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Honeywell Q3 2014 Results Earnings Call Transcript

Edited Transcript of Honeywell Q3 2014 Results Earnings Conference Call…

Honeywell International, Inc. (NYSE:HON) hosted a conference call with investors and analysts to discuss Q3 2014 earnings results on October 17, 2014 at 9:30 a.m. ET. The following are the webcast audio and the associated transcript of the event…


Listen to the MP3  Webcast audio here: Honeywell (HON) Q3 2014 Results Earnings Call – Webcast Audio


Operator: Good day, ladies and gentlemen, and welcome to Honeywell’s third quarter 2014 earnings conference call. (Operator instructions) As a reminder, this conference call is being recorded.

I would now like to introduce your host for today’s conference, Elena Doom, Vice President of Investor Relations.

Elena Doom – VR, IR

Thank you, Leo. Good morning and welcome to Honeywell’s third quarter 2014 earnings conference call. Here with me today are Chairman and CEO Dave Cote and Senior Vice President and CFO Tom Szlosek.

Today’s call and webcast, including any non-GAAP reconciliations are available on our website at

Note that elements of today’s presentation do contain forward-looking statements that are based on our best view of the world and of our businesses we see them today. Those elements can change and we would ask that you interpret them in that light. We identify the principal risks and uncertainties that affect our performance in our Form 10-K and other SEC filings.

This morning we will review our financial results for the third quarter, share with you our outlook for the fourth quarter and provide an initial framework for 2015. And finally we will have time for your questions.

So with that I’ll turn the call over to Dave Cote.

Dave Cote – Chairman and CEO

Good morning, all. As I’m sure you’ve seen by now Honeywell had another terrific quarter with better-than-expected operational performance, and sales, margins and earnings all exceeding our guidance.

In the quarter our organic sales growth accelerated to 5%, a continuation of the positive trend we’ve seen throughout the year. And even more encouraging was the fact that we saw organic sales growth broadly across the portfolio in all our segments. It truly was a balanced contribution, highlighting great positions in good industries.

Our short-cycle order rates continued to trend positive as we saw strong quarters from Energy, Safety and Security, and Transportation Systems, as well as continued improvement in Advanced Materials. Our long cycle businesses are maintaining robust backlogs with strong orders and sales growth this quarter from UOP, Process Solutions and Aerospace, giving us confidence in our outlook beyond this year.

Geographically, where as you know we are well diversified, we are seeing strength in the US particularly in our residential and industrial markets. As you know we’ve been conservative over the years in our planning assumptions for Europe and I think that’s been a good call.

China continues to be a strong market for us both on the short- and long-cycle sides of the portfolio, and we saw double-digit increases this quarter in both the Middle East and India – reinforcing that our focus on high-growth regions is paying off.

EPS of $1.47 increased 19% year-over-year or 14% normalized for tax. So another quarter of double-digit EPS growth with earnings coming in above the high end of our guidance range.

Our continued progress on the Honeywell operating system or HOS and other key process initiatives are delivering meaningful growth and productivity benefits. We’re seed planting all the time to drive top and bottom line growth.

Complementing the balanced portfolio was our relentless focus on new products and technologies which helped us to differentiate. Innovation remains the lifeblood of the organization and we continue to win big in the marketplace, and we’ve got some really good stuff to talk about today.

We’re really excited about the Gulfstream new 600- and 500-series planes that were announced earlier this week, and we have several innovative Honeywell technologies onboard, including our avionics and mechanical portfolios. A sampling includes synthetic vision, wireless connectivity, cockpit avionics, traffic and 3D airport maps, and our APUs and environmental controls.

We also have another first – the Gulfstream flight deck called Symmetry will include for the first time ever integrated Honeywell touchscreens that will be used for cockpit systems controls, flight management, communication, check lists and monitoring weather and flight information. This new approach reduces pilot workload while improving communications in a more natural and intuitive way. These new products are part of our company-wide HUE initiative and reflect the most integrated and streamlined flight deck in business aviation.

The same with aerospace – in September we announced that Bombardier Business Aircraft will be the launch business aircraft manufacturer for Honeywell Aerospace’s Jetwave Ka-Band Satellite Connectivity System. Our Jetwave hardware exclusively supports Inmarsat’s forthcoming Jet ConneX service which when it goes live in 2015 will provide biz jet passengers with high-speed in-flight connectivity virtually anywhere in the world.

To put it in perspective, this will allow passengers to video conference, send and receive large files, and access streaming content while on the move by enabling them to access Inmarsat’s service. This exclusive high-speed connectivity will also enable us to differentiate our cockpits and mechanical systems through innovative data sharing and services, making aircraft and pilots more efficient.

In our Scanning and Mobility business we’re working with the United States Postal Service, one of the largest global mail carriers, to deploy more than 75,000 units of our next-generation mobile delivery device by year’s end. This custom-branded mobile device is based on our market-leading mobile computing technology, the Dolphin 99ex – clever name, right? Used by postal carriers and mail processing employees, the device improves critical activities related to making on-time deliveries including reliable tracking information, proof of delivery for Priority Mail and postal route navigation support.

We’re also excited about the growth we’re seeing from Solstice, our new line of refrigerants, insulation materials, aerosols and solvents that have global warming potential lower than CO2.

In September, at a White House event, we announced that we will increase production of Solstice products and as a result will drive a 50% reduction in our annual production of high-GWP hydrofluorocarbons or HFCs on a CO2 equivalent basis prior to 2020. We project that the use of our Solstice products will eliminate more than 350 million metric tons of CO2 equivalent by 2025. That’s equal to removing 70 million cars from the road for one year.

And in mobile air conditioning we’ve had significant wins from global customers and expect our sales to continue to ramp, as Solstice helps customers meet CAP A standards in the US and the new MAC regulation in Europe which goes into full effect in 2017. So with the increased order book for Solstice applications and the new capacity coming online, Fluorines is positioned for terrific growth in 2015.

If I take a look at where we stand for the year with just about two months left, we’re confident in our ability to deliver at the high end of the guidance we set for this year last December. As a reminder, we’ve stuck by our sales and earnings outlook all year, steadily increasing the low end of our pro forma EPS guidance to reflect the strong year-to-date performance. And we’re doing it again this quarter, raising the low end of our 2014 EPS guidance by a nickel to $5.50 to $5.55. That’s up 11% to 12% year-over-year – not bad at all.

So turning to 2015 — and you’ll hear more from Tom on this — we’re going to continue to remain conservative on the global economy. We haven’t counted on much from the macro environment historically and so far that has been a good call. We’re confident in our continued outperformance because one, our portfolio is aligned to favorable trends like energy efficiency, clean energy generation, safety and security, urbanization, and customer productivity that continue to trend positive.

And two, we have been conservative on costs. We’re in the process of completing our annual operating plans and overall we see prospects for another good year in 2015.

As I mentioned already we have a very healthy backlog and see positive order and win rates across the portfolio. We’re also expecting another year of margin expansion. We’re going to continue executing on our key strategies for growth, including penetration in high-growth regions and sustaining our investments in high ROI CapEx and new products and technologies, while maintaining our cost discipline and ensuring we deliver the savings from restructuring projects that we’ve funded for the last few years.

Our strength of execution has led Honeywell in the past to strong earnings growth and another year of outperformance in 2015, remaining on track to the long-term targets we gave you back in March.

So with that I’ll turn it over to Tom.

Tom Szlosek – CFO

Okay, thanks Dave and good morning.

On Slide 4, let me walk you through the financial results for Q3. As you can see, some very strong numbers and every metric came in at or above the guidance we provided in July.

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