DBRS Morningstar Confirms Honeywell International Inc. Credit Ratings at “A,” Stable Trends

DBRS Limited (DBRS Morningstar) confirmed the Issuer Rating and Senior Unsecured Debt rating of Honeywell International Inc. (Honeywell or the Company) at “A” with Stable trends. DBRS Morningstar has also discontinued and withdrawn Honeywell’s Short-Term Debt rating. DBRS Morningstar notes that the discontinuation does not reflect any change in DBRS Morningstar’s view of Honeywell’s credit quality. The credit rating confirmations reflect the continued strengthening of Honeywell’s financial risk profile and key credit metrics within the context of the Company’s “A” credit rating, primarily driven by solid earnings growth over the past 12 months. The Stable trends reflect DBRS Morningstar’s expectations of continued sound operating performance and the Company’s balanced capital management practices. The credit ratings remain underpinned by the Company’s solid market position, technological expertise, efficient operations, and a diversified portfolio of products and geographical markets, while also taking into account exposure to more volatile emerging markets and more cyclical end markets.

Looking ahead, DBRS Morningstar expects top-line growth to remain strong with revenues increasing to comfortably above $36.5 billion in 2023 and above $38.0 billion in 2024 from $35.5 billion in 2022. Revenue growth will continue to come from Aerospace (Aero), Honeywell Building Technologies (HBT), and Performance Materials and Technologies (PMT) segments with the Safety and Productivity Solutions (SPS) segment also primed for future growth. Demand remains strong for long cycle businesses like commercial aerospace, process solutions, universal oil products (UOP), and building products businesses. In particular, aerospace and process solutions should continue to reflect a growing backlog and add to long-term growth in the form of an increased installed base. While Warehouse automation, part of the SPS segment, is currently reflecting near-term weakness in demand, secular trends toward increasing automation, coupled with the Company’s ongoing investments, should be setting SPS up for growth beyond 2023. In line with revenue growth, EBITDA also is likely to rise close to $9.0 billion by 2024 compared with $7.6 billion in 2022.

In terms of financial profile, operating cash flow should track EBITDA growth, and be above $6.5 billion in 2023 and 2024, versus $6.0 billion in 2022. In terms of capital deployment, focus will remain on high-return capital expenditures, acquisitions, and returns to shareholders. Capital expenditures are likely to increase to above $900 million in 2023 and 2024, from $766 million in 2022. Dividends are expected to continue to grow toward $3.0 billion in 2023 and 2024. Acquisitions are likely to be more opportunistic and in line with the Company’s growth priorities in Aerospace, Energy Transition, and Automation space. DBRS Morningstar anticipates the Company will use any remaining free cash flow with potentially incremental debt for shareholder remuneration. Regardless, Honeywell’s credit metrics are expected to remain well placed for the Company’s current A rating (i.e. debt-to-EBITDA below 3.25x balanced by the relatively stronger level of cash flow to debt above 25% and EBITDA Interest Coverage above 10.0x).

Although highly unlikely in the near term, should Honeywell’s business risk profile and/or credit metrics meaningfully deteriorate for a prolonged period because of weaker-than-expected operating performance and/or a more aggressive capital allocation policy, the credit ratings could be pressured. Conversely, any positive credit rating action would require an improvement in the Company’s business risk profile and key credit metrics (i.e. debt-to-EBITDA leverage improving to below 2.25x and/or cash flow to debt increasing to above 30% with EBITDA Interest Coverage remaining above 10.0x, on a normalized and sustained basis).

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factor(s) that had a significant or relevant effect on the credit analysis.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/416784/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings (July 4, 2023).

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

DBRS Morningstar applied the following principal methodology:
-- Global Methodology for Rating Companies in the Industrial Products Industry (February 14, 2023) https://www.dbrsmorningstar.com/research/409775/global-methodology-for-rating-companies-in-the-industrial-products-industry.

The credit rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

A description of how DBRS Morningstar analyzes corporate finance transactions and how the methodologies are collectively applied can be found at: https://www.dbrsmorningstar.com/research/397223.

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 [email protected].

The credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

DBRS Morningstar had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

This credit rating was disclosed to the issuer, Honeywell International Inc., and amended following that disclosure before being assigned.

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar trends and credit ratings are under regular surveillance.

Information regarding DBRS Morningstar credit ratings, including definitions, policies, and methodologies, is available on www.dbrsmorningstar.com or contact us at [email protected].

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577