October 20, 2017 / 10:44 AM / a year ago

Honeywell sees aero margin widening, hikes 2017 revenue forecast

(Reuters) - Honeywell International Inc (HON.N) expects its aerospace profit margins to keep widening, helped by strong demand for service and spare parts, though margins will not improve as much as they did in the third quarter, the company’s chief financial officer said on Friday as Honeywell reported results.

FILE PHOTO: A view of the corporate sign outside the Honeywell International Automation and Control Solutions manufacturing plant in Golden Valley, Minnesota, U.S. January 28, 2010. REUTERS/Eric Miller/File Photo

Aerospace margins widened by an unusually strong 2.9 percentage points in the third quarter, to 21.3 percent, as Honeywell scaled back incentives to plane makers such as free product parts, Chief Financial Officer Tom Szlosek told Reuters.

“That’s not sustainable,” Szlosek said of the third-quarter margin improvement. He said the company’s forecast for profit margin gains in the current fourth quarter of 0.7 to 0.9 point are “indicative of what you can expect on a sustained basis.”

Profit margins at aerospace suppliers have come under pressure as plane makers such as Boeing Co (BA.N) and Airbus SE (AIR.PA) have tried to boost their own narrower margins.

Honeywell, which also makes building control systems and other industrial equipment, on Friday raised it full-year sales forecast, citing higher demand for spare aircraft parts and services that would boost its aerospace business.

Honeywell’s shares were up 1 percent to $145.13 in afternoon trading on the New York Stock Exchange, after rising to a record high of $145.80 earlier on Friday.

The company said it expects revenue for the year of $40.2 billion to $40.4 billion, up from the $39.3 billion to $40.0 billion estimated previously.

Honeywell plans to keep investing in aerospace “at or above current rates” and is “very interested” in acquisitions in aircraft connectivity, mechanical products and software, Szlosek said.

Sales in the aerospace business, Honeywell’s biggest, rose 4 percent in the third quarter. Sales in its performance materials and technologies (PMT) division rose 10 percent.

PMT, which makes catalysts and absorbents used for petroleum and refining among other things, is also benefiting as demand from the oil and gas industry remains robust. However, Honeywell expects hurricanes Harvey and Irma to cost about 2 cents in earnings per share in the current quarter, Szlosek said.

Last week, the company said it would spin off two businesses with $7.5 billion in revenue to help fund acquisitions.

Honeywell was under pressure from activist investor Daniel Loeb and his hedge fund Third Point LLC to spin off its aerospace business.

Honeywell’s net income in the third quarter rose to $1.35 billion, or $1.75 per share, from $1.24 billion, or $1.60 per share, a year earlier.

Revenue rose 3.2 percent to $10.12 billion.

Additional reporting by Ankit Ajmera and Arunima Banerjee in Bengaluru; Editing by Anil D'Silva and Leslie Adler

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