Fourth Quarter Sales of $9.2 Billion, Reported Sales Up 6%, Organic1 Sales Up 10%
Fourth Quarter Earnings Per Share of $1.51 and Adjusted Earnings Per Share1 of $2.52, Above Midpoint of Previous Guidance
Full Year Operating Cash Flow of $5.3 Billion and Free Cash Flow1 of $4.9 Billion, at Midpoint of Previous Guidance
Deployed $7.9 Billion of Capital to Share Repurchases, Dividends, Capital Expenditures, and M&A in 2022, Exceeded Commitment of $4.0 Billion in Share Repurchases
Expect 2023 Adjusted Earnings Per Share of $8.80 – $9.20, Up 0% – 5% Adjusted2,3, or Up 7% – 11% Excluding Pension Headwind
CHARLOTTE, N.C. — Honeywell (NASDAQ: HON) today announced results for the fourth quarter and full year 2022 that met or exceeded the company’s original guidance despite a challenging operating environment. The company also provided its outlook for 2023.
The company reported fourth-quarter year-over-year sales growth of 6% and organic1 sales growth of 10%, or 11% excluding the impact of the wind down in operations in Russia4, with another quarter of double-digit organic sales growth in Honeywell Building Technologies, Performance Materials and Technologies, and Aerospace. Demand remained strong, with closing backlog5 of $29.6 billion, up 7% year over year. Fourth-quarter operating margin expanded 220 basis points to 19.7%, or 240 basis points excluding the year-over-year impact of Quantinuum. Segment margin1 expanded 150 basis points to 22.9%, or 180 basis points excluding the year-over-year impact of Quantinuum1, led by another strong quarter of margin expansion in Safety and Productivity Solutions and Honeywell Building Technologies. Honeywell delivered fourth-quarter earnings per share of $1.51, down 26% year over year, and adjusted earnings per share1 of $2.52, up 21% year over year. Operating cash flow was $2.4 billion with operating cash flow margin of 25.8%, and free cash flow1 was $2.1 billion with free cash flow margin1 of 23.1%, driven by strong net income and reduced working capital quarter over quarter.
For the full year, sales increased by 3%, or 6% on an organic1 basis, and operating margin expanded 10 basis points, with segment margin1 expanding 70 basis points. Honeywell reported full-year earnings per share of $7.27 and adjusted earnings per share1 of $8.76, above the high end of the company’s initial guidance of $8.40 – $8.70.
“Honeywell delivered a strong finish to another challenging year, meeting our original guidance for the year despite significant headwinds from FX and the wind down of our operations in Russia,” said Darius Adamczyk, chairman and chief executive officer of Honeywell. “We also met our latest guidance for all metrics in the fourth quarter. Organic1 sales growth of 10% in the quarter was underpinned by double-digit growth in our commercial aviation, building products, advanced materials, and UOP businesses. Our disciplined cost management enabled us to expand segment margin1 by 150 basis points, led by 940 basis points of margin expansion in Safety and Productivity Solutions to 20.2%, the highest ever segment margin for that business. Our strong balance sheet allowed us to execute on our capital deployment strategy once again, deploying $2.3 billion in the quarter, including $1.4 billion in share repurchases to fulfill our 2022 share repurchase commitment from our March Investor Day.”
Adamczyk continued, “As we have consistently shown over the past three years, Honeywell’s operating principles enable us to outperform in any macroeconomic environment. As we look toward 2023, we are well-positioned to remain resilient and deliver differentiated results. Our backlog remains at a record level, ending 2022 at $29.6 billion, and will help support growth throughout the year. Late-cycle aerospace and energy end markets are positioned for a strong growth year in 2023, we are demonstrating commercial progress in digital offerings through our Forge platform, and we remain focused on growing our sustainability initiatives such as renewable fuels, carbon capture, and sustainable buildings. I am confident that 2023 will be another strong performance for our shareowners, our customers, and our employees.”
Honeywell also announced its outlook for 2023. The company expects sales of $36.0 billion to $37.0 billion, representing year-over-year organic growth of 2% to 5%; segment margin expansion2 of 50 to 90 basis points; adjusted earnings per share2 of $8.80 to $9.20, flat to up 5% despite an approximately $0.55 non-cash pension headwind; operating cash flow of $4.9 billion to $5.3 billion, and free cash flow1 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 2023 guidance can be found in Table 1.
Honeywell sales for the fourth quarter were up 6% year over year on a reported basis and 10% year over year on an organic basis1. The fourth-quarter financial results can be found in Tables 2 and 3.
Aerospace sales for the fourth quarter were up 11% year over year on an organic basis1 led by commercial aviation. Sales growth was the strongest in commercial original equipment, increasing 25% organically year over year on increased shipset deliveries, especially to business and general aviation customers. Commercial aftermarket sales also grew over 20% organically year over year as flight hours continue on their recovery path to pre-COVID levels. Air transport aftermarket was particularly strong, growing 25% organically in the quarter. Increased commercial aviation sales were partially offset by lower defense volumes year over year, although defense and space sales increased 15% sequentially in the fourth quarter. Segment margin contracted 120 basis points to 27.8% driven by increased sales of lower margin original equipment products, partially offset by commercial excellence.
Honeywell Building Technologies sales for the fourth quarter were up 15% on an organic basis1 year over year with strength in both building products and building solutions. Building products sales increased 21% organically, primarily driven by increased sales of fire products and building management systems. Project sales grew double digits organically for the third consecutive quarter, leading the growth in building solutions. Segment margin expanded 370 basis points to 24.8% due to commercial excellence, partially offset by cost inflation.
Performance Materials and Technologies sales for the fourth quarter were up 15% on an organic basis1 year over year despite an approximately 4% headwind from Russia. Sales growth was led by more than 30% organic growth in fluorine products within advanced materials and refining catalyst shipments in UOP, as well as double-digit organic growth in thermal solutions and lifecycle solutions and services within process solutions. Segment margin contracted 100 basis points to 22.0%, primarily driven by cost inflation and higher sales of lower margin products, partially offset by commercial excellence.
Safety and Productivity Solutions sales for the fourth quarter decreased 5% on an organic basis1 year over year. Growth in sensing and safety technologies was offset by lower volumes in productivity solutions and services and warehouse and workflow solutions. Segment margin grew at the fastest rate ever for SPS, expanding 940 basis points to 20.2% as a result of commercial excellence, improved sales mix, and productivity actions, partially offset by volume leverage and cost inflation.
Conference Call Details
Honeywell will discuss its fourth-quarter results and full-year 2023 guidance during an investor conference call starting at 8:30 a.m. Eastern Standard 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
|Sales||$36.0B – $37.0B|
|Organic Growth||2% – 5%|
|Segment Margin||22.2% – 22.6%|
|Expansion||Up 50 – 90 bps|
|Adjusted Earnings Per Share3||$8.80 – $9.20|
|Adjusted Earnings Growth3||0% – 5%|
|Adjusted Earnings Per Share Excluding Pension Headwind||$9.35 – $9.75|
|Adjusted Earnings Growth Excluding Pension Headwind||7% – 11%|
|Operating Cash Flow||$4.9B – $5.3B|
|Free Cash Flow||$3.9B – $4.3B|
|Free Cash Flow Excluding Impact of Settlements||$5.1B – $5.5B|
TABLE 2: SUMMARY OF HONEYWELL FINANCIAL RESULTS
|FY 2022||FY 2021||Change|
|Operating Income Margin||18.1%||18.0%||10 bps|
|Segment Margin1||21.7%||21.0%||70 bps|
|Reported Earnings Per Share||$7.27||$7.91||(8)%|
|Adjusted Earnings Per Share1||$8.76||$8.06||9%|
|Cash Flow from Operations||5,274||6,038||(13)%|
|Operating Cash Flow Margin||14.9%||17.6%||(270) bps|
|Free Cash Flow1||4,917||5,729||(14)%|
|Free Cash Flow Margin1||13.9%||16.7%||(280) bps|
|4Q 2022||4Q 2021||Change|
|Operating Income Margin||19.7%||17.5%||220 bps|
|Segment Margin1||22.9%||21.4%||150 bps|
|Reported Earnings Per Share||$1.51||$2.05||(26)%|
|Adjusted Earnings Per Share1||$2.52||$2.09||21%|
|Cash Flow from Operations||2,366||2,663||(11)%|
|Operating Cash Flow Margin||25.8%||30.8%||(500) bps|
|Free Cash Flow1||2,125||2,593||(18)%|
|Free Cash Flow Margin||23.1%||30.0%||(690) bps|
TABLE 3: SUMMARY OF SEGMENT FINANCIAL RESULTS
|AEROSPACE||FY 2022||FY 2021||Change|
|Segment Margin||27.3%||27.7%||-40 bps|
|4Q 2022||4Q 2021|
|Segment Margin||27.8%||29.0%||-120 bps|
|HONEYWELL BUILDING TECHNOLOGIES||FY 2022||FY 2021||Change|
|Segment Margin||24.0%||22.4%||160 bps|
|4Q 2022||4Q 2021|
|Segment Margin||24.8%||21.1%||370 bps|
|PERFORMANCE MATERIALS AND TECHNOLOGIES||FY 2022||FY 2021||Change|
|Segment Margin||21.9%||21.2%||70 bps|
|4Q 2022||4Q 2021|
|Segment Margin||22.0%||23.0%||-100 bps|
|SAFETY AND PRODUCTIVITY SOLUTIONS||FY 2022||FY 2021||Change|
|Segment Margin||15.6%||13.2%||240 bps|
|4Q 2022||4Q 2021|
|Segment Margin||20.2%||10.8%||940 bps|
Q4 2022 Press Release Financials
1See additional information at the end of this release regarding non-GAAP financial measures.
2Segment 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 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.
3Adjusted EPS and adjusted EPS V% guidance excludes items identified in the non-GAAP reconciliation of adjusted EPS at the end of this release, and any potential future one-time items that we cannot reliably predict or estimate such as pension mark-to-market.
4Lost Russian sales is defined as the year-over-year decline in sales due to the decision to wind down our businesses and operations in Russia. This does not reflect management’s estimate of 2022 Russian sales absent the decision to wind down our businesses and operations in Russia.
5Effective March 31, 2022, performance obligations exclude contracts with customers related to Russia as collectability is not reasonably assured. Backlog V% includes prior year revisions to reflect a prior period correction, which had no impact on our results of operations.
Honeywell (www.honeywell.com) delivers industry specific solutions that include aerospace products and services; control technologies for buildings and industry; and performance materials globally. Our technologies help everything from aircraft, buildings, manufacturing plants, supply chains, and workers become more connected to make our 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.
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. 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. 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 risks and uncertainties, including the impact of the COVID-19 pandemic and the Russia-Ukraine conflict, 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. Any forward-looking plans described herein are not final and may be modified or abandoned at any time. We identify the principal risks and uncertainties that affect our performance in our Form 10-K and other filings with the Securities and Exchange Commission.
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, excluding Quantinuum;
• Segment profit margin, on an overall Honeywell basis;
• Segment margin excluding Quantinuum;
• Expansion in segment profit margin percentage;
• Expansion in segment profit margin percentage excluding Quantinuum;
• Organic sales growth;
• Organic sales growth excluding lost Russian sales;
• 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.