Honeywell's Ongoing 3rd-Quarter EPS Up 10% To $0.76; Operating Margin Increases To A Third-Quarter Record Of 15.1%

Business Wire, Oct 17, 2000

Business Editors

MORRIS TOWNSHIP, N.J.--(BUSINESS WIRE)--Oct. 17, 2000

Third-Quarter Sales Growth Driven By Fire & Security,

Electronic Materials, Turbochargers, Sensing & Control Products And

Aerospace Repair & Overhaul

Company Wins Key Aerospace And Industrial Control Contracts And

Launches New Growth Products

Honeywell Expects 4th-Quarter EPS To Range From $0.86 To $0.88, With

Full-Year 2000 EPS Expected To Range From $3.00 To $3.02

Honeywell (NYSE:HON) said today that its ongoing third-quarter earnings per share (EPS) were $0.76, up 10% compared to the third quarter of 1999. Ongoing third-quarter earnings per share include a charge for costs related to a product recall in its Truck Brakes business and a gain from the sale of its minority interest in an automotive aftermarket venture.

One-time items in the third quarter include $344 million (pre-tax) in charges related to portfolio changes, including the planned sale of the company's Friction Materials business and the exiting of its minority interest in a basic chemical manufacturer. An additional $116 million (pre-tax) in net repositioning and other charges were incurred in the quarter, primarily related to the company's cost-reduction activities. Including these one-time items, third-quarter earnings per share were $0.35.

Operating margin grew to a third-quarter record of 15.1%. Productivity in the third quarter was 5%, driven by continued aggressive cost-reduction activities, portfolio changes and Six Sigma Plus initiatives. Third-quarter free cash flow before dividends was $337 million.

Sales in the third quarter increased 3%, driven primarily by growth in Fire & Security, Electronic Materials, Turbochargers, Sensing & Control products, CFC-free refrigerants and Aerospace repair and overhaul. Sales growth was partially offset by lower sales in Commercial-Vehicle Braking Systems, Industrial Automation & Control, Home & Building Control products and Carpet Fibers. Sales continue to be negatively affected by a weakened Euro and a supplier issue in the Aerospace Electronics business, which is improving and expected to be substantially resolved by the end of the year.

The company said it expects fourth-quarter EPS to range from $0.86 to $0.88, with full-year 2000 EPS expected to range from $3.00 to $3.02.

"Honeywell met its income and free-cash-flow commitments in the third quarter despite a challenging operating environment," said Michael R. Bonsignore, Honeywell's Chairman and CEO. "Our third-quarter sales growth of 3% was below our expectations, but we are encouraged by the recent favorable customer response to our broad product and service offerings, particularly in Aerospace and Industrial Control. Their renewed commitments to us represent new sources of valuable future revenue growth.

"Like other companies, we are confronting the effects of surging raw material prices, a weakened Euro and pockets of slow economic activity," Bonsignore continued. "But I have great confidence in Honeywell's long-term potential. We have a focused productivity culture across the company, which is enabling us to aggressively reduce our costs. We are moving swiftly in directing our resources to our most valuable core global franchises. And, in this quarter, we saw significant contract wins, exciting new product launches and the acceleration of our e-business initiatives."

Bonsignore said the company received more than $2 billion in new aerospace customer agreements with Gulfstream and Raytheon in the quarter, as well as a long-term avionics agreement with Dassault. The contracts cover the range of Honeywell aerospace products, including its advanced Primus Epic avionics system, other avionics products and turbofan engines.

Additionally, the company announced that its partnership with GE was awarded a three-year, $196 million U.S. Army development contract to provide 24 gas turbine engines for the Crusader and M1 Abrams battle tanks as the first part of a two-phase program. In the second phase of the program, beginning in 2004, the partnership expects to produce 3,400 engines for the Army.

Honeywell's Industrial Control business signed a ten-year, $117 million ManageAbility(TM) (Total Plant Management) agreement with Syncrude Canada Ltd. that extends the long-standing strategic alliance between the two companies. In the agreement, Honeywell will supply advanced controls and maintenance services for Syncrude modernization and expansion projects. The company is pursuing several similar large-scale contracts with other customers that it expects to close over the next 2-3 quarters.

The third quarter saw the company's introduction of its WebPAD(TM) Internet Appliance, the first wireless, portable tool for high-speed connection to the Internet and centralized home control applications. Sales increased significantly for the company's new Vertical Cavity Surface Emitting Laser (VCSEL) Technology, an advanced semiconductor laser used in computing and networking, sensing and other applications.

"Our e-business activities also gained added traction in the quarter," Bonsignore said. "We added to our rapidly accreting e-hub portfolio of MyPlant.com and MyAircraft.com by launching MyFacilities.com, which is an open electronic community offering products and solutions to help facility management professionals improve productivity and drive down operating costs."