Honeywell reported solid fourth quarter and annual earnings results in January 2012, continuing a positive trend for the industrial conglomerate.

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Full-Year Recap
Reported sales advanced a very healthy 13% to $36.5 billion. Organic growth, or excluding acquisitions, increased a very respectable 8% as each of the four operating divisions posted positive trends. The largest was automation and control solutions at 42.5% of total sales.

It grew 13% due to acquisitions and new business, including a grid project to help the Scottish and Southern Energy Power Distribution utility connect 30 buildings with power in London. The next largest at just over 31% of sales was aerospace, which competes with the likes of Boeing (NYSE:BA) and United Technologies (NYSE:UTX) and saw sales improve 7.4%, with a new safety product contract with German airline Lufthansa and a new family of jet engines.

Performance materials and technologies weighed in at 15.5% of total sales and improved sales an impressive 26.1%, due to acquisitions and organic growth, including a product to assist in "for the cleanup of radiation-contaminated water at the Fukushima Daiichi nuclear power plant in Japan" that is being used by underlying clients Toshiba and Shaw Group (Nasdaq:SHAW).

Finally, transportation systems accounted for the remaining 11% of sales and grew nearly 21% as it helped vehicles with turbo charging and other ways to run more efficiently.

Every division also reported positive operating profit growth. Divisional profits advanced 19.4% to $5.4 billion, but a pension charge reduced company operating profits by 16.2% to $2.3 billion. A reduction in income tax expense helped return net income growth to positive territory at 2.2% as the bottom line reached $2.1 billion, or earnings of $2.61 per diluted share. Excluding the pension adjustment, the company estimated $4.05 in earnings. It also detailed free cash flow of $3.7 billion, or approximately $4.67 per diluted share.

For 2012, analysts currently project sales growth of nearly 6% and total sales of almost $39 billion. They expect earnings growth of more than 9% and total earnings of $4.44 per share.

The Bottom Line
Shares of Honeywell are currently bumping up against their highs over the past year, but still trade at a relatively reasonable forward earnings multiple of 12. The trailing free cash flow multiple is even more appealing at about 12.5. Return on invested capital, using net debt plus shareholders' equity as the denominator, came in at an impressive level of more than 26% for the year.

Total growth trends have been anemic over the past five years as it includes the recessionary period brought on by the credit crisis, but Honeywell looks capable of leveraging high single-digit sales growth into double-digit annual earnings gains going forward. Combined with a reasonable valuation and decent current dividend yield of 2.6%, the shares deserve a good, close look by investors.

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At the time of writing, Ryan C. Fuhrmann did not own shares in any of the companies mentioned in this article.

Tickers in this Article: HON, BA, UTX, GE, SHAW

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