Bloomberg News

Honeywell Jumps Most in 17 Months After Raising Forecast

October 21, 2011

(Updates with CFO comment in the 12th paragraph.)

Oct. 21 (Bloomberg) -- Honeywell International Inc. jumped the most in 17 months after raising its full-year forecast amid a recovery in commercial aerospace and increasing sales of auto turbochargers.

Honeywell, based in Morris Township, New Jersey, rose 5.8 percent to $51.28 at the close in New York, the biggest gain since May 10, 2010. The stock had dropped 8.8 percent this year before today.

Aerospace sales gained 8 percent in the third quarter as commercial equipment offset declining military and government services sales, the company said. Honeywell, also the maker of chemicals and fire systems, joined U.S. manufacturers United Technologies Corp. and Parker Hannifin Corp. in raising forecasts this week.

“We’re well-positioned for growth across all four of our business segments again next year,” Honeywell Chief Executive Officer David Cote said today during a conference call with analysts. “While we’re not denying the potential for another recession, we think the high probability outcome is a slow- growth economic environment.”

Earnings for 2011 will rise to $4 to $4.05 a share, up as much as 35 percent from 2010, the company said in a statement. Analysts projected $3.95 on average, and Honeywell earlier predicted $3.85 to $4 a share.

The company also increased the low end of its full-year sales forecast, now $36.5 billion to $36.7 billion, compared with a previous minimum of $36.1 billion.

44% Profit Gain

Third-quarter net income rose 44 percent to $862 million, or $1.10 a share, from $598 million, or 76 cents, a year earlier, Honeywell said. Sales increased 14 percent to $9.3 billion.

The aerospace profit margin advanced 120 basis point to 18.2 percent from a year earlier, Honeywell said.

Honeywell “delivered on the big Aerospace incremental margin improvement, which is a positive following the disappointment around this issue” in the second quarter, Julian Mitchell, an analyst with Credit Suisse Group AG in New York, wrote in a report today. He has a “neutral” recommendation on the stock.

The U.S. economy is forecast to expand 1.7 percent this year, according to the median of 82 economists’ estimates, down from 3 percent growth last year.

Slowing Economy

Honeywell and other U.S. manufacturers have posted rising earnings this year amid a slowing economy by keeping costs in check and expanding abroad.

The company expects earnings to expand at a rate two to three times greater than sales growth next year, Cote said on the call.

Honeywell will achieve that earnings growth even in a “sub-par GDP growth environment,” said Chief Financial Officer David Anderson.

“We’ve got a relatively robust aerospace, both original equipment and after-market environment,” Anderson said in a telephone interview today. “We’ve got the benefit of continued growth, albeit more spotty and more challenging, in the emerging regions.”

The company also will gain from a large backlog of projects for the refining and petrochemical industries, Anderson said. Honeywell sees savings of about $150 million in 2012 from repositioning its operations, giving the investment in the restructuring a return of more than 60 percent, he said.

Honeywell’s earnings included a gain of 23 cents a share from the July sale of the Consumer Products Group, the maker of Fram filters and Prestone antifreeze, for $950 million. The gain helped offset costs of 33 cents a share from repositioning its businesses mostly in Europe.

The company’s automation and control systems unit had sales of $3.95 billion, up 14 percent from a year ago, and Specialty Materials sales rose 25 percent to $1.47 billion. Sales at the Transportation Systems rose 22 percent to $960 million.

--Editors: Cecile Daurat, James Callan

To contact the reporter on this story: Thomas Black in Monterrey at tblack@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net


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