Honeywell International Inc (HON - Analyst Report) reported third-quarter 2014 net income of $1,192 million or $1.47 per share, compared with $1,007 million or $1.24 per share recorded in the year-ago quarter. Earnings per share registered a year-over-year growth of 19.0% on top-line improvement and lower shares outstanding.

Earnings per share (At 26.5% tax rate) stood at $1.43 in the reported quarter compared with $1.25 per share in the year-ago quarter. Adjusted earnings beat the Zacks Consensus Estimate of $1.41 by a couple of cents.
 

Revenues

Revenues in the third quarter increased 5.0% year over year to $10,108 million.  Reported revenues beat the Zacks Consensus Estimate of $10,052 million. Honeywell benefited from continued operational momentum, driving sales growth and margin expansion.
    
Operating margins were up 100 bps year over year to 16.2% in the reported quarter.
    
Segment Performance

Aerospace segment sales were flat year over year at $3,895 million. Revenues for the segment were flat due to the Friction Materials divestiture.

Segment profit climbed 8.0% year over year to $790 million, while margins expanded 150 bps year over year to 20.3%, due to improved productivity.

Automation and Control Solutions segment sales were up 9.0 % year over year to $3,671 million. The increase was driven primarily by the favorable impact of acquisitions, strong Energy, Safety, and Security (ESS) and continuous strength in the Americas Distribution business.

Moreover, segment profit surged 11.0% to $583 million, while margins for the segment were up 40 bps year over year to 15.9%. Growth in profits and margin expansion is attributable to higher volume and improved productivity, partially offset by the dilutive effect of acquisitions.

Performance Materials and Technologies segment sales increased 7.0% to $2,542 million, driven by improvement in UOP catalyst and gas processing. Robust growth in revenues for Advanced Materials, particularly Fluorine Products, also contributed to the segment sales.

Segment profit increased 8.0% to $444 million, driven by improved productivity and higher volume, partially offset by adverse price/raw material headwinds in Resins & Chemicals. Margins in the segment rose 20 bps year over year to 17.5%.
 

Change in Segment Reporting

In Jul 2014, Honeywell announced that it will realign its business segments, and report its Transportation Systems together with its Aerospace segment to capitalize on their engineering and technological similarities. Effective from third-quarter 2014, Honeywell will report its financial performance under three business segments: Aerospace, Automation and Control Solutions, and Performance Materials and Technologies.

Balance Sheet and Cash Flow

Cash and cash equivalents as of Sep 30, 2014 were $6.4 billion. Long-term debt as of Sep 30, 2014 stood at $6.8 billion. Net cash provided by operating activities improved to $1,233 million as of Sep 30, 2014, compared with $1,070 million in the prior-year period. Free Cash Flow stood at $974 million as of Sep 30, 2014, compared with $867 million in the prior-year period

Outlook

Honeywell revised its sales guidance for 2014 from a range of $40.2–$40.4 billion to $40.3–$40.4 billion. However, the company increased the lower end of its earnings per share guidance by 5 cents, projecting EPS in the range of $5.50 to $5.55.  Operating margin is expected to be 15.6%. Free cash flow is expected to be approximately $3.9 billion.

The market reacted positively as share prices went up in pre-market trading

Going forward, Honeywell expects a challenging macro environment but still expects to deliver strong earnings growth in the forthcoming year. Honeywell intends to continue investing in new products and technologies, and increase its footprint in high-growth markets.

Honeywell currently has a Zacks Rank #4 (Sell). Other stocks that look promising and are worth a look now include CLARCOR Inc (CLC - Snapshot Report), Compass Diversified Holdings (CODI - Snapshot Report) and Noble Group Limited (NOBGY), each carrying a Zacks Rank #2 (Buy).