October 16, 2015 / 11:14 AM / 2 years ago

Honeywell revenue misses on weak demand from oil, gas customers

David Cote, chairman and chief executive of Honeywell, speaks during The Economist's Buttonwood Gathering in New York October 24, 2012. REUTERS/Carlo Allegri

(Reuters) - Honeywell International Inc (HON.N), a maker of industrial, aerospace and auto components, reported lower-than-expected quarterly revenue, hurt by weak demand from oil and gas customers.

The company, which got about 11 percent of its sales from the energy industry in 2014, also cut its full-year revenue forecast, sending its shares down as much as 3.2 percent to $95.33 on Friday.

As oil and gas companies slash capital spending due to weak crude oil prices, Honeywell’s business that caters to the energy and chemicals industries among others was particularly hit.

Sales in the performance materials and technologies business, fell 13 percent in the third quarter. The business accounted for a quarter of Honeywell’s total sales.

Sales fell 2 percent in Honeywell’s aerospace business, its largest, and declined 3 percent in its automation and controls business.

Honeywell said sales in the performance materials and technologies business would be hurt in 2016 also due to declining orders from oil and gas customers.

“There are some pockets that have unfortunately created this temporary drag on us,” Chief Financial Officer Tom Szlosek said in an interview, referring to the company’s oil and gas-related business.

General Electric Co (GE.N) on Friday also said revenue in its oil and gas business dropped 16 percent in the latest quarter due to weak crude oil prices.

Honeywell, which has been cutting jobs and selling or merging businesses to reduce costs, said third-quarter operating margins rose to 18.3 percent from 16.2 percent a year earlier.

But, margin expansion in 2016 would be limited “given its peak operating levels”, William Blair analyst Nick Heymann said.

“We ... expect a pickup in end-market demand will be a necessity if the company is to drive growth in the longer term”, Heymann wrote in a note to clients.

Honeywell cut its 2015 revenue forecast to $38.7 billion from a range of $39 billion to $39.6 billion.

Revenue declined 5 percent to $9.61 billion in the quarter ended Sept. 30, also hurt by a strong dollar.

Core sales growth slowed to 1 percent from a rate of 2-5 percent in the previous five quarters. Core sales excludes the impact of currency, M&A and the pass-through of changes in raw material prices.

Lower costs helped net income attributable to Honeywell rise 8.3 percent to $1.26 billion, or $1.60 per share.

Analysts had expected a profit of $1.55 per share and revenue of $9.85 billion, according to Thomson Reuters I/B/E/S.

Reporting by Ankit Ajmera in Bengaluru and Lewis Krauskopf in New York; Editing by Kirti Pandey and Savio D'Souza

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