Honeywell International Inc. — 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual filing, not a standalone fourth-quarter report. Honeywell is a diversified technology and manufacturing company operating through Aerospace, Honeywell Building Technologies, Performance Materials and Technologies, and Safety and Productivity Solutions.
Financial results and liquidity
| Metric | 2022 | 2021 |
|---|---|---|
| Net sales | $35.466 billion | $34.392 billion |
| Income before taxes | $6.379 billion | $7.235 billion |
| Net income attributable to Honeywell | $4.966 billion | $5.542 billion |
| Diluted EPS | $7.27 | $7.91 |
| Cash from operating activities | $5.274 billion | $6.038 billion |
| Capital expenditures | $766 million | $895 million |
| Total borrowings | $19.570 billion | $19.599 billion |
- Reported sales rose 3%; organic sales increased 6%, or 7% excluding sales lost following the Russia wind-down. Higher pricing offset lower volumes and unfavorable foreign currency translation.
- Gross margin increased 80 basis points to 32.8%. Segment profit was $7.689 billion, up from $7.212 billion; consolidated income nevertheless declined amid higher repositioning and other charges, pension mark-to-market expense, and lower pension income.
- Operating cash flow fell $764 million, principally because of working-capital outflows and lower net income. Cash and cash equivalents were $9.627 billion at year-end; cash, cash equivalents, and short-term investments totaled $10.1 billion.
- Current assets were $24.982 billion and current liabilities were $19.938 billion. Long-term debt was $15.123 billion; $2.717 billion of commercial paper and other short-term borrowings was also outstanding.
- Honeywell repurchased $4.2 billion of stock and paid $2.719 billion in dividends. The quarterly dividend was increased 5% to $1.03 per share beginning with the fourth-quarter 2022 dividend.
Material changes versus 2021
- Sales increased $1.074 billion, but net income attributable to Honeywell decreased $576 million and diluted EPS declined 8%.
- Segment results varied: Aerospace sales rose 7% and profit 6%; Building Technologies sales rose 8% and profit 16%; Performance Materials and Technologies sales rose 7% and profit 11%; Safety and Productivity Solutions sales fell 12% while profit rose 5%.
- Net repositioning and other charges increased to $1.266 billion from $569 million. The 2022 total included $532 million of asbestos-related charges, net of insurance and reimbursements, and $342 million of other charges, including Russia-related costs.
- Operating cash flow decreased to $5.274 billion from $6.038 billion, driven in part by working capital: accounts receivable increased and accounts payable declined.
- Honeywell realigned certain Safety and Productivity Solutions business units in July 2022 and recast historical periods to reflect the change.
Outlook, risks, contingencies, and unusual items
- Management described the 2023 macroeconomic environment as turbulent, citing inflation, supply-chain constraints, labor shortages, geopolitical tensions, and COVID-19 impacts in parts of Asia. It expects these pressures to continue into 2023 and described mitigation through pricing, supplier engagement, forecasting, and product redesign.
- Year-end backlog was $29.558 billion, up from $27.682 billion. Honeywell expects to recognize approximately 62% as revenue in 2023. The filing does not provide a clear consolidated 2023 sales or EPS guidance figure.
- Management expects approximately $1.0 billion of 2023 capital expenditures and believes operating cash flow, available cash, credit facilities, and market access will support operating needs and investment. It also expects to continue quarterly dividends.
- Honeywell suspended substantially all sales, distribution, and service activity in Russia and Belarus and is winding down its Russian operations. The filing reports $295 million of Russia-related charges in 2022; future obligations remain uncertain, though management said currently estimated potential losses would not be material to consolidated financial position.
- In January 2023, Honeywell paid $1.325 billion to complete the NARCO asbestos buyout, releasing it from future NARCO Trust obligations. It also expected to receive approximately $295 million related to the HWI sale. The filing says these payments and receipts were not expected to materially affect liquidity.
- A January 2023 payment of approximately $202.7 million resolved Petrobras and Unaoil investigations. UOP entered a three-year Deferred Prosecution Agreement and agreed to compliance measures and reporting; Honeywell had accrued $205 million at year-end.
- Other significant exposures include Bendix asbestos claims, environmental remediation, pension assumptions and asset returns, long-term contract cost estimates, cybersecurity, foreign exchange, and supply-chain and commodity risks. The auditor identified long-term contract revenue recognition and estimated contract costs as a critical audit matter.
Investor verification priorities
- Reconcile the $1.266 billion of repositioning and other charges, including Russia-related costs, asbestos-related items, and the NARCO/HWI accounting, to reported earnings and cash payments.
- Track conversion of the $29.558 billion backlog into revenue, particularly the expected 2023 portion, and monitor the continued effects of pricing, volume, currency, and supply constraints.
- Assess whether working-capital performance and operating cash flow recover, and compare capital returns and investment spending with cash generation.
- Review debt maturities, short-term borrowings, interest costs, and the post-year-end NARCO and UOP-related payments and HWI proceeds.
- Monitor remaining Russia obligations, Bendix asbestos and environmental liabilities, and compliance obligations arising from the Petrobras and Unaoil resolution.