Honeywell profit falls but tops expectations

October 23, 2009 9:00:56 AM PDT
Honeywell International Inc. said Friday its third-quarter profit fell 15 percent as sales dropped in all its divisions with key markets in aviation and industrial products continuing to struggle. More than half of the Morris Township, N.J., company's sales are overseas. As a result of its exposure, Honeywell has been hit hard by some of the economy's weakest sectors such as the aerospace, automotive and construction markets, which have been in a prolonged slump.

The company earned $608 million, or 80 cents per share, in the quarter ended Sept. 30, down from $719 million, or 97 cents per share, a year ago.

Its profit was helped by 4 cents a share for a lower-than-expected tax expense, the company said.

Revenue fell 17 percent to $7.7 billion from $9.28 billion a year ago.

Analysts surveyed by Thomson Reuters expected lower earnings of 72 cents per share on higher revenue of $7.88 billion.

Honeywell backed its previous 2009 guidance of earnings of $2.85 per share on revenue of $31 billion. Analysts are looking for earnings of $2.78 a share on revenue of $31.46 billion.

Shares edged up 11 cents to $38.64 in morning trading.

Analyst Nicholas P. Heymann of Sterne Agee said Honeywell has been doing a good job cutting costs, but faces challenges from continuing airline industry troubles and the downturn in commercial construction.

The company expects commercial airline equipment deliveries and nonresidential construction to decline in 2010. However, its government-funded and energy-efficient products should help offset some of the declines.

Aerospace business sales fell 16 percent in the latest quarter from a year ago as lower volume in commercial aerospace more than offset higher military equipment sales, aircraft modifications, and upgrades, Honeywell said.

Chief Financial Officer David J. Anderson told investment analysts in a conference call that while flight hour estimates are improving slightly, airlines "aggressively manage" purchases of spare parts. As a result, sales of spare parts are declining, he said.

In addition, the company expects business travel and demand for equipment to remain weak for the rest of the year even though repairs and servicing have stabilized, Anderson said.

Anderson said it's too early to declare a recovery in certain sectors, but Honeywell expects its turbo business and commercial aerospace repairs and maintenance business to "rebound somewhat" next year.

Major aerospace customers include Boeing Co., Europe's Airbus, Textron Inc.'s Cessna and Canada's Bombardier.

Anderson said Honeywell's heating, ventilating and air conditioning business had the strongest month in September since January, driven by an increase in residential construction in North America and improvement in Asian and Pacific markets.

But sales fell 24 percent at its transportation systems business, which makes products such as turbo chargers for car engines.

Honeywell also faces rising pension expenses. It increased its forecast to $700 million from $500 million next year due to declining interest rates.

"Clearly, the pension expense is going to be a significant headwind for Honeywell in 2010," Anderson told analysts.

Anderson said in an interview that federal stimulus spending intended to spur the economy had an unexpected "chilling effect" at Honeywell in the quarter. He said municipalities and other government agencies and institutions pulled back on spending, waiting for money from Washington.

"The grind of bureaucracy has been slow," he said. "We've not seen the benefit of the stimulus translate to orders."

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