- $4.95 Billion Acquisition
Bolsters Honeywell's Strategic Alignment to the Automation
Megatrend, Underpinned by Digitalization
- Positions Honeywell as a Leading Provider of Security
Solutions in a Digital Age
- Enhances Honeywell's Building Automation Segment, Adding an
Accretive Growth and Margin Business
CHARLOTTE, N.C.,
June 3,
2024 /PRNewswire/ -- Honeywell (NASDAQ: HON)
today announced the completion of its acquisition of Carrier Global
Corporation's (NYSE: CARR) Global Access Solutions business for
$4.95 billion. The deal positions
Honeywell as a leading provider of security solutions for the
digital age with opportunities for accelerated innovation in the
fast-growing, cloud-based services and solutions space. This
transaction also strengthens Honeywell's alignment of its portfolio
around three compelling megatrends, including automation, and
complements Honeywell's Building Automation segment.
The acquisition brings differentiated software capabilities
through the addition of three respected brands to Honeywell's
portfolio: LenelS2, a leader in commercial and enterprise access
solutions; Onity, which offers electronic locks, specifically
hospitality access and mobile credentials; and Supra, which
specializes in cloud-based electronic lockboxes and scheduling
software. Global Access Solutions' approximately 1,200 employees
are now part of Honeywell. The transaction is expected to be
adjusted earnings per share1 accretive in the first full
year of ownership.
Global Access Solutions enhances Honeywell's Building Automation
business model of leading with high-value products that are
critical for buildings. Honeywell will also benefit from the
business's attractive growth and margin profile, valuable software
content, and accretive mix of recurring revenue, with forecasted
annual sales in excess of $1 billion
when combined with Honeywell's existing security portfolio.
"As the world's security needs evolve from a focus on protecting
people to protecting both people and critical assets, we see strong
growth prospects for our Access Solutions acquisition," said
Vimal Kapur, Chief Executive Officer
of Honeywell. "By building on our strong track record of delivering
high-value building automation products, solutions, and services
globally, this acquisition creates an exciting opportunity for us
to achieve faster growth and further margin expansion, while
generating better outcomes for our Building Automation
customers."
Company Updates 2024 Outlook, Changes Non-GAAP Reporting
Metrics
Beginning in the second quarter, Honeywell will
exclude the impact of amortization expense for acquisition-related
intangible assets and other acquisition-related costs4,
including the related tax effects, from segment profit1
and adjusted earnings per share1. The company
believes this change provides investors with a more meaningful
measure of its performance period to period, aligns the measure to
how management will evaluate performance internally, and makes it
easier for investors to compare our performance to peers. Honeywell
plans to provide historical non-GAAP financials under this new
basis to facilitate comparability when the company reports its
second quarter results in July
2024.
As a result of the acquisition closing, Honeywell has updated
its full-year sales, segment margin2, and adjusted
earnings per share2,3 guidance (under the amended
calculation). Full-year sales are now expected to be $38.5 billion to $39.3
billion, including organic1 sales growth of 4% to
6%. Segment margin2 is expected to be in the range of
23.8% to 24.1%, with segment margin expansion2 of 30 to
60 basis points. Adjusted earnings per share2,3 is
expected to be in the range of $10.15
to $10.45. Operating cash flow is
expected to be in the range of $6.7
billion to $7.1 billion, with
free cash flow1 of $5.6
billion to $6.0 billion. A
summary of the changes to the company's full-year guidance can be
found in Table 1.
Honeywell also updated its second-quarter sales, segment
margin2, and adjusted earnings per share2,3
guidance. Second-quarter sales are expected to be $9.3 billion to $9.6
billion, with organic1 sales growth of 1% to 4%.
Segment margin2 is expected to be 22.7% to 23.1%, down
40 basis points to flat compared to the prior year period. Adjusted
earnings per share2,3 is expected to be in the range of
$2.35 to $2.45, up 2% to 7% compared to the prior
year.
TABLE 1: FULL-YEAR 2024 GUIDANCE
|
Previous
Guidance
|
Impact of
Acquisition
|
Guidance After
the
Acquisition
|
Impact of Non-
GAAP Reporting
Change
|
Updated
Guidance
|
Sales
|
$38.1B -
$38.9B
|
~$0.4B
|
$38.5B -
$39.3B
|
—
|
$38.5B -
$39.3B
|
Organic1 Growth
|
4% -
6%
|
—
|
4% -
6%
|
—
|
4% -
6%
|
Segment
Margin2
|
23.0% -
23.3%
|
(0.2) %
|
22.8% -
23.1%
|
1.0 %
|
23.8% -
24.1%
|
Expansion2
|
Up 30 - 60
bps
|
(20
bps)
|
Up 10 - 40
bps
|
20
bps
|
Up 30 - 60
bps
|
Adjusted Earnings Per
Share2,3
|
$9.80 -
$10.10
|
($0.15)
|
$9.65 -
$9.95
|
$0.50
|
$10.15 -
$10.45
|
Adjusted Earnings
Growth2,3
|
7% -
10%
|
(1 %)
|
6% -
9%
|
1 %
|
7% -
10%
|
Operating Cash
Flow
|
$6.7B -
$7.1B
|
—
|
$6.7B -
$7.1B
|
—
|
$6.7B -
$7.1B
|
Free Cash
Flow1
|
$5.6B -
$6.0B
|
—
|
$5.6B -
$6.0B
|
—
|
$5.6B -
$6.0B
|
1
|
|
See additional
information at the end of this release regarding non-GAAP financial
measures.
|
2
|
|
Segment margin and
adjusted EPS are non-GAAP financial measures. Management cannot
reliably predict or estimate, without unreasonable effort, the
impact and timing on future operating results arising from certain
items excluded from segment margin or adjusted EPS. We therefore,
do not present a guidance range, or a reconciliation to, the
nearest GAAP financial measures of operating margin or
EPS.
|
3
|
|
Adjusted EPS and
adjusted EPS V% guidance excludes items identified in the non-GAAP
reconciliation of adjusted EPS at the end of this release,
including the impact of amortization expense for
acquisition-related intangible assets and other acquisition-related
costs, and any potential future items that we cannot reliably
predict or estimate such as pension mark-to-market.
|
4
|
|
Acquisition-related
costs are principally comprised of third-party transaction and
integration costs and acquisition-related fair value adjustments to
inventory.
|
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 certain 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; and
- Adjusted earnings per share.
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. Management believes the change to adjust for
amortization of acquisition-related intangibles and
acquisition-related costs provides investors with a more meaningful
measure of its performance period to period, aligns the measure to
how management will evaluate performance internally, and makes it
easier for investors to compare our performance to peers. 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.
Honeywell plans to provide historical non-GAAP financials under
this new basis to facilitate comparability when the company reports
its second quarter results in July
2024.
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). Honeywell plans to provide historical non-GAAP
financials under this new basis to facilitate comparability when
the company reports its second quarter results in July.
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. Management believes the change to adjust for
amortization of acquisition-related intangibles and
acquisition-related costs provides investors with a more meaningful
measure of its performance period to period, aligns the measure to
how management will evaluate performance internally, and makes it
easier for investors to compare our performance to peers. 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.
Honeywell International Inc.
Definition of Organic Sales % Change
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.
Honeywell International Inc.
Reconciliation of Operating Income to Segment Profit, Calculation
of Operating Income and Segment Profit Margins
(Unaudited)
(Dollars in millions)
Beginning second quarter 2024, we will exclude the impact of
amortization expense for acquisition-related intangible assets and
certain acquisition-related costs from segment profit. The table
below reconciles historical operating income to segment profit and
segment profit margin giving effect to the additional
adjustments.
|
Three Months
Ended
June 30,
|
|
Twelve Months
Ended December
31,
|
|
2023
|
|
2023
|
Operating
income
|
$
1,883
|
|
$
7,084
|
Stock compensation
expense1
|
50
|
|
202
|
Repositioning,
Other2,3
|
103
|
|
952
|
Pension and other
postretirement service costs3
|
16
|
|
66
|
Prior segment
profit
|
$
2,052
|
|
$
8,304
|
Amortization of
acquisition-related intangibles
|
61
|
|
292
|
Acquisition-related
costs4
|
—
|
|
2
|
Segment
profit
|
$
2,113
|
|
$
8,598
|
|
|
|
|
Operating
income
|
$
1,883
|
|
$
7,084
|
÷ Net sales
|
$
9,146
|
|
$
36,662
|
Operating income
margin %
|
20.6 %
|
|
19.3 %
|
Segment
profit
|
$
2,113
|
|
$
8,598
|
÷ Net sales
|
$
9,146
|
|
$
36,662
|
Segment profit
margin %
|
23.1 %
|
|
23.5 %
|
1
|
|
Included in Selling,
general and administrative expenses.
|
2
|
|
Includes repositioning,
asbestos, environmental expenses, equity income adjustment, and
other charges. For the three months ended June 30, 2023, other
charges include $2 million of benefit, due to the Russia-Ukraine
conflict.
|
3
|
|
Included in Cost of
products and services sold and Selling, general and administrative
expenses.
|
4
|
|
Includes
acquisition-related fair value adjustments to inventory.
|
We define segment profit, on an overall Honeywell basis, as
operating income, excluding stock compensation expense, pension and
other postretirement service costs, amortization of
acquisition-related intangibles, certain acquisition-related 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.
Acquisition amortization and acquisition-related costs are
significantly impacted by the timing, size, and number of
acquisitions we complete and are not on a predictable cycle, and we
make no comment as to when or whether any future acquisitions may
occur. The Company believes excluding these costs provides
investors with a more meaningful comparison of operating
performance over time and with both acquisitive and other peer
companies.
Honeywell International Inc.
Reconciliation of Earnings per Share to Adjusted Earnings per
Share
(Unaudited)
Beginning second quarter 2024, we will exclude the impact of
amortization expense for acquisition-related intangible assets and
acquisition-related costs, including the related tax effects, from
adjusted earnings per share. The table below reconciles certain
historical and expected earnings per share of common stock –
diluted to adjusted earnings per share giving and forward-looking
effect to the additional adjustments.
|
Three Months Ended
June 30,
|
|
Twelve Months Ended
December 31,
|
|
2023
|
|
2024(E)
|
|
2023
|
|
2024(E)
|
Earnings per share
of common stock - diluted1
|
$
2.22
|
|
$2.21 -
$2.31
|
|
$
8.47
|
|
$9.63 -
$9.93
|
Pension mark-to-market
expense2
|
—
|
|
—
|
|
0.19
|
|
No Forecast
|
Russian-related
charges3
|
—
|
|
—
|
|
—
|
|
0.02
|
Net expense related to
the NARCO Buyout and HWI Sale4
|
0.01
|
|
—
|
|
0.01
|
|
—
|
Adjustment to estimated
future Bendix liability5
|
—
|
|
—
|
|
0.49
|
|
—
|
Adjusted earnings
per share of common stock - diluted
(before impact of
non-GAAP reporting change)
|
$
2.23
|
|
$2.21 -
$2.31
|
|
$
9.16
|
|
$9.65 -
$9.95
|
Amortization of
acquisition-related intangibles6
|
0.07
|
|
0.10
|
|
0.35
|
|
0.44
|
Acquisition-related
costs7
|
—
|
|
0.04
|
|
0.01
|
|
0.06
|
Adjusted earnings
per share of common stock - diluted
(after impact of
non-GAAP reporting change)
|
$
2.30
|
|
$2.35 -
$2.45
|
|
$
9.52
|
|
$10.15 -
$10.45
|
1
|
|
For the three months
ended June 30, 2023, and twelve months ended December 31, 2023,
adjusted earnings per share utilizes weighted average shares of
approximately 670.2 million and 668.2 million, respectively. For
the three months ended June 30, 2024, and twelve months ended
December 31, 2024, expected earnings per share utilizes weighted
average shares of approximately 655 million and 656 million,
respectively.
|
2
|
|
Pension mark-to-market
expense uses a blended tax rate of 18%, net of tax benefit of $27
million, for 2023.
|
3
|
|
For the three months
ended June 30, 2023, the adjustment was $1 million, without tax
benefit. For the twelve months ended December 31, 2023, the
adjustment was a benefit of $3 million, without tax expense. For
the twelve months ended December 31, 2024, the expected adjustment
is a $17 million expense, without tax benefit, due to the
settlement of a contractual dispute with a Russian entity
associated with the Company's suspension and wind down activities
in Russia.
|
4
|
|
For the three months
ended June 30, 2023, and the twelve months ended December 31, 2023,
the adjustment was $8 million, net of tax of benefit of $3 million,
due to the net expense related to the NARCO Buyout and HWI
Sale.
|
5
|
|
Bendix Friction
Materials ("Bendix") is a business no longer owned by the Company.
In 2023, the Company changed its valuation methodology for
calculating legacy Bendix liabilities. For the twelve months ended
December 31, 2023, the adjustment was $330 million, net of tax
benefit of $104 million (or $434 million pre-tax) due to a change
in the estimated liability for resolution of asserted (claims filed
as of the financial statement date) and unasserted Bendix-related
asbestos claims. The Company experienced fluctuations in average
resolution values year-over-year in each of the past five years
with no well-established trends in either direction. In 2023, the
Company observed two consecutive years of increasing average
resolution values (2023 and 2022), with more volatility in the
earlier years of the five-year period (2019 through 2021). Based on
these observations, the Company, during its annual review in the
fourth quarter of 2023, reevaluated its valuation methodology and
elected to give more weight to the two most recent years by
shortening the look-back period from five years to two years (2023
and 2022). The Company believes that the average resolution values
in the last two consecutive years are likely more representative of
expected resolution values in future periods. The $434 million
pre-tax amount was attributable primarily to shortening the
look-back period to the two most recent years, and to a lesser
extent to increasing expected resolution values for a subset of
asserted claims to adjust for higher claim values in that subset
than in the modelled two-year data set. It is not possible to
predict whether such resolution values will increase, decrease, or
stabilize in the future, given recent litigation trends within the
tort system and the inherent uncertainty in predicting the outcome
of such trends. The Company will continue to monitor Bendix claim
resolution values and other trends within the tort system to assess
the appropriate look-back period for determining average resolution
values going forward.
|
6
|
|
For the three months
ended June 30, 2023, and twelve months ended December 31, 2023,
acquisition-related intangibles amortization includes $48 million
and $231 million, net of tax benefit of approximately $13 million
and $61 million, respectively. For the three months ended June 30,
2024, and twelve months ended December 31, 2024, expected
acquisition-related intangibles amortization includes approximately
$66 million and $292 million, net of tax benefit of approximately
$17 million and $77 million, respectively.
|
7
|
|
For the three months
ended June 30, 2023, and twelve months ended December 31, 2023, the
adjustment for acquisition-related costs, which is principally
comprised of third-party transaction and integration costs and
acquisition-related fair value adjustments to inventory, is
approximately $1 million and $7 million, net of tax benefit of
approximately $0 million and $2 million, respectively. For the
three months ended June 30, 2024, and twelve months ended December
31, 2024, the expected adjustment for acquisition-related costs,
which is principally comprised of third-party transaction and
integration costs and acquisition-related fair value adjustments to
inventory, is approximately $24 million and $40 million, net of tax
benefit of approximately $6 million and $11 million,
respectively.
|
We define adjusted earnings per share as diluted earnings per
share adjusted to exclude various charges as listed above. We
believe adjusted earnings per share is a measure that is useful to
investors and management in understanding our ongoing operations
and in analysis of ongoing operating trends. For forward-looking
information, management cannot reliably predict or estimate,
without unreasonable effort, the pension mark-to-market expense as
it is dependent on macroeconomic factors, such as interest rates
and the return generated on invested pension plan assets. We
therefore do not include an estimate for the pension mark-to-market
expense. Based on economic and industry conditions, future
developments, and other relevant factors, these assumptions are
subject to change.
Acquisition amortization and acquisition-related costs are
significantly impacted by the timing, size, and number of
acquisitions we complete and are not on a predictable cycle and we
make no comment as to when or whether any future acquisitions may
occur. The Company believes excluding these costs provides
investors with a more meaningful comparison of operating
performance over time and with both acquisitive and other peer
companies.
Honeywell International Inc.
Reconciliation of Expected Cash Provided by Operating Activities to
Expected Free Cash Flow
(Unaudited)
|
Twelve Months
Ended
December 31,
2024(E) ($B)
|
Cash provided by
operating activities
|
~$6.7 -
$7.1
|
Capital
expenditures
|
~(1.1)
|
Free cash
flow
|
~$5.6 -
$6.0
|
We define free cash flow as cash provided by operating
activities less cash for capital expenditures.
We believe that free cash flow is a non-GAAP measure 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
measure 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.
Contacts:
|
|
|
|
Media
|
Investor Relations
|
Stacey Jones
|
Sean Meakim
|
(980)
378-6258
|
(704)
627-6200
|
stacey.jones@honeywell.com
|
sean.meakim@honeywell.com
|
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