Honeywell (HON) posted solid results Friday that showed strong organic growth, impressive cash-flow generation, and margin expansion across all of its business segments. Our above-market fair value estimate remains unchanged.
The industrial conglomerate’s fourth-quarter sales advanced 8% (7% organic) reflecting ongoing expansion in most of its end markets, new product introductions, and geographic expansion on key process initiatives. Honeywell experienced particular strength from its aerospace end market thanks to 20% growth in commercial original equipment and aftermarket volumes. Though we are reducing our aerospace exposure in the portfolio of our Best Ideas Newsletter to lock in some of our big gains of the previous few months, we continue to expect strength from this industry as commercial production rates at Boeing (BA) and Airbus (EADSY.PK) advance considerably in coming years. Automation and Control Solutions’ revenue jumped 4% as emerging markets expansion offset softness in Europe, while sales in its Performance Materials and Technologies segment (formerly Specialty Materials) increased a whopping 24% thanks to strong performance at UOP (where sales increased 36% in the quarter). Revenue growth of 10% in the firm’s Transportation Systems segment due to strong turbocharger sales rounded out Honeywell’s solid top-line performance in the quarter.
Honeywell’s fourth-quarter pro-forma earnings jumped an impressive 21%, to $1.05 per share, up from $0.87 per share in the fourth quarter of 2010. Profit in the firm’s aerospace segment jumped 10% as segment margins expanded 40 basis points thanks to higher volume throughput and productivity initiatives. Segment profit in its Automation and Controls Solutions segment performed even better, advancing 14% from the same period a year ago, while profit in its Performance Materials and Technology segment jumped an impressive 30%. Segment profit increased 14% in its Transportation Systems segment. Free cash flow in the quarter, excluding pension contributions, was excellent at $1.4 billion (a solid 14.7% of sales), as working capital proved to be a strong source of cash during the period.
Looking ahead, Honeywell noted that, while it expects a challenging environment during 2012 (namely because of softness in