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Honeywell Q3 Earnings In Line, Revs Miss

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Honeywell International Inc (HON - Free Report) reported third quarter 2013 net income of $990 million or $1.24 per share versus $950 million or $1.20 in the year-ago quarter. The reported earnings were in line with the Zacks Consensus Estimate.


Revenues in third quarter 2013 increased 3.0% year-over-year to $9,647 million. Total revenue missed the Zacks Consensus Estimate of $9,890 billion.

Energy, Safety and Security, and Turbo Technologies benefited in the reported quarter from improving end markets, new product introductions, and geographic expansion.
Operating margins expanded 130 bps year over year to 15.2% in the reported quarter. Productivity was impressive across the portfolio, enabling further segment margin expansion in all four businesses.

Segment Performance

Aerospace segment sales dipped 2% year over year to $2,973 million primarily due to a decline in the Defense and Space business, partially offset by Commercial Growth. However, segment profit increased 3% year over year to $602 million on the back of commercial excellence and superior productivity net of inflation, partially offset by lower aftermarket volumes in Defense and Space.

Margins rose 110 bps year over year to 20.2%.

Automation and Control Solutions segment sales were up 4% year over year to $4.1 billion in the reported quarter. The growth was driven primarily by new product launches, growth in energy, safety, and security, and the favorable impact of acquisitions.

Moreover, segment profit surged 11% to $631 million on the back of commercial excellence and superior productivity net of inflation. Margins for this segment also expanded 90 bps year over year to 15.3%.

Transportation Systems segment revenues of $916 million for the quarter increased 6% year over year due to rise in sales from platform launches, and advanced turbo gas penetrations in majority of region. However, decline in European light vehicle production volumes and lower off-highway sales in the U.S. partially hampered the growth.

In addition, segment profit reported growth of 23% year over year to $128 million mainly driven by strong productivity and volume leverage, partially offset by unfavorable pricing. Margins for this segment came in at 14.0%, up 190 bps year over year.

Performance Materials and Technologies segment sales increased 10% during the quarter to $1.6 billion due to acquisition of Thomas Russell, partially offset by challenging market conditions in Advanced Materials.

However, segment profit increased 11% to $305 million, driven by favorable margin impact of higher UOP licensing and productivity, partially offset by inflation and continued investments for growth. Margins in the segment increased 10 bps year over year to 18.7%.

Balance Sheet

Cash and cash equivalents at quarter-end was $5.5 billion as of Sep 30, 2013. Long-term debt at quarter-end was $5.8 billion.

Cash Flow

Cash flow from operating activities improved to $1,070 billion as of Sep 30, 2013 compared with $999 million in the year-ago quarter.


Honeywell provided sales guidance for 2013 in the range of $38.8- $39.0 billion versus its prior guidance of $38.9-$39.3 billion. Honeywell gave EPS guidance in the range of $4.90 to $4.95 versus its previous guidance of $4.85-$4.95. Operating margin is expected to be in the range of 14.7% - 14.8%. Free cash flow is expected to be approximately $3.7 billion.

Honeywell currently has a Zacks Rank #2 (Buy). Other stocks that look promising and are worth a look now are 3M Co. (MMM - Free Report) , carrying a Zacks Rank #1 (Strong Buy), and China Merchants Holdings (International) and Hutchison Whampoa Ltd , both carrying a Zacks Rank #2 (Buy).

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