Honeywell posts higher profit, hikes 2008 outlook

BOSTON (Reuters) - Honeywell International Inc (HON.N) reported higher-than-expected quarterly profit and raised its full-year forecast on Friday, even as it warned investors of slowing activity in its aerospace and transportation markets.

Shares of the world's biggest maker of cockpit electronics were little changed as analysts raised concerns about deteriorating profit margins in three of its four business segments.

"The quality of the operating earnings was slightly lower than previous quarters," Deutsche Bank analyst Nigel Coe wrote in a note to clients.

Profit margins improved at the aerospace arm, but declined in automation and control, transportation, and specialty materials.

Following the pattern of other major U.S. manufacturers this week, Honeywell raised its full-year profit target, by 5 cents a share to a range of $3.75 to $3.85. Analysts on average were expecting $3.79, according to Reuters Estimates.

"We are well positioned to execute and deliver results in a tougher economic environment," Chief Executive Dave Cote told investors on a conference call.

Second-quarter profit jumped 18 percent to $723 million, or 96 cents per share, from $611 million, or 78 cents per share, a year earlier. Wall Street was expecting 94 cents a share.

Revenue rose 13.3 percent to $9.67 billion from $8.54 billion. Almost three-quarters of the growth came from outside the United States, with 3 percentage points the result of exchange-rate fluctuations.

SORE SPOTS

Company officials said they were feeling the effects of a peaking aerospace cycle and forecast that worldwide flying hours would be up about 4 percent this year, down from their prior forecast of 5 percent growth.

They also forecast flat sales of passenger vehicles in Europe -- a key market for Honeywell's automotive turbochargers -- while they had previously expected growth of up to 2 percent.

The two lowered outlooks were not a surprise, but indicative of "headwinds," JPMorgan analyst Stephen Tusa wrote in a note to clients.

"Many of the macro assumptions presented at the beginning of the year were viewed as conservative," he said.

Morris Township, New Jersey-based Honeywell increased its full-year profit target a day after fellow diversified industrials United Technologies Corp (UTX.N), Danaher Corp (DHR.N) and Illinois Tool Works Inc (ITW.N) did the same, sparking a rally in the sector.

Shares of Honeywell were up 30 cents at $51.16 on the New York Stock Exchange. The stock is down about 17 percent so far this year, roughly in line with the 18 percent slide of the Standard & Poor's capital-goods index .GSPIC.

Honeywell trades at 13.4 times forecast 2008 earnings, a slight premium to the sector index's multiple of 13.

The company's competitors include United Tech in aerospace and building control systems, Goodrich Corp (GR.N) in aviation, and DuPont Co (DD.N) in specialty materials.

(Editing by Jeffrey Benkoe and Lisa Von Ahn)