Honeywell International Inc. (HON), a maker of aerospace parts and solvents, is increasing its investment rate to meet higher demand for newly developed chemical products, Chief Executive Officer Dave Cote said.
For the last 12 years, Honeywell has kept its capital spending at about 1.1 times the rate at which assets depreciate, and now it’s accelerating, Cote said. The investment will be driven primarily by expansion of two plants in Alabama and Louisiana for the company’s Performance Materials and Technologies unit, he said.
“You’ll see our reinvestment rate was higher than that this year and will be higher than that again next year,” Cote said today in a telephone interview.
U.S. manufacturers’ backlog of unfilled orders reached a record in September and new orders are above the 2008 peak, signs that companies are beginning to spend more on capital goods.
Demand is strong for new refrigerants, solvents and catalysts that Morris Township, New Jersey-based Honeywell designed to lower their impact on the environment. That prompted the production increase, Cote said.
“It’s for inventions that we’ve made that we need to support with production,” said Cote, who was selected this week as one of the 2014 winners of the Horatio Alger Award. “These plants are already full the day we build them, so we’ve got to get them built.”
Still, companies aren’t going to open the floodgates to their cash holdings and begin a surge of capital spending, Cote said. Slow global economic growth has crimped sales at industrial companies, forcing many to focus on cost reductions and efficiencies to post higher earnings. In October, Honeywell lowered its forecast for 2013 sales to as much as $39 billion from $39.3 billion.
“We’re likely to be at a 2 to 2.5 percent economy for the next three or four years, and that’s the way we need to think about it,” he said. “I don’t think you’re running into a wholesale, ‘Man, the good times are coming and we’ve got to get ahead of it and invest.’”
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