(Bloomberg) -- Honeywell International Inc. said new products and improved demand in the energy industry will help profit growth accelerate in 2017 after sales weakness last quarter forced it to cut earnings targets.
The maker of gas-processing equipment and cockpit controls is targeting an earnings gain in the “double digits” in 2017 and an increase of 8 percent to 9 percent this year. The company is betting on new products such as broadband for airplanes and Solstice, which develops refrigerants that meet more stringent environmental regulations, Chief Financial Officer Tom Szlosek said Friday.
“You have to invest and we’re investing,” he said in an interview. “You have to find places where the markets are growing.”
Honeywell is using acquisitions and new products to try to counter sluggish demand for industrial goods as economic growth slows in the U.S. and abroad. Excluding newly purchased operations and currency effects, sales will grow at a “low-single-digit” pace next year, reversing a drop of as much as 2 percent this year, Honeywell said in a slide presentation.
The shares rose 0.7 percent to $108.90 at 12:00 p.m. in New York as the Standard & Poor’s 500 Index fell 0.1 percent.
Chief Executive Officer Dave Cote, who is stepping down at the end of March after taking the helm in 2002, has tweaked Honeywell’s portfolio of businesses to soften the impact of lackluster global growth. This year, he sold a defense contractor and spun off a resins maker while paying $1.5 billion to add a warehouse automation company. He also split the company’s Automation and Control Solutions business into two units.
The U.S. economy is expected to expand 1.5 percent this year, down from 2.6 percent in 2015, while growth in the European Union is set to slip to 1.8 percent from 2.3 percent last year.
In the third quarter, Honeywell’s net income fell 1.9 percent to $1.24 billion, or $1.60 a share, according to a company statement Friday. Revenue rose 2 percent to $9.8 billion, in line with the level the company projected in a preliminary earnings announcement Oct. 6.
Weakness in business aircraft, helicopters and industrial combustion equipment dragged down sales, the Morris Plains, New Jersey-based company said earlier this month. In July, Honeywell had forecast third-quarter earnings of as much as $1.72 a share before cutting the target to $1.60 earlier this month.
Organic sales, which exclude acquisitions and currency effects, fell 3 percent in the third quarter. To spur sales, Honeywell has made almost $12 billion of acquisitions since 2014.
“There’s been a tremendous reliance on acquisitions in 2015 and 2016,” said Nick Heymann, an analyst with William Blair & Co. in a Bloomberg TV interview. “And if you don’t get that organic growth then it’s going to be tougher to meet those expected contributions from your recent acquisitions.”
The company also stepped up efforts to cut costs in the third quarter, eliminating 3,017 manufacturing and administrative jobs, according to a regulatory filing. It’s cut 5,888
positions this year through September. The company had about 129,000 employees at the beginning of the year, with 49,000 in the U.S.