FMI: Honeywell Reports Record 1998 Earnings Per Share of $4.48 With Strong Cash Flow - Company Financial Information

EDGE, On & About AT&T, Jan 25, 1999

Honeywell Inc. (NYSE: HON) Tuesday reported record earnings per diluted share up 23 percent to $4.48 per diluted share for the year ended December 31, 1998, accompanied by strong free cash flow of $495 million. Sales for the year were $8.43 billion, up 5 percent compared with $8.03 billion for 1997.

In the fourth quarter Honeywell's earnings per diluted share increased 17 percent to $1.61, up from $1.38 a year ago. Excluding one-time items, earnings per diluted share were $1.64. These one-time items included the favorable settlement of long-standing litigation claims, and the resolution of prior-year research and development tax claims that reduced the full year tax rate to 31 percent. Also included were $54 million previously announced in pre-tax charges for cost reduction and productivity improvement initiatives throughout the company. "Honeywell continues to deliver on its commitments to shareholders, with double-digit earnings growth and strong cash flow, despite a weak manufacturing economy and unfavorable capital spending trends," said Honeywell chairman and chief executive officer, Michael R. Bonsignore. "We correctly anticipated that top-line growth would be more difficult in 1998, and took extensive measures to streamline operations and aggressively reduce costs, resulting in strong earnings growth and improved earnings quality in each of our businesses. We will continue to execute our business strategies, further eliminate structural costs, and utilize our expanding cash flow to accelerate growth." Fourth Quarter Financial Highlights Fourth quarter revenue grew to $2.35 billion, with strength in Space and Aviation Control offsetting declines in Industrial Control and Home and Building Control. Space and Aviation Control was led by strong commercial aircraft deliveries and by contributions from recent acquisitions in the airport systems business. Industrial Control sales were impacted by weak spending in the pulp and paper and industrial components markets. However, the Industrial Control business continued to win significant orders from key customers drawing on the strength of the company's strategic alliances and technology leadership, including a $16 million contract for a TotalPlant Solution system from the MOL Oil and Gas Company in Hungary and a $9 million order from a major North American integrated oil company. Home and Building Control saw continued growth in services, offset by weakness in product sales and the planned decline in solutions volume. Total company orders were down 5 percent in the fourth quarter compared to strong orders in the fourth quarter 1997. "We are not satisfied with the company's top-line growth in the second half of 1998 and we expect economic conditions to limit core revenue growth in 1999. We are reallocating resources and focusing management attention on elements of the Honeywell portfolio with higher near-term growth prospects, such as Hi-Spec Solutions, the PlantScape hybrid automation system, Airport Systems, building security, and a broad range of service opportunities available from our large installed base," Bonsignore said. Operating margins continued to expand in all three segments, with total company margins, excluding one-time items in 1997 and 1998, up 180 basis points to 15.3 percent in the fourth quarter. Margins improved as a result of extensive implementation of Honeywell Quality Value (HQV) Operational Excellence initiatives, aggressive cost control, improved business mix and the impact of capitalizing software costs. Industrial Control realized substantial margin contribution from Honeywell-Measurex and solid growth in high margin software and advanced services. The ongoing transformation of the Solutions and Services business was key to Home and Building Control's profitability improvement, while Space and Aviation Control delivered record operating margins. Free cash flow for the quarter increased 57 percent to $381 million, compared to a strong $243 million in the fourth quarter of 1997. Fourth Quarter Strategic Highlights During the quarter, Space and Aviation Control continued to make progress on its growth initiatives. The division's Airport Systems business received its first order combining Honeywell's Satellite Landing System and airfield lighting products in a single contract, a significant milestone in the marketing of integrated airport systems. Space and Aviation Control also expanded its aviation services offerings for business jets with the introduction of OneLink worldwide satellite communications services, and the OneView airborne information system, which provides live video and internet service. Primus Epic, Honeywell's next generation business, regional and helicopter aircraft integrated avionics suite, continued its success with wins on the Cessna Citation Sovereign and Sino-Swearingen SJ30-2 business aircraft. As a result of this broad market acceptance, Honeywell announced that the Primus Epic control display system technology will also be offered for the large retrofit market. Industrial Control's Hi-Spec Solutions continued to demonstrate its market-leading competitive position with a multi-million dollar contract for 75 Profit Controller and Uniformance system licenses from China's largest refiner, Sinopec. Since their introductions, these two Hi-Spec applications have become industry standards, generating sales of more than $100 million. Orders for PlantScape continued to accelerate, with 35 percent sequential growth over the third quarter. Sensing and Control's growth prospects were enhanced with the fourth quarter acquisition of Data Instruments Inc., a $50 million per year manufacturer of precision sensing and industrial safety devices. The strategic repositioning of Home and Building Control's Solutions and Services business continued to show strong results, with growth in services and improved solutions margins. Honeywell's building security business continued to succeed in the marketplace as several large orders were received for Excel Security Manager (XSM) systems, including a $4 million order at the Dubai International Airport and a $1 million add-on order at the Cologne-Bonn airport in Germany. Security growth prospects were further enhanced by the acquisition of ESD Electronics, a Dutch supplier of high-end networked access control and security system applications. As part of the U.S. Government's policy to reduce energy use 30 percent by 2005, during the quarter Honeywell was selected to participate in contracts worth up to $500 million to upgrade federal facilities in the eleven state central region, and U.S. Air Force bases in nine western states. Honeywell is the world's leading provider of control technologies for buildings, homes, industry, space and aviation. The company employs 57,000 people in 95 countries, and had 1998 sales of $8.4 billion.