Honeywell (HON) Tops Q2 EPS by 2c; Boosts Low-End of FY16 EPS Outlook; Will Split ACS Business into Two Segments

July 22, 2016 6:32 AM

Honeywell (NYSE: HON) reported Q2 EPS of $1.66, $0.02 better than the analyst estimate of $1.64. Revenue for the quarter came in at $9.99 billion versus the consensus estimate of $10.13 billion.

Automation and Control Solutions Realignment

Honeywell also announced today that it is realigning its ACS business segment into two new segments: Home and Building Technologies (HBT) and Safety and Productivity Solutions (SPS). Financial performance for the third quarter of 2016 will be reported based on this realignment. For 2015, HBT and SPS would have had estimated revenues of approximately $9.4 billion and $4.7 billion, respectively.

"ACS is coming off a strong quarter and has established momentum in key software-driven markets where our products and services give us a competitive advantage, especially given our recent acquisitions such as Elster, Xtralis, Intelligrated, and Movilizer," said Cote. "We have removed layers from our organizational structure and are well-positioned to implement a more focused segment reporting alignment that fits our HOS Gold approach to drive breakthrough strategies and speed up new product introduction. This new structure will also help us better serve our customers. Our success through acquisition and NPI has resulted in a much broader portfolio that has outgrown the existing ACS construct. Having two more nimble segments will promote greater customer intimacy and responsiveness. The separation into two businesses will also enable increased efficiency and speed of decision-making as well as a more comprehensive integrated suite of technologies for the respective end markets."

HBT benefits from Honeywell's advanced software and connectivity capability combined with an installed base of products and technologies in more than 150 million homes and 10 million buildings worldwide that help homeowners stay connected and in control of home comfort, security, fire systems, and air and water purification, and that help building owners and occupants ensure their facilities are safe, comfortable, and sustainable. It will include Honeywell's Environmental & Energy Solutions (E&ES), Security and Fire, and Building Solutions and Distribution businesses. E&ES' Industrial Combustion and Thermal business will be reclassified to Honeywell Performance Materials and Technologies (PMT). HBT will be led by Terrence Hahn, who previously ran Honeywell's Transportation Systems unit for the past three years, launching more than 100 new engine programs per annum and overseeing the divestiture of Friction Materials. Prior to that, Hahn led the Fluorine Products business within PMT, where he established the Solstice® product line, and prior to his employment with Honeywell, held several senior leadership positions within Air Products and Chemicals Inc. He earned bachelor's and master's degrees in materials science from Lehigh University and an M.B.A. from The Wharton School of the University of Pennsylvania.

SPS technologies support the productivity and safety of more than half a billion workers worldwide with offerings such as rugged mobile computers, voice-enabled software and workflows, bar-code scanners, printing solutions, gas sensing technologies, and personal protective equipment. It will include Honeywell's Sensing & Productivity Solutions and Industrial Safety business units, as well as the Intelligrated acquisition after it closes. SPS will be led by John Waldron, who has served for the past year as president of the Sensing and Productivity Solutions business unit that had been formed by the combination of Honeywell's Scanning and Mobility (HSM) and Sensing and Controls businesses. Previously, Waldron led the HSM business and served as chief marketing officer while leading the marketing integration of several acquired businesses within the SPS portfolio, including Hand Held Products, Metrologic Instruments, and EMS Technologies. Waldron earned a bachelor's degree in electrical engineering from the University of Dayton and an M.B.A. from the University of Notre Dame.

Succeeding Hahn as president and CEO of Transportation Systems will be Olivier Rabiller, who has held positions of increasing responsibility since joining Honeywell in 2002. For the past two years, he has managed the Transportation Systems businesses in China, India, and Brazil as part of his responsibilities for generating growth in the fastest-growing geographies around the world. His responsibilities have also included the global aftermarket; business development; mergers, acquisitions and divestitures; and licensing. He was previously vice president and general manager of the Aftermarket business within Transportation Systems. Prior to Honeywell, Rabiller served seven years at Renault in Customer Service, Engine Project Management, and Purchasing. He holds an engineering degree from Ecole Centrale Nantes and an M.B.A. from INSEAD.

"Our new business group leaders demonstrate the depth and talent of our leadership bench, and they will drive continued outperformance in their respective businesses," said Cote.

Alex Ismail, who served as president and CEO of Automation and Control Solutions for the past two years, will leave the company. "I would like to thank Alex for a long and successful career at Honeywell, during which he led several different significant business units over many years," concluded Cote. "Alex was instrumental in building our Turbo business into a global technology powerhouse, with rapid growth in all regions and world-leading technologies that have greatly benefited from their proximity to our Aerospace business. He then moved to Automation and Control Solutions, where he delivered strong operating margin expansion and improved operational excellence; completed several acquisitions in new strategic adjacencies such as smart meters; accelerated growth in High Growth Regions, and built a strong pipeline of new products, Internet of Things (IoT) solutions, and software for home, building, and worker applications. Alex is a well-liked and respected leader, and we wish him the best in his next endeavor."

This realignment has no impact on Honeywell's historical consolidated financial position, results of operations or cash flows.

GUIDANCE:

Honeywell sees FY2016 EPS of $6.60-$6.70, versus prior guidance of $6.55-$6.70. Honeywell sees FY2016 revenue of $40.0-40.6 billion, versus prior guidance of $40.3-40.9 billion.

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