DBRS Confirms Honeywell International Inc. at “A” and R-1 (low) with Stable Trends

DBRS Limited (DBRS) confirmed the Issuer Rating and the 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 with Stable trends. The confirmation reflects that the Company’s overall credit profile remains commensurate with the current ratings. Honeywell reported improving operating results in 2018 through the first half of 2019 despite worsening global economic conditions, primarily due to the concerns about the trade dispute between China and the United States. DBRS anticipates Honeywell will maintain the positive trend in earnings because of the strength and diversity (products and geographies) of its businesses and its track record in improving productivity despite headwinds in the global economy. DBRS also expects the Company’s ratings will remain Stable in the foreseeable future.

Honeywell spun off its Transportation System (Transportation) and Home and Global Distribution (Distribution) businesses in October 2018 as planned (the Spin-Offs). As noted in the previous rating report by DBRS, dated August 10, 2018, the Spin-Offs do not have a meaningful impact on the Company’s business profile which remains strong and within the “A” rating range. The Company is making progress in transforming itself into a premier software-industrial company. DBRS notes that Honeywell’s focus on software and growing recurring sales, such as in the services and aftermarket businesses, will help lower cyclicality and increase earnings visibility. Additionally, benefits from the Company’s digitization and supply chain initiatives will boost profit margins. Progress in these programs will further strengthen the Company’s business profile.

Honeywell has been successfully managing the headwinds in the global economy caused by the uncertainty of the ongoing China-United States trade talk and the related tit-for-tat tariffs actions. Honeywell reported stronger operating results in 2018 versus 2017; the same for the first half of 2019 over the same prior period after excluding the results of the Spin-Offs. The Company expects the positive momentum to continue in the second half of 2019. Currently, DBRS still anticipates a trade agreement between China and the United States no later than Q1 2020. Under this scenario, DBRS expects Honeywell to continue to generate stronger earnings and cash flow, and for all key financial metrics to strengthen modestly.

DBRS notes that positive rating actions are not expected unless the Company’s financial risk metrics strengthen substantially to the AA rating range on a sustained basis. However, a meaningful deterioration in the Company’s financial metrics for an extended period, from either a sharp increase in debt to fund acquisitions/shareholder-friendly actions and/or a sharp decline in operating results, although both are not expected at this time, may lead to negative rating actions.

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

The principal methodology is Rating Companies in the Industrial Products Industry, which can be found on dbrs.com under Methodologies & Criteria.

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 or its related entities 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.

DBRS will publish a full report shortly that will provide addi¬tional analytical detail on this rating action. If you are interested in receiving this report, contact us at info@dbrs.com.

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