December 13, OUTLOOK

Transcription

1 2018 OUTLOOK

2 Forward Looking Statements This presentation contains certain statements that may be deemed forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of All statements, other than statements of historical fact, that address activities, events or developments that we or our management intends, expects, projects, believes or anticipates will or may occur in the future are forward-looking statements. Such statements are based upon certain assumptions and assessments made by our management in light of their experience and their perception of historical trends, current economic and industry conditions, expected future developments and other factors they believe to be appropriate. The forward-looking statements included in this release are also subject to a number of material risks and uncertainties, including but not limited to economic, competitive, governmental, and technological factors affecting our operations, markets, products, services and prices, as well as the ability to effect the separations. Such forward-looking statements are not guarantees of future performance, and actual results, developments and business decisions may differ from those envisaged by such forward-looking statements, including with respect to any changes in or abandonment of the proposed separations. 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. Non-GAAP Financial Measures This presentation contains financial measures presented on a non-gaap basis. Honeywell s non-gaap financial measures used in this presentation are as follows: segment profit, on an overall Honeywell basis, a measure by which we assess operating performance, which we define as operating income adjusted for certain items as presented in the Appendix; segment margin, on an overall Honeywell basis, which we define as segment profit divided by sales; organic sales growth, which we define as sales growth less the impacts from foreign currency translation and acquisitions and divestitures for the first 12 months following transaction date; free cash flow, which we define as cash flow from operations less capital expenditures and which we adjust to exclude separation costs, if and as noted in the presentation; free cash flow conversion, which we define as free cash flow divided by net income attributable to Honeywell excluding pension mark-to-market expenses and debt refinancing charges; and earnings per share, which we adjust to exclude pension mark-to-market expenses, to normalize quarterly earnings per share measures for completed fiscal quarters for the expected effective tax rate as previously guided for the most recently completed fiscal quarter, to otherwise normalize for tax, if and as noted in the presentation, as well as for other components, such as divestitures, debt refinancings and exclusion of separation costs, if and as noted in the presentation. Other than references to reported earnings per share, all references to earnings per share in this presentation are so adjusted. The respective tax rates applied when adjusting earnings per share for these items are identified in the presentation or in the reconciliations presented in the Appendix. 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 metrics should be considered in addition to, and not as replacements for, the most comparable GAAP measure. Refer to the Appendix attached to this presentation for reconciliations of non-gaap financial measures to the most directly comparable GAAP measures. Forward looking quantitative reconciliations herein exclude separation costs because management cannot reliably predict or precisely estimate, without unreasonable effort, those costs given the preliminary nature of the estimates.

3 Recent Highlights 2 Aerospace Signed 15-Year Component Service Solutions Agreement With Emirates To Maintain Aftermarket Components On Fleet Of A380 And Boeing 777 Aircraft Safety And Productivity Solutions Launched ScanPal TM EDA70 Lightweight, Rugged Tablet Build On Android Platform Ideal For Scan- Intensive Workflows Home And Building Technologies Acquired SCAME Sistemi, Adding New Fire And Gas Safety Capabilities To Honeywell's Industry-Leading Portfolio Of Connected Building Solutions Performance Materials And Technologies Kuwait Integrated Petroleum Industries Company Will Expand Al-Zour Refinery With A Range Of UOP Process Technologies Launched Sensepoint XRL Connected Gas Detector To Keep Industrial Operations Safe While Making Set-Up And Reporting Fast And Easy Announced Agreement To Invest In FLUX Information Technology, Leading Supply Chain Software Solutions Provider For E-Commerce Customers In China Wins Across The Portfolio; Smart Capital Deployment

4 SPS And FLUX Information Technology 3 FLUX Information Technology Leading Warehouse, Transportation, And Order Management System Player In China Solutions Deployed In 400+ Warehouses And Managing >12M M 2 Space Serves All Verticals, With Particular Strength In E-Commerce Attractive Warehouse Management Space Industry Growing At >10% Per Year, Some APAC Geographies Growing At Double-Digit Rates 31M M 2 Warehouse Space Added And 6% More Parcels Shipped Annually Increasing Need For Greater Accuracy And Efficient Warehouse Operations Deal Overview HON Acquires 25% Share In Existing China Business New JV Established To Serve Global Opportunity, HON To Hold 75% Share Initial Global JV Efforts To Be Focused In Asia Pacific Region Strong Fit To Existing HON Portfolio Complements Distribution Center Expertise Of Honeywell Intelligrated Strengthens Existing SCM Capabilities In Pick-Up And Delivery, Freight Monitoring And Voice Directed Work Brings Regional Channel For Broader Portfolio Cross-Sell Opportunities Compelling Combination Of HON And Dynamic Regional Leader

5 4Q17 And FY17 Update Earnings Per Share 4Q17 ~$1.84 FY17 ~$7.10 Up ~10% Update + Expect To Achieve High End Of EPS Guidance 4 Organic Sales Growth 7% - 8% ~4% + 4Q Organic Sales Growth Likely Higher Than Planned, Driven By Intelligrated, Commercial Aftermarket, And UOP Segment Margin Expansion (10) bps - Flat ~60 bps Margins Likely Lower Than Planned Due To Lower Security Volumes In HBT, Dilutive Impact Of Intelligrated, And Unplanned Plant Outage In PMT Free Cash Flow $1.4B - $1.5B $4.6B - $4.7B + 5% - 7% Full-Year Increase Driven By Working Capital Improvement Full-Year Effective Tax Rate Expected To Be ~20% EPS, EPS V%, Free Cash Flow, Free Cash Flow V% Exclude Estimated Separation Costs Sales Growth Ahead Of Plan; Expect EPS At High End Of Guidance

6 Key Priorities Update 5 Key Priority Progress Update Assessment Accelerate Organic Growth Continue Margin Expansion / Working Capital Become A Software-Industrial Company Smart Capital Deployment Commercial Excellence As Part Of HOS Gold Widely Leveraged With Outstanding Results Substantial Gains In NPD Incentives, Services, And Software Revenues And Growth In HGRs Power Of One (Fixed Cost Reduction) In Place For 2018 Working Capital Playbook Newest Addition To HOS Gold Tool Kit Software Growth Will Be ~20% Continued Optimization Of Business Models For Each Connected Enterprise Achieving $6B Capital Deployment Commitment In 2017 As Committed At Investor Day Potential Tax Reform Creates Further Flexibility And Opportunity Continued Focus On Long-Term Priorities

7 By End Market End Market HON Exposure 2018 Market Dynamics 6 Aerospace New Platform Launches, Business Jet OE Declines Moderate Defense & Space Buildings Oil & Gas / PetroChem Specialty Chemicals Industrial Productivity Homes Strong U.S. Defense; Space Activity Slow, Commercial Helo Beginning To Recover Favorable Dynamics In HGRs, Slower U.S. And Europe Growth Stable Oil Prices, Strong PetroChem Demand, U.S. Natural Gas Activity Moderates Low-Global Warming Adoption Continues; Increased HGR Infrastructure Spending Improving Industrial Activity, Continued E-Commerce Growth Deceleration In U.S. Residential Construction, Growth In Middle East And India Turbos Strong Gas And Off-Highway CV Demand, Higher Gas Penetration, Lower Diesel Sales Favorable Growth Environment; Good Long-Cycle Momentum

8 Key Inputs To 2018 Plan Commentary Pension / OPEB Income Up ~$90M No Impact To Segment Margin/EPS From Pension Accounting Standards Change U.S. Plan Currently >100% Funded Interest Expense ~Flat Slightly Lower Due To 4Q17 Debt Refinancing Restructuring And Other Expense F/X ~$700M Minor Headwind Continued Restructuring Capacity Similar Asbestos / Environmental Expense Planned Hedged ~60%+ Of Largest Exposure (Euro) Net Impact From All Other Currency Exposure Is Minimal CapEx Reinvestment Ratio ~1.05X Growth-Focused Investments; 15% - 20% Reduction YoY; Some Carry-Over Projects Tax Rate Share Count Other ~25% ~762M Anticipate Lower Tax Benefit From Option Exercises And Tax Credit Planning Monitoring Tax Reform Developments - Modest Ongoing Impact Anticipated Estimated 4Q17 Buyback Of ~$1.5B, Share Count Down ~1% Board Of Directors Approved $8B Share Repurchase Authorization Assumes Full Year Of Earnings From SpinCos Minimal Impact From Revenue Recognition Accounting Standards Change (Aero) Excludes Estimated Separation Costs Balanced Planning Assumptions, Continued Investments

9 2018 Plan Overview 8 Sales $41.8B - $42.5B 2% - 4% Organic Growth Segment Margin 19.2% % bps Expansion EPS $ $7.80 Up 6% - 10% Free Cash Flow $5.2B - $5.9B Targeting >20% Growth EPS, EPS V%, Free Cash Flow, Free Cash Flow V% Exclude Estimated Separation Costs Attractive Sales, Earnings, And Cash Growth

10 2018 EPS Bridge 9 ~$7.10 $ $0.65 ~$0.40 ~($0.47) Less Restructuring Activity Higher Pension Income Higher Tax Rate 2017: ~20% 2018: ~25% ~$0.12 Lower Share Count (~762M) $ $7.80 Up 6% - 10% Reported Up 6% - 10% Volume Leverage Commercial Excellence Productivity Fixed Cost Reduction Restructuring Benefits Planning Contingency 2017E Operational Below The Line Tax Rate Other 2018E EPS And EPS V% Exclude Estimated Separation Costs EPS Up 13% - 17%, Normalized For Tax

11 SPS PMT HBT Aero 2018 Segment Outlook 10 Sales Segment Margin (Change In bps) Commentary $15.2B - $15.4B 22.1% % Up 2% - 4% Up 1% - 3% Organic Up Narrow Body Strength, New BGA Models Enter Into Service Robust U.S. Defense Volumes; Weak Demand For Space, Comm l Helos Commercial Aftermarket Strong And Connected Aircraft Strong $10.0B - $10.2B 16.9% % Up 2% - 4% Up Up 1% - 3% Organic Demand In High Growth Regions, Particularly China; Mid-Segment NPI Executing On Strong Building Solutions Backlog New Product Introductions In Homes And Fire $10.7B - $10.9B Up 4% - 6% Up 3% - 5% Organic 21.6% % Up UOP Equipment And Engineering Growth, Strong Backlog Conversion HPS Backlog Conversion And Connected Plant Offerings Continued Solstice Growth; Specialty Products Growth In HGRs $5.9B - $6.0B 15.4% % Up 4% - 6% Up Up 4% - 6% Organic New Product Introductions Enable Productivity Products Recovery Intelligrated Strength At Large Customers; Robust Orders And Backlog Expansion Of Offerings In Safety, Workflow, Sensing & IoT Organic Sales Growth And Margin Expansion Continue

12 2018 Free Cash Flow 11 History And Outlook 2018 Free Cash Flow Drivers HON Free Cash Flow HON Free Cash Flow % Of Sales Core Peers Free Cash Flow % Of Sales $5.2B - $5.9B Completed Heavy CapEx Investment Cycle - ~$1.1B At Peak ( ) Declining To ~$0.9B In 2018 $3.4B $4.0B $4.4B $4.4B $4.6B - $4.7B Continued Emphasis On Working Capital Driving ~0.5-Turn Improvement In 2018 HOS Gold Working Capital Tool Set And Focus 12% 9% 13% 10% 12% 11% 11% 8% 11% - 12% 12% - 14% 10% Pension Currently >100% Funded - No Anticipated U.S. Contributions In 2018 Conversion: E 2018 Plan 86% 90% 92% 86% 84% - 86% 90% - 100% Cash Contributions For Legacy Liabilities Planned To Be ~Flat YoY FCF As Percentage Of Sales Data Source: Nasdaq Core Peer FCF And Sales Data Represents YTD 3Q17; Includes EMR (Fiscal FY 2017), GE, MMM, UTX HON 2017E And 2018 Plan FCF Excludes Estimated Separation Costs Targeting Free Cash Flow Growth >20%

13 2018 Capital Allocation 12 M&A ~$2.6B Uses Of Cash M&A ~$0.1B Cash Available For Deployment ~$14B (Mostly Non-U.S.) 2018 Commentary Free Cash Flow Of $5.2B - $5.9B Expected Benefit From Spin-Off Dividend Of ~$3.0B Reflects 12% Dividend Increase Announced Sept. 29 Share Repurchase ~$2.1B Dividends ~$1.9B Share Repurchase ~$2.9B Dividends ~$2.1B Dividends ~$2.4B Share Repurchase To Keep Share Count Flat ~$0.5B Continue To Target ~2.5X Leverage (Per Moody s) % Of FCF CapEx ~$1.1B CapEx ~$1.0B CapEx ~$0.9B E 2018E Capacity 143% 109% - 111% Potential Tax Legislation Would Enhance U.S. Capacity 2018E Capacity Does Not Assume U.S. Tax Reform; Includes Expected Spin-Off Dividend Of ~$3.0B % Of Free Cash Flow = Sum Of M&A, Share Repurchase, And Dividends Divided By Free Cash Flow Free Cash Flow Excludes Estimated Separation Costs Continued Aggressive Capital Deployment

14 Spin-Off Update 13 Cross-Functional Team Established; Dedicated Transition Team Leader In Place Key Objectives: Establish Day 1 Readiness, Isolate And Eliminate Stranded Costs Developing Transaction Structure For Legacy Liabilities 2018 EPS And Free Cash Flow Guidance Exclude Estimated Separation Costs Estimated Total Costs ~$0.8B - $1.2B Comprising ~$0.3B - $0.5B Transaction Costs And ~$0.5B - $0.7B Frictional Tax Costs Costs In-Line With Comparable Spins As Percent Of Transaction Value Early In Process - On Track For Completion In 2018

15 Summary 14 On Track To Deliver Upper End Of 4Q And FY Guidance Favorable End-Market Dynamics Heading Into 2018 Robust 2018 Top-Line Growth, Continued Margin Expansion, And High-Quality Earnings Strong Balance Sheet; Continuing Aggressive Capital Deployment Strategy Good Progress With Spins; On Track To Complete By End Of 2018 Well-Positioned For Strong 2018

16 15 Appendix

17 16 Reconciliation of Segment Profit to Operating Income and Calculation of Segment Profit and Operating Income Margins ($M except for 4Q 2017E & 2017 E in $B) 4Q Q17E 2017E Segment Profit $1,899 $7,186 ~$2.1 ~$7.7 Stock Compensation Expense (1) (39) (184) ~(0.1) ~(0.2) Repositioning and Other (2,3) (136) (679) ~(0.4) ~(1.0) Pension Ongoing Income (1) ~0.2 ~0.7 Pension Mark-to-Market Expense (1) (273) (273) TBD TBD Other Postretirement Income (1) 8 32 ~0.0 ~0.0 Operating Income $1,613 $6,683 ~$1.8 ~$7.2 Segment Profit $1,899 $7,186 ~$2.1 ~$7.7 Sales $9,985 $39,302 ~$10.9 ~$40.6 Segment Profit Margin % 19.0% 18.3% ~18.9%-19.0% ~18.9% Operating Income $1,613 $6,683 ~$1.8 ~$7.2 Sales $9,985 $39,302 ~$10.9 ~$40.6 Operating Income Margin % 16.2% 17.0% ~16.5% ~17.7% (1) Included in cost of products and services sold and selling, general and administrative expenses. (2) Includes repositioning, asbestos, environmental expenses and equity income adjustment. (3) Included in cost of products and services sold, selling, general and administrative expenses, and other income/expense. We define segment profit as operating income, excluding stock compensation expense, pension ongoing income or expense, pension mark-to-market expense, other postretirement income or expense, and repositioning and other charges. We believe these measures are useful to investors and management in understanding our ongoing operations and in analysis of ongoing operating trends. A quantitative reconciliation of segment profit, on an overall Honeywell basis, to operating income has not been provided for all forward-looking measures of segment profit and segment margin included herewithin. Management cannot reliably predict or estimate, without unreasonable effort, the impact and timing on future operating results arising from items excluded from segment profit, particularly pension mark-to-market expense as it is dependent on macroeconomic factors, such as interest rates and the return generated on invested pension plan assets. The information that is unavailable to provide a quantitative reconciliation could have a significant impact on our reported financial results. To the extent quantitative information becomes available without unreasonable effort in the future, and closer to the period to which the forward-looking measures pertain, a reconciliation of segment profit to operating income will be included within future filings.

18 17 Reconciliation of Cash Provided by Operating Activities to Free Cash Flow (Not Including Separation Costs) 1 ($B) 4Q17E Cash Provided by Operating Activities ~$1.8 - $1.9 Expenditures for Property, Plant and Equipment ~(0.4) Free Cash Flow ~$1.4 - $1.5 (1) The estimated cash flows do not include separation costs given the preliminary nature of the estimates.

19 18 Reconciliation of Cash Provided by Operating Activities to Free Cash Flow and Calculation of Free Cash Flow Conversion (Not Including Separation Costs For 2017E And 2018E) 1 ($M except for 2017E and 2018E in $B) E (1) 2018E (1) Cash Provided by Operating Activities $4,335 $5,080 $5,519 $5,498 ~$5.6 - $5.7 ~$6.1 - $6.8 Expenditures for Property, Plant and Equipment (947) (1,094) (1,073) (1,095) ~(1.0) ~(0.9) Free Cash Flow $3,388 $3,986 $4,446 $4,403 ~$4.6 - $4.7 ~$5.2 - $5.9 Net Income, Attributable to Honeywell $3,924 $4,239 $4,768 $4,809 ~$5.5 ~$5.9 Pension Mark-to-Market Expense, Net of Tax (2) TBD TBD Debt Refinancing Expense, Net of Tax (3) Net Income, Excluding Pension Mark-to-Market Expense and Debt Refinancing Expense $3,962 $4,418 $4,811 $5,117 ~$5.5 ~$5.9 Cash Provided by Operating Activities $4,335 $5,080 $5,519 $5,498 ~$5.6 - $5.7 ~$6.1 - $6.8 Net Income Attributable to Honeywell $3,962 $4,239 $4,768 $4,809 ~$5.5 ~$5.9 Operating Cash Flow Conversion % 109% 120% 116% 114% ~102% - 104% ~103% - 115% Free Cash Flow $3,388 $3,986 $4,446 $4,403 ~$4.6 - $4.7 ~$5.2 - $5.9 Net Income, Excluding Pension Mark-to-Market Expense $3,962 $4,418 $4,811 $5,117 ~$5.5 ~$5.9 and Debt Refinancing Expense Free Cash Flow Conversion % 86% 90% 92% 86% ~84% - 86% ~90% - 100% (1) The estimated cash flows do not include separation costs given the preliminary nature of the estimates. (2) Pension mark-to-market expense uses a blended tax rate of 25.5%, 28.1%, 36.1% and 21.3% for 2013, 2014, 2015 and (3) Debt refinancing expense uses a tax rate of 26.5% for 2016.

20 Reconciliation of EPS to EPS, Excluding Pension Mark-to-Market Expense, Debt Refinancing Expense and Earnings Attributable to 2016 Divestitures (1) Earnings Per Share of Common Stock - Assuming Dilution (EPS) $6.20 Pension Mark-to-Market Expense 0.28 Debt Refinancing Expense 0.12 EPS Attributable to 2016 Divestitures (0.14) EPS, Excluding Pension Mark-to-Market Expense, Debt Refinancing Expense and 2016 Divestitures $6.46 (1) Utilizes weighted average shares of million. Pension mark-to-market expense uses a blended tax rate of 21.3%. Debt refinancing expense uses a tax rate of 26.5%. Earnings attributable to 2016 divestitures uses a blended tax rate of 33.9%. We believe EPS, excluding pension mark-to-market expense, debt refinancing expense and earnings attributable to 2016 divestitures is a measure that is useful to investors and management in understanding our ongoing operations and in analysis of ongoing operating trends.

21 20 Reconciliation of EPS to EPS, Excluding Pension Mark-to-Market Expense (Not Including Separation Costs) 4Q17E 2017E 2018E Earnings Per Share of Common Stock - Assuming Dilution (EPS) TBD TBD TBD Pension Mark-to-Market Expense TBD TBD TBD EPS, Excluding Pension Mark-to-Market Expense $1.84 $7.10 $ $7.80 We believe earnings per share, excluding pension mark-to-market expense and separation cost is a measure that is useful to investors and management in understanding our ongoing operations and in analysis of ongoing operating trends. Management cannot reliably predict or estimate, without unreasonable effort, the pension mark-to-market expense as it is dependent on macroeconomic factors, such as interest rates and the return generated on invested pension plan assets, and the separation costs given the preliminary nature of the estimates. We therefore do not include an estimate for the pension mark-to-market expense or separation costs in this reconciliation. Based on economic and industry conditions, future developments and other relevant factors, these assumptions are subject to change.

22 21 Reconciliation of EPS to EPS at 25% Tax Rate, Excluding Pension Mark-to-Market Expense (Not Including Separation Costs) 2017E (1) Earnings Per Share of Common Stock - Assuming Dilution (EPS) TBD Pension Mark-to-Market Expense TBD EPS, Excluding Pension Mark-to-Market Expense $7.10 Less: Earnings Per Share Impact of Normalizing to 25% Tax Rate 0.41 EPS at 25% Tax Rate, Excluding Pension Mark-to-Market Expense $6.69 (1) Utilizes weighted average shares of 772 million. We believe earnings per share adjusted to normalize for the 2018 expected effective tax rate at 25%, excluding pension mark-to-market expense and separation cost is a measure that is useful to investors and management in understanding our ongoing operations and in analysis of ongoing operating trends. Management cannot reliably predict or estimate, without unreasonable effort, the pension mark-to-market expense as it is dependent on macroeconomic factors, such as interest rates and the return generated on invested pension plan assets, and the separation costs given the preliminary nature of the estimates. We therefore do not include an estimate for the pension mark-to-market expense or separation costs in this reconciliation. Based on economic and industry conditions, future developments and other relevant factors, these assumptions are subject to change.

23 Reconciliation of Organic Sales % Change 22 We define organic sales percent as the year-over-year change in reported sales relative to the comparable period, excluding the impact on sales from foreign currency translation and acquisitions, net of divestitures. We believe this measure is useful to investors and management in understanding our ongoing operations and in analysis of ongoing operating trends. A quantitative reconciliation of reported sales percent change to organic sales percent change has not been provided for forward-looking measures of organic sales percent change because management cannot reliably predict or estimate, without unreasonable effort, the fluctuations in global currency markets that impact foreign currency translation, nor is it reasonable for management to predict the timing, occurrence and impact of acquisition and divestiture transactions, all of which could significantly impact our reported sales percent change.