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Honeywell Outperforms Estimate

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Honeywell International Inc.’s (HON - Free Report) reported third-quarter 2012 earnings results before the market opened today. Earnings per share from continuing operations were $1.20 in the reported quarter, above the Zacks Consensus Estimate of $1.13. The company had a good quarter with its earnings increasing by 38% year over year. Impressively, the operating margins expanded by 360 bps.

Total Revenue

Total revenue was $9.3 billion, almost flat year over year. Organically the sales increased by 2%. The company’s long- and short-cycle businesses are performing very well. Further, new products and expansion of operations in new regions are also aiding revenue growth. All these positive factors were sufficient to offset the weakness in European market and weak performance of short cycle business in China and the U.S. Foreign exchange headwinds were also a problem faced by Honeywell.

The company reported a revenue increase in three of its four segments. 

Segment Performance

Aerospace segments also climbed 4% 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 were approximately flat year over year to $4.0 billion, led by growth in volume and favorable impact of acquisitions. The segment suffered from foreign currency headwinds.

Transportation System revenue of $863 million for the quarter, declined by 10% year over year due to lower European light vehicle production and aftermarket sales volume. 

Performance Materials and Technologies sales increased 1% during the quarter to $1.5 billion, led by good sales from UOP and licensing. The segment revenue was partially offset by unfavorable global end market conditions in Fluorine Products and Resins and Chemicals pricing and low demand in Asia and Europe for Specialty Products.


The company’s income from continuing operation was $686 million in the quarter versus approximately $946 million in the third quarter of 2011.  

Aerospace operating margin expanded 90 bps to 19.1% during the quarter; Automation and Control Solutions climbed 60 bps to 14.4%; Transportation System decreased 50 bps to 12.1% and Performance Materials and Technologies increased 130 bps to 18.6%.

Balance Sheet

Cash and cash equivalents were $4.7 billion with long-term debt of $6.3 billion and shareowners’ equity of $13.2 billion. Free cash flow in the quarter was $1.02 billion.

Moving Ahead

The company expects total revenue of $37.5 billion to $37.7 billion in 2012, up from the prior guidance of $37.8 billion to $38.4 billion. Honeywell guided earnings from continuing operations to be $4.45 to $4.50, up from the prior guidance of $4.40 to $4.55.

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, 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 - Free Report) , United Technologies Corp. (UTX - Free Report) and Johnson Controls Inc. (JCI - Free Report) .

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

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