(HON) Honeywell International’s Earnings Outperform Again – Analyst Blog

July 25th, 2010

Honeywell International Inc.’s (HON) second quarter 2010 earnings, released before the opening bell today, again defeated the Zacks Consensus Estimate on both top and bottom line. Earnings per share from continuing operations of 60 cents, reported by the company, were flat year over year, but were above the Zacks Consensus Estimate of 57 cents.

Total Revenue

Total revenue of $8.2 billion was 2.5% above the Zacks Consensus Estimate of $8.0 million for the quarter. The 8% year-over-year increase in the company’s revenue along with improving demand for Honeywell’s short- and long-cycle businesses shows that the market is recovering.

The company reported a revenue increase in all its segments except Aerospace.

Segment Performance

Aerospace segment sales declined by 3% year over year to $2.6 billion, led by declined original equipment manufacturer (OEM) sales and payments made to Business and General Aviation (BGA) OEM customers, to offset pre-production costs and lower airlines maintenance events. This decrease was partially offset by growth in BGA spares sales and Defense logistics services. The segment’s operating profit declined by 2% during the quarter.

Automation and Control Solutions segment sales increased by 7% year over year to $3.2 billion. The segment sales increased in all regions due to an industrial recovery and increasing number of projects, providing energy-efficiency and introduction of new products. These increasing factors were partially offset by a weaker residential market in the developed regions. The segment’s operating profit increased 16% during the quarter.

Transportation System revenue of $1.0 billion for the quarter Incorporatedreased by 30% year over year, as a result of improving business worldwide. Augmented sales volume, better productivity and restructuring benefits increased the segment’s operating profit by $90 million. This was, however, partially offset by the absence of labor cost rationalization.

Specialty Material sales increased by 20% during the quarter to $1.3 billion, which led to a worldwide increase in sales volume, greater demand for petrochemicals and positive impact of pass-through raw material price rise in Honeywell’s Resins and Chemicals business.

Income

Consolidated operating income of the company for the quarter amounted to $1.1 billion compared with $930 million in the second quarter of 2009. The company incurred total SG&A expense of approximately $1.2 billion in the quarter versus approximately $1.1 billion in the second quarter of 2009.

Balance Sheet

Cash and cash equivalents was $2.4 billion with long-term debt of $6.2 billion and shareowner’s equity of $9.1 billion.

Outlook

The company’s result for the quarter is quite impressive, supported by an improvement in global market environment. However, with economic uncertainties not yet over, the company prefers to maintain a cautious near-term outlook.

For full-year 2010, Honeywell expects its total revenue to be in the range of $32.4 billion to $32.9 billion and earnings per share to be in the range of $2.40 to $2.50 on a reported basis. Free cash flow is expected to be in the range of $3.1 billion to $3.3 billion, and cash flow from operations in the range of $3.8 billion to $4.0 billion.

As per the Zacks Consensus Estimate, Honeywell’s revenue is expected to be about $32.2 in 2010, slightly below the lower end of the company’s guidance. We expect the company’s earnings per share to be well within the company’s guidance, at about $2.48.

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

We currently maintain our Neutral rating on Honeywell, with a Zacks #4 Rank (Sell) over the next one to three months.

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(HON) Honeywell International’s Earnings Outperform Again – Analyst Blog

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