HONEYWELL INTERNATIONAL INC (HON) FY 2022 MD&A
This page reproduces the company's own Item 7 MD&A text from the linked SEC filing. It is filer text, not grepcent analysis, scoring, or investment advice.
RESULTS OF OPERATIONS
Consolidated Financial Results
Net Sales by Segment
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Segment Profit by Segment
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CONSOLIDATED OPERATING RESULTS
Net Sales
The change in net sales was attributable to the following:
| 2022 Versus 2021 | 2021 Versus 2020 | |||
|---|---|---|---|---|
| Volume | (4) | % | 1 | % |
| Price | 10 | % | 3 | % |
| Foreign currency translation | (3) | % | 1 | % |
| Acquisitions, divestitures, and other, net | — | % | — | % |
| Total % change in Net sales | 3 | % | 5 | % |
2022 compared with 2021
A discussion of net sales by reportable business segment can be found in the Review of Business Segments section of this Management Discussion and Analysis.
Net sales increased due to the following:
•Increased pricing,
•Partially offset by lower sales volumes, and
•The unfavorable impact of foreign currency translation, driven by the strengthening of the U.S. Dollar against the currencies of the majority of our international markets, primarily the Euro, British Pound, Turkish Lira, Chinese Renminbi, and Australian Dollar.
Reconciliation of Reported Sales % Change to Organic Sales % Change and Organic Sales % Change Excluding Lost Russian Sales
| 2022 Versus 2021 | 2021 Versus 2020 | |||
|---|---|---|---|---|
| Total Reported % change in Net sales | 3 | % | 5 | % |
| Less: Foreign currency translation | (3) | % | 1 | % |
| Less: Acquisitions, divestitures, and other, net | — | % | — | % |
| Total Organic(1) % change in Net sales | 6 | % | 4 | % |
| Less: Sales decline attributable to lost Russian sales(2) | (1) | % | — | % |
| Total Organic % change excluding lost Russian sales | 7 | % | 4 | % |
(1) Organic sales % change, presented for all of our reportable business segments, is defined as the change in net sales, excluding the impact on sales from foreign currency translation and acquisitions, net of divestitures, for the first 12 months following the transaction date. We believe this non-GAAP measure is useful to investors and management in understanding the ongoing operations and analysis of ongoing operating trends.
(2) Lost Russian sales is defined as the year-over-year decline in sales due to the decision to wind down our businesses and operations in Russia. This does not reflect management’s estimate of 2022 Russian sales absent the decision to wind down our businesses and operations in Russia.
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Cost of Products and Services Sold
2022 compared with 2021
Cost of products and services sold increased in 2022 primarily due to the following:
•Higher direct and indirect material costs and higher labor costs of approximately $1.4 billion or 6%,
•Partially offset by lower sales volumes of approximately $1 billion or 4%.
Gross Margin
2022 compared with 2021
Gross margin increased by approximately $0.6 billion and gross margin percentage increased 80 basis points to 32.8% compared to 32.0% for the same period of 2021.
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Selling, General and Administrative Expenses
2022 compared with 2021
Selling, general and administrative expenses increased primarily due to the following:
•Higher repositioning and other costs of approximately $0.2 billion or 4%, including charges and accrual of reserves directly attributable to the initial Suspension and Wind down of businesses and operations in Russia, and
•Higher labor costs of $0.1 billion or 2%.
Other (Income) Expense
| 2022 | 2021 | 2020 | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Other (income) expense | $ | (366) | $ | (1,378) | $ | (675) |
2022 compared with 2021
Other income decreased primarily due to the following:
•Lower pension and other postretirement income of approximately $0.6 billion, and
•Net expenses related to the NARCO Buyout and HWI Sale of approximately $0.3 billion.
For additional information regarding the NARCO Buyout and HWI Sale, see Note 19 Commitments and Contingencies of Notes to Consolidated Financial Statements.
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Tax Expense
2022 compared with U.S. Statutory Rate
The effective tax rate for 2022 was higher than the U.S. federal statutory rate of 21% primarily due to the following:
•Tax expense from restructuring, incremental tax reserves, and state taxes, representing a 320 basis-point increase,
•Offset by benefits received from employee share-based payments and tax credits, representing a 210 basis-point decrease.
For further discussion of changes in the effective tax rate, see Note 5 Income Taxes of Notes to Consolidated Financial Statements.
Net Income Attributable to Honeywell
2022 compared with 2021
Earnings per share of common stock–assuming dilution decreased primarily due to the following:
•Higher repositioning and other charges, including charges and accrual of reserves directly attributable to the initial Suspension and Wind down of businesses and operations in Russia and net charges for the NARCO Buyout and HWI Sale, impacted earnings per share by $0.86 after tax, and
•Higher pension mark-to-market expense and lower pension income impacted earnings per share by $0.69 after tax,
•Partially offset by higher segment profit from our reportable business segments impacted earnings per share by $0.53 after tax.
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TABLE OF CONTENTS
REVIEW OF BUSINESS SEGMENTS
We globally manage our business operations through four reportable business segments: Aerospace, Honeywell Building Technologies, Performance Materials and Technologies, and Safety and Productivity Solutions.
AEROSPACE
Net Sales
| 2022 | 2021 | Change2022vs.2021 | 2020 | Change2021vs.2020 | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Net sales | $ | 11,827 | $ | 11,026 | 7 | % | $ | 11,544 | (4) | % | ||||||||
| Cost of products and services sold | 7,747 | 7,191 | 7,813 | |||||||||||||||
| Selling, general and administrative and other expenses | 852 | 784 | 827 | |||||||||||||||
| Segment profit | $ | 3,228 | $ | 3,051 | 6 | % | $ | 2,904 | 5 | % |
| Factors Contributing to Year-Over-Year Change | 2022 vs. 2021 | 2021 vs. 2020 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Net Sales | Segment Profit | Net Sales | Segment Profit | ||||||||||
| Organic | 8 | % | 6 | % | (5) | % | 4 | % | |||||
| Foreign currency translation | (1) | % | — | % | 1 | % | — | % | |||||
| Acquisitions, divestitures, and other, net | — | % | — | % | — | % | 1 | % | |||||
| Total % Change | 7 | % | 6 | % | (4) | % | 5 | % |
2022 compared with 2021
Sales increased $801 million led by organic sales growth of $967 million in Commercial Aviation Aftermarket and $379 million in Commercial Aviation Original Equipment driven by higher sales volumes in air transport and business aviation, partially offset by a decline in organic sales of $491 million in Defense and Space primarily due to supply chain constraints and the overall unfavorable impact of foreign currency translation of $54 million.
Segment profit increased $177 million and segment margin percentage decreased 40 basis points to 27.3% compared to 27.7% for the same period of 2021.
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HONEYWELL BUILDING TECHNOLOGIES
Net Sales
| 2022 | 2021 | Change2022vs.2021 | 2020 | Change2021vs.2020 | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Net sales | $ | 6,000 | $ | 5,539 | 8 | % | $ | 5,189 | 7 | % | ||||||||
| Cost of products and services sold | 3,505 | 3,242 | 3,067 | |||||||||||||||
| Selling, general and administrative and other expenses | 1,056 | 1,059 | 1,023 | |||||||||||||||
| Segment profit | $ | 1,439 | $ | 1,238 | 16 | % | $ | 1,099 | 13 | % |
| Factors Contributing to Year-Over-Year Change | 2022 vs. 2021 | 2021 vs. 2020 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Net Sales | Segment Profit | Net Sales | Segment Profit | ||||||||||
| Organic | 14 | % | 23 | % | 4 | % | 11 | % | |||||
| Foreign currency translation | (6) | % | (7) | % | 3 | % | 3 | % | |||||
| Acquisitions, divestitures, and other, net | — | % | — | % | — | % | (1) | % | |||||
| Total % Change | 8 | % | 16 | % | 7 | % | 13 | % |
2022 compared with 2021
Sales increased $461 million led by organic sales growth of $627 million in Products and $152 million in Building Solutions primarily due to increased pricing, partially offset by the unfavorable impact of foreign currency translation of $346 million.
Segment profit increased $201 million and segment margin percentage increased 160 basis points to 24.0% compared to 22.4% for the same period of 2021.
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PERFORMANCE MATERIALS AND TECHNOLOGIES
Net Sales
| 2022 | 2021 | Change2022vs.2021 | 2020 | Change2021vs.2020 | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Net sales | $ | 10,727 | $ | 10,013 | 7 | % | $ | 9,423 | 6 | % | ||||||||
| Cost of products and services sold | 7,003 | 6,637 | 6,331 | |||||||||||||||
| Selling, general and administrative and other expenses | 1,370 | 1,256 | 1,241 | |||||||||||||||
| Segment profit | $ | 2,354 | $ | 2,120 | 11 | % | $ | 1,851 | 15 | % |
| Factors Contributing to Year-Over-Year Change | 2022 vs. 2021 | 2021 vs. 2020 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Net Sales | Segment Profit | Net Sales | Segment Profit | ||||||||||
| Organic | 11 | % | 15 | % | 3 | % | 14 | % | |||||
| Foreign currency translation | (4) | % | (4) | % | 2 | % | 2 | % | |||||
| Acquisitions, divestitures, and other, net | — | % | — | % | 1 | % | (1) | % | |||||
| Total % Change | 7 | % | 11 | % | 6 | % | 15 | % |
2022 compared with 2021
Sales increased $714 million led by organic sales growth of $684 million in Advanced Materials and $366 million in Process Solutions primarily due to increased pricing, partially offset by the unfavorable impact of foreign currency translation of $420 million. Compared to the same period of 2021, in 2022, sales volumes decreased in Process Solutions by $171 million and in UOP by $164 million due to the Russia-Ukraine conflict.
Segment profit increased $234 million and segment margin percentage increased 70 basis points to 21.9% compared to 21.2% for the same period of 2021.
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SAFETY AND PRODUCTIVITY SOLUTIONS
Net Sales
| 2022 | 2021 | Change2022vs.2021 | 2020 | Change2021vs.2020 | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Net sales | $ | 6,907 | $ | 7,814 | (12) | % | $ | 6,481 | 21 | % | ||||||||
| Cost of products and services sold | 4,779 | 5,738 | 4,532 | |||||||||||||||
| Selling, general and administrative and other expenses | 1,048 | 1,047 | 1,042 | |||||||||||||||
| Segment profit | $ | 1,080 | $ | 1,029 | 5 | % | $ | 907 | 13 | % |
| Factors Contributing to Year-Over-Year Change | 2022 vs. 2021 | 2021 vs. 2020 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Net Sales | Segment Profit | Net Sales | Segment Profit | ||||||||||
| Organic | (9) | % | 9 | % | 22 | % | 14 | % | |||||
| Foreign currency translation | (3) | % | (3) | % | 2 | % | 2 | % | |||||
| Acquisitions, divestitures, and other, net | — | % | (1) | % | (3) | % | (3) | % | |||||
| Total % Change | (12) | % | 5 | % | 21 | % | 13 | % |
2022 compared with 2021
Sales decreased $907 million primarily due to lower organic sales of $587 million in Warehouse and Workflow Solutions driven by lower demand for projects, lower organic sales of $152 million in Sensing and Safety Technologies driven by lower demand for personal protective equipment, and the unfavorable impact of foreign currency translation of $195 million.
Segment profit increased $51 million and segment margin percentage increased 240 basis points to 15.6% compared to 13.2% for the same period in 2021.
During the second quarter of 2022, our Productivity Solutions and Services business entered into a license and settlement agreement (the Agreement). Under the Agreement, we will receive up to $360 million, paid in equal quarterly installments over eight quarters, beginning with the second quarter of 2022. The Agreement provides each party a license to its existing patent portfolio for use by the other party’s existing products and resolves all patent-related litigation between the parties.
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CORPORATE AND ALL OTHER
Corporate and All Other primarily includes unallocated corporate costs, interest expense on holding-company debt, and the controlling majority-owned interest in Quantinuum. Corporate and All Other is not a separate reportable business segment as segment reporting criteria is not met for the activities reported with Corporate and All Other and the Company does not believe the results of operations are meaningful to investors. The Company continues to monitor the activities in Corporate and All Other to determine the need for further reportable business segment disaggregation.
REPOSITIONING CHARGES
See Note 4 Repositioning and Other Charges of Notes to Consolidated Financial Statements for a discussion of our repositioning actions and related charges incurred in 2022, 2021, and 2020. We recognized higher Total net repositioning and other charges in 2022 compared to 2021 due to the recognition of Asbestos-related charges, net of insurance and reimbursements related to the North American Refractory Company (NARCO) Buyout and HarbisonWalker International Holdings, Inc. (HWI) Sale, and Other charges related to the initial Suspension and Wind down of our business and operations in Russia. Cash spending related to our repositioning actions was $275 million, $382 million, and $564 million in 2022, 2021, and 2020, respectively, and was funded through operating cash flows.
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TABLE OF CONTENTS