HONEYWELL INTERNATIONAL INC annual report, FY2021

Business context and reporting period

Honeywell International Inc. filed this Form 10-K for the fiscal year ended December 31, 2021; it is an annual report, not a quarterly filing. Honeywell is a diversified technology and manufacturing company operating through Aerospace, Honeywell Building Technologies, Performance Materials and Technologies, and Safety and Productivity Solutions.

Financial performance and position

• Sales rose 5%; gross profit was $10.998 billion, or approximately 32.0% of sales. Net income increased 16% and diluted EPS increased 17.7%. Net margin was approximately 16.1%.
• Operating cash flow less capital expenditures was approximately $5.143 billion, calculated from the reported figures. Operating cash flow declined $170 million, primarily due to unfavorable working-capital effects.
• Total segment profit, Honeywell’s segment performance measure, was $7.212 billion, up from $6.665 billion. Segment sales/profit: Aerospace $11.026/$3.051 billion; Building Technologies $5.539/$1.238 billion; Performance Materials and Technologies $10.013/$2.120 billion; Safety and Productivity Solutions $7.814/$1.029 billion.
• At year-end, total assets were $64.470 billion, current assets $25.372 billion, and current liabilities $19.508 billion. Shareowners’ equity was $19.242 billion.

Material changes versus 2020

• Safety and Productivity Solutions sales grew 21%, led by Warehouse and Workflow Solutions, up 50%, and Productivity Solutions and Services, up 27%. Performance Materials and Technologies sales increased 6%; Building Technologies increased 7%.
• Aerospace sales fell 4% as commercial original-equipment and defense demand remained weak, partly offset by aftermarket growth. Aerospace segment profit nevertheless increased 5%.
• Costs rose with supply constraints and inflation: direct and indirect material costs increased approximately $1.350 billion. Pricing and productivity actions helped offset cost pressure.
• Cash and short-term investments fell $3.697 billion. Financing cash outflow was $8.254 billion, including $3.380 billion of share repurchases and $2.626 billion of dividends. Debt declined by $2.785 billion.

Outlook, risks and unusual items

• Management expected approximately 59% of the $27.682 billion year-end backlog to be recognized as revenue in 2022. Orders were up 11% year over year.
• For 2022, Honeywell expected capital expenditures of approximately $1.2 billion and intended to continue quarterly dividends. The quarterly dividend was increased 5% to $0.98 per share beginning in the fourth quarter of 2021. The supplied filing text does not provide clear 2022 revenue or EPS guidance.
• Management expected supply constraints to continue into 2022 but did not anticipate a material adverse effect from raw-material shortages, citing mitigation measures. Risks include continued COVID-19 effects, labor and component shortages, inflation, aviation-market weakness, geopolitical and foreign-exchange exposures, cybersecurity threats, and regulatory changes.
• Honeywell recorded a $160 million charge for UOP-related investigations involving Petrobras and Unaoil; discussions with authorities continued and the outcome remains uncertain. Environmental liabilities were $618 million and asbestos liabilities were $2.061 billion at year-end. The NARCO asbestos trust litigation outcome could affect estimates.
• Other notable items included a $95 million pretax gain on the retail-footwear business sale; $105 million of warehouse-automation contract labor inefficiencies related to supply disruptions; and Quantinuum’s formation, with Honeywell holding a controlling 54% interest. Four acquisitions were completed during 2021.
• Management stated that operating cash flows, cash balances, credit lines, and capital-market access should cover expected needs. The auditor issued unqualified opinions on the financial statements and internal control over financial reporting.

Investor facts to verify

• Whether pricing and productivity can continue to offset material, labor, and freight inflation, and whether supply disruptions affect contract costs or delivery performance.
• The pace of Aerospace recovery and the sustainability and margins of rapid Safety and Productivity Solutions growth.
• Cash conversion and working-capital trends, capital allocation relative to operating cash flow, and planned 2022 debt repayments and capital spending.
• Developments in the UOP investigations, NARCO and other asbestos claims, environmental obligations, and the timing and collectability of Garrett-related preferred-stock redemptions.
• Progress toward the company’s 2035 carbon-neutral operations commitment and the costs, assumptions, and milestones behind that goal.