Honeywell Marginally Beats Estimates

Despite macroeconomic headwinds, Honeywell International Inc. ( HON - Analyst Report ) reported solid fourth quarter 2012 results with adjusted earnings of $1.10 per share compared to $1.05 in the year-ago quarter. The adjusted earnings for the reported quarter marginally beat the Zacks Consensus Estimate by a penny.

For full year 2012, the company reported adjusted earnings of $4.48 per share compared to $4.05 in the previous year. The adjusted earnings for the year were in sync with the Zacks Consensus Estimate.

Total revenue for fourth quarter 2012 increased 1% year over year to $9.6 billion, exceeding the Zacks Consensus Estimate of $9.5 billion. For full year 2012, sales increased 3% year over year to $37.7 billion as Honeywell continued to benefit from investments in new products and services. At the same time, the company strengthened its key processes, namely Honeywell Operating System, Velocity Product Development, and Functional Transformation to fuel its growth engine. The optimum mix of long- and short-cycle businesses and expansion in high-growth regions also helped to offset lower demand in some of the short-cycle businesses, foreign exchange headwinds, and continued softness in European markets. The company currently has a strong long-cycle order backlog of $15.8 billion.

Segment Performance

Aerospace segment sales dipped 1% year over year to $3.0 billion primarily due to a 6% decline in Defense and Space business. However, segment profit increased 5% year over year to $601 million on the back of commercial excellence and superior productivity net of inflation.

Automation and Control Solutions segment sales were $4.2 billion in the reported quarter, representing a 3% year over year growth, mostly led by volume increase and accretive acquisitions. Segment profit surged 10% to $645 million on the back of commercial excellence and superior productivity net of inflation.

Transportation Systems segment revenue of $844 million for the quarter declined 11% year over year due to lower European light vehicle production and aftermarket sales volume. In addition, segment profit plummeted 20% year over year to $94 million primarily driven by lower sales volumes and price and adverse foreign translation effects.

Performance Materials and Technologies segment sales increased 8% during the quarter to $1.5 billion due to accretive acquisition. However, segment profit decreased 6% to $210 million due to unfavorable price spread in Resins and Chemicals and continued challenging end-market conditions.

Balance Sheet

Cash and cash equivalents were $4.6 billion at year-end 2012 compared to $3.7 billion in the prior-year period. Long-term debt improved marginally to $6.4 billion from $6.9 billion in 2011.

Outlook

With strong quarterly and full year results, Honeywell has reiterated its earnings and revenue guidance for full year 2013. The company expects total revenue of $39.0 billion to $39.5 billion in 2013. Earnings are expected to be in the range of $4.75 to $4.95 per share.

We remain encouraged by the steady performance of the company in the quarter. However, Honeywell needs to be wary of tough competition from its rivals such as Johnson Controls Inc. ( JCI - Analyst Report ) , BorgWarner Inc. ( BWA - Analyst Report ) , and United Technologies Corp. ( UTX - Analyst Report ) . Honeywell currently has a Zacks Rank #3 (Hold).