Honeywell (HON) Issues Updated Q3 Outlook; Will Adopt FASB ASU Update on Stock Compensation

October 6, 2016 5:02 PM EDT

News and research before you hear about it on CNBC and others. Claim your 2-week free trial to StreetInsider Premium here.

Honeywell (NYSE: HON) announced it has updated its previous guidance for the third quarter of 2016 to reflect the separation of the former Automation and Control Solutions reporting segment into two new reporting segments; the acquisition of Intelligrated, which closed on August 29, 2016; the sale of the Honeywell Technology Solutions (HTSI) government services business, which closed on September 16, 2016; the spin-off of Resins and Chemicals as AdvanSix Inc., which became effective on October 1, 2016; and lower outlooks in certain business segments.

The company also announced it has elected to adopt the Financial Accounting Standards Board's (FASB) Accounting Standards Update 2016-09 for stock compensation in the third quarter, which is in advance of the mandatory 2017 effective date. As a result of the early adoption, the company is required to report the impacts as though the accounting standard update had been adopted on January 1, 2016. Accordingly, the first- and second-quarter results have been recast to reflect a $0.03 and $0.04 tax benefit, respectively. Benefits from the accounting change and sale of HTSI will be deployed to fund restructuring and other charges in the third quarter.

Third-quarter EPS is now expected to be approximately $1.60. Excluding restructuring associated with the $0.07 of first-half benefits related to stock compensation adoption, third-quarter EPS is expected to be approximately $1.67, in-line with the prior guidance range. This guidance also reflects the impact of lower shipments to Business and General Aviation OEMs, continued program delays and completions in the domestic and international businesses within Defense & Space, and lower volumes in Productivity Solutions (part of Safety and Productivity Solutions).

In addition, the company initiated fourth-quarter EPS guidance of $1.74-$1.78, up 10%-13% year-over-year, which excludes any pension mark-to-market (MTM) adjustment and the impact of a potential fourth-quarter debt refinancing that would lower interest expense in 2017 and beyond, but result in a fourth-quarter pre-tax charge of approximately $140 million. The refinancing transaction is dependent on continued favorable interest rate and credit market conditions. Full-year EPS guidance, excluding those same items, is updated to $6.60-$6.64, up 8%-9% year-over-year. Core organic sales* are now expected to be down 1-2 percent for the full year.

The company now expects the following for the third quarter and fourth quarter 2016:

3Q 2016 Guidance

Prior Guidance

Revised Guidance

Change vs. 2015


$10.0 - $10.2B



Core Organic Growth

Flat - 1%


Segment Margin

18.7% - 18.9%

17.3% - 17.5%

(180) - (200) bps(1)

Earnings Per Share

$1.67 - $1.72



EPS Ex-$0.07 From 1H Accounting Change Deployed To 3Q Restructuring


4Q 2016 Guidance

Complete 4Q 2016 guidance will be provided with Honeywell's third-quarter earnings release on October 21, 2016


Change vs. 2015


$10.1 - $10.3B

1% - 3%

Earnings Per Share (Ex-Pension MTM)(2)

$1.74 - $1.78

10% - 13%

(1) Segment Margin Down (80) - (100) bps ex-M&A And Recognition of Aerospace OEM Incentives Associated With 3Q Deployment

(2) Excludes Impact From Contemplated Q4 Debt Refinancing

Honeywell will discuss its new reporting segments, portfolio enhancements, adoption of stock compensation accounting standard, contemplated fourth-quarter debt refinancing, and updated outlook during an investor conference call on October 7, 2016, starting at 8 a.m. EDT. To participate, please dial (866) 564-7439 (domestic) or (719) 325-4756 (international) approximately ten minutes before the 8 a.m. EDT start. Please mention to the operator that you are dialing in for Honeywell's update call or provide the conference code HON3QUPDATE. The 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 ( Investors can hear a replay of the conference call from 11 a.m. EDT, October 7, until 11 a.m. EDT, October 14, by dialing (888) 203-1112 (domestic) or (719) 457-0820 (international). The access code is 1859067.

Honeywell International Inc

Reconciliation of Segment Profit to Operating Income and

Calculation of Segment Profit and Operating Income Margins (Unaudited)

(Dollars in millions)

Three Months Ended

September 30,


Segment Profit

$ 1,852

Stock compensation expense (A)


Repositioning and other (A, B)


Pension ongoing income (A)


Other postretirement expense (A)


Operating Income

$ 1,755

Segment Profit

$ 1,852

÷ Sales

$ 9,611

Segment Profit Margin %


Operating Income

$ 1,755

÷ Sales

$ 9,611

Operating Income Margin %


(A) Included in cost of products and services sold and selling, general and administrative expenses. (B) Includes repositioning, asbestos, environmental expenses and equity income adjustment

We believe these measures are useful to investors and management in understanding our ongoing operations and in analysis of ongoing operating trends

Honeywell International Inc

Reconciliation of Earnings Per Share to Earnings Per Share, Excluding Pension Mark-to-Market and Debt Refinancing Expenses (Unaudited)

Three Months Ended

Twelve Months Ended

December 31,

December 31,



Earnings per share of common stock - assuming dilution

$ 1.53

$ 6.04

Pension mark-to-market expense



Debt refinancing expense



Earnings per share of common stock - assuming dilution,

excluding pension mark-to-market and debt refinancing expenses

$ 1.58

$ 6.10

(1) Utilizes weighted average shares of 780.8 million. Mark-to-market uses a blended tax rate of 36.1%

(2) Utilizes weighted average shares of 789.3 million. Mark-to-market uses a blended tax rate of 36.1%

We believe EPS, excluding pension mark-to-market and debt refinancing expenses, is a measure that is useful to investors and management in understanding our ongoing operations and in analysis of ongoing operating trends

(1) Excludes Impact From Contemplated Q4 Debt Refinancing

Serious News for Serious Traders! Try Premium Free!

You May Also Be Interested In

Related Categories

Corporate News, Guidance, Hot Corp. News

Related Entities

Earnings, Definitive Agreement

Add Your Comment