For Honeywell Inc., the road from ailing conglomerate to streamlined world leader in automated controls has been a twisting and bumpy one. An expensive acquisition, huge cost overruns on military contracts, divestitures, spin-offs, and several rounds of layoffs have marked Honeywell's passage.
But now, after five years of nonstop restructurings, the Minneapolis company appears to have finally put its troubled past behind it. Shorn of its computer, semiconductor, communications, and defense operations, Honeywell pushed up 1990 operating profits from continuing operations by $182 million, to $676 million, on a 4% sales gain, to $6.3 billion. Adjusting for a two-for-one split last December, the company's stock value has nearly doubled, to 57, in the past 20 months. In mid-May, Honeywell's newly burnished balance sheet persuaded Standard & Poor's Corp. and Duff & Phelps/MCM Investment Research Co. to hike the company's debt ratings. Notes Paul McCarthy, president of D&P's credit-rating arm: "Honeywell really has made great strides of late."
IN CONTROL. Expect more of the same. Focusing on the core controls business, top management is planning to capitalize on Honeywell's global marketing and distribution network and superior technical knowhow, which dates back to 1918, when the company started selling its patented thermostat. "We can bid something in the U. S., spec it in France, buy a part in Kuwait, and deliver it anywhere in the world," says James J. Renier, chairman since 1987.
These days, the company is aggressively pushing new products for new customers. Tighter environmental regulations mean more buyers for its pollution and energy conservation controls. The building controls group, which makes devices that regulate the light, temperature, and air and water flow within a building, is targeting the construction industry's few active areas: schools, hospitals, and prisons. And in the U. S. and abroad, the industrial process controls team is signing up consumer-goods makers such as CPC International Inc.
The star performer, though, is Honeywell's space and aviation operation. Buoyed by the $1 billion purchase of Sperry Aerospace Group in 1987, commercial aviation controls sales have been jumping 21% a year.
That's something of a surprise. Stupendous cost overruns on Sperry's fixed-price military contracts forced huge writedowns and a loss of $435 million in 1988. Since then, Honeywell has brought in new managers, tightened financial controls, and refrained from bidding on most fixed-price contracts. It has also sued Unisys Corp., the company formed when Sperry merged with Burroughs, for fraud. Honeywell is seeking $350 million in damages. Unisys has no comment on the suit.
'JUST ABOUT THE BEST.' With the military problems mostly behind it, Honeywell now can show that the acquisition wasn't a bust. The avionics group's most recent coup is a contract to supply much of the cockpit navigation system for Boeing Co.'s first new jet in 11 years, the 777. Says Fred R. Cerf, Boeing's head of systems and equipment purchasing: "We certainly think they're just about the best" in avionics. Although the contract, awarded in late 1990, probably won't add anything to Honeywell's bottom line until 1995, it could bring in $2 billion over 15 years, says Howard A. Rubel, senior vice-president for C. J. Lawrence Inc.
Landing new business is only part of Renier's goal of increasing profits by 10% a year. Honeywell is also taking a hard look at costs. Since mid-1989, the company has cut more than 5,000 employees at all levels, reducing its work force to 60,000. It has also reduced its need for cash by turning over its inventory quicker and collecting receivables faster. Michael A. Reilly of Minneapolis investment bank Piper, Jaffray & Hopwood Inc. expects the company to nudge operating margins to 11%, from 10.7% in 1990.
That's not great, but there's a recession on. Honeywell's building controls business, which kicks in a third of operating profits and revenues, hasn't escaped the construction slump. That portends only a slight increase in operating profits this year, to $684 million on flat sales, figures Reilly.
Even those results show how far the company has come. "In the past, Honeywell would have lost money in this market," notes C. J. Lawrence's Rubel. The road ahead looks a good deal smoother and straighter.