01—Abstract
Summary
Summary of the 8-K filed February 1, 2024. Cited figures are marked; the original filing is the authoritative source.
Honeywell (HON) reported fourth-quarter and full-year 2023 results on February 1, 2024 that met or exceeded its original full-year guidance.
Q4 sales were $9.44 billiona, up 3% reported and 2% organic, with GAAP diluted EPS of $1.91 (up 26%) and adjusted EPS of $2.60 (up 3%). The adjusted figure excludes a $0.49 non-cash increase to the estimated future Bendix asbestos liability, which the company attributed mainly to shortening its valuation look-back period from five years to two. Full-year sales reached $36.7 billion (up 3%, or 4% organic), with GAAP EPS of $8.47 and adjusted EPS of $9.16.
Q4 segment margin expanded 60 basis points to 23.5%b, while Aerospace and Performance Materials and Technologies drove the strength. Safety and Productivity Solutions was the clear weak spot, with Q4 organic sales down 24% on lower warehouse and workflow volumes. Cash generation was solid.
Full-year operating cash flow was $5.3 billionc and free cash flow was $4.3 billion, at the high end of prior guidance, though free cash flow fell 13% year over year because 2022 included Garrett receipts. Full-year capital deployment totaled $8.3 billion, exceeding cash flow, and management said it expects deployment to accelerate in 2024 as the $5 billion acquisition of Carrier's Global Access Solutions (security) business closes. The company reported a record backlog of $31.8 billion, up 8%.
For 2024, Honeywell guided to sales of $38.1 billion to $38.9 billiond, 4% to 6% organic growth, 30 to 60 basis points of segment margin expansion, adjusted EPS of $9.80 to $10.10 (up 7% to 10%), operating cash flow of $6.7 billion to $7.1 billion, and free cash flow of $5.6 billion to $6.0 billion. The filing also discloses a segment realignment effective Q1 2024 into Aerospace Technologies, Building Automation, Industrial Automation, and Energy and Sustainability Solutions.
This changes reporting but not historical financials. Investors should note that the guidance excludes pension mark-to-market effects, and that the Bendix charge and the pension headwind affect comparability.
02—Key points
Key Highlights
- Q4 2023 GAAP EPS of $1.91 rose 26% year over year; adjusted EPS of $2.60 rose 3%, held down by a $0.49 non-cash Bendix asbestos liability adjustment (about $434 million pre-tax).
- Q4 sales of $9.44 billion grew 3% reported and 2% organic, with Aerospace up 15% organically on double-digit commercial aviation growth.
- Safety and Productivity Solutions Q4 organic sales fell 24% and segment margin contracted 290 basis points to 17.3%, though orders grew over 30%.
- FY2023 operating cash flow of $5.3 billion and free cash flow of $4.3 billion landed at the high end of prior guidance; free cash flow fell 13% from 2022.
- 2024 guidance: sales of $38.1 to $38.9 billion, 4% to 6% organic growth, adjusted EPS of $9.80 to $10.10 (up 7% to 10%), and free cash flow of $5.6 to $6.0 billion.
- Record backlog of $31.8 billion, up 8%, supports the outlook; the $5 billion Carrier Global Access Solutions acquisition is expected to close and accelerate 2024 capital deployment.
- Segment realignment effective Q1 2024 creates four new reportable segments; supplemental recast data is provided in Exhibit 99.3 with no restatement of historical results.
03—Questions
Frequently Asked Questions
Why did adjusted EPS grow only 3% in Q4 when GAAP EPS grew 26%?
The gap is mainly a $0.49 per share adjustment to the estimated future Bendix asbestos liability, a non-cash charge. Honeywell shortened its look-back period for average resolution values from five years to two, reflecting two consecutive years of rising values. Excluding a $0.13 non-cash pension headwind as well, adjusted EPS would have risen about 8%. GAAP EPS benefited from a lower share count and a favorable other income line in the quarter.
What is driving the 2024 earnings outlook?
Management pointed to three megatrends: automation, the future of aviation, and energy transition. The outlook assumes 4% to 6% organic growth, 30 to 60 basis points of segment margin expansion, and a weighted average share count of about 656 million. It also reflects a record backlog of $31.8 billion and a recovery in short-cycle businesses. The guidance excludes pension mark-to-market effects, which the company cannot reliably forecast.
How does the Safety and Productivity Solutions weakness affect the investment case?
SPS sales fell 21% for full-year 2023 and 24% in Q4, driven by lower warehouse and workflow volumes, and its segment margin fell to 17.3% in Q4. Management noted that orders grew more than 30% in the quarter, which suggests a possible turn. Because the 2024 realignment moves much of SPS into the new Industrial Automation segment, investors will be able to track its recovery more clearly from Q1 2024 onward.
What does the Carrier Global Access Solutions acquisition mean for Honeywell?
Honeywell announced a $5 billion acquisition of Carrier's Global Access Solutions business, which it expects to strengthen its Building Automation segment as a leading provider of security solutions. Management said capital deployment would accelerate in 2024 as the deal closes, after full-year 2023 deployment of $8.3 billion exceeded cash flow. Investors should watch leverage: long-term debt rose to $16.6 billion at year end from $15.1 billion, and cash fell to $7.9 billion.
Does the segment realignment change Honeywell's reported historical results?
No. The company stated the realignment has no effect on historical consolidated financial position, results of operations, or cash flows. Exhibit 99.3 provides supplemental 2022 and 2023 segment data recast to the new structure, which the company says is not a restatement. The new segments are Aerospace Technologies, Building Automation, Industrial Automation, and Energy and Sustainability Solutions, and reporting under them begins with Q1 2024.
04—Continue