DBRS Confirms Long-Term Ratings of Honeywell International Inc. at “A” with Stable Trend, Confirms Short Term Rating at R-1 (low), Stable

DBRS Limited (DBRS) confirmed the Issuer Rating and Senior Unsecured Debt rating of Honeywell International Inc. (Honeywell or the Company) at “A” and Honeywell’s Short-Term Debt rating at R-1 (low). All trends remain Stable. The confirmation reflects that the Company’s business strengths continue to compensate for the weaker coverage metrics.

The Company has a strong business profile, with a diversified portfolio of market-leading businesses with good growth potential. Additionally, Honeywell continues to strengthen its businesses by improving their competitiveness with innovations and productivity gains. After the completion of an internal review, Honeywell announced in October 2017 that it would narrow its portfolio of businesses and spin off its Home and Global Distribution (HBI) and Transportation Systems (TS) businesses. The remaining businesses focus on six attractive industrial end markets that offer high growth opportunities and are better positioned to benefit from favourable global market mega-trends and in-house technological expertise and capabilities. Moreover, these businesses will benefit from more focused actions and lesser competition for available capital resources. Going forward, Honeywell also wants to increase its “connected” product offerings. DBRS notes that spinning off HBI and TP will not have a meaningful impact on Honeywell’s business profile and, if successfully executed, the strategic refocusing of its business portfolio and its transformation into a leading software industrial company will strengthen its business profile.

Honeywell reported solid operating results in 2017 through H1 2018, exceeding DBRS’s expectations. However, the debt coverage metrics (as defined by DBRS), although strengthened, remains at the low end of the current rating range. Honeywell’s aggressive capital deployment program (acquisition, dividend and share repurchase) led to a rise in gross debt and limited the coverage metrics’ improvement. The spin-off of HBI and TS will lead to lower sales and earnings beyond 2018. Nevertheless, Honeywell has committed to reduce debt and maintain its credit metric at a level compatible with the current ratings. DBRS notes that Honeywell has significant cash resources to fund meaningful debt reduction, and lost earnings from the spin-offs will be partially offset by earnings growth from the remaining businesses. Hence, DBRS anticipates the coverage metrics to weaken modestly post-spin-off and to recover through 2019, with its financial profile remaining in a range acceptable for the current rating range.

DBRS expects Honeywell’s remaining businesses to maintain their positive operating momentum and the current rating to remain stable in the medium term. Positive actions on the ratings are not likely unless the Company’s coverage metrics improve substantially to the AA rating range on a sustained basis. Honeywell has done a good job in managing its businesses and has not been affected by current trade actions between the United States and its key trading partners, China in particular. However, a meaningful deterioration of the Company’s credit metrics for an extended period, from either a sharp increase in debt to fund acquisitions/shareholder-friendly actions or a sharp deterioration in operating results from further escalation of trade actions, may lead to negative rating actions.

DBRS notes that the above press release was amended on November 20, 2018, to remove an unnecessary disclosure. The amendment was minor and would not impact the understanding of the reader.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is Rating Companies in the Industrial Products Industry (February 2018), which can be found on dbrs.com under Methodologies.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at info@dbrs.com.

The rated entity did participate in the rating process for this rating action. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

This rating is no longer endorsed by DBRS Ratings Limited for use in the European Union.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.