Energy costs not yet huge weight-Honeywell CEO

By Scott Malone

NEW YORK (Reuters) - Diversified manufacturer Honeywell International Inc. (HON.N: Quote, Profile, Research, Stock Buzz) said on Tuesday that businesses are finding ways to offset the effect of rising oil and commodity prices, keeping the surge from posing a serious threat to consumer spending.

"It doesn't seem to be making its way to the consumer," David Cote, chairman and chief executive officer of the diversified manufacturer, told the Reuters Manufacturing and Transportation Summit in New York.

"Volume is growing pretty well and people seem to control their fixed costs pretty well and let volume growth overshadow those commodity costs," Cote said on a telephone interview from Switzerland.

Oil prices have hit record highs above $75 per barrel over the past month, though lead-month oil futures closed at $69.50 per barrel on the NYMEX on Tuesday after falling sharply early in the week. Prices of metals including steel and copper have also been surging of late, driven by strong demand from developing economies.

Honeywell, the world's largest maker of cockpit electronics, also produces automation and control systems, such as thermostats, and specialty materials. It generated $27.65 billion in 2005 sales.

Cote said Honeywell has mainly dealt with rising energy and metals prices by cutting costs elsewhere. However, in extreme cases, like its $1.2 billion special materials business, which saw natural gas costs rise $120 million over the past few years, the company has pushed through price increases.

Cote also noted that the rise in energy prices has stimulated demand for some of Honeywell's energy-saving products, such as turbochargers for automobiles and efficient airplane components.

He said it's hard to predict when the rising price of oil will start to take a heavier toll on the economy.

"If you had, four years ago, said, 'Gee, what happens with $70 a barrel oil,' I'd have been saying, 'Disaster, global disaster, global recession, no way business can stand that.' And here we sit and everything is going along fine," Cote said. "I'm not sure what that number is. I know there's one out there at which point it does create a problem, but I'm not the person to figure out what the number is."