Honeywell profit up, but stock slides

By Scott Malone

BOSTON (Reuters) - Diversified manufacturer Honeywell International Inc (HON.N) on Friday reported quarterly results that missed Wall Street estimates, hampered by lower profit at its transportation business and higher raw material and research and development costs.

Its shares fell about 3.6 percent after reporting its quarterly profit rose 14.2 percent.

Honeywell said the 4 percent profit drop at its transportation unit -- which makes products ranging from turbochargers to spark plugs -- reflected operational problems at factories.

"The thing that really hit us in the quarter for (transportation systems) and for (its consumer products group) were these operational issues," Chief Financial Officer David Anderson on a conference call with analysts.

The company cited higher raw material prices as a drag across all its business segments.

Peter Sorrentino, senior vice president and portfolio manager at Huntington Asset Advisors, a Cincinnati-based company with $6.5 billion under management that holds Honeywell shares, said the cost issues raised concerns about profitability going forward.

"The inflation theme reared its head again and may be a threat to earnings for the manufacturing sector," said Sorrentino. "Over the next three months, people are going to be taking a real serious look at their expectations for next year, especially on the cost side."

AIRPLANES, CONSTRUCTION A BOOST

Spending on new airplanes, as well as service of existing regional and large jets, particularly in the United States, helped the world's largest maker of cockpit electronics. Honeywell's automation and control business, which makes thermostats, security systems and other products to manage large buildings, benefited from investment at home, as well as in the Middle East, India and China.

Honeywell reported a third-quarter profit of $618 million, or 81 cents per share, compared with $541 million, or 66 cents per share, a year earlier.

Analysts, on average, had expected a profit of 82 cents per share, according to Reuters Estimates. When it reported second-quarter results, Honeywell said it expected third-quarter profit of 79 cents to 81 cents per share.

Profit was up 12 percent at the company's aerospace unit, 13 percent at automation and control systems and 43 percent at specialty materials, which is smaller than those operations.

Revenue came to $8.74 billion, up 9.8 percent from $7.95 billion a year earlier.

"Both Europe and Asia continued to lead the way with very healthy growth rates," said Chairman and Chief Executive David Cote, on a conference call with analysts.

The company noted most of its growth came from outside the U.S., which accounts for half its sales. Forty percent of sales are to Europe and 10 percent to emerging markets.