Honeywell Warns of 2Q Shortfall
By Matt Paolucci

Blue chip Dow component Honeywell International (HON) is the second Dow company to issue an earnings warning in the past couple weeks. Back on June 8, consumer products giant Proctor and Gamble also said it would miss its fourth quarter numbers.

The Morristown, New Jersey diversified technology and manufacturing leader cited unexpected parts shortages in its aerospace unit, higher-than-expected raw material prices in its performance materials unit and high interest rates as

"There has been concern because Honeywell is an interest- sensitive company, and the speculation is that rising interest rates and a slowing economy could damage their results," said Paul Nisbet, an analyst covering Honeywell for JSA Research.

Honeywell said it would earn between 73 cents and 77 cents a share, a penny shy of the 78-cent per share figure First Call/Thomson Financial had been expecting.

Honeywell makes a plethora of products for aerospace, automation, power, and transportation uses. The company also makes performance materials used in semiconductors, polymers for electronics and carpet fibers, and specialty chemicals.

Roughly 40 percent of Honeywell's sales come from aerospace products, which include turbofan and turboprop engines and systems for flight safety and aircraft landing. Its automation segment (26 percent of sales) includes industrial and home controls for heating and ventilation and for manufacturing processes.

Aside from its old-school aerospace and industrial units, Honeywell also is a leading provider of software and solutions, and Internet e-commerce hubs, including MyPlant.com, MyFacilities.com and My Aircraft.com (joint ventures with United Technologies and i2 Technologies).

Honeywell International, formed in 1999 by the merger of Allied Signal and Honeywell, recently acquired Pittway, a maker of building-security and fire systems. HON now employs some 120,000 people in 95 countries.

Chuck Hill, director of research for First Call, said he wasn't particularly alarmed by Honeywell's report. He said the company typically meets expectations or beats them by a penny. He added that companies with such a tight history of performance are usually quick to report a possible shortfall, even if it's not a large one.

HON said second-quarter revenue growth is expected to be 7-8 percent higher than prior year levels, but down from expectations of 10-11 percent.

Honeywell shares were down more than $9 to $39.38, erasing almost $7.2 billion in market capitalization.

The number of block trades in Honeywell stock were up dramatically in front of the news, hinting that the "smart money" knew ahead of time what was coming down the pike.

The company is scheduled to report second quarter earnings on July 18.