Honeywell International Inc. — FY 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020; the filing also reports fourth-quarter results. Honeywell is a diversified technology and manufacturing company operating through Aerospace, Honeywell Building Technologies, Performance Materials and Technologies, and Safety and Productivity Solutions. COVID-19 materially affected demand across several end markets.
Financial performance
| Metric | 2020 | 2019 |
|---|---|---|
| Net sales | $32.637 billion | $36.709 billion |
| Net income attributable to Honeywell | $4.779 billion | $6.143 billion |
| Diluted EPS | $6.72 | $8.41 |
| Gross profit / gross margin | $10.468 billion / approximately 32.1% | $12.370 billion / approximately 33.7% |
| Cash from operating activities | $6.208 billion | $6.897 billion |
| Capital expenditures | $906 million | $839 million |
| Total borrowings at year-end | $22.384 billion | $16.002 billion |
| Cash and short-term investments at year-end | $15.220 billion | $10.416 billion |
| Total assets / shareowners’ equity | $64.586 billion / $17.790 billion | $58.679 billion / $18.706 billion |
Operating cash flow less capital expenditures was approximately $5.302 billion in 2020, compared with $6.058 billion in 2019. The year-end current ratio was approximately 1.47 (current assets of $28.175 billion divided by current liabilities of $19.197 billion). Cash and short-term investments increased by approximately $4.8 billion; debt rose by approximately $6.4 billion.
Material changes and segment results
- Annual sales fell 11%, primarily from lower volumes associated with the pandemic-driven recession and oil-and-gas market weakness. Net income attributable to Honeywell declined approximately 22%.
- Aerospace sales declined 18% to $11.544 billion and segment profit declined 19% to $2.904 billion. Commercial aviation original-equipment and aftermarket sales fell 36% and 34%, respectively; Defense and Space sales increased 9%.
- Honeywell Building Technologies sales fell 9% to $5.189 billion; segment profit fell 6% to $1.099 billion.
- Performance Materials and Technologies sales fell 13% to $9.423 billion; segment profit fell 24% to $1.851 billion, reflecting weaker demand, notably in UOP and Process Solutions.
- Safety and Productivity Solutions sales increased 6% to $6.481 billion and segment profit increased 15% to $907 million, supported by respiratory PPE and warehouse automation demand.
- Fourth-quarter sales were $8.900 billion versus $9.496 billion in Q4 2019; net income attributable to Honeywell was $1.359 billion versus $1.562 billion.
Liquidity, capital allocation and outlook
Honeywell reported $15.2 billion of cash and short-term investments and no borrowings under its revolving credit agreements or delayed-draw term loan at year-end. During 2020, it issued approximately $7.1 billion of senior notes and used financing actions to strengthen liquidity. The company spent $3.714 billion on share repurchases and paid $2.592 billion in cash dividends. Its quarterly dividend increased 3% to $0.93 per share beginning with the fourth-quarter 2020 dividend.
Management expected approximately $1 billion of capital expenditures in 2021 and intended to continue quarterly dividends. Honeywell reported a $26.376 billion backlog at year-end and expected to recognize approximately 55% as revenue in 2021. It stated that operating cash flows, cash balances, credit lines and capital-market access should be sufficient to meet expected needs. This filing does not provide a full quantified 2021 sales or earnings forecast.
Risks, contingencies and unusual items
- COVID-19: Continued uncertainty around infection rates, vaccine distribution, customer demand, supply chains and economic recovery could affect earnings, liquidity and cash flow. Aviation, oil and gas, and building-related demand were particularly exposed.
- Garrett bankruptcy and reimbursement receivable: Garrett filed for Chapter 11 in September 2020. Honeywell recorded a $509 million non-cash reimbursement-receivable charge for 2020 and reported a $959 million year-end receivable. A proposed restructuring plan would provide specified cash and preferred-stock payments, but remained subject to bankruptcy-court confirmation; recoveries could differ from recorded amounts.
- Restructuring: 2020 repositioning and other charges were $575 million, including $475 million of severance associated with workforce reductions of approximately 14,159 positions. Cash spending on repositioning actions was $564 million.
- Environmental and asbestos obligations: Recorded environmental liabilities were $660 million and asbestos-related liabilities were $2.220 billion at year-end, partly offset by $402 million of asbestos insurance recoveries. The company estimated 2021 payments of approximately $225 million for environmental matters and $264 million net of insurance for asbestos matters.
- Other risks: The filing highlights pension sensitivity to discount rates and investment returns, cybersecurity and data privacy, international and foreign-exchange exposure, raw-material and supplier risks, regulatory changes, and litigation and government investigations. The auditor identified critical audit matters involving NARCO asbestos liabilities, PMT long-term contract revenue estimates, and Garrett reimbursement receivables.
Key facts for investors to verify
- Whether the Garrett plan was confirmed and how actual collections compare with the $959 million receivable recorded at year-end.
- The pace and breadth of recovery in commercial aviation and oil-and-gas markets, and whether PPE and warehouse automation strength is sustained.
- Whether backlog converts to revenue on the indicated schedule, including the expected 55% recognition in 2021.
- How higher debt, pension assumptions, restructuring spending, and asbestos and environmental payments affect cash generation and capital allocation.
- Whether the company’s stated liquidity sources and operating cash flow remain adequate under prolonged economic or supply-chain disruption.