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Despite macroeconomic headwinds, Honeywell International Inc. (HON - Analyst Report) reported solid first quarter 2013 results with earnings of $966 million or $1.21 per share compared to $825 million or $1.04 in the year-ago quarter, representing a growth of 16% on a per share basis. The earnings for the reported quarter comprehensively beat the Zacks Consensus Estimate by 7 cents.


Total revenue for first quarter 2013 was comparatively flat year over year at $9.3 billion due to the continued macroeconomic challenges, Total revenues failed to beat the Zacks Consensus Estimate of $9.4 billion. Almost all the segments, except Performance Materials and Technologies segment reported a decline in sales.

Operating margins expanded 120 bps year over year.

Honeywell continued to benefit from investments in new products and services like turbo gas launches in North America and China. Also, the optimum mix of long- and short-cycle businesses was the key driver for the growth.

Segment Performance

Aerospacesegment sales dipped 1% year over year to $2.91 billion, primarily due to a decline in the Commercial, Defense and Space business. However, segment profit increased 3% year over year to $551 million on the back of commercial excellence and superior productivity net of inflation, partially offset by lower aftermarket volumes.

Margins in this segment came in at 18.9%, up 80 bps from year over year.

Automation and Control Solutions segment sales were flat year over year at $3.79 billion in the reported quarter, as the rise in Energy, Safety, Security business was partially offset by lower sales in Process Solutions and Business Solutions. However, segment profit surged 7% to $523 million on the back of commercial excellence and superior productivity net of inflation. Margins for this segment also expanded 80bps year-over-year and was reported at 21.8%.

Transportation Systems segment revenue of $914 million for the quarter declined 4% year over year due to 10% lower European light vehicle production and aftermarket sales volume, partially offset by rise in sales from new platform launches, like turbo gas launches in North America and China.

In addition, segment profit plummeted 8% year over year to $111 million, primarily driven by lower sales volumes and the expenses related to continuing projects to improve operational efficiency in the Friction Materials business, partially offset by production benefits. Margins for this segment came in at 12.1%, down 50bps year over year.

Performance Materials and Technologies segment sales increased 6% during the quarter to $1.7 billion due to the acquisition of Thomas Russell, higher petrochemical catalyst shipments and higher equipment sales in UOP, partially offset by premeditated plant outages in Resins & Chemical and Fluorine Products.

Segment profit increased by a healthy 17% to $374 million, due to higher revenue at UOP and favorable price net of inflation, partially offset by lower volume in Advanced Materials. Margins in the segment expanded 200 bps year over year.

Balance Sheet

Cash and cash equivalents at quarter-end was $4.54 billion. Long-term debt till the first quarter of 2013 was reported at $5.79 billion.

Cash Flow

Cash flow from operating activities improved significantly to $341 million compared with $196 million in the year-ago quarter.


With strong growth in the first quarter earnings, Honeywell has revised the low-end of earnings guidance for full year 2013 by five cents from $4.75-$4.95 per share to $4.80 to $4.95.However, it has revised it sales guidance for the full-year downwards to $38.8 - $39.3 billion compared with the prior guidance of $39.0 - $39.5 billion.

We remain encouraged by management’s continued effort to launch new products and technologies and expand its business in new geographical regions. Honeywell currently has a Zacks Rank #2 (Buy).

Some of the other stocks worth looking at within the sector are China Merchants Holdings (CMHHY), with a Zacks Rank #1(Strong Buy), Carlisle Companies Inc. (CSL - Snapshot Report), Crane Co. (CR - Snapshot Report), carrying a Zacks Rank #2 (Buy) each.

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