(Corrects first paragraph to say company will increase the use
of supply chain sources from non-China countries, not start
sourcing from countries other than China)

* CEO says already looking at non-Chinese suppliers

* Raises 2018 EPS forecast to $8.05-$8.15 from $7.85-$8.05

* Q2 adj. EPS of $2.12 beats estimate of $2.01

* Sees 2018 free cash flow $5.6 bln-$6.2 bln vs $5.3
bln-$5.9 bln

* Shares rise as much as 4.4 pct

By Ankit Ajmera

July 20 (Reuters) – U.S. industrial conglomerate Honeywell
International Inc said on Friday it will increase the
use of supply chain sources from non-China countries to counter
growing costs related to a tariff war between the world’s two
largest economies.

Honeywell’s shares rose as much as 4.4 percent to $153.99
after the company also reported a better-than-expected quarterly
profit and raised its 2018 profit forecast for the third time as
it benefits from increased demand for aircraft parts and
services.

The conglomerate said it had boosted prices on some of its
products and had locked in purchases of some raw materials and
components before new tariffs on imports from China came into
effect.

“The key here is to get ahead of it early, and I think we
definitely have,” Chief Executive Darius Adamczyk told a
conference call with analysts after the company’s second quarter
results. “If you sit and wait, you could see substantial margin
contraction.”

The maker of engines for business jets produced by
Bombardier and Textron raised the low end of
its full-year margin forecast to 19.4-19.6 percent from
19.3-19.6 percent, and said it was expecting limited impact from
known tariffs due to its mitigating actions.

Honeywell and other industrial firms are seeing costs rising
after President Donald Trump imposed a 25 percent tariff on
imports of steel and 10 percent on aluminum from China and other
countries.

“I wouldn’t tell you we’re not impacted, but we’re a lot
more prepared,” Adamczyk said.

Excluding items, Honeywell earned $2.12 per share in the
second quarter ended June 30, beating analysts’ average estimate
of $2.01, according to Thomson Reuters I/B/E/S.

The company’s revenue rose 8.3 percent to $10.92 billion,
above a Wall Street estimate of $10.80 billion.

An ecommerce boom in the United States is also contributing
to Honeywell’s profits, helping it sell more supply chain and
warehouse automation equipment and software to customers
including Amazon.com Inc.

Sales in the aerospace division, which makes auxiliary power
units, braking systems and other parts for Boeing and Airbus
single-aisle planes, rose about 10 percent to $4.06 billion.

The company now expects 2018 profit in a range of
$8.05-$8.15 per share, up from $7.85-$8.05, and sales of $43.1
billion-$43.6 billion, up from $42.7 billion-$43.5 billion.

“(Honeywell results) reinforces our positive view, 2019 is
going up,” said J.P. Morgan analyst Stephen Tusa. “HON still has
an abundance of balance sheet flexibility to either add to the
upside or cushion the blow of a potentially mixed macro.”
(Reporting by Ankit Ajmera in Bengaluru; Editing by Maju
Samuel)