10-QPeriod: Q2 FY2014

HONEYWELL INTERNATIONAL INC Quarterly Report for Q2 Ended Jun 30, 2014

Filed July 18, 2014For Securities:HONHONIV

Summary

Honeywell International Inc. reported solid financial results for the second quarter and first half of 2014. Net sales increased by 6% and 5% respectively, driven by growth across its key segments, particularly Automation and Control Solutions and Performance Materials and Technologies. Diluted earnings per share saw a notable increase, reflecting improved profitability and operational efficiencies. The company also demonstrated strong operating cash flow generation, supporting its ongoing investments in growth initiatives, share repurchases, and dividend payments. Management highlighted strategic portfolio realignments and a continued focus on productivity and cost management as key drivers for future performance. The balance sheet remains strong, with substantial cash and cash equivalents. Honeywell continued its disciplined capital allocation strategy, including share repurchases and debt management. The company's diversified business segments and global reach provide resilience, although it faces ongoing challenges related to legacy liabilities such as asbestos claims and environmental matters, which are being managed through established reserves and insurance recoveries.

Financial Highlights

50 data points
Beta

Revenue

$10.25B

28.8% Gross Margin

Net Income

$1.10B

10.7% Net Margin

EPS (Diluted)

$1.38

Total Assets

$46.60B

Cash & Equivalents

$6.58B

Free Cash Flow

$1.11B

Financial Statements
Beta
Revenue$10.25B
Cost of Revenue$7.30B
Gross Profit$2.96B
SG&A Expenses$1.38B
Net Income$1.10B
EPS (Basic)$1.40
EPS (Diluted)$1.38
Shares Outstanding (Basic)784.50M
Shares Outstanding (Diluted)795.40M

Key Highlights

  • 1Net sales for the quarter increased by 6% to $10.25 billion, and for the six months by 5% to $19.93 billion, indicating robust top-line growth.
  • 2Diluted Earnings Per Share (EPS) rose to $1.38 in Q2 2014 from $1.28 in Q2 2013, and to $2.66 for the first six months from $2.49 in the prior year, demonstrating improved profitability.
  • 3Operating cash flow for the first six months of 2014 was $2.03 billion, a significant increase from $1.60 billion in the prior year period, highlighting strong cash generation.
  • 4The company repurchased $231 million of its shares in Q2 2014, underscoring its commitment to returning capital to shareholders.
  • 5Segment profit showed strong growth, with Automation and Control Solutions up 14% and Transportation Systems up 33% for the quarter.
  • 6The company is undergoing strategic segment realignments, integrating Friction Materials into Aerospace and Honeywell Process Solutions into Performance Materials and Technologies, to better align with its strategic focus.
  • 7The effective tax rate increased to 26.1% for the quarter and 26.3% for the six months, compared to 23.1% in the prior year, primarily due to decreased tax benefits from audit resolutions and reserves.

Frequently Asked Questions

Sales growth was primarily driven by strong performance in the Automation and Control Solutions segment, which saw a 10% increase due to acquisitions and organic growth, particularly in its Energy, Safety & Security business. The Transportation Systems segment also showed robust growth of 8%, fueled by new platform launches and increased commercial vehicle demand in Europe. Performance Materials and Technologies grew 6%, led by UOP's strong catalyst and gas processing volumes.

Honeywell generated strong operating cash flow of $2.03 billion in the first six months of 2014, an increase from the previous year. The company used this cash to fund investments, reduce debt, and return capital to shareholders through share repurchases ($231 million in Q2 2014) and dividends. The balance sheet remained solid with $6.58 billion in cash and cash equivalents as of June 30, 2014.

Honeywell continues to manage significant legacy liabilities, primarily related to asbestos claims from its Bendix and former NARCO businesses, and environmental remediation costs. While these liabilities require substantial reserves and ongoing management, the company stated that it believes it has sufficient insurance coverage and reserves to cover pending and estimated future claims, and does not expect them to have a material adverse effect on its consolidated financial position. The company actively accrues for these potential costs as they become probable and reasonably estimable.

Honeywell announced two key segment realignments. Effective for the Q2 2014 reporting, the Honeywell Process Solutions business was moved from Automation and Control Solutions to Performance Materials and Technologies. Following the sale of its Friction Materials business in July 2014, it was announced that the Transportation Systems segment will be realigned into the Aerospace segment. These changes are intended to better align the company's structure with its strategic focus and do not impact historical financial results. The company will now report with three primary segments: Aerospace, Automation and Control Solutions, and Performance Materials and Technologies.