prices, productivity, and sales volume growth, partially offset byinflation.
Honeywell has been chosen to supply the latest generation of its HTF7000 turbofanpropulsion system family for Embraer’s new MSJ and MLJ business aircraft in a contractvalued at more than $23 billion (including aftermarket) over the life of the contract. TheHTF7500-E engine will feature new technology to achieve reduced emissions andimproved fuel efficiency.
Honeywell was selected to supply avionics and mechanical systems for the newGulfstream G650 aircraft worth an estimated $3 billion. The contract includes the firstbusiness jet application of Honeywell’s Next Generation Flight Management System,previously announced for the Boeing 747-8, as well as its RDR4000 turbulence certifiedweather radar that is in service on the Airbus A380 and Air Force C-17 aircraft.
Honeywell secured a $1.5 billion contract (including aftermarket) to provide the FlightManagement System and the Aircraft Environment Surveillance System for Airbus’ newlong-range, extra wide-body A350XWB aircraft. In September 2007, Honeywell wasselected by Airbus to provide advanced Air Management Systems and auxiliary powerunit technologies for the Airbus A350XWB in a contract valued at $16 billion (includingaftermarket) over the life of the contract.
Automation and Control Solutions
Sales were up 14%, compared with the first quarter of 2007, due to acquisitions, thefavorable impact of foreign exchange and organic growth. Sales were up 14% in theProducts businesses and up 14% in the Solutions businesses.
Segment profit grew 20%, while segment margin increased by 50 bps to 10.3%, drivenby productivity savings and the favorable impact of foreign exchange, partially offset byinflation and the impact of acquisitions.
Life Safety announced an agreement to acquire Norcross Safety Products, a leadingmanufacturer in the large and growing personal protection equipment market for fire,utility, and general industrial applications, for approximately $1.2 billion.
Building Solutions was awarded four renewable energy solar panel projects in Californiaand Oregon. The projects are expected to produce more than 2.4 million kilowatt-hoursof electricity annually, which can power up to 225 homes per year. The business willalso partner with Baltimore Gas & Electric on a demand response program giving theutility greater control of peak consumption using Honeywell’s new UtilityPRO™thermostat.
Process Solutions will provide its Experion® Process Knowledge System for a newliquefied natural gas (LNG) project in Western Australia. The integrated control systemwill streamline production, improve operational efficiency and safety, and provide datafrom subsystems throughout the facility to aid operator decision making.
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Q1 Results - 3
Transportation Systems
Sales were up 6%, compared with the first quarter of 2007, driven by the favorableimpact of foreign exchange and increased sales in our Turbo Technologies business.
Segment profit decreased 4%, while segment margin decreased by 130 bps to 11.7%,resulting from CPG volume declines, the impact of commodity inflation, and investmentsin product development to support future Turbo platforms.
Turbo Technologies was awarded three contracts estimated at more than $183 million inrevenue over the life of the programs. These include new technology solutions forpassenger vehicle diesel engines and will be produced in Japan and Europe for export toEuropean and U.S. markets beginning in 2009.
Honeywell’s turbochargers were featured on 28 new vehicles – with engines rangingfrom 1.1 to 4.4 liters – at the 78th International Motor Show of Geneva in March. Thecompany introduced its latest gasoline turbo technology on the new BMW X6.
Specialty Materials
Sales were up 18% compared with the first quarter of 2007, driven by growth in allbusinesses, particularly UOP, Resins and Chemicals and Fluorine Products.
Segment profit grew 38%, while segment margin increased by 280 bps to 18.8%, drivenby pricing and productivity gains which more than offset inflation.
UOP plans to establish a natural gas processing design center in Kuala Lumpur,Malaysia, to better support the growing Southeast Asia market. The new design centerwill focus initially on executing projects involving UOP's Separex™ membrane systems,which are used to remove impurities from natural gas streams.
Honeywell Performance Products will expand production of Aclar® film to meetgrowing demand for the clear, moisture-barrier material, which is used extensively inpharmaceutical packaging. An upgrade of existing production capabilities, combinedwith overall productivity improvements, is expected to boost Aclar production by up to23% by the end of 2008.
Honeywell will discuss its results during its investor conference call today starting at 8:00 a.m. EDT. To participate, please dial (706) 643-7681 a few minutes before the 8:00 a.m. start. Please mention to the operator that you are dialing in for Honeywell’s investor conference call. The live webcast of the investor call will be available through the “Investor Relations” section of the company’s Website (http://www.honeywell.com/investor). Investors can access a replay of the investor call starting at 11:00 a.m. EDT, April 18, until 11 p.m., April 25, by dialing (706) 645-9291. The access code is 39285103.
Honeywell International is a $36 billion diversified technology and manufacturing leader, serving customers worldwide with aerospace products and services; control technologies for buildings, homes and industry; automotive products; turbochargers; and specialty materials. Based in Morris Township, N.J., Honeywell's shares are traded on the New York, London and Chicago Stock Exchanges. For additional information, please visitwww.honeywell.com.
This release contains “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934. All statements, other than statements of fact, that address activities, events or developments that we or our management intend, expect, project, believe or anticipate will or may occur in the future are forward-looking statements. Forward-looking statements are based on management’s assumptions and assessments in light of past experience and trends, current conditions, expected future developments and other relevant factors. They are not guarantees of future performance, and actual results, developments and business decisions may differ from those envisaged by our forward-looking statements. Our forward-looking statements are also subject to risks and uncertainties, which can affect our performance in both the near- and long-term. 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.
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Q1 Results - 4
Honeywell International Inc.
Consolidated Statement of Operations (Unaudited)
(In millions except per share amounts)
| | | | | | | |
| | Three Months Ended March 31, |
| | 2008 | | 2007 |
| | | | | | |
| Product sales | $ | 7,156 | | $ | 6,450 |
| Service sales | | 1,739 | | | 1,591 |
| Net sales | | 8,895 | | | 8,041 |
| Costs, expenses and other | | | | | |
| Cost of products sold (A) | | 5,507 | | | 5,010 |
| Cost of services sold (A) | | 1,165 | | | 1,140 |
| | | 6,672 | | | 6,150 |
| Selling, general and administrative expenses (A) | | 1,255 | | | 1,089 |
| Other (income) expense | | (22) | | | (11) |
| Interest and other financial charges | | 115 | | | 97 |
| | | 8,020 | | | 7,325 |
| Income before taxes | | 875 | | | 716 |
| Tax expense | | 232 | | | 190 |
| Net income | $ | 643 | | $ | 526 |
| | | | | | |
| Earnings per share of common stock - basic | $ | 0.87 | | $ | 0.66 |
| | | | | | |
| Earnings per share of common stock - assuming dilution | $ | 0.85 | | $ | 0.66 |
| | | | | | |
| Weighted average number of shares outstanding-basic | | 743 | | | 795 |
| | | | | | |
| Weighted average number of shares outstanding - | | | | | |
| assuming dilution | | 753 | | | 802 |
| (A) | Cost of products and services sold and selling, general and administrative expenses include amounts for repositioning and other charges, pension and other post-retirement expense, and stock compensation expense. |
Q1 Results - 5
Honeywell International Inc.
Segment Data (Unaudited)
(Dollars in millions)
| | | | | | | |
| Net Sales | Three Months Ended March 31, |
| | 2008 | | 2007 |
| Aerospace | $ | 3,030 | | $ | 2,840 |
| Automation and Control Solutions | | 3,180 | | | 2,801 |
| Specialty Materials | | 1,409 | | | 1,199 |
| Transportation Systems | | 1,276 | | | 1,201 |
| Corporate | | - | | | - |
| Total | $ | 8,895 | | $ | 8,041 |
| Reconciliation of Segment Profit to Income Before Taxes |
| Segment Profit | Three Months Ended March 31, |
| | 2008 | | 2007 |
| Aerospace | $ | 563 | | $ | 500 |
| Automation and Control Solutions | | 328 | | | 274 |
| Specialty Materials | | 265 | | | 192 |
| Transportation Systems | | 149 | | | 156 |
| Corporate | | (56) | | | (43) |
| Total Segment Profit | | 1,249 | | | 1,079 |
| Other income/ (expense) (A) | | 6 | | | 11 |
| Interest and other financial charges | | (115) | | | (97) |
| Stock compensation expense (B), (C) | | (41) | | | (24) |
| Pension and other postretirement expense (B) | | (27) | | | (74) |
| Repositioning and other charges (B) | | (197) | | | (179) |
| Income before taxes | $ | 875 | | $ | 716 |
| |
| (A) | Equity income/(loss) of affiliated companies is included in Segment Profit, on a prospective basis, commencing January 1, 2008. Other income/(expense) as presented above includes equity income/(loss) of affiliated companies of ($2) million for the three months ended March 31, 2007. |
| | |
| (B) | Amounts included in cost of products and services sold and selling, general and administrative expenses. |
| | |
| (C) | Costs associated with restricted stock units ("RSU") are excluded from Segment Profit, on a prospective basis, commencing January 1, 2008. Stock compensation expense, including RSU expense, totaled $39 million for the three months ended March 31, 2007. Stock option expense is included for all periods presented. |
Q1 Results - 6
Honeywell International Inc.
Consolidated Balance Sheet (Unaudited)
(Dollars in millions)
| | | | | |
| | | March 31, | | | December 31, |
| | | 2008 | | | 2007 |
| | | | | | |
| ASSETS | | | | | |
| Current assets: | | | | | |
| Cash and cash equivalents | $ | 2,234 | | $ | 1,829 |
| Accounts, notes and other receivables | | 6,604 | | | 6,387 |
| Inventories | | 4,149 | | | 3,861 |
| Deferred income taxes | | 1,338 | | | 1,241 |
| Other current assets | | 418 | | | 367 |
| Total current assets | | 14,743 | | | 13,685 |
| | | | | | |
| Investments and long-term receivables | | 522 | | | 500 |
| Property, plant and equipment - net | | 5,012 | | | 4,985 |
| Goodwill | | 9,251 | | | 9,175 |
| Other intangible assets - net | | 1,492 | | | 1,498 |
| Insurance recoveries for asbestos related liabilities | | 1,007 | | | 1,086 |
| Deferred income taxes | | 676 | | | 637 |
| Prepaid pension benefit cost | | 1,268 | | | 1,256 |
| Other assets | | 973 | | | 983 |
| Total assets | $ | 34,944 | | $ | 33,805 |
| | | | | | |
| LIABILITIES AND SHAREOWNERS' EQUITY | | | | | |
| Current liabilities: | | | | | |
| Accounts payable | $ | 4,097 | | $ | 3,962 |
| Short-term borrowings | | 62 | | | 64 |
| Commercial paper | | 896 | | | 1,756 |
| Current maturities of long-term debt | | 518 | | | 418 |
| Accrued liabilities | | 5,759 | | | 5,741 |
| Total current liabilities | | 11,332 | | | 11,941 |
| | | | | | |
| Long-term debt | | 6,576 | | | 5,419 |
| Deferred income taxes | | 952 | | | 734 |
| Postretirement benefit obligations other than pensions | | 2,012 | | | 2,025 |
| Asbestos related liabilities | | 1,419 | | | 1,405 |
| Other liabilities | | 3,017 | | | 3,059 |
| Shareowners' equity | | 9,636 | | | 9,222 |
| Total liabilities and shareowners' equity | $ | 34,944 | | $ | 33,805 |
Q1 Results - 7
Honeywell International Inc.
Consolidated Statement of Cash Flows (Unaudited)
(Dollars in millions)
| | | | | | | |
| | Three Months Ended |
| | March 31, |
| | | 2008 | | | 2007 |
| Cash flows from operating activities: | | | | | |
| Net income | $ | 643 | | $ | 526 |
| Adjustments to reconcile net income to net cash provided | | | | | |
| by operating activities: | | | | | |
| Depreciation and amortization | | 217 | | | 200 |
| Repositioning and other charges | | 197 | | | 179 |
| Net payments for repositioning and other charges | | (21) | | | (132) |
| Pension and other postretirement expense | | 27 | | | 74 |
| Pension and other postretirement benefit payments | | (61) | | | (45) |
| Stock compensation expense | | 41 | | | 24 |
| Deferred income taxes | | 108 | | | 17 |
| Excess tax benefits from share based payment arrangements | | (7) | | | (8) |
| Other | | 45 | | | 6 |
| Changes in assets and liabilities, net of the effects of | | | | | |
| acquisitions and divestitures: | | | | | |
| Accounts, notes and other receivables | | (224) | | | (136) |
| Inventories | | (289) | | | (161) |
| Other current assets | | (35) | | | 36 |
| Accounts payable | | 135 | | | 65 |
| ��Accrued liabilities | | (55) | | | (67) |
| Net cash provided by operating activities | | 721 | | | 578 |
| | | | | | |
| Cash flows from investing activities: | | | | | |
| Expenditures for property, plant and equipment | | (150) | | | (120) |
| Proceeds from disposals of property, plant and equipment | | 12 | | | 33 |
| Decrease in investments | | 6 | | | - |
| Cash paid for acquisitions, net of cash acquired | | (55) | | | (13) |
| Proceeds from sales of businesses, net of fees paid | | - | | | 9 |
| Other | | (2) | | | - |
| Net cash used for investing activities | | (189) | | | (91) |
| | | | | | |
| Cash flows from financing activities: | | | | | |
| Net (decrease)/increase in commercial paper | | (860) | | | 328 |
| Net (decrease)/increase in short-term borrowings | | (3) | | | 3 |
| Proceeds from issuance of common stock | | 51 | | | 119 |
| Proceeds from issuance of long-term debt | | 1,487 | | | 988 |
| Payments of long-term debt | | (225) | | | (398) |
| Excess tax benefits from share based payment arrangements | | 7 | | | 8 |
| Repurchases of common stock | | (441) | | | (1,186) |
| Cash dividends paid on common stock | | (204) | | | (199) |
| Net cash used for financing activities | | (188) | | | (337) |
| | | | | | |
| Effect of foreign exchange rate changes on cash and cash equivalents | | 61 | | | 4 |
| | | | | | |
| Net increase in cash and cash equivalents | | 405 | | | 154 |
| Cash and cash equivalents at beginning of period | | 1,829 | | | 1,224 |
| Cash and cash equivalents at end of period | $ | 2,234 | | $ | 1,378 |
Q1 Results - 8
Honeywell International Inc.
Reconciliation of Cash Provided by Operating Activities to Free Cash Flow (Unaudited)
(Dollars in millions)
| | | | | | | |
| | Three Months Ended |
| | March 31, |
| | | 2008 | | | 2007 |
| Cash provided by operating activities | $ | 721 | | $ | 578 |
| Expenditures for property, plant and equipment | | (150) | | | (120) |
| Free cash flow | $ | 571 | | $ | 458 |
We define free cash flow as cash provided by operating activities, less cash expenditures for property, plant and equipment.
We believe that this metric is useful to investors and management as a measure of cash generated by business 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, and to 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 business operations and the impact that this cash flow has on our liquidity.
