AlliedSignal Reports Q3 Earnings
22 October 1997
AlliedSignal's Third-Quarter Earnings Per Share are up 16% On a 9% Increase in Sales
MORRIS TOWNSHIP, N.J., Oct. 22 -- AlliedSignal Inc.
today reported record third-quarter earnings per share of $0.52,
an increase of 16% over 1996 third-quarter earnings per share of $0.45. Net
income was $292 million, an increase of 15% over net income of $253 million in
the corresponding year-earlier quarter.
Per-share amounts for 1996 have been adjusted to reflect the two-for-one
stock split distributed in September 1997.
The three-month period ended September 30, 1997 was the 23rd consecutive
quarter of earnings-per-share increases of 14% or more.
Net income was up 41% in Aerospace and 16% in Engineered Materials.
Automotive net income was down 15%.
Sales in the third quarter were a record $3.7 billion, an increase of 9%
over 1996 third-quarter sales of $3.3 billion. Excluding the effects of
foreign exchange, sales were up 11%. Sales increased 15% in Aerospace, 4% in
Engineered Materials and 6% in Automotive.
Operating margin for the quarter expanded to 11.6% from 11.1% a year ago,
driven by a 5.2% improvement in productivity. Operating cash flow for the
third quarter was $301 million.
"Leading the quarter were robust sales of Aerospace original equipment and
aftermarket products," said Lawrence A. Bossidy, Chairman and Chief Executive
Officer. "Every one of our ten major business units had higher sales during
the quarter, and eight of the ten had higher net income. Our strategy to
increase sales through new products, globalization and acquisitions is working
on all three fronts. And our earnings have benefited from our Six Sigma
quality and productivity programs, which have improved capacity and speed
while enabling us to become more cost effective."
Strong internal Aerospace sales growth in such product lines as
generators, power distribution systems, engine fuel systems, flight safety
systems and auxiliary power units was supplemented by results of the Grimes
Aerospace aircraft lighting business, which was acquired in July 1997. The
combination of higher unit volume, strong aftermarket sales and productivity
improvements resulted in expanded margins and substantially higher net income
for Aerospace.
In Engineered Materials, sales and earnings gains in engineering plastics,
pharmaceutical intermediates and advanced microelectronic materials were
offset partially by lower results for fluorines and fibers. Margins were
restrained by lower selling prices.
In Automotive, poor performance of the Automotive Products Group was
offset partially by record sales and net income in Turbocharging Systems and
Truck Brake Systems.
"We continue to generate internal growth," said Bossidy, "an increasing
proportion of which comes from proprietary new products such as our aircraft
safety systems and variable nozzle turbochargers. In addition, we have
utilized a portion of divestiture proceeds to acquire five strategically
positioned companies which have combined annualized sales of some
$900 million. We expect that earnings growth for the full year will be at
about the mid-point of our 13-to-17% target."
The company will take aggressive actions during the fourth quarter to
reduce costs in the automotive aftermarket products business. The company
also will complete a previously announced reorganization which includes
elimination of its three sector offices. Combined annualized cost savings
from these two initiatives are expected to be approximately $70 million.
Costs associated with these actions will be recognized in the fourth quarter,
as will the gain from the previously announced sale of the safety restraints
business, the completion of which is expected shortly.
Nine-Month Results
For the nine months ended September 30, 1997, sales were a record
$10.6 billion, compared with $10.5 billion in the first nine months of 1996.
Excluding the results of the divested passenger-car braking business, 1997
nine-month sales increased by 7% over 1996 nine-month sales of $9.9 billion.
Net income was a record $856 million, up 16% from $741 million in the first
nine months of 1996. Earnings per share rose 15% to $1.51 from $1.31.
Including the one-time impact from the sale of the braking business and from
repositioning and other charges, net income for the 1996 period was
$750 million or $1.33 per share.
Third-Quarter Sector Details
Aerospace third-quarter net income rose to a record $138 million from
$98 million. Sales increased to a record $1.7 billion from $1.5 billion.
Sales were higher in the commercial and military original equipment and
commercial aftermarket segments, and lower in the military aftermarket
segment.
Engines benefited from higher sales of auxiliary power units. All product
lines of Aerospace Equipment Systems had higher sales, reflecting the
continued record pace of commercial aircraft production, substantial
aftermarket parts sales growth and the acquisition of Grimes aircraft lighting
systems. Commercial Avionics Systems had record sales, propelled by strong
demand for the company's proprietary enhanced ground proximity warning systems
and other flight safety and cockpit communications products. Sales of
Electronic Systems were slightly higher.
Net income was substantially higher for Engines, Aerospace Equipment
Systems and Commercial Avionics Systems (CAS), reflecting volume increases,
particularly in aftermarket parts. CAS also benefited from the successful
resolution of manufacturing difficulties encountered during last year's third
quarter. Net income was lower for Electronic Systems, as gains in guidance
and control systems were offset by declines in ocean systems and precision
products.
Engineered Materials net income increased to a record $118 million from
$102 million, as sales increased to a record $1.05 billion from $1.01 billion.
Polymers sales were up, led by growth in engineering plastics as well as
expanded capacity and favorable pricing conditions in phenol. Engineering
plastics had record volume growth, benefiting from new products in the
automotive segment and new applications in the lawn and power tool segment.
Specialty films sales were higher, benefiting from the acquisition of Gomar.
These gains were partially offset by lower selling prices for nylon and
polyester fibers. Specialty Chemicals sales were higher, as gains in
pharmaceutical intermediates and such industrial specialties as luminescent
pigments were partially offset by foreign exchange and the effect of an
unseasonably cool North American summer on sales of fluorine refrigerants to
the air conditioning aftermarket. Specialty Chemicals also benefited from
improved marketing of Riedel-de Haen products in North America and Asia.
During the quarter, the company granted a multi-year licensing agreement for
its Genetron(R) AZ-20 non-CFC refrigerant to Elf Atochem, further securing
AlliedSignal's technological leadership in this market. Electronic Materials
sales were higher, reflecting improved laminates results, particularly in the
multilayer segment, and continued market growth of advanced microelectronic
materials.
Polymers net income was down, reflecting a less favorable relationship
between selling prices and raw materials costs. Specialty Chemicals net
income was higher, as gains in pharmaceutical and industrial intermediates and
strong performance by the UOP joint venture were partially offset by lower
results from fluorines. Net income from Electronic Materials was higher,
driven by advanced microelectronic materials and the mitigation of losses from
micro-optic devices.
Automotive net income for the quarter was $34 million, compared with
$40 million a year ago. Sales were $947 million, compared with $891 million.
Incremental sales realized from the acquisition of Prestone Products were
offset by poor sales of the Automotive Product Group's other aftermarket
products, including friction materials, filters and spark plugs.
Turbocharging Systems sales increased in both the European diesel-powered
passenger car segment and the North American heavy-duty truck segment,
reflecting a large increase in the manufacture of heavy-duty trucks. The
higher truck build also contributed to higher sales of Truck Brake Systems in
North America. Truck Brake Systems also benefited from higher anti-lock
braking system installation rates and a strong aftermarket.
Net income for the Automotive Products Group was lower. Net income for
Turbocharging Systems and Truck Brake Systems was higher, reflecting higher
sales volumes.
AlliedSignal is an advanced technology and manufacturing company serving
customers worldwide with aerospace and automotive products, chemicals, fibers,
plastics and advanced materials. It is a component of the Dow Jones
Industrial Average and of the Standard & Poor's 500 stock index.
AlliedSignal Inc.
Consolidated Statement of Income (Unaudited)
(Dollars in millions except per share amounts)
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
As Reported Adjusted
1997 1996 1997 1996 1996(D)
Net sales $3,657 $3,348 $10,562 $10,473 $10,473
Cost of goods
sold 2,840 2,598 8,209 8,845 (A) 8,208
Selling, general and
administrative
expense 394 379 1,145 1,146 1,146
Gain on sale
of business -- -- -- (655)(B) --
Total costs and
expenses 3,234 2,977 9,354 9,336 9,354
Income from
operations 423 371 1,208 1,137 1,119
Equity in income
of affiliated
companies 44 31 140 104 104
Other income
(expense) 14 26 62 59 (A) 44
Interest and other
financial charges (50) (47) (131) (144) (144)
Income before taxes
on income 431 381 1,279 1,156 1,123
Taxes on income 139 128 423 406 382
Net income $292 $253 $856 $750 $741
Earnings per share
of common
stock (C) $0.52 $0.45 $1.51 $1.33 $1.31
(A) Cost of goods sold includes a second quarter 1996 provision of
$637 million for repositioning and other charges. An offsetting credit of
$15 million representing the minority interest share of repositioning and
other charges is included in other income (expense). Total pretax
repositioning and other charges were $622 million (after-tax $359 million, or
$0.63 per share).
(B) Represents the second quarter gain (after-tax $368 million, or $0.65
per share) on the sale of the hydraulic braking and anti-lock braking systems
business effective April 1, 1996.
(C) Based on weighted average number of shares outstanding during each
period: three months ended September 30, 1997, 564,461,827 shares, and 1996,
565,701,706 shares; and nine months ended September 30, 1997, 565,604,387
shares, and 1996, 565,647,534 shares. There is no material dilutive effect on
earnings per share of common stock due to common stock equivalents. Share and
per share data for all periods reflect the September 1997 two-for-one stock
split.
(D) Excludes the one-time impact from the sale of the hydraulic braking
and anti-lock braking systems business as well as from the repositioning and
other charges.
AlliedSignal Inc.
Segment Data
(Dollars in Millions)
THREE MONTHS ENDED SEPTEMBER 30
Net Sales Net Income
1997 1996 1997 1996
Aerospace $1,662 $1,450 $138 $98
Automotive 947 891 34 40
Engineered
Materials 1,047 1,005 118 102
Total Businesses 3,656 3,346 290 240
Corporate &
Unallocated 1 2 2 13
Total $3,657 $3,348 $292 $253
NINE MONTHS ENDED SEPTEMBER 30
Net Sales Net Income
1996
1997 1996 1997 As Reported(A) Adjusted(B)
Aerospace $4,573 $4,120 $352 $80 $259
Automotive 2,850 3,322 134 481 162
Engineered
Materials 3,137 3,027 363 258 329
Total
Businesses 10,560 10,469 849 819 750
Corporate &
Unallocated 2 4 7 (69) (9)
Total $10,562 $10,473 $856 $750 $741
(A) Includes a second quarter net after-tax gain of $9 million,
consisting of an after-tax gain of $368 million on the sale of the hydraulic
braking and anti-lock braking systems businesses by Automotive; offset by an
after-tax provision of $359 million for repositioning and other charges as
follows: Aerospace $179 million; Automotive $49 million; Engineered Materials
$71 million; and Corporate and Unallocated $60 million.
(B) Excludes the one-time impact from the sale of the hydraulic braking
and anti-lock braking systems businesses as well as from the repositioning and
other charges.
SOURCE AlliedSignal Inc.