Honeywell Benefits from Improving Markets in 2013, Expects Higher Sales but Slow Start to 2014

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Researched by Industrial Info Resources (Sugar Land, Texas)--Leading diversified technology company Honeywell International (NYSE:HON) (Morris Township, New Jersey) saw record sales, margins and earnings in 2013, as major acquisitions and improving end markets boosted results companywide. Net income was reported to be $947 million for the quarter, compared with $251 million in fourth-quarter 2012, and $3.92 billion for the year, a 34.11% increase from 2012.

Total sales stood at $10.39 billion for the quarter, an 8.41% increase from the same period last year, and $39.06 billion for the year, a 3.69% increase from 2012. To varying degrees, each of Honeywell's four major segments reported profit growth for both the quarter and year. The strongest growth was found in the Performance Materials and Technologies segment, which benefited from the acquisition of a majority stake (70%) in Thomas Russell, a leading provider of technology and equipment for natural gas processing and treating. Honeywell acquired the company through its UOP LLC subsidiary, which develops technology for the petroleum refining, gas-processing and petrochemical industries. The segment also benefited from improved production in the Advanced Materials business.

The Automation and Control Solutions segment also benefited from acquisitions, as well as product introductions and improving residential end markets. Higher demand for commercial original equipment boosted the Aerospace segment, while improved light vehicle production and stronger demand from China boosted the Transportation Systems segment.

Expenditures on property, plants and equipment were reported to be $400 million in fourth-quarter 2013, compared with $298 million in the same period of the previous year, and $947 million in full-year 2013, compared with $884 million in 2012.

Industrial Info is tracking more than $9 billion in active projects involving Honeywell, including the $33 million addition of a production line at the Baton Rouge South Works plant in Baton Rouge, Louisiana. The project involves constructing a new process line to produce the chemical HFO-1234ze, which is commonly used as a propellant and blowing agent within buildings recently constructed or expanded. Jacobs Engineering Group Incorporated (NYSE:JEC) (Pasadena, California) is serving as the design-engineering firm, and Chicago Bridge & Iron Company (NYSE:CBI) (The Hague, Netherlands) is serving as the general contractor.

"We're starting this year with positive momentum, as short-cycle order rates continue to get better, and there are pockets of acceleration in the commercial after-market, ESS [Energy, Safety and Security], Advanced Materials and turbo [gas business], all suggesting a modest improvement in end-market conditions overall," said Dave Cote, the chairman and chief executive officer of Honeywell, in a conference call. "We're also seeing more momentum out of our long-cycle businesses, as building on the robust backlog has positioned us well heading into this year."

Honeywell executives expect sales for full-year 2014 to total between $40.3 billion and $40.7 billion, and net income to total between $4.2 billion and $4.4 billion. Sales in the Aerospace segment are expected to be flat to slightly down this quarter, with gains in commercial business offset by a drop in defense-related business, although margins are expected to gradually improve throughout the year. First-quarter margins also are expected to dip in Performance Materials and Technologies, although sales are expected to grow 4% to 6%; similarly, margins are expected to be flat in Automation and Control Solutions due to unfavorable pricing, despite a 6% to 8% expected sales gain. A recovering European automotive market is expected to help the Transportation segment post gains in sales and profits.

"We're expecting roughly flat margins to start the year, driven by two things: the acquisition dilution associated with the Intermec acquisition; and lower high-margin petrochemical catalyst shipments in UOP in the first quarter of 2014, versus the record shipments that we enjoyed in the first quarter of 2013," said David Anderson, the senior vice president and chief financial officer of Honeywell, in the conference call. In September 2013, Honeywell acquired Intermec, a leading provider of mobile computing, radio frequency identification solutions, and printing solutions.

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