Honeywell's 2nd-Quarter EPS Grows 14% To $0.75; Operating Margin Expands To A Record 15.4%

Business Wire, July 18, 2000

Business Editors

MORRIS TOWNSHIP, N.J.--(BUSINESS WIRE)--July 18, 2000

Sales Grow 6% To A Record $6.3 Billion;

Growth Driven By Pittway Acquisition, Aerospace

Aftermarket, Turbochargers, Electronic Materials,

Fluorines And Sensing & Control Products

Honeywell (NYSE: HON) announced today second-quarter earnings per share (EPS) of $0.75, up 14% compared to 1999 second-quarter EPS of $0.66 (excluding one-time items in both periods). Reported earnings per share were $0.76, including the gain on the sale of the former Honeywell Inc. TCAS product line (after-tax $71 million) and repositioning charges for costs related to phasing out a pilot-scale chip-packaging facility in its Electronic Materials business and for severance (after-tax $59 million).

Operating margin expanded to a record 15.4%. A 7% productivity improvement was driven by aggressive cost reductions, merger synergies, portfolio changes and ongoing Six Sigma Plus programs. Second-quarter free cash flow before dividends was $339 million.

Sales in the second quarter grew 6% to a record $6.3 billion compared to the year-earlier period. The Pittway acquisition, Aerospace Aftermarket, Turbochargers, Electronic Materials, Fluorines and Sensing & Control products led sales growth. Sales growth was partially offset by lower sales in Industrial Automation & Control, Truck Brakes, Friction Materials and in Aerospace Electronics, due to a temporary supplier parts shortage.

Second-Quarter Segment Highlights

Segment highlights for the second quarter are as follows:

Aerospace Solutions - Segment performance was driven by solid growth in many aftermarket businesses, which continue to benefit from increases in air transport and regional flying hours, as well as strong ongoing global demand for the company's commercial and military repair and overhaul services. An increasing emphasis on aftermarket products and services has contributed significantly to the segment's sales and profitability despite reduced shipments to commercial air transport original equipment customers. The segment saw sales decline in the second quarter due to a temporary supplier parts shortage in its Aerospace Electronics business and merger-related divestitures.

Segment margins expanded in the second quarter primarily due to merger savings, cost reductions driven by ongoing Six Sigma Plus activities and a better mix of higher-margin aftermarket products and services.

Automation & Control - The segment's second-quarter sales performance was driven by the Pittway acquisition and by product growth in both Home & Building Control and Sensing & Control. Sales growth was partially offset by lower sales in Industrial Automation & Control, due to a delay in the recovery of the hydrocarbon processing industry.

Segment margins increased due to merger savings and cost reductions, the Pittway acquisition and other portfolio changes.

Performance Materials - Sales growth was driven by strong demand for the company's alternative refrigerants and for advanced circuitry products that its Electronic Materials business supplies to the semiconductor and electronics industries. Strong sales growth in Fluorines, Chemical Specialties and Electronic Materials was partially offset by continuing weakness in Carpet Fibers.

The company is merging its Polymers and Specialty Chemicals businesses to accelerate cost savings in the segment and to strengthen the focus on growth synergies between the two businesses. It also announced that it is phasing out a pilot-scale chip-packaging facility (Electronic Materials) in California.

The segment's margins contracted due to higher raw material costs and weaknesses in its Pharmaceutical and Chip-Packaging businesses.

Power & Transportation Products - The segment's second-quarter sales performance was led by double-digit growth in Turbochargers, where European demand for the company's products continues to be strong, and in the Truck Brakes aftermarket. Sales growth was offset by lower sales in the Truck Brakes original equipment market due to a decline in heavy-duty truck builds, and a weak Euro. More than 180 Turbogenerator units have been shipped this year, driving more than $13 million in revenue for the Power Systems business.

Segment margins were lower due to temporary issues with suppliers to the company's Turbocharger business, costs related to the ramp up of its Turbogenerator product line and weakness in its Truck Brake operations.

Honeywell is a US$24-billion diversified technology and manufacturing leader, serving customers worldwide with aerospace products and services; control technologies for buildings, homes and industry; automotive products; power generation systems; specialty chemicals; fibers; plastics; and electronic and advanced materials. The company is a leading provider of software and solutions, and Internet e-hubs including MyPlant.com, MyFacilities.com and MyAircraft.com (joint venture with United Technologies and i2 Technologies). Honeywell employs approximately 120,000 people in 95 countries and is traded on the New York Stock Exchange under the symbol HON, as well as on the London, Chicago and Pacific stock exchanges. It is one of the 30 stocks that make up the Dow Jones Industrial Average and is also a component of the Standard & Poor's 500 Index. Additional information on the company is available on the Internet at www.honeywell.com.