Honeywell Reports 2006 Sales Up; Free Cash Flow Up 41% to $2.5 Billion
Q4 Sales up 14% to $8.3 Billion, EPS up 18% to $0.72, Free Cash Flow Up 54% to $941 Million
Company Confident in Strong 2007 Financial Outlook and Increases Free Cash Flow Guidance
MORRIS TOWNSHIP, N.J., Jan. 26 -- Honeywell today announced full-year 2006 sales increased 13% to $31.4 billion from $27.6 billion in 2005. Earnings per share were up 31% to $2.52 versus $1.92 in the prior year. Earnings per share growth was 30%, after taking into account income from discontinued operations ($0.11) and a tax- charge for cash repatriation in 2005 ($0.18), and stock options expense in 2006 ($0.07). Cash flow from operations was up 31% to $3.2 billion versus $2.4 billion in 2005, and free cash flow (cash flow from operations less capital expenditures) was up 41% to $2.5 billion versus $1.8 billion in the prior year.
Fourth-quarter sales were up 14% to $8.3 billion. Earnings per share increased 18% to $0.72 versus $0.61 in the prior year fourth quarter. Earnings per share growth was 28%, after taking into account income from discontinued operations in the fourth quarter of 2005 ($0.04), and stock options expense in 2006 ($0.01). Cash flow from operations was up 48% to $1.2 billion versus $839 million in the prior year, and free cash flow was up 54% to $941 million versus $611 million in the fourth quarter of 2005.
"Honeywell made great progress in executing its growth strategy in 2006," said Chairman and Chief Executive Officer Dave Cote. "We reached a new financial performance threshold by surpassing $31 billion in sales, delivering 31% EPS growth and increasing free cash flow by 41%. In addition, we returned more than $2.6 billion to shareowners through share repurchases and dividends, and increased the dividend rate by 10% for the third consecutive year."
"We expect to build on our successful track record in 2007," continued Cote. "Despite our forecast for modest softening in global economic conditions, we believe that favorable macro-trends and demand for differentiated technologies, products and services provide opportunities for sustained growth at Honeywell. In 2007, we expect sales to be up 5% to approximately $33 billion, double digit earnings growth to $2.85 - 2.95 per share, and we have increased our free cash flow guidance to $2.5 - 2.7 billion (cash flow from operations of $3.3 - 3.5 billion)."
Fourth-Quarter Segment Highlights
Aerospace
* Sales were up 8%, compared with the fourth quarter of 2005, driven by
10% growth in Commercial and 6% growth in Defense and Space sales.
Commercial sales reflected growth of 14% in original equipment and 7% in
aftermarket spares and services. Defense and Space sales were driven by
a 9% increase in Defense sales in the quarter.
* Segment margins were 18.2%, compared with 16.9% a year ago, driven by
volume growth, price and productivity gains, which more than offset the
negative impacts from inflation and stronger Commercial original
equipment sales mix.
* Honeywell booked several significant military wins during the quarter
including: a two year, $404 million extension for the Total InteGrated
Engine Revitalization (TIGER) program to improve and extend the life of
the AGT1500 turbine engine for the Abrams family of vehicles; a three
year, $39 million agreement to supply Tactical Advanced Land Inertial
Navigator (TALIN) to the U.S. Army; and, a $36 million, three year
agreement with Lockheed Martin and the Turkish and Greek Air Forces for
F-16 cockpit displays.
* Honeywell signed a $68 million supply contract with Lion Air, a low-cost
domestic airline based in Jakarta, Indonesia, for its fleet of 60 new
737NG aircraft and a five year, $35 million supply agreement with Cathay
Pacific Airlines to provide RDR-4000 next-generation weather radar
system and other communications and navigation equipment.
Automation and Control Solutions
* Sales were up 17%, compared with the fourth quarter of 2005, driven by
organic sales growth of 11% (9% in the Products and 16% in the Solutions
businesses) and the net impact of acquisitions and divestitures of 6%.
* Segment margins were 12.6%, compared with 12.4% a year ago, due to
volume, price and productivity savings, which more than offset the
negative impacts of inflation, sales mix and the dilutive impact of
acquisitions.
* Building Solutions had more than 20% orders growth in the quarter,
including more than 40 energy-related contracts, and announced a $9.5
million energy retrofit and facility renewal program with Toronto East
General Hospital. The 15-year program is expected to save the hospital
more than $880,000 in annual operating costs.
* Process Solutions had more than 17% orders growth in the quarter and
announced several significant contract wins, including a $4.7 million
contract for Italcementi Group's new production facility in West
Virginia; a $3.7 million contract with Huntsman for its new polyethylene
plant in Wilton, UK; a $2.8 million contract with National Grid Grain
LNG Ltd in the UK and a $5 million contract with Harmsworth Quays
Printing Ltd in London.
* Sensing and Controls announced that in cooperation with Michelin it has
developed a pressure sensor that is a key component in the new Michelin
eTire II monitoring system. The sensor incorporates wireless surface
acoustic wave (SAW) technology that helps truckfleet managers accurately
monitor tire pressure for improved fuel efficiency and extended tire
life.
Transportation Systems
* Sales were up 9%, compared with the fourth quarter of 2005, due to
increased passenger vehicle Turbo Technologies sales and the positive
impact of foreign exchange, partially offset by the impact of lower
consumer spending on automotive aftermarket product sales.
* Segment margins were 11.6%, compared with 11.0% a year ago, due to
productivity and volume growth in the Turbo Technologies business,
partially offset by inflation and lower sales of automotive aftermarket
products.
* Turbo Technologies recorded a greater than 60% win rate on all passenger
vehicle platforms and a greater than 70% win rate on all commercial
vehicle platforms awarded worldwide during 2006. The platforms related
to these wins will launch in 2008 and 2009.
* Consumer Products Group launched a number of new offerings for do-it-
yourself consumers during the quarter, including a premium light truck
FRAM(R) air filter and a high-performance Autolite(R) sparkplug.
Specialty Materials
* Sales were up 25%, compared with the fourth quarter of 2005, driven by
the net impact of acquisitions and divestitures of 24% and organic sales
growth of 1%.
* Segment margins were 7.3% compared with 7.2% a year ago, due to
favorable price and raw material costs, which offset the impacts of
inflation and unfavorable sales mix.
* Specialty Materials announced it is tripling its research and
development laboratory space in its Asia Technology Center to boost R&D
capabilities and meet increasing customer needs in Asian markets,
particularly China.
* During the quarter, UOP signed over $300 million in new orders and
established a new business dedicated to developing innovative
technologies for converting renewable bio-feedstocks into fuel and
chemicals.
Honeywell will discuss its results during its investor conference call today starting at 8:00 a.m. EST. To participate, please dial (706) 643-7681 a few minutes before the 8:00 a.m. EST 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 webcast starting at 11:00 a.m. EST, January 26, until midnight EST, February 2, by dialing (706) 645-9291. The access code is 5029474.
Honeywell International is a $31 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, Chicago and Pacific Stock Exchanges. It is one of the 30 stocks that make up the Dow Jones Industrial Average and is also a component of the Standard & Poor's 500 Index. For additional information, please visit www.honeywell.com.
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. All statements, other than statements of historical fact, that address activities, events or developments that we or our management intends, expects, projects, believes or anticipates will or may occur in the future are forward-looking statements. Such statements are based upon certain assumptions and assessments made by our management in light of their experience and their perception of historical trends, current conditions, expected future developments and other factors they believe to be appropriate. The forward-looking statements included in this release are also subject to a number of material risks and uncertainties, including but not limited to economic, competitive, governmental, and technological factors affecting our operations, markets, products, services and prices. Such forward-looking statements are not guarantees of future performance, and actual results, developments and business decisions may differ from those envisaged by such forward-looking statements.
Honeywell International Inc.
Consolidated Statement of Operations (Unaudited)
-------------------------------------------------
(In millions except per share amounts)
Three Months Ended December 31,
-------------------------------
2006 2005
------ ------
Product sales $6,644 $5,847
Service sales 1,632 1,428
------ ------
Net sales 8,276 7,275
------ ------
Costs, expenses and other
Cost of products sold 5,179 (A) 4,661 (A)
Cost of services sold 1,179 (A) 976 (A)
------ ------
6,358 5,637
Selling, general and
administrative expenses 1,085 (A) 936 (A)
Other (income) expense (42) (111)(B)
Interest and other financial
charges 94 96
------ ------
7,495 6,558
------ ------
Income from continuing
operations before taxes 781 717
Tax expense 196 212
------ ------
Income from continuing
operations 585 505
Income from discontinued
operations, net of taxes - 30
Cumulative effect of accounting
change, net of taxes - (21)
------ ------
Net income $585 $514
====== ======
Earnings per share of common
stock - basic:
Income from continuing
operations $0.72 $0.60
Income from discontinued
operations - 0.04
Cumulative effect of
accounting change - (0.03)
------ ------
Net income $0.72 $0.61
====== ======
Earnings per share of common
stock - assuming dilution:
Income from continuing
operations $0.72 $0.60
Income from discontinued
operations - 0.04
Cumulative effect of
accounting change - (0.03)
------ ------
Net income $0.72 $0.61
====== ======
Weighted average number of
shares outstanding-basic 811 836
====== ======
Weighted average number of
shares outstanding -
assuming dilution 817 839
====== ======
(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 for 2005 and 2006,
and stock option expense for 2006.
(B) Includes $23 million gain on sale of our North American Nylon Carpet
Fiber business and $26 million of equity income relating to our 50%
equity interest in UOP (prior to our acquisition to full ownership in
November 2005).
Honeywell International Inc.
Consolidated Statement of Operations (Unaudited)
----------------------------------------------
(In millions except per share amounts)
Twelve Months Ended December 31,
--------------------------------
2006 2005
------ ------
Product sales $25,165 $22,257
Service sales 6,202 5,395
------- -------
Net sales 31,367 27,652
------- -------
Costs, expenses and other
Cost of products sold 19,649 (A) 17,681 (A)
Cost of services sold 4,447 (A) 3,843 (A)
------- -------
24,096 21,524
Selling, general and
administrative expenses 4,210 (A) 3,707 (A)
Other (income) expense (111) (231)(B)
Interest and other financial
charges 374 356
------- -------
28,569 25,356
------- -------
Income from continuing operations
before taxes 2,798 2,296
Tax expense 720 732
------- -------
Income from continuing operations 2,078 1,564
Income from discontinued
operations, net of taxes 5 95
Cumulative effect of accounting
change, net of taxes - (21)
------- -------
Net income $2,083 $1,638
======= =======
Earnings per share of common
stock - basic:
Income from continuing
operations $2.53 $1.85
Income from discontinued
operations 0.01 0.11
Cumulative effect of
accounting change - (0.03)
------- -------
Net income $2.54 $1.93
======= =======
Earnings per share of common
stock - assuming dilution:
Income from continuing
operations $2.51 $1.84
Income from discontinued
operations 0.01 0.11
Cumulative effect of
accounting change - (0.03)
------- -------
Net income $2.52 $1.92
======= =======
Weighted average number of shares
outstanding-basic 821 849
======= =======
Weighted average number of shares
outstanding - assuming dilution 826 852
======= =======
(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 for 2005 and 2006,
and stock option expense for 2006.
(B) Includes $107 million of equity income relating to our 50% equity
interest in UOP (prior to our acquisition to full ownership in
November 2005).
Honeywell International Inc.
Segment Data (Unaudited)
-----------------------
(Dollars in millions)
Periods Ended December 31,
--------------------------
Net Sales Three Months Twelve Months
--------- ------------ -------------
2006 2005 2006 2005
---- ---- ---- ----
Aerospace $2,955 $2,725 $11,124 $10,496
Automation and Control Solutions 3,045 2,592 11,020 9,416
Specialty Materials 1,083 865 4,631 3,234
Transportation Systems 1,193 1,093 4,592 4,505
Corporate - - - 1
----- ----- ----- -----
Total $8,276 $7,275 $31,367 $27,652
====== ====== ======= =======
Reconciliation of Segment Profit to Income From Continuing Operations
--------------------------------------------------------------------
Before Taxes
-----------
Periods Ended December 31,
------------------------
Segment Profit Three Months Twelve Months
------------ -------------
2006 2005 2006 2005
---- ---- ---- ----
Aerospace $538 $460 $1,892 $1,676
Automation and Control Solutions 385 322 1,223 1,065
Specialty Materials 79 62 568 257
Transportation Systems 138 120 574 557
Corporate (43) (44) (177) (173)
----- ----- ----- -----
Total Segment Profit 1,097 920 4,080 3,382
Other income/ (expense) 42 111 111 231
Interest and other financial charges (94) (96) (374) (356)
Stock option expense (A) (16) - (77) -
Pension and other postretirement
expense (A) (115) (138) (459) (561)
Repositioning and other charges (A) (133) (B) (80) (483) (B) (400)
----- ----- ----- -----
Income from continuing
operations before taxes $781 $717 $2,798 $2,296
===== ===== ===== =====
(A) Amounts included in cost of products and services sold and selling,
general and administrative expenses.
(B) In the three months and year ended December 31, 2006, Company reduced
asbestos related reserves for existing Bendix and NARCO current and
future claims respectively, resulting in a benefit of $325 million and
has established a liability for the estimated value of future
anticipated claims relating to Bendix resulting in a charge of $335
million.
Honeywell International Inc.
Consolidated Balance Sheet (Unaudited)
--------------------------------------
(Dollars in millions)
December 31, December 31,
2006 2005
------- --------
ASSETS
Current assets:
Cash and cash equivalents $1,224 $1,234
Accounts, notes and other
receivables 5,740 5,017
Inventories 3,588 3,401
Deferred income taxes 1,213 1,243
Other current assets 470 542
Assets held for disposal 67 525
------ ------
Total current assets 12,302 11,962
Investments and long-term
receivables 382 370
Property, plant and equipment -
net 4,797 4,658
Goodwill 8,403 7,660
Other intangible assets - net 1,247 1,173
Insurance recoveries for asbestos
related liabilities 1,100 1,302
Deferred income taxes 1,021 730
Prepaid pension benefit cost 695 2,716
Other assets 938 1,062
------- --------
Total assets $30,885 $31,633
======= ========
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities:
Accounts payable $3,518 $2,886
Short-term borrowings 62 275
Commercial paper 669 754
Current maturities of long-term
debt 423 995
Accrued liabilities 5,455 5,359
Liabilities related to assets
held for disposal 8 161
------ ------
Total current liabilities 10,135 10,430
Long-term debt 3,909 3,082
Deferred income taxes 296 334
Postretirement benefit obligations
other than pensions 2,090 1,786
Asbestos related liabilities 1,262 1,549
Other liabilities 3,473 3,690
Shareowners' equity 9,720 (A) 10,762
----- ------
Total liabilities and
shareowners' equity $30,885 $31,633
======== =======
(A) At December 31, 2006, shareowners' equity was reduced by
approximately $1.5 billion, net of taxes, from the adoption of FAS 158
relating to accounting for pensions and postretirement benefits that
requires the Company to recognize the funded status of defined benefit
plans in the consolidated balance sheet.
Honeywell International Inc.
Consolidated Statement of Cash Flows (Unaudited)
-----------------------------------------------
(Dollars in millions)
Twelve Months
Three Months Ended Ended
December 31, December 31,
------------------ ----------------
2006 2005 2006 2005
-------- ------- ------ -------
Cash flows from operating
activities:
Net income $585 $514 $2,083 $1,638
Adjustments to reconcile net
income to net cash provided
by operating activities:
Cumulative effect of
accounting change - 21 - 21
Depreciation and
amortization 198 163 794 653
Repositioning and other
charges 133 80 483 412
Payments for repositioning
and other charges (226) (437) (561) (1,008)
Pension and other
postretirement expense 115 138 459 561
Pension and other
postretirement benefit
payments (95) (54) (353) (199)
Stock option expense 16 - 77 -
Deferred income taxes 28 (32) 451 42
Excess tax benefits from
share based payment
arrangements (31) - (31) -
Other 18 (98) 20 (56)
Changes in assets and
liabilities, net of the
effects of
acquisitions and
divestitures:
Accounts, notes and
other receivables (28) 179 (573) (94)
Inventories 137 123 (128) 37
Other current assets (5) 41 (11) 61
Accounts payable 301 212 516 181
Accrued liabilities 95 (11) (15) 193
------ ------ ------ ------
Net cash provided by operating
activities 1,241 839 3,211 2,442
------ ------ ------ ------
Cash flows from investing
activities:
Expenditures for property,
plant and equipment (300) (228) (733) (684)
Proceeds from disposals of
property, plant and equipment 42 32 87 71
Proceeds from investments - - - 285
Cash paid for acquisitions,
net of cash acquired (10) (718) (633) (2,679)
Proceeds from sales of
businesses, net of fees paid 86 962 665 997
------ ------ ------ ------
Net cash (used for) provided by
investing activities (182) 48 (614) (2,010)
------ ------ ------ ------
Cash flows from financing
activities:
Net (decrease)/increase in
commercial paper 299 329 (86) 534
Net (decrease)/increase in
short-term borrowings (9) 91 (224) 100
Payment of debt assumed with
acquisitions - - (346) (702)
Proceeds from issuance of
common stock 118 33 396 167
Proceeds from issuance of
long-term debt - - 1,239 -
Payments of long-term debt (648) (834) (1,019) (982)
Excess tax benefits from share
based payment arrangements 31 - 31 -
Repurchases of common stock (876) (554) (1,896) (1,133)
Cash dividends paid on common
stock (184) (172) (744) (700)
------ ------ ------ ------
Net cash (used for) financing
activities (1,269) (1,107) (2,649) (2,716)
------ ------ ------ ------
Effect of foreign exchange rate
changes on cash and cash
equivalents 19 2 42 (68)
------ ------ ------ ------
Net (decrease) in cash and cash
equivalents (191) (218) (10) (2,352)
Cash and cash equivalents at
beginning of period 1,415 1,452 1,234 3,586
------ ------ ------ ------
Cash and cash equivalents at end
of period $1,224 $1,234 $1,224 $1,234
====== ====== ====== ======
Honeywell International Inc.
Reconciliation of Cash Provided by Operating Activities to Free Cash
--------------------------------------------------------------------
Flow (Unaudited)
---------------
(Dollars in millions)
Three Months Twelve Months
Ended Ended
December 31, December 31,
------------ -------------
2006 2005 2006 2005
------- ----- ----- ------
Cash provided by operating
activities $1,241 $839 $3,211 $2,442
Expenditures for property, plant
and equipment (300) (228) (733) (684)
----- ----- ----- -----
Free cash flow $941 $611 $2,478 $1,758
===== ===== ====== ======
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.