Honeywell 4Q Earnings Rise; Shares Jump

Next in expected acquisitions for Honeywell is a company with gas detection systems


Honeywell International Inc. on Thursday reported fourth-quarter profit more than doubled as increased air traffic and acquisitions during the year boosted sales in its aerospace and automated control equipment businesses.

The Morris Township-based industrial and aerospace conglomerate said profit rose to $520 million, or 62 cents per share, from $253 million, or 30 cents per share, in 2004.

Sales jumped 10 percent to $7.28 billion from $6.64 billion in the same period a year ago.

Analysts surveyed by Thomson Financial projected profit of 62 cents per share on sales of $7.23 billion.

"They had a very excellent quarter," said Paul Nisbet, aerospace analyst at JSA Research Inc. "The aerospace and automotive portions of their business were very strong."

He said the transportation segment was the weak spot, with revenues falling as declining auto sales in Europe cut Honeywell's sales of one of the segment's highest-margin products: turbochargers, which are popular for boosting the performance of Europe's many small cars.

"This was a very nice fourth quarter in a very good year, and we have the prospects for an even better year to come," Dave Cote, chairman and chief executive officer, told analysts during a conference call.

Fourth-quarter sales for Honeywell's biggest divisions were up strongly, with aerospace rising 8 percent to $2.7 billion and automation and control systems jumping 22 percent to $2.6 billion; sales were flat in specialty materials and down 3 percent in the transportation segment.

Cote said smart acquisitions and efficiency improvements have positioned Honeywell for long-term growth and predicted the company will top $30 billion in revenues in 2006; the consensus of analysts is $30.28 billion.

For the first quarter, the company forecast sales of $7.1 billion to $7.2 billion and earnings per share of 47 cents to 49 cents; analysts are expecting 51 cents. Honeywell increased the low end of its 2006 per share forecast by 5 cents to between $2.40 and $2.50 per share - bracketing Wall Street's $2.45 consensus - due to lower-than-expected pension expenses.

"Our pension expense has been increasing dramatically" in recent years, but should decline the next two, Dave Anderson, Honeywell's chief financial officer, said in an interview.

He said Honeywell's pension contribution should drop from about $400 million, or 34 cents per share, in 2005 to about $320 million this year.

The company made two acquisitions in the fourth quarter, including paying $800 million for the half it did not already own of UOP LLC, which provides technology and consulting for petroleum, gas and petrochemical processors.

Anderson said Honeywell expects to close this quarter on the acquisition of sensor and safety device maker First Technology Plc of Surrey, England, after raising its bid 30 percent to $718 million amid competition. He said First Technology's portable devices for detecting gas leaks at commercial and industrial sites could play a role in new efforts to increase safety in mines after an explosion and a fire at two West Virginia mines killed 14 workers this month.

"They'll pay whatever they have to get it," Nisbet said, because of the strategic fit with Honeywell's existing fixed detectors for gas leaks. "They obviously see a good strong market there, perhaps associated with homeland security."

Net income for all of 2005 totaled $1.66 billion, or $1.94 per share, versus $1.28 billion, or $1.49 per share, in 2004. Excluding a $155 million tax charge for repatriating foreign profits, earnings per share were $2.12, matching the analysts' forecast.

Revenue rose 8 percent to $27.65 billion from $25.6 billion a year earlier.

The company bought back 30.6 million of its shares, worth a little more than $1.1 billion, in 2005 and plans to buy back at least 10 million shares this year.

Honeywell shares rose $1.35, or 3.7 percent, to close at $37.41 on the New York Stock Exchange. They have traded between $32.68 and $39.50 over the past year.

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