by Roy Harris

Honeywell CFO Sees Profit Strategy ‘Paying Off’

Dec 15, 20113 mins
IT LeadershipIT Strategy

Honeywell International Inc. is looking for 13% higher earnings in 2012, CFO David Anderson is telling the analyst community, as its "investments and focus on emerging regions' expansion is paying off."

Honeywell International Inc. is looking for 13% higher earnings in 2012, CFO David Anderson is telling the analyst community, as its “investments and focus on emerging regions’ expansion is paying off.”

In a conference call with analysts this week, along with CEO Dave Cote, Anderson outlined how Honeywell’s emphasis on emerging-market growth is offsetting the European slump, while a commercial aircraft boom aids that part of its aerospace unit.

Anderson predicted that sales from existing operations would grow 4% or less in the U.S. and Europe. But in the rest of the world, sales should increase as much as 12%, according to a Bloomberg News account of the analyst presentation.

He expects the aerospace unit to inject as much as a $200 million boost, based on higher Boeing Co. and Airbus production.

Emerging Markets Help

Anderson described Honeywell’s progress as benefiting from the emerging-markets enterprises that Cote had pushed for when he took over in 2002.

Said the CFO: “Our investments and focus on emerging regions’ expansion is paying off. From the data indicators we’re watching, it’s pretty clear that we’ll experience European recession in 2012.”

The percentage of Honeywell sales outside Europe and the U.S. has grown to 26%, compared to the 16% that prevailed in 2003.

Anderson also said that the company expects 3% global economic growth. Developed markets will expanding by up to 2%, with emerging markets up as much as 6%.

The Honeywell earnings growth that Anderson foresees will do better than the up-to-6% in estimated sales increases that are predicted for 2012. A business restructuring will contribute $150 million in savings to help profit margins.

Energy Demand, Global Travel and Urbanization

In the presentation, he said that Honeywell’s Automation and Control Solutions unit would also do well, contributing as much as $200 million to profit as it benefits from growing energy and construction markets.

He explained: “We expect the orders trends to continue strong into 2012 as the long-term demand for these businesses is fueled by growing energy demand, global travel and also urbanization.”

Honeywell’s prediction of $4.25 to $4.50 a share in earnings next year, compared with its 2011 forecast of $4 to $4.05 is now in the high range of what analysts predict. Estimates compiled by Bloomberg show $4.42 as the average of 21 analysts it surveyed.

According to Bloomberg, Honeywell’s 2012 sales forecast matched the average of analyst estimates. The company said that revenue will rise as much as 6.6%, to $38.9 billion.

Anderson said that profit margins next year should expand 40 to 70 basis points from 2011, even with a “headwind” prevailing in pricing.

The company in October had boosted its profit forecast for this year, nine-month sales climbed 25% at its the transportation-systems unit, and 18% at its specialty-materials division, according to Bloomberg. In July the company sold for about $955 million its Consumer Products Group, which makes Fram and Prestone products, using proceeds to offset restructuring costs in Europe that were necessitated by falling demand.