Global diversified technology and manufacturing company Honeywell International Inc. (HON) recently inked a definitive agreement to divest its Friction Materials business to auto parts manufacturing firm Federal-Mogul Corporation (FDML) for about $155 million. The asset sale is part of the long-term strategy of Honeywell to realign its portfolio with a strong focus on core differentiated technologies and divest those which no longer fit its corporate objective.
The Friction Materials business manufactured disc brake pads and braking system components for OEMs (original equipment manufacturers) and the general aftermarket sector for passenger cars, light trucks, commercial vehicles, railways and other industrial applications. The transaction, expected to close in the second half of 2014 subject to customary regulatory approvals, will entail an after-tax loss of 4 cents per share that Honeywell will record in its fourth quarter 2013 results. However, the loss is not expected to have any material impact on its 2014 outlook.
Earlier, Honeywell had offered a tepid outlook for 2014 largely on expectations that the macroeconomic environment will be similar to 2013. Honeywell expected sales of $40.3 billion-$40.7 billion in 2014. The operational improvements coupled with strong productivity and lucrative investments were all expected to contribute to healthy margin expansion in the long run. The company had already achieved the low end of its margin target in 2013 and expected operating margins for 2014 in the range of 15.3%-15.6%.
Honeywell expected earnings per share in the range of $5.35 -$5.55 in 2014, which represented earnings growth of 8.0%-12.0%. The current Zacks Consensus Estimate is pegged at $5.53 a share. Despite the challenging environment, the company’s balanced mix of long- and short-cycle businesses, along with organic growth in new products and expansion in high-growth regions augur well on a long-term perspective.
Honeywell manufactures a wide range of 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.
Honeywell currently has a Zacks Rank #3 (Hold). Better-ranked stocks in the industry include ITT Corporation (ITT) and Raven Industries Inc. (RAVN), both carrying a Zacks Rank #2 (Buy).
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