BWA BorgWarner Inc

Honeywell International Inc.’s (HON) reported first-quarter 2012 earnings results before the market opened today. Earnings per share from continuing operations were $1.04 in the reported quarter, inline with the Zacks Consensus Estimate. The company had a good quarter with its earnings increasing at double digit rate. Margins expanded by 70 bps.

Total Revenue

Total revenue was $9.3 billion, an increase of 7% year over year. Sales growth in the US was a driving factor for the company, offsetting the weak performance of short cycle businesses in Europe. Longer cycle businesses were good performers, including commercial aerospace and UOP.

The company reported a revenue increase in three of its four segments. 

Segment Performance

Aerospace segment sales climbed 9% year over year to $3.0 billion, led by increased sales in commercial end markets. This increase was partially offset by Defense and Space sales.

Automation and Control Solutions segment sales increased 4% year over year to $3.8 billion, led by increased revenue from Process Solutions and Building Solutions and Distribution. Energy, Safety and Security had a negative impact on the segment sales.

Transportation System revenue of $954 million for the quarter, declined by 1% year over year due to lower European vehicle production and aftermarket sales volume. 

Performance Materials and Technologies sales increased 19% during the quarter to $1.6 billion, led by good sales from UOP and licensing. The segment revenue was partially offset by unfavorable pricing and low demand in Asia and Europe for Specialty Products.

Income

The company income from continuing operation of $1.1 billion in the quarter versus approximately $946 million in the first quarter of 2011.

Aerospace operating margin expanded 80 bps to 18.1% during the quarter; Automation and Control Solutions climbed 40 bps to 13%; Transportation System increased 40 bps to 12.6% and Performance Materials and Technologies declined 120 bps to 19.8%.

Balance Sheet

Cash and cash equivalents were $4.0 billion with long-term debt of $6.2 billion and shareowners’ equity of $11.8 billion. Free cash flow in the quarter was $446 million.

Moving Ahead

The company expects total revenue of $38.0 billion to $38.6 billion in 2012, up from prior guidance of $37.8 billion to $38.9 billion. Earnings from continuing operations guidance of $4.25 to $4.50 was increased to $4.35 to $4.55.

For further expansion, the company is focused on growth factors, such as investments in new products, technology demarcation, expansion in the emerging markets and initiatives in key processes. Honeywell’s short-cycle businesses as well as its commercial aerospace spares and residential and commercial retrofit businesses are performing impressively and are expected to support the company’s future growth outlook.

However, a change in the U.S. government’s defense and aerospace funding could adversely impact sales of Aerospace’s defense and space-related products and services.

Based in Morris Township, N.J., Honeywell International Inc. is a Fortune 100 company providing technical and manufacturing support to customers worldwide with aerospace products and services; control technologies for buildings, homes and industry; automotive products; turbochargers; and specialty materials. The major competitors of Honeywell are BorgWarner Inc. (BWA), United Technologies Corp. (UTX) and Johnson Controls Inc. (JCI).

We currently maintain our Outperform rating on Honeywell, corresponding with a Zacks #1 Rank (Strong Buy recommendation) over the next one to three months.

 
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