U.S. News

Honeywell Sees Double-Digit Profit Jump

Diversified high-tech manufacturer Honeywell International said it expects to meet its 2006 profit target and forecast a 5% rise in sales and double-digit growth in earnings per share next year.

Honeywell, which makes aircraft and building control systems, specialty materials and automotive parts, said it expects a 2007 profit in a range of $2.85 to $2.95 a share, up about 15% from its expected 2006 result. Sales are expected to hit $32.6 billion, and cash flow from operations is projected at $3.2 billion to $3.4 billion.

The consensus profit expectation of $2.93 a share is within the company's target range, but analysts surveyed by Thomson Financial on average are expecting slightly higher sales, at $32.75 billion.

The company said it still expects to report 2006 profit of between $2.51 and $2.53 a share, up more than 30% from 2005, on revenue of $31.2 billion. The company puts cash flow from operations at about $3 billion. Analysts expect, on average, profit of $2.52 a share and revenue of $31.16 billion.

"We expect continued strong performance in 2007," Honeywell's chief executive officer, Dave Cote, said in a statement. "Strong positions in industries with favorable macro-trends and attractive long-term prospects are expected to more than offset modest softening in global economic conditions."

Honeywell expects 2007 revenues to rise about 5% to approximately $11.7 billion in its aerospace division, climb about 6% to $11.7 billion in its automation and control equipment division, remain flat at about $4.6 billion in its transportation systems division, and inch up nearly 1%, also to about $4.6 billion, in the specialty materials division.

Profit growth for each of the four segments should average between 9% and 12% next year, David Anderson, the chief financial officer, told analysts during a conference call.

Honeywell expects rising revenue next year from new products and anticipated growth in several business areas, including products for energy efficiency, airline safety and airport, industrial and home security. Anderson noted the company expects a 3% to 4% jump in sales to the federal government for military and aerospace equipment.

The company also plans to continue productivity and cost-cutting programs, particularly in back-office areas such as the marketing and legal departments, and to raise prices where needed to help offset rising costs for metals and other raw materials.

"We feel good about the balance plan that we've laid out for 2007," Anderson said. "We're confident in our ability to execute this plan."

That plan also includes more mid-size acquisitions and the possibility of buying back more stock if prices are attractive. The company purchased $1.7 billion worth of its stock in 2006, reducing share count about 5%.

Anderson noted Honeywell has acquired about 40 companies in mid-sized deals in the $100 million to $400 million range in the past three years.

"That's just going to continue to be our sweet spot," he told the analysts. "It really allows us to add complementary or adjacent technologies."

Honeywell should complete its second major divestiture of the year shortly, a business that makes automotive sensors, electromechanical control devices and crash switch devices, essentially ending the business realignment begun in 2003.