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Honeywell cost cutting drives profit higher

A view of the corporate sign outside the Honeywell International Automation and Control Solutions manufacturing plant in Golden Valley, Minn
A view of the corporate sign outside the Honeywell International Automation and Control Solutions manufacturing plant in Golden Valley, Minn

By Bijoy Anandoth Koyitty

(Reuters) - Honeywell International Inc reported a stronger quarterly profit as it cut costs and sold more security systems for buildings and turbochargers for cars and trucks, nudging its shares to a lifetime high.

The 13 percent increase in profit, helped by higher margins and a lower tax bill, beat analysts' expectations and the company raised the lower end of its full-year profit forecast.

Honeywell, a supplier to Boeing Co , has said it expects no material financial impact from an investigation into whether one of its emergency beacons was the cause of a fire aboard a parked 787 Dreamliner last week.

British aviation investigators have identified the beacon as the likely source. The Air Accidents Investigation Branch (AAIB) will make recommendations to the Federal Aviation Administration (FAA) after completing a probe into the fire.

Asked about the investigation on a post-earnings conference call, Honeywell Chief Executive David Cote said: "Wait until they've done the job, and when you look at the AAIB and the FAA they will do a good job sorting this whole thing through."

Honeywell, which also supplies the U.S. military, has attempted to reduce costs and improve productivity to counter the impact of a weak European market and sequestration-related budget cuts by the U.S. government.

Cost reductions also came in handy for Honeywell's rival, General Electric Co , on Friday as it beat quarterly profit expectations by a penny.

Cote, credited with rebuilding Honeywell over the last decade through an aggressive cost-containment strategy, said the company would focus on revenue growth by developing new products and expanding production capacity.

"While investing for productivity is important, it sure is a lot easier to expand margins when sales are growing," he said.

TAX BENEFIT

On Friday, Honeywell reported second-quarter earnings of $1.28 per share, topping the average analyst estimate by 7 cents, according to Thomson Reuters I/B/E/S.

The company also raised the low end of its current-year pro-forma earnings-per-share forecast to $4.85 from $4.80. The top end was unchanged at $4.95.

Analysts said Honeywell's second-quarter earnings beat was driven by a lower tax rate, which added 6 cents to earnings. The effective tax rate for the quarter fell to 23.1 percent from 26.0 percent a year earlier.

Pension and post-retirement benefit payments fell to $42 million during the second quarter from $308 million a year earlier, while the company's operating income margin rose to 14.3 percent from 13.6 percent.

"Tax and pension helped EPS substantially, but the company also continued to fund some additional restructuring, helping overall earnings quality," J.P. Morgan analyst Stephen Tusa wrote in a note to clients.

For the third quarter, the company forecast earnings of $1.20 to $1.25 per share, in line with analysts' expectations of $1.24 per share. It forecast revenue in a range of $9.8 billion to $10.0 billion, also roughly in line with analysts' forecasts.

Honeywell shares edged up 0.5 percent to $83.38 on the New York Stock Exchange, having earlier touched an all-time high of $84.80. Its stock has risen more than 40 percent in the last 12 months.

(This story has been corrected to say in paragraph 13 that pension and post-retirement payments fell to $42 million, not $32 million, during the quarter)

(Editing by Maju Samuel and Saumyadeb Chakrabarty)

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