Honeywell Expects 2nd-Quarter EPS To Be $0.75, Up 14% Over 1999; Operating Margin Expected To Expand To 15.4%

Business Wire, July 10, 2000

Business Editors

MORRIS TOWNSHIP, N.J.--(BUSINESS WIRE)--July 10, 2000

Full-Year 2000 EPS Expected To Be $3.00-To-$3.05, An Increase Of

12%-To-14% Over 1999; 2001 EPS Expected To Grow By 10%-To-15%

Sales Growth Seen In Aerospace Aftermarket, Turbochargers, Fluorines,

Home & Building Control Products And Sensing & Control

Cost-Cutting Initiatives Being Implemented Across Businesses;

Merger Savings On Track To Be $250 Million This Year

Company Merges Polymers And Specialty Chemicals Businesses

Honeywell (NYSE: HON) announced today that it expects second-quarter earnings per share (EPS) to be $0.75, up 14% compared to 1999 second-quarter EPS of $0.66 (excluding one-time items in both periods). Including the gain on the sale of the former Honeywell Inc. TCAS product line (after-tax $71 million) and repositioning charges (after-tax $59 million), second-quarter EPS is expected to be $0.76.

Second-quarter free cash flow before dividends is expected to be $339 million. Operating margin is expected to expand to 15.4% due to aggressive cost reductions in addition to merger synergies.

The company said its new full-year EPS estimate is $3.00-to-$3.05 (up 12%-to-14% compared to 1999), with full-year sales expected to grow by 8%-to-10%. Full-year free cash flow before dividends is expected to be approximately $1.5 billion.

Sales in the second quarter are expected to grow by approximately 6% to $6.3 billion compared to the year-earlier period. Sales growth will be led by Home & Building Control products driven by the Pittway acquisition, Aerospace Aftermarket, Turbochargers, Fluorines and Sensing & Control products. Revenue growth was partially offset by lower sales in Industrial Automation & Control, Truck Brakes, and in Aerospace Electronics due to a temporary supplier parts shortage.

The company experienced higher-than-expected raw material costs in its Polymers and Specialty Waxes businesses, resulting in lower margins. It also had higher debt-service costs due to higher interest rates and debt balances.

Aggressive Cost-Cutting Underway

"We are implementing a series of aggressive cost-cutting initiatives across the company to address the shortfalls in our business performance," said Honeywell Chairman and CEO Michael R. Bonsignore. "With these actions, we expect earnings-per-share growth in 2001 to range from 10% to 15%."

"We also have launched a corporate-wide initiative to maximize cash generation, and we are accelerating the deployment of Six Sigma Plus resources in our services businesses where the average project return is twice the manufacturing project returns," Bonsignore said.

"Management realizes that its credibility is dependent on strong, consistent performance every quarter, and we are committed to taking the steps - both short- and long-term - to deliver the full value of Honeywell's impressive global franchises," Bonsignore added. "Additionally, while some of our businesses continue to face tough challenges, we have not encountered any unexpected issues relating to the merger integration process and remain on course to achieving our goal of $250 million of integration savings this year."

Accelerating Portfolio Actions

"Among the steps we are taking to address our performance is to reconfigure our business portfolio to maximize its potential," Bonsignore said. "We will be focusing our discretionary investments on core businesses, while fixing, closing or selling under-performing or non-core units."

Polymers And Specialty Chemicals To Merge

Bonsignore said the company is merging its Polymers and Specialty Chemicals businesses into one unit, which will have $3.3 billion in annual sales, approximately 10,000 employees and more than 50 facilities around the world. Dean M. Flatt, currently Vice President and General Manager of the company's Aerospace Defense & Space Systems business, will be the new business' President. The consolidation will result in additional cost-saving opportunities as well as provide a stronger focus on the growth synergies between these businesses.

Strong Fundamentals, Core Franchises

"Despite the shortfalls some businesses are experiencing, Honeywell is a strong, fundamentally sound company," Bonsignore added. "We remain a global technology leader with better-than-15% margins, powerful brands, leading e-business strategies and some of the world's most valuable franchises. We have exciting products and solutions offerings and a core business mix that's poised to drive our future growth.

"Our $10-billion Aerospace franchise is the envy of the industry, ranked two years in a row as the most admired aerospace company. It features a balanced presence of both original equipment and a seasoned aftermarket installed base in commercial air transport, business and regional jets and military segments," Bonsignore continued. "We have one of the broadest ranges of subsystems and components, 53 repair and overhaul sites worldwide, a rapidly expanding `power-by-the-hour' business model and one of the largest field sales, service and support infrastructures in the industry. And we are continuing to build on our leadership position as the preeminent systems integrator for aircraft platforms in all segments," he added.