March 5, 2014 / 12:20 PM / in 4 years

UPDATE 3-Honeywell targets over $50 bln sales by 2018, M&A ramp-up

By Lewis Krauskopf
    March 5 (Reuters) - Honeywell International Inc on
Wednesday set a target of increasing overall company sales to
more than $50 billion by 2018 as it seeks to spend $10 billion
on acquisitions and continue to expand profit margins.
    Honeywell, a U.S. diversified manufacturer of aerospace
parts and climate control and security systems, also said it
expects earnings to grow at a double-digit pace in percentage
terms over the next five years.
    Honeywell, which reported $39.1 billion in sales in 2013,
unveiled the new five-year targets as it hosted an investor
conference in New York.
    Shares of Honeywell, which also backed its first-quarter and
2014 forecasts, rose about 1 percent.
    "They laid out a very aggressive plan," said Tim Ghriskey,
chief investment officer of Solaris Asset Management. "They're
going to make this a bigger company, and they were very
optimistic about the long-term growth."
    Analysts have been eager to see Honeywell's latest five-year
targets after praising the company for reaching its goals with
the most recent plan. 
    Since the company issued five-year targets in February 2010,
its shares have outperformed those of conglomerate rivals such
as General Electric Co and United Technologies Corp
 and the broader market.
    "Most investors would consider Honeywell a winner out of the
last five years or so," Morningstar analyst Daniel Holland said.
"The company operationally looks a lot better than it did."
    Speaking at the investor conference, Chief Executive Officer
Dave Cote said Honeywell's businesses aligned well with global
trends such as increasing demand for energy efficiency and
growing urbanization.
    Honeywell expects high-growth regions such as China to drive
about half its sales growth over the next five years.
    "We have a real diversity of that we can
grow almost in any environment," Cote told the conference.
    Honeywell said it wanted to spend $10 billion on
acquisitions that would add about $5 billion to $8 billion in
sales over the next five years. 
    Brian Langenberg, an analyst with Langenberg & Co, noted the
$10 billion target for acquisitions was significantly larger
than the roughly $4 billion spent in the previous five years.
    "That's a big number," Langenberg said. "It does stand out
as being a meaningful statement about M&A activity."
    Cote said Honeywell would be "careful" with its deal
selection, laying out criteria for deals such as a level of cost
savings. "That being said, I think there's a lot of
possibilities out there for us," he said.
    Excluding deals, Honeywell still expects sales to increase
by $7 billion to $12 billion by 2018, an increase of 4 percent
to 6 percent a year on average.
    "We expect the market to favorably receive Honeywell's
message of continued double-digit EPS growth on mid single-digit
organic revenue growth," analysts at William Blair said in a
research note.
    The company sees profit margins for its business segments
increasing to between 18.5 percent to 20 percent over that time,
up from 16.3 percent last year.
    Honeywell expects to generate roughly $30 billion to $33
billion in cash flow from operations through 2018, about half of
which it will return to shareholders through dividends and
buying back shares.
    It expects to invest about $5 billion in capital
expenditures, such as increasing production capacity to support
its performance materials and technologies business, products
which include chemicals used in oil and gas production.
    Honeywell shares rose nearly 1 percent to $95.50 in morning
trading on the New York Stock Exchange. Through Tuesday,
Honeywell shares had risen 3.5 percent this year, better than a
1.4 percent increase for the S&P 500 index.
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