Honeywell has announced the results of its portfolio review, including its intention to separately spin off its Homes product portfolio and ADI global distribution business, as well as its Transportation Systems business, into two stand-alone, publicly-traded companies. The planned separation transactions are intended to be tax-free spins to Honeywell shareowners for U.S. federal income tax purposes and are expected to be complete by the end of 2018.
“Today’s announcement marks the culmination of a rigorous portfolio review involving a detailed assessment of every Honeywell business. As part of that review, we analyzed numerous criteria, including growth outlook, financial performance, market dynamics, potential for disruption and, most importantly, assessment of fit as a Honeywell business,” said Honeywell President and CEO Darius Adamczyk.
“The remaining Honeywell portfolio will consist of high-growth businesses in six attractive industrial end-markets, each aligned to global megatrends including energy efficiency, infrastructure investment, urbanization and safety. These businesses are best positioned to leverage Honeywell synergies from our technologies, financial and business models and talent. Our simplified portfolio will offer multiple platforms for organic growth and margin expansion through further deployment of our world-class HOS Gold operating system and the Honeywell Sentience Platform. Honeywell will also have multiple levers for continuing to execute an aggressive capital deployment strategy, including a vigorous and disciplined M&A program.
“The spun businesses will be better positioned to maximize shareowner value through focused strategic decision-making and capital allocation tailored for their end-markets,” said Adamczyk. “At Honeywell, we will continue our track record of execution, delivering growth, margin expansion and aggressive capital allocation for our shareowners.”
The new Homes and Global Distribution business will aim to be a leader in the home heating, ventilation and air conditioning (HVAC) controls and security markets, and a leading global distributor of security and fire protection products. The business is expected to have annualized revenue of approximately $4.5 billion, a high-yield credit rating, approximately 13,000 employees and financial responsibility for certain Honeywell legacy liabilities.
The new Transportation Systems business also will be a global leader in turbocharger technologies with best-in-class engineering capabilities for a broad range of engine types across global automobile, truck and other vehicle markets. The business is expected to have annualized revenue of approximately $3 billion, a high-yield credit rating, approximately 6,500 employees and financial responsibility for Honeywell legacy automotive segment liabilities in an amount equal to its Bendix legacy asbestos liability.
The planned separations will not require a shareowner vote. Each spin-off will be subject to finalization of the contours of the spun-off business, assurance that the separation will be tax-free to Honeywell shareowners for U.S. federal income tax purposes, finalization of the capital structure of the three corporations, the effectiveness of appropriate filings with the U.S. Securities and Exchange Commission, final approval of the Honeywell board of directors and other customary matters.
Company Previews Anticipated Strong Third-Quarter Results; Raises Low-End of Full-Year Guidance
Honeywell announced it anticipates strong third-quarter results. Sales are expected to be $10.1 billion, up 3 percent reported and up 5 percent organic, and earnings per share is expected to be $1.75, up 9 percent reported and up 16 percent* ex-divestitures, normalized for tax at 26 percent, driven by strong results at its Aerospace and Performance Materials and Technologies business groups. The company also raised the low-end of its full-year 2017 earnings per share guidance by 5 cents to a new range of $7.05 to $7.10, excluding any pension mark-to-market adjustment.
* Earnings per share variance excludes 2016 divestitures and approximately $60 million of additional third quarter 2017 restructuring funding enabled by a lower than planned effective tax rate, normalized for tax at 26 percent.