UPDATE 3-Turbocharger sales help Honeywell profit zoom past forecasts

Thu Apr 17, 2014 12:03pm EDT

(New throughout, adds CFO interview; updates stock price)

By Ernest Scheyder

April 17 (Reuters) - Diversified manufacturer Honeywell International Inc posted a better-than-expected quarterly profit on Thursday, helped by strong sales of turbochargers to help automobiles meet fuel-efficiency standards.

The company, which also makes airplane cockpit parts, chemicals for the energy industry and scores of other electronics and equipment, said it is "cautiously optimistic" on the health of the global economy and that it still expects profit to rise at least 9 percent this year.

"We are in a better spot than we were in a year ago in terms of growth," Chief Financial Officer Tom Szlosek said in an interview. "But I don't think we're experiencing any kind of meaningful positive trends."

One of the company's brightest spots during the quarter was its Transportation Systems unit, which saw profit jump 39 percent, helped largely by demand for turbochargers, devices that boost an engine's torque.

New fuel-efficiency regulations across Europe, China and the United States have boosted demand for Honeywell's turbochargers, as Volkswagen and other major automakers aim to get more power out of engines with less fuel.

"You're seeing more legislation and regulation, and also more demand for efficiency," Szlosek said. "That bodes well for our turbo business."

While the unit is Honeywell's smallest, executives see it as one of the fastest-growing. Indeed, in a revised forecast announced on Thursday, Honeywell cut its 2014 margin outlook for its three other units, but raised the margin outlook for the Transportation Systems unit.

The company's Performance Materials and Technologies unit, which makes chemicals used in the oil and other sectors, has a 3 percent drop in profit during the quarter as some products came off patent.

Despite the dip, Szlosek expressed confidence that the unit's profit should trend higher as new products launch this year.

The company posted first-quarter net income of $1.02 billion, or $1.28 per share, compared with $966 million, or $1.23 per share, in the year-ago quarter.

By that measure, analysts expected earnings of $1.26 per share, according to Thomson Reuters I/B/E/S.

Net sales rose 4 percent to $9.68 billion, missing the $9.74 billion estimate from Wall Street.

Honeywell last month set a target to boost annual sales to more than $50 billion by 2018 and to spend $10 billion on acquisitions. Honeywell posted $39.1 billion in sales last year.

The New Jersey-based company expects high-growth regions such as China to drive about half its sales growth over the next five years, with profit margins for its business segments increasing to between 18.5 percent to 20 percent over that time, up from 16.5 percent for the first quarter.

The $10 billion in acquisitions targeted by the company is more than twice as much as Honeywell spent on deals in the previous five years. Honeywell and other industrial conglomerates are eager to bolster their operations through deals but may hesitate due to high valuations of targets.

Also on Thursday, Honeywell lifted the bottom end of its 2014 earnings forecast. The company now expects to earn $5.40 to $5.55 per share this year, where previously the bottom end of that range had been $5.35 per share.

Wall Street expects the company to earn $5.54 per share this year.

Honeywell this month elevated two executives to the newly created position of vice chairman, with each of them taking responsibility for aspects of the five-year financial plan.

Shares of Honeywell rose slightly to $93.33 in midday trading. (Reporting by Ernest Scheyder and Lewis Krauskopf; Editing by James Dalgleish and David Gregorio)