Bloomberg News

Honeywell Profit to Grow on Emerging Markets, Aerospace

December 15, 2011

(Updates with closing share price in the 13th paragraph.)

Dec. 15 (Bloomberg) -- Honeywell International Inc. forecast a 13 percent rise in 2012 earnings as emerging-market growth offsets a slump in Europe and increased demand for commercial aircraft boosts profit at its aerospace unit.

Sales from existing businesses at the Morris Township, New Jersey-based company are expected to expand 4 percent or less in the U.S. and Europe, while growing as much as 12 percent in the rest of the world, Chief Financial Officer David Anderson said today. Honeywell’s aerospace unit will boost profit by as much as $200 million on increased Boeing Co. and Airbus SAS production, Anderson said on a call with analysts.

Honeywell, whose products range from home thermostats to aircraft parts, is benefiting from a push into emerging markets since Dave Cote took over as chief executive officer in 2002, Anderson said. The percentage of Honeywell’s sales outside Europe and the U.S. has expanded to 26 percent from 16 percent in 2003.

“Our investments and focus on emerging regions’ expansion is paying off,” Anderson said. “From the data indicators we’re watching, it’s pretty clear that we’ll experience European recession in 2012.”

The company expects global economic growth of 3 percent, with developed markets expanding up to 2 percent and emerging markets increasing as much as 6 percent, the CFO said. Earnings growth will outpace an estimated sales expansion of as much as 6.6 percent next year as profit margins increase, with the help of $150 million in savings from business restructuring, he said.

Control Systems

In addition to growth in Aerospace, Honeywell’s Automation & Control Solutions unit will add as much as $200 million to profit on growth in energy and commercial construction, Anderson said.

“We expect the orders trends to continue strong into 2012 as the long-term demand for these businesses is fueled by growing energy demand, global travel and also urbanization,” Anderson said.

Honeywell said today it predicts earnings of $4.25 to $4.50 a share next year, compared with its 2011 forecast of $4 to $4.05. Analysts predicted $4.42 for 2012, the average of 21 estimates compiled by Bloomberg.

The high end of Honeywell’s 2012 sales forecast matched the average analysts’ estimate compiled by Bloomberg. Revenue will rise as much as 6.6 percent to $38.9 billion, according to the statement.

Profit margins next year are expected to expand 40 to 70 basis points from 2011 even with pricing that will be a “headwind” next year, Anderson said. A basis point is 0.01 percentage point.

A backlog of almost $16 billion and strong aerospace aftermarket demand may allow the company to grow faster than its end markets, Robert Stallard, a New York-based analyst with RBC Capital Markets, wrote in a note today. He rates the shares “outperform.”

‘Record Backlog’

“Honeywell’s view of 2012 confirms slowing growth against 2011, but we think this is generally in line with expectations and its record backlog should protect performance,” said Stallard, who has an “outperform” rating on the company.

Honeywell advanced 1.7 percent to $52.41 at the close in New York. The shares have declined 1.4 percent this year.

In October, the company increased the 2011 profit forecast after sales for the first nine months rose 25 percent at the transportation-systems unit and 18 percent at the specialty- materials division. Sales advanced 17 percent at the largest unit, automation & control solutions, while aerospace gained 7.3 percent in revenue as business aircraft equipment offset weakness in defense.

The company in July sold its Consumer Products Group, the maker of Fram filters and Prestone antifreeze, for about $955 million. The proceeds are offsetting costs of restructuring businesses in Europe, where demand has fallen.

--Editors: Jeffrey Tannenbaum, Romaine Bostick

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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