AlliedSignal bucks trend in aerospace, posts profits.

While such aerospace giants as Northrop Grumman Corp. and Boeing Co. face tough times both in terms of earnings and stock price, one aerospace giant with a large L.A.-area presence continues to soar: AlliedSignal Inc.

Morris Township, N.J.-based AlliedSignal reported net income for the fourth quarter ended Dec. 31 of $352 million (62 cents a share), compared with $314 million (55 cents) for the like period a year ago.

That quarter ended a year in which the maker of aerospace and automotive parts, chemicals, fibers, and plastics had net income of $1.3 billion ($2.32), up from $1.2 billion ($2.02 a share) in 1997. Last year was the seventh consecutive year AlliedSignal had earnings growth in the double digits.

Last year's revenues of $15.1 billion - up 4.6 percent from revenues of $14.5 billion in 1997 - also were a record high.

AlliedSignal's most profitable division was locally based AlliedSignal Aerospace in Torrance. That unit, which employs about 2,300 of AlliedSignal's 3,700 L.A.-area workers and makes various parts for airplanes, saw its operating income jump from $608 million in 1997 to $920 million last year.

Analysts said AlliedSignal's aerospace business is doing well because it is a parts supplier, which is more profitable than being a primary contractor like Boeing, and because its customer base is diversified. (Northrop, by contrast, is more dependent on a single customer, Boeing, which was hit hard last year by the Asian economic crisis and internal production problems.)

"Allied has probably one of the best aerospace businesses in the world, if not the best, in my view," said Eli S. Lustgarten, a managing director at Schroder & Co. "That part of the business is quite, quite good."

As for this year, the consensus projection by the 14 Wall Street analysts surveyed by Boston-based First Call Corp. is for earnings per share of $2.63 - a 13.4 percent increase from last year.

"We see a solid performance out of this company for the next several years," said Michael Bunyaner, a managing director at CIBC Oppenheimer in New York. "We see continuing double-digit growth."

With a "strong buy" rating, Bunyaner is among the most bullish on AlliedSignal, but he is not alone. On a scale of one to five, with one being a "strong buy," analysts surveyed by First Call give AlliedSignal a 1.6 rating - significantly more favorable than the average rating of 2.2 for all public companies tracked by the firm.

"We know analysts (in general) are overly generous with their recommendations, but analysts are pretty favorable on this one," said Chuck Hill, director of research at First Call.

Despite AlliedSignal's strong performance, its stock has been fairly volatile, reaching a high of $47.56 last April before dropping down to a low of $32.63 in September. By last week, it had mostly recovered, trading above $42 a share.

But the overall Dow Jones Industrial Average, of which AlliedSignal is a part, also took a downturn at the same time as AlliedSignal's stock.

The company's stock has been volatile "to the degree that the Dow has been volatile," said Lustgarten. "I'm not sure I'd make any more judgments than that."

Despite AlliedSignal's overall positive performance, the company did have troubles last year. Its transportation products division, which includes FRAM oil filters, Prestone antifreeze and Autolite spark plugs, saw sales drop in 1998 to $632 million - down 14.6 percent from 1997.

Perhaps the bigger blow was the company's failed $10 billion hostile takeover of AMP Inc., a Harrisburg, Pa.-based manufacturer of electronic connectors. AMP abandoned its takeover attempt in November after AMP reached an agreement to be acquired by manufacturing conglomerate Tyco International Ltd.

The failed bid cost AlliedSignal about $15 million - for which it took a charge in the fourth quarter. But it will have a paper profit of $130 million on the 20 million AMP shares it acquired in its takeover bid, once the Tyco deal closes.

Mark Greenberg, AlliedSignal's vice president of communications, said he expects the company to hold onto its profits by keeping the stock for more than 18 months, as required under Pennsylvania law. "We intend to comply with the statute and realize the gain," he said.

AlliedSignal Inc.

YEAR (Dec. 31)                       1998         1997

Revenue (billions)                  $15.1        $14.5
Operating Expenses (billions)        13.2         12.8
Operating Income (billions)           1.9          1.6
Net Income (billions)                 1.3          1.2
Earnings Per Diluted Share          $2.32        $2.02

SUMMARY

Business: Mfg. aerospace parts, chemicals, plastics

Headquarters: Morris Township, N.J.

CEO: Lawrence A. Bossidy

Market Cap: $24.4 billion Dividend Yield: 1.6%

Total Liabilities: $4.0 billion P/E Ratio: 18.2

Long-Term Debt: $1.5 billion