Better Times Lie Ahead for Honeywell International

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Mar 29, 2015

Honeywell International (HON, Financial) had a terrific end to fiscal 2014 as it delivered growth across different metrics. This year, Honeywell will mainly focus on increasing sales on an organic basis, while ramping its investments in new products and technologies. This is expected to improve its ROI CAPEX helping it to expand its global footprint. Let us have a detailed look at its prospects.

Strong growth

Honeywell is seeing good growth in its business cycle with good improvement in commercial aftermarket businesses. Further, Honeywell is seeing many positive signs that are suggesting a modest improvement in the end market conditions that will benefit it in long term. Further, Honeywell is pleased to see robust backlogs and is surely going to help the company. The U.S economy has recovered largely in the recent times and the analysts are further expecting it to get better. Considering this, Honeywell is trying to maintain a flexible operational environment so that it can mould according to the market movement in future.

Moving forward, Honeywell is a conglomerate operating in various segments. Under these segments it is seeing some bright spots in Process Solutions. The company thinks that the accelerating sales growth and orders getting doubled should support this progress in the segment in 2015 as well. In addition, Honeywell is also carrying out project execution with LEAP known as HPS. The company is now bringing in innovations in the execution of these automation projects to win the market with its offerings across control and safety systems, field devices, plant optimization, software and services.

Key products to power growth

Another exciting thing that the company is counting on is HPS and UOP association. It is expecting bright synergies arising from these two working together. Honeywell’s ability to match UOP process along with HPS’s control and advance software solutions will enable it to see unmatched operational excellence while refining petrochemical and gas process. In addition, the company has also integrated with intermec in the past and it is expecting integration benefits to support its long term growth in future. While on the other hand, the scanning &Mobility business continues to perform well with introduction of new products. This has strengthened Honeywell’s portfolio and the company is expecting it to contribute well to its growth story in future.

In 2015, Honeywell is also seeing some key items that can impact its business. The major headwind that it can face is due to the lower oil prices. This will lead to neutral performance by UOP and HPS. Further, this will also impact the petrochemical progress decisions leading to further delay in downstream countries having net oil producers such as Russia and Middle East.

Ongoing lower prices will also affect the sales volatility, The Company is expecting the sales in residents and chemicals to be negatively impacted by lower oil prices. However, the company is now undertaking a strategy of indirect spending this might offset the negative effect of lower oil prices. If this rolls on, Honeywell will continue such a strategy throughout 2015.

The currency exchange risk can also be a solid headwind for Honeywell. The company is well aware of weaken of Euro. To still maintain its margins, it has undertaken hedging initiative to cover 80% of its Euro based earnings. This will also lead company to put pressure on its sales line to achieve better profitability. Not only with Euro Honeywell is seeing foreign exchange challenges with other currencies too. However, it has also taken same hedging techniques to largely protect its 2015 earnings outlook for 2015.

Conclusion

The recovering U.S economy can be a growth driver for Honeywell in future. With positive signs from the U.S economy, the company is optimistic about an upbeat performance by its business in U.S in 2015. It is now focusing on some of the high growth regions and is looking to achieve 50% improvement in the sales in the next five years. In addition, with urbanization and infrastructure development, Honeywell is seeing exciting opportunities across its strong product portfolio.