Honeywell's Expectation for FY11 - Analyst Blog

Strong 2010 performance increased Honeywell International Inc.'s (HON">HON) expectations for 2011. Sales for the year are expected by the company to grow by 6% to 9% year over year to a range of $35 billion to $36 billion. Earnings per share, on proforma basis, are expected to be in the range of $3.50 to $3.70, representing a year-over-year increase of 17% to 24%.

The company expects free cash flow (cash flow from operations less capital expenditures) to be in the range of $3.5 billion to 3.7 billion, excluding planned US pension contribution of $1 billion. Cash flow from operations is expected to be in the range of $3.3 billion to 3.5 billion, including the pension contribution.

The company has maintained its 2010 guidance, expecting sales of approximately $33 billion, pro forma earnings per share of $2.98, free cash flow of $3.5 billion and cash flow of approximately $4.1 billion. The pension expense being incurred by the company and the estimated mark-to-market adjustment in 2010 have been excluded from the earnings per share estimates for 2010 and 2011.

Honeywell enjoyed and benefited from its excellent position in industries worldwide in 2010, which the company expects to boost further in 2011. Prime benefactor for the company in the current year was its short cycle businesses, like turbochargers and general industrial products, which showed vigorous progress from the performance level in 2009.

The company is also witnessing substantial growth in its long cycle businesses, like commercial aerospace, ACS Solutions and UOP refining technologies. Order growth in these businesses increased at double-digit rates in comparison with 2009.

In order to expand further the company remains focused on its growth factors, i.e., investments in new products, technology demarcation, extend in the emerging markets and initiatives in key processes. The company believes its focus on growth and productivity positions it  for growth in 2011 and ahead.

We believe Honeywell's attractive collection of businesses has the potential to earn consistently above-average returns. The company's focus on working capital management, free cash flow generation and balance sheet strength remain positive attributes.

The company is a global leader in refrigerants, aerosols and foam-insulation blowing agents used to replace ozone-depleting chlorofluorocarbon and hydro chlorofluorocarbons. Those same products also improve the energy efficiency of homes, appliances and commercial refrigeration systems. The company continues to invest in big process initiatives.

However, a change in the level of the U.S. government's defense and aerospace funding could adversely impact sales of Aerospace's defense and space-related products and services. Major competitors of Honeywell are BorgWarner Inc. (BWA">BWA), Johnson Controls Inc. (JCI">JCI) and United Technologies Corp. (UTX">UTX).

Honeywell International Inc. is a diversified technology and manufacturing company, serving customers worldwide with aerospace products and services, control, sensing and security technologies for buildings, homes and industry, turbochargers, automotive products, specialty chemicals, electronic and advanced materials, process technology for refining and petrochemicals and energy efficient products and solutions for homes, business and transportation.

We current maintain a Neutral rating on Honeywell, with a Zacks #3 Rank (short-term Hold recommendation).

 
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