Honeywell Steers Course Away From Weapons
Honeywell Inc. on Monday announced a program of layoffs, stock buybacks and asset sales that will reduce its dependence on its weapons business, sending its stock sharply higher on the New York Stock Exchange.
The stock of the diversified manufacturing company closed $3.875 higher at $89.375 in heavy trading after the Minneapolis-based company made the announcement, which was aimed at boosting its stock price and its profits.
Honeywell said the funds raised from the asset sales and cost-cutting measures will be used to repurchase 10 million of its shares, valued at about $850 million, expanding a previously announced 3.5-million-share repurchase plan.
Honeywell also said it will boost its annual common stock dividend 65 cents a share to $2.75 starting in the fourth quarter.
“It’s clearly positive for shareholders,” said analyst Michael Lauer of Kidder, Peabody & Co. He said Honeywell’s latest actions are, in part, a response to prompting by an investor group that threatened to seek control of the firm unless its management acted to boost the share price.
Honeywell’s stock has risen in recent months on takeover talk.
Cuts by Attrition, Layoffs
Honeywell said the plan will boost its stock price and improve profits by emphasizing its automation and controls business, which it said has strong growth potential. It will begin reducing emphasis on its defense businesses, which are seen as having weaker prospects.
Honeywell’s plan calls for the reduction of 4,000 of its work force over the next 18 months through layoffs and attrition. Honeywell, with 1988 sales of $7.1 billion, has about 78,000 employees worldwide.
A major part of the restructuring will be the sale of a substantial portion of its 50% interest in Yamatake-Honeywell, a Japanese controls company. It did not say how much the sale would be worth.
Honeywell also said it is committed to cutting its dependence on its weapons business, with flat growth expected in the defense industry.
“The weapons businesses are solid and profitable, staffed by first-rate employees, and they are important to the U.S. defense industrial and technology base,” said James Renier, chief executive of Honeywell. “This is no fire sale. . . . These are excellent businesses performing well with solid programs,” Renier said.
Because of its strategic importance, the pullback will be carried out “over time in a responsible manner,” Honeywell said. The company’s marine and defense business accounts for about one-fifth of its sales.
Honeywell said it expects an improvement of $150 million in its core business’ operating profit because of the work force reductions, better working capital management and improved cost control.
Additional profit-improvement measures include reductions in selling and administrative expenses, working capital and the focusing of research and development spending on core businesses.
