Earnings Release

• Sales of $9.2 Billion, Reported Sales Up 3%, Organic¹ Sales Up 2%
• Orders Up 10%, Backlog Up 8% Year Over Year to a Record Level of $31.4 Billion
• Aerospace Sales Up 18%, Double-Digit Growth in Both Commercial Aviation and Defense and Space
• Operating Margin Up 140 Basis Points to 20.9%; Segment Margin¹ Up 80 Basis Points to 22.6%
• Earnings Per Share of $2.27, Exceeding High End of Guidance Range
• Deployed $2.0 Billion of Capital, Including Repurchasing 5.3 Million Honeywell Shares

CHARLOTTE, N.C., Oct. 26, 2023 /PRNewswire/ -- Honeywell (NASDAQ: HON) today announced results for the third quarter that met or exceeded the company's guidance. The company also updated its full-year sales, segment margin², and adjusted earnings per share^2,3 guidance ranges.

The company reported third-quarter year-over-year sales growth of 3% and organic¹ sales growth of 2%, led by double-digit organic sales growth in commercial aviation, defense and space, and process solutions. Operating margin expanded 140 basis points to 20.9% and segment margin¹ expanded by 80 basis points to 22.6%, led by expansion in Honeywell Building Technologies. Earnings per share for the third quarter was $2.27, roughly flat year over year on a reported basis and up 1% year over year adjusted¹. Excluding a 14-cent non-cash pension headwind, adjusted earnings per share¹ was up 7%. Operating cash flow was $1.8 billion with operating cash flow margin of 19.6%, and free cash flow¹ was $1.6 billion with free cash flow margin¹ of 16.9%, driven by strong net income and collections.

"Honeywell executed through a challenging environment in the third quarter, meeting or exceeding guidance for all metrics and demonstrating once again our culture of execution and accountability," said Vimal Kapur, chief executive officer of Honeywell. "Organic¹ sales growth was led by our Aerospace segment, where continued supply chain improvements enabled significant sales growth in both commercial aviation and defense and space. We also saw strong growth in other pockets of the portfolio, including double-digit organic sales growth in our process solutions business, and 20% organic sales growth in our Honeywell Connected Enterprise offerings. Orders growth of 10% in the quarter, led by strength in Aerospace and our other long-cycle businesses, drove our backlog to a new record level of $31.4 billion, up 8% year over year. Continued mix benefits combined with our laser focus on productivity across the Honeywell portfolio enabled us to expand margins in line with the high end of our guidance range. We remain committed to our capital deployment strategy and put our robust balance sheet to work in the third quarter by deploying $2.0 billion to dividends, high-return capex, M&A, and share repurchases, including more than doubling our share repurchases sequentially to 5.3 million shares. The result of all these efforts was increased adjusted earnings per share¹ in the face of uncertain macroeconomic dynamics."

Kapur continued, "I am very excited about the future of Honeywell. Our portfolio is aligned to powerful megatrends: automation, the future of aviation, and energy transition, all underpinned by our robust digitalization capabilities. Our technologically differentiated portfolio of solutions and world-class Honeywell Accelerator operating system will enable us to capitalize on these trends and drive the profitable growth we outlined in our long-term financial framework."

As a result of the company's third-quarter performance and management's outlook for the remainder of the year, Honeywell updated its full-year sales, segment margin², and adjusted earnings per share^2,3 guidance. Full-year sales are now expected to be $36.8 billion to $37.1 billion with organic¹ sales growth in the range of 4% to 5%. Segment margin² is now expected to be in the range of 22.5% to 22.6%, with segment margin expansion² of 80 to 90 basis points, up 10 basis points on the low end from the prior guidance range. Adjusted earnings per share^2,3 is now expected to be in the range of $9.10 to $9.20, narrowing the range by 5 cents on both ends from the prior guidance range. Operating cash flow is still expected to be in the range of $4.9 billion to $5.3 billion, and free cash flow¹ is still expected to be in the range of $3.9 billion to $4.3 billion, or $5.1 billion to $5.5 billion excluding the net impact of settlements signed in the fourth quarter of 2022. A summary of the company's full-year guidance changes can be found in Table 1.

Third-Quarter Performance

Honeywell sales for the third quarter were up 3% year over year on a reported basis and 2% year over year on an organic¹ basis. The third-quarter financial results can be found in Tables 2 and 3.

Aerospace sales for the third quarter were up 18% year over year on an organic¹ basis, the fifth consecutive quarter of double-digit organic growth, with strength in both commercial aviation and defense and space. Commercial aviation growth was led by robust aftermarket demand driven by increased flight activity, particularly in air transport, with commercial aftermarket sales up more than 20% year over year. Commercial original equipment sales also increased in the third quarter on increased deliveries, particularly in business and general aviation. Defense and space sales grew 18% year over year as supply chain improvements and strengthened orders enabled us to convert our strong order book into sales. Segment margin remained unchanged year over year at 27.5%, as higher volume leverage and commercial excellence were offset by cost inflation and mix pressure in our original equipment business.

Honeywell Building Technologies sales for the third quarter were flat on an organic¹ basis year over year. Building solutions sales grew 4% organically driven by strong execution of building projects, particularly energy projects. Building products sales declined modestly on lower volumes of security offerings. Segment margin expanded 110 basis points to 25.2% driven by productivity actions and commercial excellence, partially offset by cost inflation.

Performance Materials and Technologies sales for the third quarter were up 3% on an organic¹ basis year over year. HPS sales grew 11% organically, led by another quarter of double-digit growth in projects and lifecycle solutions and services. UOP grew 6% organically as a result of increased petrochemical catalyst shipments, and double-digit growth in sustainable technology solutions. Orders in our sustainable technology solutions business once again grew triple digits. Segment margin contracted 50 basis points to 22.1% as a result of lower volumes in advanced materials.

Safety and Productivity Solutions sales for the third quarter decreased by 25% year over year on an organic¹ basis. Sales declines were due to lower volumes in warehouse and workflow solutions, which continues to be impacted by softness in the warehouse automation market. However, our pipeline remains robust, which translated into double-digit year over year and over 50% sequential orders growth in the third quarter. Additionally, we continue to see strong double-digit growth in the aftermarket services business. Volume declines in productivity solutions and services also impacted sales as we continue to work through the impact of lower demand and distributor destocking. Segment margin contracted 120 basis points year over year to 14.5% driven by lower volume leverage, partially offset by productivity and commercial excellence.

Conference Call Details

Honeywell will discuss its third-quarter results and updated full-year 2023 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 2023 GUIDANCE²

TABLE 2: SUMMARY OF HONEYWELL FINANCIAL RESULTS

TABLE 3: SUMMARY OF SEGMENT FINANCIAL RESULTS

Honeywell is an integrated operating company serving a broad range of industries and geographies around the world. Our business is aligned with three powerful megatrends - automation, the future of aviation, and energy transition - underpinned by our Honeywell Accelerator operating system and Honeywell Connected Enterprise integrated software platform. As a trusted partner, we help organizations solve the world's toughest, most complex challenges, providing actionable solutions and innovations that help make the 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.

We describe many of the trends and other factors that drive our business and future results in this release. Such discussions contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). 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, many of which are difficult to predict and outside of our control. 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 material risks and uncertainties, including ongoing macroeconomic and geopolitical risks, such as lower GDP growth or recession, capital markets volatility, inflation, and certain regional conflicts, 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. These forward-looking statements should be considered in light of the information included in this release, our Form 10-K and other filings with the Securities and Exchange Commission. Any forward-looking plans described herein are not final and may be modified or abandoned at any time.

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;
• Segment profit margin, on an overall Honeywell basis;
• Organic sales growth;
• Free cash flow;
• Free cash flow excluding impact of settlements;
• Free cash flow margin;
• Adjusted earnings per share; and
• Adjusted earnings per share excluding pension headwind.

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 measures should be considered in addition to, and not as replacements for, the most comparable GAAP measure. Certain measures 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.

Appendix

Non-GAAP Financial Measures

The following information provides definitions and reconciliations of certain non-GAAP financial measures presented in this press release to which this reconciliation is attached to the most directly comparable financial measures calculated and presented in accordance with generally accepted accounting principles (GAAP).

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 measures should be considered in addition to, and not as replacements for, the most comparable GAAP measure. Certain measures 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. Other companies may calculate these non-GAAP measures differently, limiting the usefulness of these measures for comparative purposes.

Management does not consider these non-GAAP measures in isolation or as an alternative to financial measures determined in accordance with GAAP. The principal limitations of these non-GAAP financial measures are that they exclude significant expenses and income that are required by GAAP to be recognized in the consolidated financial statements. In addition, they are subject to inherent limitations as they reflect the exercise of judgments by management about which expenses and income are excluded or included in determining these non-GAAP financial measures. Investors are urged to review the reconciliation of the non-GAAP financial measures to the comparable GAAP financial measures and not to rely on any single financial measure to evaluate Honeywell's business.

We define organic sales percentage 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.

We define segment profit, on an overall Honeywell basis, as operating income, excluding stock compensation expense, pension and other postretirement service costs, and repositioning and other charges. We define segment profit margin, on an overall Honeywell basis, as segment profit divided by net sales. 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 operating income to segment profit, on an overall Honeywell basis, has not been provided for all forward-looking measures of segment profit and segment profit margin included herein. Management cannot reliably predict or estimate, without unreasonable effort, the impact and timing on future operating results arising from items excluded from segment profit, particularly 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. 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 operating income to segment profit will be included within future filings.

We define adjusted earnings per share as diluted earnings per share adjusted to exclude various charges as listed above. We define adjusted earnings per share excluding pension headwind as adjusted earnings per share adjusted for an actual or forecasted decline of pension ongoing and other postretirement income between the comparative periods in 2022 and 2023. We believe adjusted earnings per share and adjusted earnings per share excluding pension headwind are measures that are 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 for capital expenditures 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 and free cash flow margin are non-GAAP measures 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. These measures 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 for capital expenditures plus anticipated cash receipts from Garrett. We define free cash flow excluding impact of settlements as free cash flow less settlements related to the NARCO Buyout, HWI Sale, and UOP Matters.

We believe that free cash flow and free cash flow excluding impact of settlements are non-GAAP measures 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. These measures 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.

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SOURCE Honeywell