RNS Number:7478U
Honeywell International Inc
18 April 2002
Contact: Tom Crane
(973) 455-4732
Honeywell's 1st Quarter Ongoing Earnings Per Share (EPS) Are $0.45;
Free Cash Flow Rises To A Record $266 Million; Sales Are $5.2 Billion
Ongoing Cost Reduction Initiatives Positioning Company To Benefit From
Emerging Economic Recovery; Company On Course To Deliver Expected $1.3
Billion In Cost Productivity This Year
Sales Grew In Military Avionics, Residential/Commercial Security,
Automotive Products, Turbochargers In Asia And Spectra(R)Fiber
Company Reaffirms Full-Year 2002 Ongoing EPS To Be About $2.36; 2002 Sales
Expected To Be About $22.8 Billion, Ongoing Net Income $1.9 Billion. Free
Cash Flow $1.5 Billion
MORRIS TOWNSHIP, New Jersey, April 18, 2002 - Honeywell (NYSE: HON) said today
its first-quarter ongoing earnings per share (EPS) were $0.45, excluding a gain
from the disposition of its Commercial Vehicle Braking Systems business (after-
tax $79 million) and an after-tax charge of $69 million related to severance and
facility shutdowns, as well as the recognition of the fair market value of its
Friction Materials business. Reported first-quarter EPS was $0.46, compared to
$0.05 in the first quarter of 2001.
Free cash flow in the quarter more than doubled to a record $266 million,
compared to $111 million in the first quarter of 2001. It was Honeywell's second
consecutive quarter of record free-cash-flow performance, representing a
cumulative $892 million in free cash flow over the past two quarters.
"Ongoing aggressive productivity efforts executed throughout the company enabled
us to meet our earnings target and generate record free cash flow in the quarter
despite an expected challenging economic environment and lower sales," said
Honeywell Chairman Lawrence A. Bossidy.
"While we began to see signs of improvement in parts of the company in March, we
are not as yet experiencing robust economic recovery across the board," Bossidy
said. "The eventual pace of that recovery is still difficult to predict, yet we
remain hopeful the economy will pick up in the second half of the year. We
continue to reduce cost structures and to make operations more productive,
ensuring Honeywell is in the best possible position to capitalize on the
recovery."
"Cost productivity in the quarter was $325 million, including a more than 10%
reduction in census from the first quarter of 2001," Bossidy added. "We lowered
SG&A expenses in the quarter by $134 million (18%), positioning us to reduce
SG&A by at least $300 million this year. Our Six Sigma- and Digitization-based
initiatives continue to improve business processes, such as driving down working
capital and streamlining our cost structure."
"Overall, we are on track to deliver $1.3 billion in cost productivity," Bossidy
said. "These actions - the most significant in Honeywell's history - have formed
a solid foundation for us to take advantage of our competitive cost position and
strong cash generation as we move forward to grow the company."
First-Quarter Highlights
First-quarter sales grew in Military Avionics, Residential and Commercial
Security, automotive aftermarket products, Turbochargers in Asia and Spectra(R)
fiber. Sales growth was more than offset by the disposition of the Commercial
Vehicle Braking Systems business, as well as lower sales primarily in Control
Products and Services, Aerospace Commercial aftermarket and original equipment.
Nylon System and Advanced Circuits.
First-quarter operating margins were 10.8% compared to 11.7% in the first
quarter of 2001. The company's ongoing aggressive cost reduction initiatives
limited margin compression from lower volumes. The favorable effects of
eliminating goodwill amortization were offset in large part by lower pension
income.
"We saw encouraging indications late in the quarter that commercial aviation
will return to its pre-9/11 level of activity in the second half of this year,"
said Honeywell President and CEO Dave Cote. "These include better-than-expected
activity in commercial aftermarket orders and commercial airlines planning
expanded schedules."
"Honeywell is well positioned to benefit when flight hours return to pre-9/11
levels, given our improved cost structure, vast installed base and breadth of
products, systems and integrated solutions for almost every aircraft platform in
the sky today," Cote said.
"We continue to expect growth in our defense and space businesses this year as a
result of ongoing military operations spurring increased demand for our products
and systems used in precision weapons, air traffic management and space-based
surveillance.
We also expect near-term increases in military-related repair, overhaul and
spares driven by extended use of military aircraft and ground vehicles," Cote
added.
Focus On Future Growth
"As we look to the second half of this year and beyond, Honeywell is poised to
become a premier growth company," Cote said. "We will enjoy continuity in
Honeywell's core management processes and productivity initiatives, while moving
rapidly to cultivate a disciplined growth culture. We intend to grow organically
and through acquisitions, while we continue to shed non-core operations."
"We have excellent growth capabilities in technology development, product
innovation and systems integration," Cote added. "priority growth areas include
defense and space, flight safety, aircraft component integration, homeland and
aviation safety and security, lifecycle and productivity solutions for
manufacturing plants, integrated security and access control, and turbochargers.
Some of our Specialty Materials businesses have great growth prospects, and we
have attractive options to address the segment's under-performing areas."
"Honeywell's platform for success will be based on a steadfast commitment to our
people, generating growth, driving productivity, increasing cash flow and
relying on critical enablers, such as Six Sigma and Digitization," Cote said.
"Over the past several weeks, I have visited with customers, investors and
thousands of Honeywell employees," Cote added. "The signs of encouragement and
confidence in Honeywell's future are compelling. Honeywell has a talented and
engaged workforce, leading technologies and products and proven core processes
- all of which provide confidence that we can significantly increase the value
Honeywell delivers to both customers and shareowners as we work together to grow
the company to its full potential."
Honeywell reaffirmed that it expects full-year 2002 ongoing EPS to be
approximately $2.36, which primarily reflects an expected $1.3 billion of full-
year cost productivity. Full-year 2002 sales are expected to be about $22.8
billion, with ongoing net income expected to be $1.9 billion, and free cash flow
expected to be $1.5 billion.
First-Quarter Segment Detail
Aerospace - The segment's sales were down 13%. Sales increases in Military
Avionics were more than offset by ongoing weakness in Commercial aftermarket and
original equipment. Contract wins in the quarter were nearly $2 billion, more
than double the amount won in the first quarter of the prior year. Wins included
Honeywell's Flight Management System being chosen for the Airbus A380 Super
Jumbo Jet, a new Army contract for the company's T55 engine for the Chinook
helicopter, and being selected by the UK's Ministry of Defense to supply T55
engine maintenance for its fleet of Chinook helicopters.
Operating margins were lower primarily due to lower Commercial aftermarket and
original equipment volumes and an unfavorable product mix, which were partially
offset by aggressive cost reduction actions including an 8% reduction in census.
The segment is also extending its design and production of Micro Electro
Mechanical Systems (MEMS) device capabilities to other makers of high-technology
equipment. MEMS devices - micro-miniature machines as small as 2/1000ths of a
millimeter square -are used as accelerometers in Honeywell's aircraft navigation
and missile guidance systems.
Automation & Control Solutions - The segment's sales were down 7%, excluding the
effects of a strong dollar. Higher sales in Residential and Commercial Security
were more than offset by lower sales primarily in Control Products and Services,
due to continued weakness in industrial production and capital spending in
industrial end-markets.
Operating margins were driven higher due to ongoing aggressive cost reductions
including census reductions of 9%.
The segment won more than $40 million in contracts in the quarter related to
oil- and gas-industry projects, including Conoco's Belanak oil field development
project in Indonesia, BP's Deepwater Development fields in the Gulf of Mexico
and the Beijing Gas Group's gas pipeline being built to improve air quality in
metropolitan Beijing before the 2008 Summer Olympics.
Agreements also were signed in the quarter with leading biometric companies,
including Visionics and Europe's Precise Biometrics, enabling Honeywell to
deploy facial recognition capabilities on new and existing customer sites to
meet evolving security needs and to deliver leading-edge biometric technology to
customers and channel partners.
Specialty Materials - The segment's sales declined 17%. The segment saw double-
digit sales growth in Spectra(R)fiber due to continued strong security- and
defense-related demand, placing the business in a sold-out position. The company
plans to increase Spectra(R) capacity in the second half of the year. Sales
growth was more than offset primarily by lower sales in Advanced Circuits, due
to the prolonged downturn in the electronics markets, and Nylon System.
Operating margins were lower due to lower volumes and soft pricing, which were
partially offset by improved raw material and energy costs and aggressive cost
reductions.
The segment's Spectra(R) fiber was selected as the ballistic material for new
aircraft armored cockpit doors being developed and sold by TIMCO and AIM
Aviation Inc. The doors will be developed for various aircraft models and
marketed as "kits" that will include reinforced jambs, keyless entry and flight
deck indication and control.
Transportation & Power Systems - The segment's sales were down 2%, excluding the
effects of a strong dollar and divestitures. Higher sales in FRAM(R),
Autolite(R) and Holts(R) automotive products were more than offset primarily by
softness in the European passenger car market, which negatively affected the
Turbocharger business. Turbocharger sales in Asia grew 30% primarily due to
increased infrastructure spending in China.
Operating margins were sharply higher due to aggressive cost reductions, lower
raw material and energy costs and exiting the power-generation business.
Honeywell will webcast its financial analyst conference call today beginning at
9am EDT and provide related presentation materials on its website
www.honeywell.com/investor.
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. Honeywell employs approximately 115,000 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.
This release contains forward-looking statements as defined in Section 21E of
the Securities Exchange Act of 1934, including statements about future business
operations, financial performance and market conditions. Such forward-looking
statements involve risks and uncertainties inherent in business forecasts as
further described in our filings under the Securities Exchange Act.
Honeywell International Inc.
Consolidated Statement of Income (Unaudited)
(In millions except per share amounts)
Three Months Ended March 31,
2002 2001(F)
Reported Adjusted (C) Reported Adjusted (E)
Net sales $ 5,199 $ 5,199 $ 5,944 $ 5,944
Costs, expenses and other
Cost of goods sold 4,116 (A) 4,027 4,973 (D) 4,499
Selling, general and administrative expenses 617 (A) 613 768 (D) 747
(Gain) on sale of non-strategic businesses (125)(B) - - -
Equity in (income) loss of affiliated companies (7)(A) (10) 103 (D) 8
Other (income) expense (16) (16) (4)(D) (9)
Interest and other financial charges 87 87 111 111
----- ----- ----- -----
4,672 4,701 5,951 5,356
----- ----- ----- -----
Income (loss) before taxes 527 498 (7) 588
Tax expense (benefit) 151 132 (48) 173
Net income $ 376 $ 366 $ 41 $ 415
Earnings per share of common stock-basic $ 0.46 $ 0.45 $ 0.05 $ 0.51
Earnings per share of common stock -
assuming dilution $ 0.46 $ 0.45 $ 0.05 $ 0.51
Weighted average number of shares outstanding -
basic 817 817 809 809
Weighted average number of shares outstanding -
assuming dilution 820 820 815 815
(A) Cost of goods sold and selling, general and administrative expenses include
a net provision of $89 and $4 million, respectively, for severance, facility
shutdowns and the recognition of the fair market value of our Friction
Materials business. Equity in (income) loss of affiliated companies includes
a charge of $3 million principally for severance actions by an investee.
Total net pretax charges were $96 million (after-tax $69 million, or $0.08
per share).
(B) Represents the pretax gain on the disposition of our Bendix Commercial
Vehicle Systems business (after-tax $79 million, or $0.09 per share).
(C) Excludes the impact from items in (A) and (B) above.
(D) Cost of goods sold and selling, general and administrative expenses include
a provision of $474 and $21 million, respectively, for severance, asset
impairments and other charges. Equity in (income) loss of affiliated
companies includes a provision of $95 million for the impairment of an
investee and an investee's loss contract. Other (income) expense includes a
net provision of $5 million, consisting of $6 million for a charge related
to the early extinguishment of debt and a $1 million benefit recognized upon
the adoption of Statement of Financial Accounting Standards No. 133.
"Accounting for Derivative Instruments and Hedging Activities", as amended.
Total net pretax charges were $595 million (after-tax $374 million, or
$0.46 per share).
(E) Excludes the impact from items in (D) above.
(F) Cost of goods sold includes amortization of goodwill and indefinite-lived
intangible assets of $51 million (after-tax $49 million, or $0.06 per share).
Such amortization is excluded from the 2002 results, in conformity with
Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets" (SFAS NO. 142), effective for Honeywell as of January
1, 2002
Honeywell International Inc.
Segment Data (Unaudited)
(Dollars in millions)
Net Sales Three Months Ended March 31
2002 2001
Aerospace $ 2,089 $ 2,411
Automation and Control Solutions 1,609 1,748
Specialty Materials 758 913
Transportation and Power Systems 726 860
Corporate 17 12
-------- --------
Total $ 5,199 $ 5,944
======== ========
Segment Profit Three Months Ended March 31
2002 2001 (A)
Aerospace $ 307 $ 451
Automation and Control Solutions 207 188
Specialty Materials 8 38
Transportation and Power Systems 73 50
Corporate (36) (29)
--------- ---------
Total Segment Profit 559 698
Gain on sale of non-strategic businesses 125 -
Equity in income (loss) of affiliated companies 10 (8)
Other income 16 9
Interest and other financial charges (87) (111)
Repositioning and other charges 96 (595)
Income (loss) before taxes $ 527 $ (7)
(A) Includes pretax amortization of goodwill and indefinite-lived intangible
assets of $51 million (Aerospace-$15 million, Automation and Control Solutions-
$23 million. Specialty Materials-$8 million and Transportation and Power
Systems- $5 million). Such amortization is excluded from the 2002 results, in
conformity with SFAS No. 142.
This information is provided by RNS
The company news service from the London Stock Exchange
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