BUSINESS

Celestica CEO sees Honeywell Aerospace deal as 'move up' for global manufacturer

04/21/2015 08:00 EDT | Updated 07/13/2015 10:59 EDT
TORONTO - Honeywell Aerospace will shift about 330 full-time employees at its location in Mississauga, Ont., to Celestica Inc. (TSX:CLS) under a new contract between the two companies.

Toronto-based Celestica will lease out space in the centre of the Honeywell plant and manage the manufacturing employees, who will work closely with Honeywell engineers located in the surrounding space of the same facility.

Celestica CEO Craig Muhlhauser said the Honeywell deal allows Celestica to "move up the value chain" to do the final assembly and testing of products that are destined for commercial and military airplanes.

The U.S. Federal Aviation Administration has also certified Celestica to do repair and overhaul of the aerospace products and systems it makes within the Mississauga location.

"As a result of that, it opens up a much wider range of opportunities and capabilities that we can bring to Honeywell across a broader range of markets and then, eventually, other customers," Muhlhauser said in an interview.

The Honeywell deal will make the Toronto area the focus of Celestica's "centre of excellence" for aerospace and defence, one of several industries that the company serves by making printed circuit boards and providing design and other services.

Muhlhauser also said Tuesday that Celestica is expanding its capabilities in alternative energy systems, particularly solar.

An Ontario government program to encourage greater use of alternatives to carbon-based fuels is coming to an end but Muhlhauser said Celestica will take what it has learned to a broader market driven by the United States, China and Japan.

Celestica is moving all but one of its manufacturing lines for that type of product to Asia, where the company will make solar modules that Muhlhauser said will meet U.S. requirements for tariff-free imports.

"We will continue production in Toronto to a lesser extent, to serve the local requirement," Muhlhauser said.

The Honeywell agreement was announced as Celestica reported its first-quarter results, which included about US$1.3 billion of revenue from its global network of manufacturing operations.

Celestica's net income, which the compay reports in U.S. currency, dropped by 47 per cent to $19.7 million and its adjusted net earnings fell 30 per cent to US$33 million.

The net income amounted to 11 cents per share while adjusted net income was 19 cents per share, both below analyst estiimates. Revenue was $1.298 billion, also below estimates from Thomson Reuters.

At the same time, Celestica announced that it plans to buy back up to $350 million of its publicly traded stock for cancellation.

"Why now? We believe in our strategy. We think our shares are undervalued and we are returning value to the shareholders that have put their confidence in Celestica," Muhlhauser said.

"Every single segment of our business is growing in the second quarter, we expect that to continue throughout the year."

The announcements were made before markets opened and before Celestica's annual shareholders meeting.