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Honeywell International Inc.’s (HON - Analyst Report) reported third-quarter 2011 earnings results before the market opened today, reporting earnings per share from continuing operations of 77 cents, below the Zacks Consensus Estimateof 99 cents.

Total Revenue

Total revenue was $9.3 billion, an increase of 14% y/y. Organically, total revenue was up 8% year over year, led by strong performance in every market.  

The company reported a revenue increase in all its segments. 

Segment Performance

Aerospace segment sales climbed 8% year over year to $2.9 billion, led by increased Commercial original equipment sales and raised aftermarket volumes. This increase was partially offset by lower military and government services sales. An increased volume, favorable mix, and productivity net of inflation increased operating margin by 80 bps to 17.3% during the quarter. However, higher research and development costs partially affected the segment margin.  

Automation and Control Solutions segment sales increased by 14% year over year to $3.9 billion, led by high product volumes and Solution sales. The segment benefitted from good performance in the emerging market, introduction of new products and favorable macro trends. Sales in the quarter included 4% favorable impact from foreign currency. The segment’s operating profit increased 15% during the quarter.

Transportation System revenue of $960 million for the quarter, increased by 22% year over year as a result of increased global passenger and commercial vehicle Turbo volumes, new launches, and favorable impact from foreign exchange of 9%. Augmented sales volume and better productivity, increased the segment’s operating profit by 32%. This was, however, partially offset by material Inflation.

Specialty Materialsales increased by 25% during the quarter to $1.5 billion, led by good sales from UOP and development of catalysts and new product applications in Advanced Materials. Acquisition of the phenol plant also benefitted the segment revenue. The segemnt operating profit increased by 31%, benefitting from increased revenue, offset by inflation and unfavorable margin impact from the phenol plant acquisition.        

Income

The company incurred total SG&A expense of approximately $1.3 billion in the quarter versus approximately $1.1 billion in the third quarter of 2010. Net income of the company was $863 million compared with $596 million in the prior-year period.

Balance Sheet

Cash and cash equivalents were $3.9 billion with long-term debt of $6.9 billion and shareowner’s equity of $11.8 billion.

Free cash flow in the quarter was $884 million, excluding pension contributions of $400 million.

Outlook

The company’s result for the quarter is quite impressive as its performance gained momentum in all business segment. Led by good first-quarter 2011 performance and improving market condition, Honeywell increased its 2011 sales and earnings per share outlook.

Sales for the the year are expected to be in the range of $36.5 billion-$36.7 billion, up by approximately 13% over 2010. Sales expectations for 2011 excludes the divested CPG business. Earnings per share is expected to be in the range of $4.00-$4.05, up 33% to 35% over 2010. Free cash flow is expected to be about $3.5 billion. Free cash flow expectation excludes US pension contribution.

Honeywell’s short-cycle businesses as well as its commercial aerospace spares and residential and commercial retrofit businesses are performing impressively well and are expected to support future growth outlook of the company. The short-cycle businesses of the company, like Turbo Technologies, Advanced Materials and ACS Products, continues to perform well. The company’s long-cycle backlog continued to be at near record levels.

Based in Morris Township, N.J., Honeywell International Inc. is a Fortune 100 company providing technical and manufacturing support to customers worldwide with aerospace products and services; control technologies for buildings, homes and industry; automotive products; turbochargers; and specialty materials. The major competitors of Honeywell are BorgWarner Inc. (BWA - Analyst Report), United Technologies Corp. (UTX - Analyst Report) and Johnson Controls Inc. (JCI - Analyst Report).

We currently maintain our Neutral rating on Honeywell, with a Zacks #3 Rank (Hold recommendation) over the next one to three months.

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