Honeywell to Focus on Margins

With the global economic outlook bleak, Honeywell International Inc. HON -0.94% says it will focus on improving its margins to sustain profit growth through next year as weaker economic growth will contain revenue gains.

The maker of aerospace, building-control and safety products reported an 11% rise in second-quarter profit and raised the bottom end of its 2012 earnings outlook by a nickel, now projecting $4.40 to $4.55 a share. Despite slowdowns in its transportation business, the company said segment profit margin rose to 15.8% in the second quarter of this year from 14.3% the same period a year earlier.

It lowered its revenue expectations by $200 million for the year based on the weakening euro relative to the dollar and now sees revenue of $37.8 billion to $38.4 billion. "For 2012 and 2013, we have focused on margin expansion as key to earnings growth, as a way to leverage slower sales growth in a tough macro-environment," Honeywell Chief Executive Dave Cote told analysts.

Since 2009, the company has spent $800 million cutting costs, consolidating real estate and improving productivity. Those restructuring efforts have focused to a large extent on Europe and will result in $150 million in cost savings in 2012 and $125 million in 2013, the company said.

"They are clearly executing on the margin front," said Jeff Sprague, an analyst at Vertical Research Partners. "They are not impervious to the macro headwinds on the top line. The fact that they have been so proactive on the restructuring just gives them a lot of flexibility relative to most companies."

Restructuring efforts will continue. Honeywell Chief Financial Officer David Anderson said the company plans to relocate some manufacturing facilities in its automotive unit from Europe to China. "We will migrate our next facilities to high growth regions and high growth customers, and we'll reduce footprint in the lower growth markets," Mr. Anderson said in an interview.

For the quarter ended June 30, Honeywell posted a profit of $902 million, or $1.14, compared with $810 million, or $1.02 a share, a year earlier. The company in April expected earnings of $1.09 to $1.13 a share. Net sales grew 4% to $9.44 billion, missing expectations from analysts polled by Thomson Reuters, who most recently projected revenue of $9.56 billion.

Honeywell's automation and control-systems business, which serves the commercialconstruction industry, saw net sales edge up 2%. The aerospace unit's sales grew 8%, on growing commercial sales, which the company said partially offset lower defense and space-related revenue. Transportation-systems sales fell 9% due to unfavorable impact of foreign exchange and significantly lower European light-car production volume.