Honeywell International Inc (HON) reported fourth-quarter 2014 net income of $956 million or $1.20 per share, compared with $947 million or $1.19 per share in the year-ago quarter. The increase in earnings was driven by strong execution in businesses and continued momentum across the portfolio.
For full-year 2014, the company recorded net income of $4,239 million or $5.33 per share versus $3924 million or $4.92 per share in the year-ago period.
Earnings per share (excluding the pension mark-to-market adjustment) stood at $1.43 in the reported quarter compared with $1.24 per share in the year-ago quarter. Adjusted earnings beat the Zacks Consensus Estimate by a penny.
Adjusted earnings for full-year 2014 stood at $5.56 per share compared with $4.97 in the year-ago period. Adjusted earnings for full-year 2014 also beat the Zacks Consensus Estimate of $5.45 per share.
Revenues
Revenues in the fourth quarter decreased 1.0% year over year to $10,266 million. Reported revenues beat the Zacks Consensus Estimate of $10,222 million. The decrease in revenues was due to lower product and service sales. During the reported quarter, Honeywell delivered 4% organic sales growth. The increase in organic sales growth was driven by investments in new products and technologies.
For full-year 2014, revenues were $40,306 million compared with $39,055 million in the year-ago period. Full-year 2014 revenues also surpassed the Zacks Consensus Estimate of $40,226 million.
Operating margins were down 20 bps year over year to 15.9% in the reported quarter. Operating margins were up 30 bps year over year to 16.6% in full-year 2014.
Segment Performance
Aerospace segment sales were down 6% year over year at $3,842 million in the reported quarter. Revenues for the segment were down owing to the unfavorable impact of incentives, the Friction Materials divestiture and the negative impact of foreign exchange.
Segment profit decreased 14.0% year over year to $663 million, while margins contracted 160 bps year over year to 17.3%.
Automation and Control Solutions segment sales were up 3.0 % year over year to $3,847 million in the reported quarter. The increase was driven primarily by strong organic growth across the portfolio, offset partially by the unfavorable impact of foreign exchange.
Moreover, segment profit rose 8.0% to $613 million, while margins for the segment were up 70 bps year over year to 15.9%. Growth in profits was attributable to higher volumes, M&A integration and improved productivity, partially offset by continued investments for growth.
Performance Materials and Technologies segment sales were flat year over year at $2,577 million in the reported quarter. Sales were up on a organic basis, owing to higher UOP licensing sales, growth in Process Solutions and higher sales in Advanced Materials, offset by the unfavorable impact of foreign exchange and lower UOP catalyst sales.
Segment profit increased 6.0% to $425 million, driven by higher volume and productivity, partially offset by continued investments for growth. Margins in the segment rose 90 bps year over year to 16.5%.
Balance Sheet and Cash Flow
Cash and cash equivalents as of Dec 31, 2014 were $6.9 billion versus $6.4 billion in the year-ago period. Long-term debt as of Dec 31, 2014 stood at $6.0 billion. Net cash provided by operating activities for twelve months ended Dec 31, 2014 stood at $5,024 million, compared with $4,335 million in the prior-year period. Free cash flow stood at $3,930 million as of Dec 31, 2014, compared with $3,388 million in the prior-year period.
Outlook
Honeywell reaffirmed its full-year 2015 guidance. The company expects sales in the range of $40.5–$41.1 billion. Earning per share is expected in the range of $5.95 to $6.15. Operating margin is expected to be in the range of 16.7%–17.0%. Free cash flow is expected to be in the range of $4.2 billion to $4.3 billion.
Going forward, Honeywell expects a challenging macro environment though it expects to deliver strong earnings growth in the forthcoming year. Honeywell intends to continue investing in new products and technologies, and increase its footprint in high-growth markets The company believes that its balanced portfolio mix of short- and long-cycle businesses are well-positioned to deliver higher organic sales and continued margin expansion in 2015.
Honeywell currently has a Zacks Rank #3 (Hold). Other stocks that look promising and are worth a look include Federal Signal Corp. (FSS) Graco Inc. (GGG) and Kadant Inc. (KAI), all carrying a Zacks Rank #2 (Buy).
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