Honeywell (NYSE: HON) will hold its annual investor conference in New York City today to outline its new five-year targets (2014-2018) and discuss its continued outperformance and growth strategy. The Company expects 2018 sales to increase organically $7-$12 billion to $46-$51 billion and segment margins to increase 220-370 bps over 2013 levels to 18.5-20.0%. The Company also expects to deliver on its previous five-year targets ending this year.
"Honeywell continues to outperform," said Honeywell Chairman and CEO Dave Cote. "The new five-year targets leverage our great portfolio of businesses, our disciplined process initiatives, and our innovation culture that learns, continues to evolve, and performs. With over 99% of the Company's sales coming from Great Positions in Good Industries - markets where we win with differentiated technology – we're well positioned for growth by deploying our Honeywell playbook and expanding our global footprint. This is an enviable position to be in."
The Company will also introduce the Honeywell User Experience (HUE), a new approach to the design and development of new products and services. HUE starts with the customer experience and deploys rapid prototyping and other design principles which enable faster cycle time and lead to increased customer value and loyalty. The Company will showcase examples of the exciting new HUE-enabled products that it is delivering to the marketplace.
"HUE is another tool for the Company to drive higher organic growth, leverage Honeywell's process enablers and build on the 'One Honeywell' culture. HUE makes Honeywell's products and services easier to use, more intuitive, more efficient, and more productive. As we continue to embed more software into our products and services and use software to improve our product development process, we also continue to expand our capabilities. With over 50% of Honeywell's engineers focused on software today, we're focused on the global achievement of CMMI (Capability Maturity Model Integration) Level 5 accreditation, which greatly improves the quality, efficiency, and repeatability of software development."
Over the next five years, Honeywell expects to continue to expand margins, grow earnings at a double-digit pace, and to nearly double free cash flow, which will provide additional firepower to fund global growth opportunities and support strong shareholder returns. The Company is seeking to deploy $10 billion plus to strategic acquisitions, expecting to add approximately $5-$8 billion of sales over the next 5 years, with the goal of taking total company sales over $50 billion by 2018.
"We will continue to be a strong cash generator and have a balanced cash deployment approach that includes strategic M&A, opportunistic share buybacks, and competitive dividends," continued Cote. "We will also invest in high-return Capex projects such as new production capacity for our Performance Materials and Technologies business to support customer demand, including orders we've already won. These investments, along with smart M&A, represent sources of upside as we deploy cash to drive growth in sales and earnings over the long term."
"We're very proud of what we've been able to accomplish and even more excited about where all the seed planting is going to take us," concluded Cote. "Our expansion in key high growth regions and ability to localize our capabilities is another great example of how we'll drive accelerated growth over the next 5 years. The maturity of our key process enablers - the Honeywell Operating System (HOS), Velocity Product Development™ (VPD™), Functional Transformation (FT), and now the Honeywell User Experience (HUE) - makes the 'machinery' work better every day, enabling growth and margin expansion well into the future.
"And, while we've done a great job driving operational performance and achieving a total shareowner return of 219% over the past 5 years, approximately 1.7x the S&P 500, we believe the best is still yet to come for Honeywell."
The Company reaffirms its first quarter 2014 EPS guidance of $1.23-1.27 and full-year 2014 guidance.