Honeywell Rises Most in 3 Years as Forecast Beats Estimates

  • `Management execution' overcomes weak markets, analyst says
  • Acquisitions are seen adding to earnings in coming year

Honeywell Has $25-$30 Billion of M&A Capacity: CEO

Honeywell International Inc. forecast sales and earnings above analysts’ expectations, defying an industrial slump as the maker of jet engines and gas detectors cut costs and marketed new products. Its shares rose the most in three years.

Annual earnings, excluding pension-cost adjustments, are forecast at $6.45 to $6.70 a share, Honeywell said in a statement Wednesday. That would be a gain of as much as 9.8 percent from the $6.10 expected for this year and put the midpoint above the $6.55 average prediction by analysts, according to data compiled by Bloomberg.

The forecast helped cement a turnaround since Chief Executive Officer Dave Cote took over in 2002. Slow global economic growth, a strong dollar that has crimped exports and a drop in oil-and-gas industry investment have forced 3M Co. and Dover Corp. to cut their earnings forecasts for this year. Danaher Corp., a maker of test equipment, on Wednesday predicted 2016 earnings below analysts’ estimates.

Honeywell’s outlook reinforces its place among companies for which “end markets are secondary and management execution matters more,” Steve Tusa, a JPMorgan Chase & Co. analyst, said in a note Wednesday.

The stock climbed 5.7 percent to $104.08 at the close in New York, tracking a rally in the broader market after the Federal Reserve raised interest rates. It was the stock’s biggest one-day gain since July 2012. The advance put Honeywell’s shares up 4.2 percent this year, outpacing a 4 percent drop for the Standard & Poor’s 500 Industrials Index.

Cote has closed factories, reduced the workforce and invested in new products such as refrigerants that are more environmentally friendly in an effort to combat lackluster sales growth. That has helped blunt the impact of weak U.S. manufacturing, which contracted in November to its lowest level since June 2009.

More Deals

Honeywell now wants to increase purchases. The company has the financial firepower to continue snapping up companies, Chief Financial Officer Tom Szlosek said on a conference call with analysts, and could match the $5.5 billion in acquisitions it made this year.

“Knowing what’s in our pipeline, I could easily see that happening,” he said.

Sales, helped by the $5.1 billion acquisition of meter manufacturer Elster announced in July, are forecast at $39.9 billion to $40.9 billion for 2016. Honeywell predicts revenue this year at $38.5 billion, trimming its estimate from $38.7 billion in October. Sales in 2016 excluding the impact from acquisitions and currency translations will rise 1 percent to 2 percent, the company said.

Honeywell said purchases, mostly Elster, are expected to add between 5 cents and 15 cents a share to 2016 earnings. The company previously said the Elster deal, which is expected to close in the first quarter, would be a slight drag on profit.

The Elster transaction should contribute 40 cents to 50 cents a share to earnings “within a couple of years,” Szlosek said. The acquisition is Honeywell’s largest since Cote became CEO.

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