Honeywell International Inc.’s (HON) reported second-quarter 2011 earnings per share from continuing operations of $1.02, above the Zacks Consensus Estimate of 98 cents and prior-year earnings of 73 cents.
Total Revenue
Total revenue was $9.1 billion, below the Zacks Consensus Estimate of $9.2 billion for the quarter. Organically, total revenue was up 8% year over year, led by growth driven by new products, emerging-region growth and strong end-markets. Honeywell witnesses continued momentum across its portfolio.
The company reported a revenue increase in all its segments.
Segment Performance
Aerospace segment sales climbed 6% year over year to $2.8 billion attributable to strong increases in the Commercial Aftermarket and marginally higher Defense and Space sales, which was partially offset by payments to Business and General Aviation (BGA) OE customers for pre-production costs.
The segment's operating profit increased 2%, while margins declined 70 bps to 16.0%, primarily due to the BGA OE payments which unfavorably impacted margins by 110 basis points year-over-year. In addition, higher R&D investments also impacted margins, both of which were partially offset by volume, favorable mix and productivity net of inflation.
Automation and Control Solutions segment sales increased by 20% year over year to $3.8 billion. The segment sales increased due to the general industrial recovery, new product introductions, emerging region strength and favorable macro trends such as energy demand and energy efficiency. Sales in the quarter included 6% favorable impact from foreign currency.
The segment’s operating profit increased 24% during the quarter, while margins increased 40 bps to 12.8% primarily due to higher volumes and project sales which was partially offset by material inflation and investment for growth across the portfolio.
Transportation System revenue of $99 million for the quarter increased by 26% year over year due to favorable foreign exchange translation, higher passenger and commercial vehicle Turbo volumes globally, new platform launches and higher European diesel penetration. The operating profit increased 45% driven by higher volumes and increased productivity. This was, however, partially offset by material inflation.
Specialty Material sales increased by 12% during the quarter to $1.4 billion, led by improved global end markets, commercial excellence, new product applications in the Advanced Materials business, coupled with strong UOP growth. Higher sales and licensing revenues, commercial excellence and cost productivity increased operating profit by 31%, partially offset by raw material inflation.
Income
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 2010. Net income of the company was $810 million compared with $574 million in prior-year period.
Balance Sheet
Cash and cash equivalents was $3.5 billion with long-term debt of $6.8 billion and shareowner’s equity of $12.2 billion. Free cash flow in the quarter was $973 million.
Outlook
The company’s quarterly results for the quarter were quite impressive, supported by an improvement in global market environment. Driven by strong first half of 2011 performance and improving market condition, Honeywell increased its 2011 sales outlook from $36.0 billion–$36.6 billion to $36.1 billion to $36.7 billion.
Earnings per share outlook was raised from $3.80–$3.95 to $3.85 to $4.00. Free cash flow guidance was maintained at $3.5 billion–$3.37 billion and cash flow from operations in the range of $3.3 billion–$3.5 billion. Free cash flow expectation excludes US pension contribution, which is included in cash flow from operation outlook.
Honeywell currently holds a Zacks #1 Rank, which implies a Strong Buy recommendation.
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