Honeywell Beats Squarely - Analyst Blog

Honeywell International Inc. (HON) released its fourth quarter 2010 earnings result before the opening bell today, reporting earnings from continuing operations of 87 cents, outperforming the Zacks Consensus Estimate of a loss of 24 cents. The company witnessed particularly strong growth in its short cycle businesses, such as turbochargers and general industrial products.

Revenue

Total revenue in the quarter increased 12% year over year to $9 billion, above the Zacks Consensus Estimate of $8.8 billion.

Segment Details

During the quarter, the Transportation Systems revenue showed the highest rate of growth, up 18% year over year, led by higher Turbo volumes, successful launch of new products and increased demand for European diesel.

Transportation Systems was followed by Automation and Control Systems, which showed growth of 15%. The segment's organic growth in all regions and businesses due to general industrial recovery and new product introductions, execution of energy efficiency-related and industrial infrastructure projects, and the favorable impact from net acquisitions and divestitures. Specialty Materials revenue increased by 12%, led by growth in all regions, implementation of energy efficiency-related projects, a recover in overall industry, and new product launches.

Increased volumes in commercial OEM and aftermarket led to a 6% growth in Aerospace revenue. This was, however, offset by amounts accounted for payments to Business and General Aviation (BGA) OEM customers to compensate pre-production costs.

Income & Expense

Income before Taxes were $498 million compared with $223 million in the fourth quarter of 2009. SG&A expenses amounted to $1,317 million compared with $1,158 million.

Balance Sheet & Cash Flow

Cash and cash equivalents was $2.65 billion with long-term debt of $5.7 billion and shareowners equity of $10.9 billion.

Cash provided by operating activities was $1.0 billion in the quarter and expenditures for property, plant and equipment were $300 million, resulting in a free cash flow of $700 million. Superior earnings and strong working capital performance drove the company's cash flow in the quarter.

Outlook

Honeywell raised its 2011 earnings guidance to $3.60-3.80 per share, up from $3.50-3.70 per share, excluding pension adjustment. The company also reaffirmed its previously-stated 2011 revenue guidance of $35.0-36.0 billion

The company announced the disposal of its Consumer Products Group (CPG) to Rank Group for $950 million.  Currently reported within Honeywell's Transportation Systems segment, CPG had 2010 sales of $1 billion.

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) Johnson Controls Inc. (JCI) and United Technologies Corp. (UTX).

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

 
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