Allied Signal Reports Higher Second Quarter Earnings
MORRIS TOWNSHIP, N.J. - AlliedSignal Inc. (NYSE:ALD) today reported record second-quarter earnings per share of $0.71, an increase of 16% compared with 1998 second-quarter earnings per share of $0.61. Excluding the gain on the sale of shares of Tyco International (Tyco) and repositioning and other charges, second-quarter earnings per share increased to $0.70, up 15%. It was the company's 30th consecutive quarter of earnings-per-share growth of 13% or more.
The company's pre-tax gain on the sale of Tyco stock was $268 million for an after-tax gain of $161 million, resulting in a favorable conclusion to the company's unsolicited bid for AMP. Repositioning and other charges amounted to a pre-tax charge of $258 million ($156 million after-tax).
Sales in the second quarter were $3.8 billion compared with $3.9 billion in the corresponding year-earlier quarter (excluding the effects of divestitures and a government contract restructuring, second-quarter sales were up 5%). Excluding the gain on the sale of Tyco shares and repositioning and other charges, operating margin in the second quarter expanded to a record 15.1% from 13.3%, reflecting 7.1% productivity driven by ongoing Six Sigma initiatives, cost reductions and a better mix of higher-margin businesses. Net income increased 13% to a second-quarter record of $395 million from $350 million in 1998.
For the six-month period ended June 30, 1999, free cash flow was $425 million, an increase of 61% over free cash flow of $264 million for the year-earlier period. Second quarter 1999 free cash flow was $206 million. Cash-conversion, a ratio of free cash flow before dividends to net income, for the six-month period was 84%. The company expects to exceed easily its 1999 annual free-cash-flow target of $700 million.
"As we stand on the threshold of the special shareowner meeting to approve our well-received merger with Honeywell, AlliedSignal is in the midst of an extensive and accelerating business transformation," said Lawrence A. Bossidy, AlliedSignal Chairman and Chief Executive Officer. "The breadth, scope and pace of the improvements and sweeping changes taking place throughout our organization are as unique as they are unprecedented in the history of the company."
"For example, each business is now redefining itself based on our exciting new business model, which includes e-business strategies," Bossidy said. "In addition to Honeywell, we have recently announced acquisitions and divestitures exceeding $1 billion in revenues, which will significantly improve the value of our materials businesses; and our aerospace realignment is expected to return $75 million to $100 million, twice the anticipated cost savings."
Excluding divestitures, the majority of the company's businesses experienced revenue growth in the second quarter, with Turbine Technologies setting a sales record. The company saw increased demand in the second quarter in the aerospace aftermarket, flight-safety products, specialty films, plastics, European automotive turbochargers and business aviation engines.
"As we look out over the next six months, we are excited about the prospects for continued growth in these businesses, as well as accelerated growth in such areas as pharmaceutical fine chemicals, refrigerants, specialty waxes, aerospace military, aftermarket services, North American automotive turbochargers and specialty electronic markets," Bossidy said. "We also are looking forward to the commercial launch of our new Parallon(tm) 75 TurboGenerator power system.
"We're continuing to make major improvements to our materials business portfolio," Bossidy continued. "For example, we're divesting our Laminate Systems business, which removes us from the lower-margin laminate industry, and we're acquiring higher-value-added Johnson Matthey Electronics in our Electronic Materials business. We're also divesting our low-margin Textile Nylon product offering while acquiring Nyltech's specialty polymer operations in our Polymers business. As a result of these shifts to higher-margin specialty segments alone, we will add revenue growth over the next 12 months of $250 million."
In addition, the company set September 1st as the date for the special shareowner meeting to approve its merger with Honeywell. The meeting will be held at the Morristown headquarters facility.
"We are pleased with our progress in the merger integration planning process," Bossidy said. "We have identified significant synergies between the two companies, and we are confident that we will achieve our previously announced cost-savings estimates. Furthermore, we have identified multiple opportunities for future revenue growth."
Bossidy added that the company has swiftly adopted a new business model that includes e-business strategies for each business in the company. Management is moving quickly to apply the model to drive higher sales growth by bringing unprecedented information and connectivity to customers across the globe, while also significantly improving cost structures and supporting ongoing re-engineering and global sourcing initiatives.
The company also is implementing its aerospace realignment, which was announced earlier this year. The realignment is designed to strengthen its aerospace market and customer focus, simplify its business structure and reduce costs.
Second quarter segment results, excluding the gain on the sale of Tyco shares and repositioning and other charges, were as follows:
Aerospace Systems sales in the second quarter were $1.2 billion, an increase of 6% over second-quarter 1998 sales after excluding the effects of divestitures and the change to sub-contractor status on a governmental technical services contract. Sales including these items were flat compared with the year-earlier quarter. Operating income increased to $245 million from $201 million in the second quarter of 1998.
AlliedSignal's growing position as the leading supplier of flight-safety products, aftermarket services and integrated systems and components for almost every class of aircraft in use today helped to drive higher revenue growth in the second quarter. The quarter saw strong demand for spares in military segments and double-digit growth in repair and overhaul services and flight-safety products.
Operating income was spurred primarily by significant cost-structure improvements and an improved mix of higher-margin products and services.
Specialty Chemicals & Electronic Solutions sales were $517 million compared with $589 million in the second quarter of 1998. Sales in the second quarter of 1999 were up 5% excluding the effects of divestitures. Operating income decreased to $75 million from $112 million.
Strong sales increases were seen in specialty waxes and additives and pharmaceutical fine chemicals segments. Fluorine Products experienced a significant jump in the demand for its environmentally safer refrigerants due to industries accelerating their transition away from CFC-based products. These higher sales were partially offset by weaker sales in industrial fluorines and agricultural chemicals.
The decline in operating income was largely due to divestitures. Other factors contributing to the operating income decline were pricing pressure in the soon-to-be-divested Laminate Systems business and investments to support future growth in pharmaceutical fine chemicals and electronic chip packaging.
Turbine Technologies sales were a record $1 billion, an increase of 9% from $921 million in the second quarter of 1998. Operating income increased to $177 million from $103 million.
The revenue increase reflects continued double-digit growth in Europe for the company's turbochargers used in turbo-diesel-powered passenger cars, as well as a growing demand for turbochargers in the North American light-truck market. Revenue growth also came from higher sales of turbofan engines in the business aviation market, spurred by increases in fractional ownership of business jets, and from upgrades to T-55 turboshaft engines for U.S. Army Chinook helicopters.
The increase in operating income reflects a significantly lower cost structure, higher sales volume, a more profitable product mix and technology licensing.
Performance Polymers sales were $469 million compared with $531 million in the second quarter of 1998. Excluding divestitures, sales were up 1%. Operating income declined to $70 million from $92 million.
Specialty films saw record revenues driven by its products used in healthcare and specialty packaging. There also was strong demand for its engineered plastics products in the automotive and wire and cable markets. Higher sales within these segments were partially offset by weakness in industrial fibers.
Operating income was lower due to pricing pressures in industrial fibers, weak demand for textile nylon and divestitures. These were partially offset by income from strong volume gains in plastics and films and cost-structure improvements.
Transportation Products sales were $615 million, up from $609 million in the year-earlier quarter. Operating income grew to $47 million from $35 million.
Higher sales of truck brakes and Fram(R) filter products led revenue growth in the segment. Truck Brakes Systems continues to benefit from increased truck builds in North America and from strong demand for anti-lock braking products. Fram(R) filter products outpaced the filter category as a result of new customer wins and the launch of new products.
The business' improving operating performance continues to be driven by a combination of higher unit volume, ongoing cost-structure improvements and Six Sigma productivity programs.
AlliedSignal Inc. is an advanced technology and manufacturing company serving customers worldwide with aerospace products and services, automotive products, plastics, chemicals, fibers and advanced materials. 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. The company employs 70,400 people in some 40 countries.
AlliedSignal was named the best diversified company by Forbes Global magazine; the most admired aerospace company by Fortune magazine, both globally and in the U.S.; and one of the 100 best companies to work for by Fortune. Additional information on the company is available on the World Wide Web at http://www.alliedsignal.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.