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Honeywell International Inc. (HON - Analyst Report) reported second-quarter 2012 earnings per share from continuing operations of $1.14 a share, which was 2.7% above the Zacks Consensus Estimate. The company had a robust quarter with earnings increasing 14% year over year. Margins expanded by 70 bps.

Total Revenue

Total revenue for the quarter was $9.4 billion, an increase of 4% year over year. Sales growth in the U.S. and the emerging economies was a driving factor for the company, offsetting the weak performance of short cycle businesses in Europe. Longer cycle businesses were good performers, including commercial aerospace and UOP. Revenues were below the Zacks Consensus Estimate of $9.5 billion.

The company reported revenue growth in three of its four segments. 

Segment Performance

Aerospace segment sales grew 8% year over year to $3.0 billion, led by increased sales in commercial end markets. This increase was partially offset by Defense and Space sales.

Automation and Control Solutions segment sales increased 2% year over year to $4.0 billion, led by increased revenue from Process Solutions and Building Solutions, Distribution, Energy, Safety and Security all grew on organic basis.

Transportation System revenue of $900 million for the quarter, contracted 9% year over year due to lower European vehicle production and aftermarket sales volume. 

Performance Materials and Technologiessales increased 10% during the quarter to $1.6 billion, led by robust sales from UOP and licensing and service sales, the phenol plant acquisition and strong volumes in Resins & Chemicals. This was partially offset by decreased UOP catalyst sales primarily due to timing of deliveries and the impact of more challenging global end market conditions for Fluorine Products.

Income

The company’s income from continuing operations was $1.2 billion in the quarter versus $1.1 million in the first quarter of 2011 due to lower SG&A and decline in interest and financial charges. The operating margin expanded 85 basis points (bps) to 12.9% versus 12.1% in the prior year period.

Aerospace operating margin expanded a robust 260 bps to 18.6% during the quarter; Automation and Control Solutions grew 50 bps to 13.3% and Performance Materials and Technologies margin expanded 260 bps to 22.6%. However, the Transportation System margin contracted 30 bps to 12.7% year over year.

Balance Sheet

Cash and cash equivalents were $4.2 billion with long-term debt of $6.3 billion and shareowners’ equity of $12.1 billion. Net cash provided by operating activities during the quarter was $973 million.

Moving Ahead

Concurrent with the earning release, management raised its lower end of earnings guidance. Earnings from continuing operations are now expected in the range of $4.40 to $4.55 compared to its previous guidance of $4.35 to $4.55 a share.

The company revised its revenue guidance for fiscal 2012. Total revenue is now expected in the range of $37.8 billion to $38.4 billion compared to $38.0 billion to $38.6 billion stated earlier.

The company expects to continue its strong performance in 2012 and ahead, aided by strong hold in good industries and continuous effort to undertake new ventures. For further expansion, the company is focused on growth factors, such as investments in new products, technology demarcation, expansion in the emerging markets and initiatives in key processes.

Honeywell’s short-cycle businesses as well as its commercial aerospace spares and residential and commercial retrofit businesses are performing impressively and are expected to support the company’s future growth outlook.

However, a change in the U.S. government’s defense and aerospace funding could adversely impact sales of Aerospace’s defense and space-related products and services.

Based in Morris Township, New Jersey, Honeywell International Inc. provides 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).

Honeywell currently has a Zacks Rank of #3 which implies a short term Hold rating on the stock.

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