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Honeywell International Inc.’s (HON) reported first-quarter 2011 earnings per share from continuing operations of 88 cents, above the Zacks Consensus Estimateof 81 cents and prior- year earnings of 63 cents.

Total Revenue

Total revenue was $8.9 billion, above the Zacks Consensus Estimate of $8.6 billion for the quarter. Organically total revenue was up 11% year over year, led by strong growth seen in every business segment of the company. Honeywell witnesses continued momentum across its portfolio.   

The company reported a revenue increase in all its segments. 

Segment Performance

Aerospace segmentsalesclimbed 8% year over year to $2.7 billion, led by increased original equipment manufacturer (OEM) sales and raised aftermarket volumes. This increase was partially offset by lower military and government services sales. An increased volume, favorable mix, and productivity net of inflation increased operating margin by 80 bps to 17.3% during the quarter.     

Automation and Control Solutions segment sales increased by 17% year over year to $3.7 billion. The segment sales increased in all regions due to an industrial recovery, introduction of new products, new projects. Sales in the quarter included 1% favorable impact from foreign currency. The segment’s operating profit increased 19% during the quarter.

Transportation System revenue of $1.2 billion for the quarter, increased by 19% year over year as a result of increased worldwide sales volume of Turbo, vigorous launches of new products, increased availability of European diesel and well as a rise in sales of friction products.  Augmented sales volume, better productivity and restructuring benefits, increased the segment’s operating profit by 50%. This was, however, partially offset by material Inflation.

Specialty Material sales increased by 19% during the quarter to $1.4 billion, led by an improved overall market, commercial excellence, and introduction of new products in the Advanced Materials business as well as strong UOP growth. Higher sales, commercial excellence, and cost productivity increased operating profit by 67%. Operating profit was partially offset by raw material inflation.          

Income

The company incurred total SG&A expense of approximately $1.3 billion in the quarter versus approximately $1.1 billion in the first quarter of 2010. Net income of the company was $708 million compared with $496 million in prior-year period.

Balance Sheet

Cash and cash equivalents was $3.1 billion with long-term debt of $6.8 billion and shareowner’s equity of $11.8 billion.

Free cash flow in the quarter was $0.4 billion excluding pension contributions. Including contribution of $1 billion to US pension fund, cash flow from operations was a negative $0.4 billion.

Outlook

The company’s result for the quarter is quite impressive, supported by an improvement in global market environment. Led by good first quarter 2011 performance and improving market condition, Honeywell increased its 2011 sales outlook from $35.0 billion-$36.0 billion to $36.0 billion-$36.6 billion. Earnings per share outlook was raised from $3.60-$3.80 to $3.80-$3.95. Free cash flow guidance was maintained at $3.5 billion-$3.37 billion and cash flow from operations in the range of $3.3 billion-$3.5 billion. Free cash flow expectation excludes US pension contribution, which is included in cash flow from operation outlook.

Honeywell’s short-cycle businesses as well as its commercial aerospace spares and residential and commercial retrofit businesses are performing impressively well and are expected to support future growth outlook of the company. First-quarter 2011 was the eighth consecutive quarter in which orders in short-cycle businesses have increased. The company’s long-cycle backlog continued to be at near record levels.

Based in Morris Township, N.J., Honeywell International Inc. is a Fortune 100 company providing technical and manufacturing support to customers worldwide with aerospace products and services; control technologies for buildings, homes and industry; automotive products; turbochargers; and specialty materials. The major competitors of Honeywell are BorgWarner Inc. (BWA), United Technologies Corp. (UTX) and Johnson Controls Inc. (JCI).

We currently maintain our Neutral rating on Honeywell, with a Zacks #3 Rank (Hold recommendation) over the next one to three months.

 
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