Honeywell International (HON) Earnings Report: Q4 2014...

CompanyName:HoneywellInternat ionalIncCompanyTicker:HONSector:Indust rialGoods

Industry:Indust rialEventDescription:Q4 2014 EarningsCall

HoneywellInternational(HON)EarningsReport:Q42014ConferenceCallTranscriptThefollowingHoneywellInternationalconferencecalltookplaceonJanuary23,2015,09:30AMET.Thisisatranscriptofthatearningscall:

CompanyPart icipants

MarkMacaluso;Honeywell;VP-IRDaveCote;Honeywell;Chairman,CEOTomSzlosek;Honeywell;CEO

OtherPart icipants

SteveWinoker;Bernstein;AnalystScottDavis;Berkeley;AnalystJeffreySprague;VerticalResearch;AnalystStephenTusa;JPMorgan;AnalystNigelCoe;MorganStanley;AnalystJoeRitchie;GoldmanSachs;AnalystChristopherGlynn;Oppenheimer;Analyst

MANAGEMENTDISCUSSIONSECTION

Operator:

GooddayladiesandgentlemenwelcometoHoneywell'sfourth-quarter2014earningsconferencecall.

(OperatorInstructions)

Asareminder,thisconferenceisbeingrecorded,andIwouldnowliketointroduceyourhostfortoday'sconference,Mr.MarkMacaluso,VicePresidentofInvestorRelations.

MarkMacaluso (VP-IR):

Thankyou,Lisa.

GoodmorningandwelcometoHoneywell'sfourth-quarter2014earningsconferencecall.

WithmeheretodayourChairmanandCEODaveCote,SeniorVicePresidentandCFOTomSzlosek.Thiscallandwebcastputtinganynon-GAAPreconciliationsareavailableonherWebsiteatwww.Honeywell.com/investor.

Notethatelementsofthispresentationcontainforward-lookingstatementsthatarebasedonour(inaudible)ourbusinessasweseethemtoday.Thoseelementscanchange,andweaskthatyouinterprettheminthatlight.

Weidentifytheprinciplerisksanduncertaintiesthataffectourperformanceandourform10KandotherSECfilings.

Thismorningwe'llreviewourfinancialresultsforthefourthquarterandfull-year2014,andsharewithyouourguidanceforthefirstquarterandfullyearof2015.Finally,asalways,wewillleavetimeforyour

questionsattheend.

SowiththatalternateallovertoChairmanandCEODaveCote.

DaveCote (Chairman,CEO):

Thanks,Mark.Andgoodmorningeveryone.

Wedeliveredanotherexcellentquartercappingoffaterrific2014.Inthisfourth-quarter,wedeliveredbetter-than-expectedoperationalperformanceineachofourkeymetrics.That'ssales,margin,earningsandcash,meetingorexceedingourguidanceacrosstheboard.Wedelivered4%organicsalesgrowthfollowing5%growthinthethirdquarter.

Andwecontinuetodrivemarginexpansionup130basispoints,excludingtheimpactofthefourth-quarter2014aerospaceOEMscenters,whichwediscussedindetaillastmonth.Wedeliveredearnings-per-shareof$1.43up15%year-over-yeararound11%[inloser]tax,soanotherquarterofdoubledigitearningsgrowth(andonecent)abovethehighendofourguidancerangewithstrongexecutionacrosstheportfolio.

Forthefullyear,weincreasedsalesonanorganicbasis3%whilecontinuingour[feet]planningwithinvestmentsinnewproductsandtechnology,highROICapEx,andexpansionofourglobalfootprint.Weachievesignificantmarginexpansionwithbenefitsfromourkeyprocessinproductivityinitiatives,andwe'vebeenabletoachieveallthisinwhatcontinuestobeaslowgrowthmacroenvironment.

Themomentumwesawinthesecondhalfgivesusconfidenceinthisyear.Ashortcyclebusinessescontinuetoimprovewithgoodorganicgrowthinthecommercialaftermarketbusiness,ESS,advancedmaterials,andTransportationSystems,allsuggestingamodestimprovementinendmarketconditionsoverall.We'realsoseeinggoodmomentumoutofourlongcyclebusinessesbuildingonarobustbacklog.

Webelievetheportfolioiswell-positionedtodeliverthisyearandbeyondenhancedbythesmart[gained]deploymentactionswe'vegainedoverthelastyears.WhileIbelievetheglobaleconomycouldbeabitbetterthisyearthaneconomistsareforecastingcurrently,wewill,asalways,planconservativelyinouroutlookandremainflexible.

Asyou'llhearinamoment,wecontinuetoplanforaslowtonogrowthenvironment[inEurope.]Wehavehedgedover80%ofourP&Lexposurerelatedtotheeuro,andweremainfocusedoncontrollingourspend.

AndTompreviewedinDecember,wesoldthefinal1.9millionsharesof[aerospace]stockthisquarter.Toremindyou,weoriginallyreceived6millionsharesunderconsiderationforourshareoftheir[aeroconsumable]solutionsbusinessin2008.

Atthattime,thoseshareswereworthabout150million.Wesoldthoseshares[overthecourseofthelastfivequarters]foratotalofabout$500million.We'vedeployedtheresultinggainsforrestructuringandotheractionstoproactivelypositionthecompanyforfuturegrowthandprofitability.Theactionsofthefourth-quarterwillsignificantlybenefitaerospaceoverourfive-yearplan,andwebelievewearewell-positionedforfuturesuccesswithourcommercialOPcustomersasaresult.

Now,therecontinuestobeoutalotofexcitingthingshappeningacrosstheportfoliotodrivethoseresults,andtohighlightafew,Honeywellscanningmobilitydeliveredanotherquarterofdouble-digitorganicsalesgrowth,benefitingfromnewcustomerwins.

Followingthesuccesswe'vehadwithIntermec,HSMannouncedinDecembertheacquisitionofDatamaxO'Neill,aglobalmanufactureoffixedandmobileprintersusedinavarietyofretailwarehousingdistributionandhealthcareapplications.ThisacquisitionpositionsHSMtoexpandinthe1.5billiondollarglobal

[biocode]printingsegmenttobuildontheirexistingcapabilities.

Theteamisreallyexcitedaboutthisacquisition,whichextendsourglobalreachandprovidesscaleandsignificantsynergyopportunities.

Transactionsexpectedtoclosethisquarter.Whileourdealactivityinthispastyearwasmodest,theM&Apipelineremainsrobust.Weintendtomaintainourdisciplinedprocessandextendourstrongtrackrecord.We'vealsotalkedalotaboutoursolsticelineofrefrigerants,installationmaterials,aerosols,andsolventsthathaveozonedepletionofzero,andaglobalwarmingpotentiallowerthanCo2.Andthat's1000timesbetterthanwhatitreplaces.

Earlierthismonthweannouncedthatourflooringproductsbusinessstartfull-scalecommercialproductioninourBatonRouge,LouisianafacilityasthenewestsolsticeproductHFO1234CE.Nowthatisoneimpressivecatchyname,soIthinkweregoingtoprobablystickwithsolstice.We'reseeingincreasingdemandforourentiresolsticesuiteoflowGWPmaterials.

Thelifetimevalueofsignedagreementsin2014,exceeds$2.3billion,andwehaveanadditionalbilliondollarsplusundernegotiation.[Process]solutionshasalsobeenabrightspotaswecloseouttheyear.Organicsalesgrowthacceleratedinthesecondhalfoftheyear,andorderswereupdouble-digitinthefourth-quartersupportingcontinuedgrowththisyear.

HPFistransformingprojectexecutionwith[leaps].Thatisleanexecutionofautomationprojects.Andisinnovatingtowininthemarketwithautomatedofferingsacrosscontrolandsafetysystems,fielddevices,plantoptimizationsoftware,andservices.We'realsoexcitedaboutthegrowthsynergiesfromtheHPSand[URP]aredoingtogether.

Ourabilitytomatch[URP]processandoperatingknowledgewithHPScontrolandadvancedsoftwaresolutionswillenableunmatchedoperatingexcellenceforourrefiningpetrochemicalandgasprocessingcustomers.YoucanexpecttoseemoreofourinnovationondisplayattheMarchInvestorDaywereeachofthebusinesseswillhighlightanumberofQEinfluencednewproductsandroadmapsforfuturegrowthandproductivity.

WealsoplantosharewithyouhowHOSGoldisevolvingthroughouttheorganization,whichwebelieveisakeydifferentiator.Weheldourannualseniorleadershipmeetingearlierthismonth,andIcantellyouthateachofthebusinessesarehardatworkfindingnewandinnovativebreakthroughobjectivestodrivegrowthandmarginexpansion.

Havingsuccessfullyperformedagainstthefive-yeartargetswesetfor2010to2014,wearenowfocusedondelivering2015andthefive-yeartargetsweissuedlastMarchfor2014-2018.2014wasastrongstart.Ourbusinessmodelworks.

Havingastrongportfoliowithgreatpositionsandgoodindustries,makingsurethemachineryworksbettereverydayforourcustomers,suppliersandemployees,andaculturethatfocusesononeHoneywellandevolvingourcapabilityandtechnologies.Fromourculture,wegetsustainabilityresults.

SowiththatalternativeortoTom.

TomSz losek(CEO):

Thanks,Dave,andgoodmorning.

Let'sbeginonslidefour,whichrecapsarefourth-quarterresultscomparedwiththeguidancewegaveyoulastmonthintheDecemberOutlookcost.

Ontheleft-handside,we'veoutlinedtheguidancewesharedwithyouinDecember.Andontheright,youcanseeourresultsfortheorderasreported.I'mnotgoingtowalkthrougheachlineitemhere,butyoucanseebasedonthecheckmarks,thatwedeliveredorexceededourguidanceoneachlineitem,includingthetopandbottomline.

Theincrementalsalesandsegmentprofitsenableusto[beat]thehigherendofourEPSguidancerangeandalsotofindincrementalrestructuringandotheractionsinthequarter.

Thereareacoupleoftransactionsthatoccurredinthefourthquarterthatareworthremindingyouof,andagain,theyunfoldedexactlyofweforecastedinDecember.

First,wecompletedthesaleoftheremainingBEAVsharesresultingin$140milliongainat$0.14forshareonanafter-taxbasis.Thetimingofthesalewasimportantfromataxperspective,aswenotedinDecember.Thetimingallowedustooffsetthatgainwithotheritemsandtherefore[incurred]everylittleincometaxonthetransaction.

AlsointhequarterareaerospacebusinessrecognizethecostofcertaincommercialOEMincentivesthatbecameduewhenourcustomerachievedcontractualdevelopmentmilestonesonplatforms,whichwillincludeHoneywellavionicsandmechanicalcontent.Thecostwas$184millionor$140milliononanafter-taxbasis.That's$0.14pershare.

Asyouknow,we'vewonsignificantcontentintheairtransportandbusinessaviationsectors,andsuchup-frontincentivesareapartofthebusinessmodel.Andasyou'realsoaware,accountingfortheseincentivesisquiteconservative.Manyothersinthisindustrypreferthesetypesof[costsontheir]balancesheetandexpensethemoverthelifeoftheplatform.Webelievechargingtheincentivesup-frontgivesgreatertransparencytoourOEMprofitabilityinthesegment.

AlsotheOEMincentivespositionuswellontheplatformsalreadywon,butalsotowinnewbusinessonthecontentthatweselectinthefuture.

Onslide5,whichshowsthefourth-quarterresultswithoutthe[aero]OEM'sincentivesfortheBEAV[gain],salesof10.5millionincrease1%or4%onanorganicbasis.TheabsenceoffrictionmaterialsandthestrengtheningoftheUSdollarwereheadwindstoreportedsalesgrowthinthequarter.

You'llrecallwedivestedfrictionmaterialsinthequarter,sotheywillcontinuetobeunfavorablesalesheadwindsthroughoutthefirsthalfof2015.Weareencouragedwiththegrowthandmomentumthatisbeginningtoemerge.Weachieved4%organicsalesgrowthinthesecondhalfof2014,comparedwith2%forthefirsthalfand2%forall2013.Thegrowthwesawinthefourthquarterwasbroad-basedandresultedinbetter-than-expectedperformanceacrosstheportfolio.

I' llprovidemorecoloraswereviewthebusinessgroupsinamoment.Youcanseethesegmentprofitincreased9%withsegmentmarginsspanning130basispoints.Oureffortstodrivecommercialexcellence,supportedbydifferentiatedtechnologycontinuedtoproduceresults.

Inaddition,[productivity]remainsakeydriverofmarginexpansion,offsettinginflationandourcontinuedinvestmentsforgrowth.EPSwasonedollar$0.43,up15%,consistentwithourhistorical[practice].Thisexcludestheannualmark-to-marketadjustmentforourdefined-benefitpensionplan.

Inthefourthquarter,thismark-to-marketadjustmentwasapproximately$249millionor$0.23pershare,principallydrivenbylowerdiscountratesinourGermanandDutchplants.Sothefourth-quarterreportedEPSwas$1.20,andforreferencepurposes,themark-to-marketadjustmentof2013was$51millionoraboutfivecentsashare.

Finally,freecashflowinthequarter[up]$1.3billionrepresentingconversionof119%,andincreaseof6%in

Sooverall,wegenerateaverystrongresultinarelativelyslowgrowthenvironment,andweincreasedourannualdividendinthefourthquarterby15%to$2.07ashare,continuingourcommitmenttogrowingthedividendfasterthantheearningsrategrowthandatrendyoucanexpectwillcontinue.

Onslidesix,thesamefourth-quarterresultswerepresentingonareportedbasis.Soasyoucansee,ourreportedsalesdecreased1%,andthatwasdrivenbytheArrowOEMincentives.Nochangetothe4%organicsalesgrowthinthequarterthatIshowedinthepreviouspage.

Soourrecorded[basis]segmentprofitdecreased2%withmarginscontracting20basispointsto15.9%inthequarter.Again,theonlydifferenceinthepreviousslideonsecondmarginistheinclusionofthat$184millionchargefortheArrowOEMincentive.

Movingtonetincome,theBEAVgainandtheOEMincentivesfullyoffsetoneanotheronanetoftaxbasis,andnormalizedfortaxEPSinthequarterincreased11%year-over-year.Therestofthefiguresonthisslideareidenticaltothepriorfourthquartersite.

I'mnowonslideseventorecapthefull-year2014result,againwithouttheimpactoftheArrowOEMincentivesfortheBEAVgain.Full-yearsalesof$40.5billion,up4%for3%onanorganicbasis.TheprimarydifferencebetweenthereportinorganicratesistheIntermecacquisitionnetoftheimpactofthefrictionmaterialsdivestiture.Wesellgoodorganicgrowthacrosstheportfolio,includingscanningmobility,[acquiring]industrialsafetybusinesses,transportationsystems[andOUP].

Segmentprofitincreased8%,demonstratingstrongsalesconversionandresultedina70basispointimprovementinthesegmentmarginratesto17%.Allthisresultedinearningspershare,excludingpensionmark-to-marketadjustmentof$5.56ashare,up12%over2013,representingourfifthconsecutiveyearofdouble-digitearningsgrowth.AndEPS$0.01abovethehighendofourDecemberguidancerange.OurreportedEPSof$5.33fortheyearagainreflectsthe23centmark-to-marketadjustmentthatImentionedforthefourthquarter.

Sofinally,freecashflowis$3.9[billion]inourlinewithourguidance.Pre-cashflowincreased16%year-over-yeardespiteanapproximate16%increaseinCapExinvestmentsinthegrowthareaswe'vepreviouslysharedwithyoumostlyin[PMT].

Solet'smovetoslideeighttoshowthefull-year2014results,includingtheimpactsoftheArrowOEMincentivesandtheBEAVgain.Toquicklyrecap,2014saleswereup3%onboththerecordedandorganicbasisto$40.3billion.

Secondprofitwasup5%resultinginthe30basispointmarginexpansionto16.6%,sotheArrowOEMincentivesreducedthegrowththereportedgrowthfrom4%to3%andreducesmarginexpansionfrom70to30basispoints.

Therestofthepageagainremainsthesameasthepreviousslide,andnowIwanttomoveontoslidenineanddiscussthebusinessesstartingwithaerospace.

Thisfirstslidehighlightsthefourth-quarterreportedanorganicsalesgrowthrateforaerospace.Asareminder,inthefourthquarterof2013,aerospacerecognizedanIPlitigationsettlementresultinginaone-timeroyaltygainof$63millionindefenseandspace.ItwasoffsetatthetimebyOEMincentivesin[BGA].

Bothoftheseitemswereincludedandthereforenettedoutinsalesandsegmentprofitattheaerospacelevelin2013.TotalReportedaerospacesalesweredown6%inthefourthquarterof2014,drivenbythreeitems,the$184millionOEMincentivesthatwediscussedinouroutlookcallbackinDecember;two,thefrictionmaterialsofdivestiturewhichclosedinthefirstquarter;andthree,theunfavorableimpactofforeignexchangeon

reportedresults.

However,onanorganicbasis,fourth-quartersaleswere[up]4%,drivenbystrongexecutionacrosstheportfolio,andeachofthethreelegacyArrowbusinessesacceleratedgrowthinthefourthquartercomparedwiththefirstthreequartersandtransportationsystemscontinueditsmid-singledigitsgrowthperformance.

OrganicsalesgrowthandArrowhasacceleratedthroughout2014likeHoneywell,soifyouwillrecallArrowwasup1%inboththefirstandsecondquarters,3%inthethirdquarter,now4%tocloseouttheyearinthefourthquarter.

IfIlookattheindividualpiecesofaerospacestartingwiththecommercial[OE]salesdecreased14%onanorganicbasis--onareportedbasis,drivenbythenetunfavorableimpactoftheOEMincentives.However,onanorganicbasis,salesgrew7%.Thatwasprincipallytheresultofrobustengineshipmentsandbusinessingeneralaviationforthe[NovardiChallenger]350and[everyyear]legacy500.

Movingtocommercialaftermarkets,asyoucansee4%salesgrowthonboththerecordedandorganicbasis.ATRsparesgrowthwasbalancedacrossbothmechanicalandelectricalproductlines,offsettingmoderationin[VGARMUs].That'sretrofitmodificationsandupgrades.

Bothairlineandbusinessjetrepairandoverhaulactivityimprovedinthequarteraswell.[Expenseofspace]salesdeclined3%onareportedbasis,drivenbytheabsenceoftheprioryearlicensingroyaltygainIjustmentioned.However,onanorganicbasis,saleswereup2%intheorder.Internationalprogramscontinuetodrivegrowthwithdouble-digitsalesincreasesoffsettingmodestdeclinesinourUSDODandgovernmentservicebusinessesinthethirdquarter-orsorry,inthefourthquarter.

Finally,transportationsystemssalesdeclinedto16%onareportedbasis,reflectingthethirdquarterfrictionmaterialsinvestitureandforeignexchangeheadwinds.Onanorganicbasis,TSsalesincreased4%inthequarterasweonceagainsawstrongvolumegrowthinlightvehiclegasapplicationswherewecontinuetoseeincreasedglobalpenetration.

WealsocontinuetoseeourEuropeancommercialvehiclevolumesgrowthaswebenefitfromnewprogramsfollowingtheimplementationof[eurosix]submissionregulationsintheregion.Asyoucan,seetheunderlyingbusinessgrowthtrendsacrosstheArrowportfolioremainpositive,consistentwiththeoutlookweprovidedtoyouDecember.

SonowI'mslide10continuingwithaerospace,thefourth-quartersalesresultincommentaryareconsistentwithwhatIjustdiscussed.Sothatforthefullyear,aerospacesalesdeclined1%onareportedbasisdrivenbythefrictionmaterialsdivestitureandtheimpactoftheOEMincentives.However,onanorganicbasis,salesincreased2%.Aerospacemarginscontractedby160basispointsinthequarterdrivenbytheOEMincentives.

Butexcludingthe$184millionchargefortheOEMincentives,secondmarginsinthefirstquarterwereactuallyup210basispointsdrivenbyproductivity,[netof]inflation,wherematerialproductivitycontinuestobeasignificantdriveralsocommercialexcellenceandiffavorableimpactofthefrictionmaterialsdivestiture.

Andforthefullyear,youcanseethatArrow'ssecondmarginscommanded140basispoints,againexcludingtheOEMincentives.

Solet'sturntoACSresultsonslide11.ACSsaleswereup6%onanorganicbasisinthequarter,excludinganapproximate3%headwindfromFX.ThegrowthcameataboveourguidancewithbothESSand[BSD]finishingnearstrong.

ESSsalesfortheproductsbusinesswereup7%onanorganicbasisinthequarter,continuingthetrendofprogressivelystrongergrowthnotedineachquarterof2014.Scanningmobilitycontinuestoperformwell,

drivenbynewproductintroductionsandlargeprogramwindssuchastheU.S.PostalServiceprogramwehiredlastquarter.

Inaddition,wecontinuetorealizeintegrationbenefitsfromIntermecsupportingthestronggrowthwe'veseenfromthecombinationofthetwobusinesses.ThependingacquisitionthatDavementioned,ofDatamaxO'Neil,complementsourexistingportfoliointheattractivebarcodeprintingspacerequiredwithIntermec.

AsfortherestofESS,growthwasdrivenbynewproductintroductions,furtherpenetrationinhigh-growthregion,higherresidentialsales,whichbenefitedboththePCandsecurity,andimprovementsinthe[non-resi]market,whichbenefitedour[fire]andindustrialsafetybusiness.

Buildingsolutionsanddistributionsaleswereup4%onanorganicbasisinthefourthquarterwithcontinuedstrengthintheAmerican'sfireandsecuritydistributionbusinessesandaccelerationandbusinesssolutions.ParticularlywithinbuildingsolutionswesawagoodgrowthintheAmericasaswellasanincreaseinhighermarginservicebusiness.

Boththebuildingsolutionsbacklogandservicebankswereupmidtohighsingledigitsonanorganicbasis,supportingouroutlook[inconfidence]forsalesaccelerationin2015.ACSmarginsexpanded70basispointsto15.9%inthequarter,thebusinesscontinuestobenefitfromgoodconversiononhighervolumesandproductivitynetofinflationsupportedbyourHOSinitiativesoffsetbycontinuedinvestmentsforgrowth.

Inaddition,wecontinuetorealizeincrementalsynergybenefitsfromthecombinationofIntermec'swithHSM.

SooverallverygoodgrowthandexecutioninACSandalotmoretocomeastheteamcontinuestocoordinatetheindividualbusinessesmoreandmorethroughconnectiveACS,whichisaninitiativetodriveandenhanceadegreeofintegrationacrossthebusinesses,andinparticularinthesupplychainandproductdevelopmentsandinthemarketingareas.

AlexwilltalkmoreaboutthisatourInvestorDayinMarch.

Somovingtoslide12forPerformanceMaterialsandTechnologies,PMTsalesinthequarterwereuptwopoints-wereat$2.6[billion],up3%onorganicbasis,areapproximatelyflatonreportedbasisdrivenbyforeignexchangeheadwind.

[Willitthreaten]theimpactofloweroilpricesonthePMTbusinessesinamoment,buttherewasverylittleimpactonPMTresultsinthequarter.

ForthefourthquarterUOPsalesdecreased1%onanorganicbasis,andasareminder,UOPhadexceptionalorganicgrowthinthefourthquarterof2013.You'llrecalltheywereup17%lastyear,drivenprimarilybyincreased[catalystsales],soaverydifficultcomparisonyear-over-year.

UOPexecutedverywell,reflectingstronglicensingrevenues,whichpartiallyoffsetthelower[catalystsales].Wealsocontinuetoseestrongordertrendsingasprocessing,particularlyatUOPRussell,givingusconfidenceasweheadinto2015.Andweanticipatefurthersalesgrowth2016and2017forthenewcapacityadditionsacrossUOPandalsotoadvancedmaterials,whichcomeonlinein2015.

Inprocesssolutions,organicsalesgrowthcontinuestoaccelerate.HPSwasup6%inthequarterwhileonareportedbasissaleswereflatastheorganic--orthestrongorganicinternationalgrowthwasoffsetbyforeignexchangeheadwind.HPSsawstrongvolumegrowthdrivenbytheadvancedsolutionsoftwarebusinessandtheHPSservicebusinessinallregions.

Ordersbacklogandservicebankgrowthalsocontinuedatastrongpace,updoubledigitsonanorganicbaseinthequarter.Andthisordersgrowthincreasedsteadilythroughout2014,whichsetsprocesssolutionsupnicelyforacceleratedsalesgrowthin2015andbeyond.

Advancedmaterialssalesincreased4%onanorganicbasisdrivenbydouble-digitsalesandordersgrowth[inflooring]productsasdemandforournewlowglobalwarmingpotentialsuiteofsolsticeproductscontinuestogrow.Thiswaspartiallyoffsetbyadeclineinresidentchemicalsalesinthelowsingledigitrange,drivenprincipallybythemarket-basedpricingmodel,wherebysellingpricesarecloselytiedtothemarketpriceofrawmaterials,mostnotablybenzene,whichishighlycorrelatedtothepriceofoil.

Whilesalescanbevolatile,thepricingmodellargelyprotectstheprofitdollarsinresidentchemicals,evenonlowersales.PMTsecondmarginswereup90basispointsto16.5%,whichexceededourguidance,drivenbyhighervolumeandproductivitynetofinflation,partlyoffsetbycontinuedinvestmentsforgrowth.

InUOP,thehigher[makesoflicensing]revenueinthequarterresultedinatailwindtomargin.HPSalsoconvertedparticularlywell,continuingwithsuccessfulbusinesstransformationandbenefitingfromthegrowthImentionedinthehigher-marginadvancedsolutionsoftwareandservicebusinesses.

I'mnowonslide13label2015planningupdate.AndsimilartowhatwedidinDecember,relatedtotheimpactofoilpricedeclinesontheportfolio,Iwantedtoaddresssomeofthemajorglobaltrendsaffectingourportfolioandexplainhoweachoftheseitemsareimpactingourplansfor2015.

Letmestartwithoilpricedeclines.Overall,wecontinuetoviewtheimpactfromloweroilpricesasbeingnetneutraltoUOPandHPS.Theupstreamexplorationandproductionpartsinthevaluechaincontinuetorepresentarelativelysmallportionofourportfolio,roughly10to15%ofthecombinedUOPandHPSbusinesses.

Andourupstreambacklogshaveheldfirm.WearebeginningtoseesomedelaysfurtherdownstreamincountriesthatarenetoilproducerssuchasRussiaandtheMiddleEastasrefiningandpetrochemicalproductdecisionsaredeferred.

Ontheotherhand,incountriesthatarebeingimportersofoil,mostnotablyChina,India,andtheSoutheastAsiaregion,aswehadanticipated,theloweroilpricehasstimulatedmorediscretionarymidanddownstreamspending,wheretheyarewell-positioned.

Thisisbeingborneout,forexample,inprocesssolutionswereordersandbacklogsgrewroughlydoubledigitsonanorganicbasisinthequarter,asIhighlightedearlier.Soagain,wethinkoilpricesareneutraltotheUOPandHPSbusinessatthistime.Howeverwecontinuetomonitorthisactivitycloselyaswelookahead.

Salesandresinsandchemicalswillbenegativelyimpactedbylowerpriceslowerpricesforthe-loweroilpricesforthereasonsImentionedearlier.Whilesalescanbevolatile,thepricingmodel,againlargelyprotectsourprofitdollarsinthisbusinessevenonthelowersales.

Finally,weanticipatewe'llbegintoseethefavorableeffectsofloweroilpricesonourcoststructure,inparticular,inourindirectspend.Andwebelievethiswillacceleratethroughout2015.Ofcourse,itremainstobeseenhowoilpriceswillimpacttheglobaleconomy,shouldpricesstaybelow$50long-term.However,wecontinuetoseethiswillbeanetpositivefortheeconomyandHoneywellovertheplanninghorizon.

Turningtocurrencyfluctuationsyou'veobviouslyseenitcontinuedweakeningoftheeuro.AswehighlightedinDecemberour2015planisbasedontheeuroexchangerateof$1.20atthemidpoint.Wehavehedgesinplacecoveringapproximately80%ofoureuro[TNL]exposure.Sowhiletherewillcontinuetobepressureonthe[salesline],oureuro-basedearningsareprotected.

Wealsocontinuetoseevolatilityacrossourothercurrencyexposures,whichagainarelikelytoresultinheadwindsfortoplineorsimilartohedgingwe'vedoneitfortheeuro,theactionswe'vetakenwilllargelyprotectour2015earningsoutlooksfortheseothercurrenciesaswell.Andwe'llcontinuetoactivelymonitor

thesituation.

TheoutlookfortheUSeconomycontinuestoimprove,andwe'reexpectingapositiveuptickinourUSbusinessesasaresult.Butwealsoremainfocusedonincreasingourpresenceinhigh-growthregions.Asareminder,HDRisnowrepresentalmostaquarterofourtotalbusiness,andareexpectedtodrive50%ofthesalesgrowthoverthecourseofourfive-yearplan.

Thepopulationgrowthurbanizationandinfrastructuredevelopmentcontinuetocreateattractiveopportunitiesacrossourentireportfolio.

InChina,weanticipatehighsingle-digitgrowthin2015,afterayearofroughlymid-single-digitgrowthinpot2014.OurinitiativeonbecomingtheChinesecompetitorcontinuestoaccelerateandbearfruit.Investmentsinlocalsalesandmarketingresourcesaretargetedtothehighergrowth[cities]inChinawherelocaleconomiesaregrowingmuchfasterthantheoverallChinaGDP.Also,ourOneHoneywellapproach,specificallyinACS,continuestodrive[cross-selling]opportunitiesacrossmultiplechannels.

Inaddition,we'rebuildingarobustpipelineofnewproductsgearedtowardthemacrotrendsintheregion,namelyairpurification,energyefficiency,andsecurity.AllthesefactorsgiveusconfidenceandacceleratedgrowthforHoneywellinChinain2015.

InIndia,aftertheinvestmentsacrosstheregionslowedinthefirsthalfoftheyearwhiletheelectionsunfolded,thesecondhalfwas--a2014wasverystrongforHoneywell.Andweanticipategrowthwillberoughlyhighsingledigitsin2015,drivenbyourinternationaldefenseandspacebusiness,newlaunchesintransportationsystems,newproductintroductionsin[EFF]acrosseachofourmajorverticals,andgrowthin[BSD]frominfrastructureprojectsandservices.

InRussiawhereourexposureislimited--wehavelessthanabout$500millioninannualsalesthere--wecontinuetohaveastrongbackloginourlongcyclebusinesses.WeexpectRussiatocontinuefocusingtheiravailablecapitalonenergy,sooilandgasandrenewaloftheiraerospacesector,twoareaswhereourportfolioiswell-positionedtogrow.

Ourshort-cyclebusinessesinRussiahavebeenimpacted,particularlyasitrelatestocurrencydevaluation.Butagain,theexposurethereisrelativelysmall.Andwhileourmanagementteamispayingcloseattentiontotheissuesfacingthecountry,we'realsocontinuingtolookforopportunitiestoenhanceourbusinessintheregion.

IntheMiddleEast,weexpectcontinueddouble-digitsalesgrowthin2015afterproximately20%growthin2014.Andthisisdrivenbybigwinsinboththeshortandlongcyclebusinessesasinfrastructureinvestmentscontinue.Ourportfolioiswell-positionedtobenefitfrom,andevenoutpaceinsomecases,theattractivegrowthrateinthesemarkets.

Turningtothenonresidentialsector,we'reencouragedbytheexpectedaccelerationofcommercialconstructionspending,forecasttobeupapproximately4%in2015andthecontinuedsolidgrowthontheindustrialsitein2015.

Soasareminder,roughly75%oftheACSportfolioservesthecommercialindustrialmarkets,andourbalanceportfolioiswell-positionedtocapitalizeonimprovementsinthearea.Morespecificallyonthecommercialproductsside,aftermodestgrowthtothefirstthreequartersof2014,wesawsomeaccelerationofthefourthquarterwithstronggrowthintheUS.WeexpecttheUStocontinuetodrivefurthercommercialproductsgrowthin2015,aswellasaccelerationinourhigh-growthregionswithstrengthinourECCandfiresystemsbusinesses,inparticular.

Intheindustrialproductsmarkets,weexpecthighersalesofindustrialsafetyequipment,particularlyinthe

Americas,whichrepresentsabouthalfofourexposure.

Asforbuildingsolutions,thebacklogfromourprojectsbusinessesandtheservicebanks,throughmidandhighsingle-digitrespectivelyonanorganicbasisthisquarter,andwecontinuetoexpectenergyefficiencyprojectstosupportglobalaccelerationin2015.

Withregardtoourpensionplan,theneteffectsofhigherinvestmentreturnsandlowerdiscountrateswilldrive$125millionincreasetopensionincomefor2015.Nowweintendtofullyoffsetthatincreasewithrestructuringoverthecourseoftheyear.

Intotal,ourinternationalpensionplanrepresentapproximately25%ofourworldwidedefined-benefitpensionobligations.IntheUS,weendedtheyearwithadiscountedrateof4.08%andareturnonassetsof8%,whichresultedina[US-funded]statusofapproximately95%.Globally,the[fundedstatus]isabout94%.Wedonotanticipateany2015cashcontributionsrelatedtoourUSplan.

Letmeturntoslide14tosummarizeouroutlookfor2015.Ourfull-yearguidanceisidenticalwithwhatwesharedwithyouinDecember.

Wecontinuetoexpectsalesintherangeof40.5to$41.1billion,up1%to2%onarecordedbasisandupapproximately4%onanorganicbasis.Reportedsalesgrowthisexpectedtobelowerthanorganic,primarilyduetotheimpactoffrictionmaterialdivestitureandtheforeign-exchangeheadlines.

Weareplanningsegmentmarginexpansionof100to130basispointsareup--60to90basispoints,excludingthefourth-quarterOEMincentives.

WeareprojectingEPS-now,thisexcludesthepensionmark-to-marketadjustmentof595to615representing,7%to11%growthversus2014.Thequarterlygrowthtrendsremaininlinewithourprior-yearresults,andthisrangealsocontinuestobebasedonafull-yearincometaxrateassumptionof26.5%andshareaccountheldroughlyflatto2014levels.

Pre-cashflowisexpectedtobeintherangeof$4.2to$4.3billion,up8%to10%from2014withCapExinvestmentspeakingatroughlytwotimesthedepreciation.AtamorenormalizedrateofCapExinvestments,soaround1.25timesdepreciation,weexpectfreecashflowconversiontoberoughlyat100%.

Sonowonslide15,withapreviewofthefirstquarter.FortotalHoneywell,we'reexpectingsalesof$9.4to$9.6billion.That'sdown1%to2%reported,butup3%to4%onanorganicbasis.

Segmentmarginsareexpectedtobeupapproximately110basispoints,andEPSisexpectedtobeintherangeof$1.36to$1.41,up6%to10%versus2014.

Startingwithaerospace,salesareexpectedtobeup3%to4%onanorganicbasisordown2%to4%onareportedbasis,reflectingtheyear-over-yearabsenceoffrictionmaterials,aswellasforexchangeheadwinds.

We'reexpectingpositiveorganicsalesgrowthfromeachofthefourbusinessesinthequarter.IncommercialOE,wereexpectingsalesuplowtomidsingledigits,drivenprimarilybynewplatformwinsin[BGA].Thegrowthisdrivenbyfavorabledemandtrendsforhigh-valuebusinessjetplatformswherewehavesignificantnewenginecontent.

Incommercialaftermarket,we'reexpectingsalestobeuplowsingledigitsandcontinuetorepairandoverhaulgrowth,aswellasATR[spears]growthinthequarter,drivenbyhigherdemandforbothmechanicalandelectricalproducts,partiallyoffsetbyadeclinein[BGARMUs]againstthechallengingprioryearcomparison.

Defenseandspacesalesareexpectedtobeuplowtomidsingledigitsinthequarter,drivenbycontinuedstrengthandinternationalbusinesses.Intransportationsystems,salesareexpectedtobeupmidsingledigitsonanorganicbasis,butdownsignificantlyonareportedbasis,drivenbytheabsenceoffrictionintheforeign-exchangeheadwindsImentioned.

Onorganicbasis,thegrowthinTSisprimarilydrivenbynewlaunchesandstronglightvehiclegasdemandineachofourthreekeyregions:theUS,Europe,andChina.

Asforaerospacemargins,weexpectanincreaseof100to220basispoints,drivenbycommercialexcellence,significantproductivityimprovementsacrosstheportfolio,alongwithafavorableimpactonthemarginratefromthefrictionmaterialdivestiture.

Turningto[ACS],salesareexpectedtobeup45%organically,orflatup2%onreportedbasiswithcontinuedmidsingle-digitorganicgrowthinbothESSandBSD.Thedifferencebetweenareportedorganicratesreflecttheforeign-exchangeheadwindsinthequarter.

Theendmarketswhereweprimarilyparticipateresidential,commercial,andindustrial,arealllookingmoderatelybetteraswestart2015.Andwecontinuetobenefitfromnewproductintroductionsandhigh-growthregionpenetration.

Also,thestrongordersgrowthwesawattheendof2014inboththeshortandlongcyclebusinesses,givesusincreasingconfidenceinouroutlookfor2015.[ACS]marginsareexpectedtobeup100to120basispointswithcontinuedbenefitsandcommercialexcellenceproductivitynetofinflation,whileacceleratinginvestmentsforgrowthandnewproductareassuchasconnectedhomesandinhigh-growthregions.

Further,weexpecttorealizesynergiesfromtheintegrationofDatamaxO'NeilacquisitionsafterthetransactionclosesaswedidwithIntermecthroughout2014.

InPMT,salesareexpectedtobeapproximatelyflatonanorganicbasisanddownapproximately1%to3%reported,drivenbyforeignexchangeheadwindsandtheimpactofloweroilpriceson[presence]ofchemicals,apointImadeearlier.Excludingthesefactors,PMTsalesareexpectedtobeupapproximately4%inthequarter.

We'reexpectingUOPstobeuplowsingledigits,withgasprocessingsalesexpectedtodrivethemajorityofthegrowth.

InHPS,we'reexpectingorganicsalesupmidsingledigits.Thefavorableordersandbackloggrowthwesawin2014willsupportthesalesacceleration2015.

Ontheadvancedmaterialsside,we'reexpectingalowtomidsingledigitorganicsalesdecline,principallydrivenbyadoubledigitdeclineinresinsandchemicals,duetothefactorsImentionedearlier.Thesedeclinesareoffsetbycontinuedstrengthinourflooringproductsbusiness,whichisbenefitingfromincreaseddemandrelatingtothenewproducts,principallythesolsticeproductssuites.

Also,PMTsegmentmarginsinthequarterareexpectedtobeup100to120basispointsversus2014,drivenbyhighervolumesinproductivity,aswellasthefavorableimpactofthemarket-basedpricingmodelin[resinand]chemicals.

Letmemovetoslide16foraquickwrap-up.

In2014,wedemonstratedonceagainthatHoneywellcandeliveronitscommitmentsinarelativelyslowgrowtheconomyandamidstsomeveryvolatileglobaltrends,areminderonceagainofthevalueofourdiversifiedandbalanceportfolioandmanagementteamfocusedonexecutionandthestrengthoftheHoneywellplaybookandkeyenablers.

Combinedthese,enabledustoaddtoourperformancetrackrecordasweexceedingguidanceonsalesachievedsignificantgrowthinsegmentmarginsanddeliveredondouble-digitEPSgrowthweoriginallylaidoutlastDecember.

We'regoingtocontinueinvestinginourfuturewithafocusonprofitablesalesgrowth.ThiswillcontinuetomeaninvestmentsinhighROICapEx,innewproductdevelopment,andinsalesandmarketingresources,particularlyinhigh-growthregions.Theinvestmentsarepayingoff,andyoucanseeinourresults.

Asweturnourattentionin2015,werecognizetheuncertaintyinthemacroenvironment,butthisisnotnewforus.Wehaveandwillcontinuetoplanconservatively,andwe'reconfidentthatourportfolioiswell-positionedforcontinuedoutperformance.

Ourordertrendsbothshortandlongcyclepointtoacceleratedsalesgrowthfornextyearthatshouldenablecontinuedstrongimprovementinourprofitability.We'reforecastingstrongorganicgrowthin2015andover100basispointimprovementinourmarginsasourHOS[goldenissues]aredeployedacrosstheportfolio.

Inaddition,wehavesignificantrestructuringsavingsinthebackfor2015.Sowe'llcontinuetoexecutein2015andbeyond.We'reveryexcitedabouttheupcomingyearandhavealotofmomentumacrosstheportfolioasweheadintoyeartwoofourfive-yearplan.

WelookforwardtotellingyoumoreatourMarch[fourth]InvestorDay.Sowiththat,Mark,let'sgototheQ&A.

Thankyou.

[Lisa],ifyouwould,pleaseopenthelineforquestions.

QUESTIONS&ANSWERS

Operator:

SteveWinoker,Bernstein.

SteveWinoker(Analyst-Bernstein):

Goodmorningall.Afterlastquarter'smultitudeofcongratulations,I'mhesitanttosayitagain,Dave,butIwillsaynicequarter.AndIguessI' llgetblamedbyallmycolleaguesouttherefordoingthis.

Unident if iedCompanyRepresentat ive :

It'sashametobenice.Youwouldn'twanttodosomethinglikethat.

Well,I'mtryingtobeverycautiousonthatfront.It'soneofmydevelopmentneeds.

Soanyway,listen,ontheoutlookcall,wespentalotoftime--youguysprovidedagreatamountofdetailforthinkingthroughtheoilprice,decliningoilpriceimpactacrossallyourbusinesses.

AndI'mtryingtocomparethattowhatTomjustwalkedusthrough.ButthethingthatreallyisofmaybeconcerntomeisthemidstreamdownstreamcommentarywhereinDecember,youreallytalkedaboutthatit

wasanetpositiveintermsofrefinedproductdemandinvestmentdownstream,andotherareas.

Ijustliketogetalittlemorecoloronthat,particularlyaroundtheimpactofmaybenarrowingoilandgasspreadsonsomeofthoseinvestmentsthatarehappeningoutthere,justthemorecoloronwhyweshouldn'tbeworriedaboutthisforyouguysandwhyit'sactuallygoodthing.

Well,I' llstartwithmyperspectiveonit,andthenturnitovertoTomforevenmorecolorcommentary.

There'sadifferencebetweentheupstreamandthemidanddownstreamsegments,asyouknow.Andthemid-anddownstream,myview,aregoingtobedrivenmorebyoveralleconomicactivity.Thedemandforthatisgoingtobedrivenmorebyoveralleconomicactivitythenwhateveroilpricesare.

Asaresultofthat,I'mexpectingtoseeincreaseddemandforrefinedgoodsandproducts,whichisgoingtocauseagreaterdemandonthemidanddownstreamside.

Offsettingthat,atleastintheshortterm,there'sprobablygoingtobesomeoftheinvestmentsinplaceslikeRussiaandtheMiddleEast--perhapssomeinBrazil,butthey'dalreadyslowedsignificantly--thatwillbemorethanoffsetbywhateverybodyhastocrankupeverywhereelsearoundtheworld.

Sothat'skindoftheoverviewthatIseeforit.Andasyouprobablyknow,forthefirsttimeinfiveyears,I'mactuallyalittlemorebullishonwheretheglobaleconomyisgoingthaneconomicforecastersare.

Forthelastfouryears,I'vebeenmorenegativegenerally,andsoforthat'sbeenagoodcall,butthistimeIthinkitcouldbemorepositivethanwhattheythinkbecausethatimpacttheloweroilpricesiscausingthismajorredistributionfromoilproducingtooilusingeconomies,andthoseoilusingeconomiesarequitelarge.

Sooverall,Ithinkthisisagoodphenomenon,andit'sgoingtohelpdrivemoreofthatmidanddownstreaminvestment.

TomSz losek(CEO):

Yes.Again,whatIwouldreiterateistheportionofour[HCSULP]businessthat'sinthemidanddownstream,numberone.

Numbertwo,thebacklogsreallybackedupbythestrongsecondhalf,particularlyinHPS,arereallystrong.IfyoulookatHPS,thebacklogonaconstantcurrencybasisisupabout12%year-over-year.

AndtheUOPbacklogisalso--I'msorry-yes,theUOPbacklogisrelativelyflat,0to1%.ButwhenIlookatUOP,itcontinuestobealumpybusiness.Fourthquarterwasadifficultcomparison,asIsaid.Wehad17%growthinthefourthquarter2013,butthebacklogisstrongasit'severbeen.It'sholdingup.Andourgrowthratein2015thatweforecastedforUOPismid-single-digitgrowth,sowe'reconfidentherealltheindicators.

AndUOPislumpy,butwithaverypositivetrend.

AndTom,you'renotseeinganybacklogpricerenegotiations?There'salotofchatteraboutthatinthemarket.

TomSz losek(CEO):

No,notatall.Imean,we'veprobedandprobedandprobedthis,asyoumightimagine.

AndtheonlydevelopmentIwouldsayisdeferralsonneworderswheretherearemulti-billion-dollarinvestmentswheredecisionsarebeingthoughtthroughcarefullyintheregionsthatDavementioned.Butbyandlarge,that'sabouttheonlyimpactwe'veseensofar.

OkayI' llhanditoff.Thanks.

Operator:

ScottDavis,Berkeley.

Scot t Davis (Analyst-Berkeley):

Hi.Goodmorning,guys.

I'mgladtoseeyouguysarebullish.Wehaven'thadalotofpositiveconversationsinthelastcoupleofmonths,butmaybeyoucan--Ithinkyourviewonoilisprettyclear,Dave.Butgiveusasenseofyourviewoncurrency.AndreallytheangleI'mlookingforis,we'vehadsuchaviolentmovethat--howdoesitchangethecompetitivelandscape?DoyouseeguyswhocancomeinfromJapanorotherhigh-costregionslikeinEuropethatcannowsuddenlycompeteagainstyouinareaswheretheycouldn'tcompeteagainstyoubefore?Isthatrealornotreal?

Well,the-asyouknow,theJapanphenomenonhasbeen-thecurrencyphenomenonhasbeenacoupleofyearsinthemaking.AndIcan'tsaythatweeversawmuchofanimpactfromanyofthat.IguessitremainstobeseenonwhathappenswithEuropeancompetitors,butagain,notseeingmuchofanythinghappeningthere.

Whenitcomestotheoverallcurrency,we'veassumedtheUSdollarwouldstrengthenforawhilenow,andwe'realittlesurprisedactuallyitdidn'thappensoonerthanithas.SoIwouldsayit'soneofthosethingswe'vebeencountedcountingonhappening.Andasyouknow,thisisthefirsttimein-well,thisismy--goingintomy14thyear,thisisthefirsttimewe'veeverhadtheeurotranslation.Anditissolelybecauseitseemedlikethatwas70%[best]atthispoint.Whoknows?Thingshaveawayofchanginginwaysthatyouneverpredict,butIstillthinkthattheprospectofa[110]eurothisyearisentirelypossible.

TomSz losek(CEO):

TheotherthingI'daddDaveisourcostsavings.

YetwedobenefitinsomecasesfromthedecliningcurrencyyouknowScottasyourfullyawarewehavesignificantproductioncapacityinChinaandMexicoandotherpartsofEasternEurope,sowedofeellikeourpositionfromasupplychainperspectiveandacost-basedperspectivedoesenableustocontinuetocompetewiththecreditorsyoureferto.

Ithinkthat'sagoodpointTomjustmadeScott.ThepresenceinEuropealreadywehaveabigbasethereabout30,000employees,sowehaveabasetocompetefrom.

Okayfairenough.

Guysgiveus,youknowIwasencouragedbywhatyousaidaboutnon-res,andourforecastwasactuallyabithigherthanyourforecastsoIhopewererightandyournot.Buteitherwaydirectionallyitistherightanswer.Butcanyouwalkaroundtheworldabitonthatandyouknowit'sreallytoughforustogetafeelfor--we'vegotgreatdataintheUSonnon-res,orthingsatleastwecantrackandoncewegetontheoutsidetheU.S.itstartstogetalittlemoredifficult.Socanyouwalkusaroundtheworldandmoreincontactsandmaybeyourorderbookorbacklogorhowyouseeitplayingoutindifferentregions?

Sure.Itwouldbeprettyconsistentwithhowwereseeingtheeconomies.

TheUSwouldsay--Ihopeyou'rerightalsowerealittlelowerinourestimations,butwethinkthatcontinuestoriseupward.It'sstillkindofareflectionofthegreatrecession,andyouheardussayatthetimeaboutVshapein,Vshapeout,slowin,slowout,andnon-resconstructionismoreofaslowinslowout.Wethinkit'sanicesteadygainanditjustcontinues.Youcouldarguethere'ssomeoffsettothatwithoilandgasCapExbutthathasreallyminimaleffectonournon-resconstructionbusiness.

InEuropeisconsistentwiththeeconomyisgoingtobeveryslow.Chinaprobablygoingtocontinuetobeamix,andinterestingphenomenontherecausethetier1citiesthatareexperiencingmoreoftheeconomicslowdown,theystillcouldusemorehousing.Andinsomeofthetier2,3,4citieswereGDPwillbegrowingfastermayhavebeenoverbuiltalittlebit.Sothatonestilltobefiguredoutbutoverallwethinkit'sstillanetpositiveonnon-resconstruction.

India,therecouldbeanawakeninginIndia.I'veneverseensuchexcitementinthebusinesscommunityinthe20+yearsthatI'vebeengoingthere.I'mactuallyprettyencouragedaboutwhattheycouldbedoingandinfactIamgoingtheretomorrowtobethereforthepresident'svisitaspartofhisUSIndiaCEOforumandIreallythinktherecouldbeatakeofftherethatwe'veallreallybeenwaitingforatleast10or12yearsnow,andthatonecouldturnouttobequiteagoodpositive.

TomSz losek(CEO):

ThethingIwouldaddtothatDave,isScotttoansweryourquestiononthenon-res.IlookatourexposureintheproductsbusinessesinACSprincipallyinfireandinsomeofthecommercialbusinessesinECC.

AsIsaidinmycomments,thegrowthratehasbeenverynicemid-singledigitsapproachingdoubledigitsinsomecases,sogoodtrendsthere.Andtheninbuildingsolutions,wherewehave,weprovideboththeprojectsandservicesinthatsamespace.

Thebackdoorratesandbacklogshavebeengood.Ifyoulookatthebacklogoverallforthebusinessesit'supaboutmid-singledigitsoverlastyear.Andit'sacrossalltheregions.It'sactuallydoubledigitsinEuropebutthatcomesoffalowercomparison.Butoverallyouknoweachoftheregionsareinthatrange.

Sowefeellikeit'sheadedintherightdirection.

That'sencouraging.WellhaveasafetriptoIndia,David,givethepresidentmybest.

Operator:

JeffreySprague,VerticalResearch.

Jef f reySprague (Analyst-VerticalResearch):

Thankyou,goodmorning.

Justacoupleofthings,backtothatenergyexposuresandthelike.OnU0Pinparticularandthecapacitythatyouputinplace,doyouguyshavepeoplecontractuallylockedupthere?

Isthereanykindoftakeorpayorasystemdoeskindofunexpectedlytakekindofasharperturnfortheworseyourkindofexposedthere?

TomSz losek(CEO):

Yes,exposuresnotthatgreatandithelpsthatwegetupfrontpaymentsonthetechnologylicensing.So,yes,iftherewasaseveredownturnofcoursewe'dfeelit,butI'mnotthatworriedaboutitrightnow.

AllrightweareseeingafewrefinerycancellationsintheUSjustthroughthisweekalone.Iwasalsojustwonderingonhedges.Tomhowthosework.WasthereaPNLexpensein2014toprepyourselfherefor2015,oristhatrunningthroughonthebalancesheetsomehow?

TomSz losek(CEO):

Goodquestion,Jeff.Allofthehedgesqualifyformarkettomarketaccounting.I'msorryqualifyfornotmarkettomarket.

Sotheywould--theimpactofthehedgeinstrumentswhentheysettlewouldberecognizedatthesametimetheunderlyingitemsthatarebeinghedgearerecognized.There'snothingunusual,it'sjusttheextentofthecurrencythatwe'vegoneoutandhedged.

Okay.AndI'mjustwonderingifyoucouldgivealittlemorespecificcoloronArrowSpareswhenyouspoketokindofaftermarketgenerallyandkindofallinwithRNO,butwhat'sgoingoninsparestrends?Areyouseeing,youknowmoreactivitywitholderairplanesthatmightbefuelcostsrelatedoranythingthatstandsout?

TomSz losek(CEO):

Itellyouonthe--it'salittlebitofadichotomybetweenATRandBGAbutrealstronggrowthontheATRsite.Andmid-single-digitgrowthonthespares.It'sgrowingonBGAsideaswellbutnotassignificantly.Butwedoexpectthose--thattoimproveintheATRtrendstoimprovefor2015.

Okay.Great.Thankyouguys.

TomSz losek(CEO):

You'rewelcome.

Operator:

StephenTusa,JPMorgan.

StephenTusa (Analyst-JPMorgan):

Helloguys.GoodMorning.Mediocrequarterbutit'sgoodenoughthesedays.

SojustonUOP,justremindushowmuchofthatbusinessisnewprojects,andifyouweretoseeanairpocketinnewprojectswhatkindofbacklogdoyouhavetodaytokindofgiveyoualittlebitofleewaytotakeaction?Soforexampleinthefirstquarterifyousawthatnumbergodown30%whenwouldthathityourevenuewise.Isthatevena16issueisthatmorelikea2017issue?

TomSz losek(CEO):

IguessIwouldconsiderthecompositionofthatUOPbacklogStevetokindofanswerthatquestion.AsIsaidthebacklogisheldupverywell.

Ihaveatoughtimeseeingit.EvenintherecessionIdon'tthinkitwasthatbad.

TomSz losek(CEO):

Ithinkonthecapitalsidewherewecommendonthiscapitalprojectsissortofthemiddleortheend.Andsomostofthecapitalisspentinthegroundandwewouldcomeinaninstallthesystemsandthetechnology.Sothebacklogisholdingup.

Iwouldalsosaythatifyoulookatthecompositionofthebacklog,it'sinthecatalyst,it'sinequipment,andit'singas.Andinallthreeplacesitsholdingupandthere'sreallynotanymaterialdifferencefromwhatweseen.SolikeDavesaidIhaven'theardorseenanythingintermsofpotentialdecline.

Right.I'mjusttryingtounderstandwhatkindofvisibilityandtimingdynamicsplannedyourabilitytotakeactionifhedoseesomethinglikethat.

Wehavetimetoreactnotjusttherebutaroundthecompany.

Right.AndyourordersandbackloginUOPandtheordersinthefourthquarterandwhatyourbacklogintheyearat?

TomSz losek(CEO):

Idon'tknowwhetherwedisclosethat.

Wasn'titlike$2.8billionorsomethinglikethatattheendofthethirdquarter?

IknowyouguysgaveanumberatyourHPSday--inNovemberIbelieve.No?

Notoffthetopofmyhead.Wecangetbacktoyouonthatone.

AndIguessjustoneotherquestiononcapitalallocation.

Atanykindofchangeinphilosophyaroundbuybacksyouknowversusdealhere?Anythinggettingalittlemoreattractiveasthemarketkindofbumpsaround?

Iwouldn'tsayourphilosophyhaschangeandthat'swhatyousawusincreasethedividendgreaterthantheearningsratethisyearbecausethat'sconsistentwithourfive-yearplanofraisingthepayoutratiooverthisfive-yearperiod.

Butthat'sgoingtocontinuetobeapriorityforus.AndI'dsayontheM&ApipelineI'mactuallyfeelingbetteraboutthatthanIhaveinthesepastfewmonths.Ialwaysfeltgoodaboutit,butIwouldsaytheworkRogerisdoingandthebusinessesaredoingisimprovingthatoverallpipeline.

Itdoesn'tmeananythingisgoingtohappensoonbutIcansayIfeelbetteraboutit.Ithinkthere'ssomeincreasingly--let'ssaygoodpropertiesthatwouldbeverygoodfitwithHoneywellifwecouldmakethemhappen.

Gotit.Great,thanksalot.

You'rewelcome.

Operator:

NigelCoewithMorganStanley.

NigelCoe (Analyst-MorganStanley):

Thanks,goodmorning.Dave,youmentionyouarefeelingmorebullishontheconsensusforfiveyears,andeveryoneelsefearfulaspricescomeinsomewhat.Soundslikeyoumightbeabouttodeploythebalancesheetisthatafaircomment?Steveyoumentionedthebacklogislookingprettyfertilebutjustconceptuallyisthatcorrect?

JusttomakesureIunderstoodareyousayingamIgettingreadytodosomething?

Welljustgivenmultipleshavecomedownalittlebitandyou'vegotamorebullishviewontheeconomythanmost.

Yes,Iwouldneverofcoursesayanythingonewayoranother,Nigel.IjustsayI'mencouragedbywhattheguysaredoingonthepipelineandthestuffI'mseeing.Andwe'vegotthecapabilityandwerejustgoingtocontinuetobesmartaboutit.

Okay.That'sfair.

Andthecommentarysurroundingbuildingsolutionsisreallyencouraging,andobviouslywe'veseenapickupingeneralconstructionactivitybutamwonderingtheperformancecontractingenergy-savingpartofthatportfolioareyouseeingsimilartrendsthere?Andtherehasbeenabitofadebatethatlowenergypricesmeansthatsomeofthisworkcouldgetpushedoutdoyouagreewiththatthoughtprocess?

WellIguessyou'dhavetosayyesit'spossiblebutwerenotseeingthat.

It'snotlike$50oilischeap,itwasn'tthatlongagothatwewereconcernedthatitcouldbearecessionitcouldhit$35.So$50isnotcheap.

It'scheaperthanitwas,butisnotcheap.

Okay,areyouseeingsimilartrendsintheperformancecontractingside?

Yes.Ordersaregoodthere.

Okay,andthenjustaquickoneonthehedgeaccounting.Sothewaythatworksisyoutakethefullimpactonthetopline,andthenthemitigationisthroughthecogsline?

TomSz losek(CEO):

Willactuallytheitemsthatwerehedgingandweregettingintoacomplicatedaccountinglessonhere,buttheitemsthatwerehedgingareactuallycostitemsthatweredoingitselectivelythroughouttheportfolio.

Asyoucanappreciatewehaveaglobalsupplychainandalotofcurrenciesmovingacrossborders,butwhatwedoisfocusonhedgingtheexpenseitems.AndyouknowyouletthatenablesyoutoprotecttheoverallPNL.Butwhatthatdoesisopenupthetoplineandforthetoplineisinalotofcasesexposedtocurrency.

Right.AndIjustquickly,Ithinkyoumentionedyourhedgeddownto110,isthecorrectTom?

TomSz losek(CEO):

No.Isaidourplanwasbasedon120,andwe'vehedgedataratethatIthinkprotectsthatprettywell.

Okaythanks.

Operator:

JoeRitchie,GoldmanSachs.

JoeRitchie (Analyst-GoldmanSachs):

Thankyou,goodmorningeveryone.Dave,IjustguesssincelasttimeIsawyouIhavetosaycongratulationstoyourpatsthefloodgatenotwithstanding.

Thepostandthenewshavingaball,sotospeak,withthis.

Indeedtheyare,andtheyprobablyshould.Butmovingontomaybeaquestiononcapitalallocation.IjustwanttoaskNigel'squestionslightlydifferently.Evaluationsofcomedownespeciallyinoilandgas,hasyourpriorityintermsofwhereyou'relookingforthenexttargethasthatchangeatall?Justgivenclearlytherearemoreattractivevaluationsontheoilandgassidetoday?

Iwouldsay--I'dbackuponitIguessandsaygreatpositionsingoodindustriesarestillgoingtobecomethefundamentalforus.Andsecondly,pricingmakesadifference.

Sothere'salotofstuffthatwe'dlikeinalotofdifferentsegmentsmanyofwhichwereoutlinedforyouinthepast,andwe'regoingtocontinuetolookatdoespricingmakessense,doesitmakesensetodayversusfurtherintothefuture.Andwetendtotrytobeprettycarefulabouttimingwhenitgoesintoevenpickingoffagreatpositioninagoodindustry.

Okay.Thatmakessense.AndIguessgiventhatthismonthyoujustgotbackfromyourtop300meetingI'dbecurioustohearhowyoufeelabouttheprogressyouguysaremakingintermsofpivotingthecompanyreallytoanorganicgrowthstory.

Youknowthemarginstoryistherebutreallypivotingtoorganicandimprovingyourcashflowconversionoverthenextfewyears.

Maybethebestwaytosayitisthatcomingoutofthatmeeting,wehad300unbelievablyenergizedpeople.EvenmoresothanI'veseeninthepast.Andeverybody'sreallyprettybullishnotjustaboutwhatwe'vedone,butaboutwherethingsaregoing.

AndHOSGoldandwhatwearedoingtodevelopandfundthebreakthroughinitiativesforthe76Enterprisesisreallyenergizingeveryonearoundtheworld.Justwonderfultosee.

Okay.Allright.

Soprettyconfidentintheoutlookthereandthenmaybeonelastfollow-upquestiononTS.Tom,youmentionedthatyouknowthegrowthisbeenreallygood,yourexposureispredominantlytoEuropeandyouhavegotautobuildsthatareexpectedtomoderate15.Youmentionedinyourpreparedcommentsthatthere'sbeenincreasingimprovementinthelightvehiclegasapplication,isyourportfoliopositionedwellforthatopportunityandmaybejustalittlebitofcolorthere.

TomSz losek(CEO):

WellfirstofallwhatI'mreferringtoistheincreasedpenetrationturbosonthegascombustionenginesonlightvehicles.That'sjustatrendwereseeingintheUS,China,India,everywhere.

Andwearewell-positionedtotakeadvantageofthat,we'vegotnotmanufacturingineachofthoseplacesbutalsointhelocalproductdevelopmentcapacityandengineeringteamsthatworkwiththeOEMsinthoseregions.SoIfeellikewereprettywell-positionedandthegrowthratesyouknowsupportthat.

Okay.Thanksguysallgetbackinto.

Operator:

ChristopherGlynn,Oppenheimer.

ChristopherGlynn(Analyst-Oppenheimer):

Thankyou,goodmorning.Alotofdetailalready.JustdrillingintoACSalittlebetter.Itwasnicetoseea6%organicnumberagainstthe5%organiccomptheyearagoinparticular.Justwondering,howyouguysarekindofpricingattributionhereintermsofmarketsversusexecutionagainsttheVPDandHUEandthingslikethat.

PrettywelloverallI'dsaysomeofthebusinessesaredoingextremelywellwithinsomeofthescanningandmobilityforexamplewe'dhavetohighlightsthegasdetectionbusinesshasdoneextremelywellwithit,andthenI'dsayeverybodyelseiskindofinthemiddleofprogress.Butprogressisgoodeverywhere.It'sreallyworkingwell.

ChristopherGlynn(Analyst-Oppenheimer):

Okay.Thanksthatwasall.

You'rewelcome.

Operator:

IwouldnowliketoturntheconferencebackovertoMr.MarkMacalusoforanyadditionalclosingremarks.

MarkMacaluso:ThanksKellysaidandwithoutitliketohaveacallbackovertodayforfinalremarks.

Wellwe'reproudofwhatwe'vedone,butevenmoreimportantwereexcitedaboutweregoing.Ourbusinessmodelreallydoeswork.AndwhileIbelievethatloweroilpriceswillleadtoaslightlybetterglobaleconomythanwhat'sforecastedcurrently,wellplanconservativelyasalwaystoensurethatwedodeliveronourcommitmentstoyou.

Webelievewearewellpositionedtodeliveronourfive-yearcommitmenttoyou,andwelookforwardtoseeingmanyofyouatourMarchinvestordaywherewe'llsharemoreabouthowandwhywillgetthere.

Andinthemeantime,thenextthefollowingSunday,inaveryAmericansport,IhopewecanallbePatriots.Thankyou.

Operator:

Thankyou.

Thisdoesconcludetoday'scolorconferencepleasedisconnectyourlinesatthistimeandhaveawonderfulday.

Pleasefeelfreetoquoteupto200wordspertranscript.Anyquoteshouldbeaccompaniedby"ProvidedbyTheStreet"andalinktothecompletetranscriptandwww.thestreet.com.Anyotheruseormethodofdistributionisstrictlyprohibited.

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Honeywell International (HON) Earnings Report: Q4 2014...

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Transcript of Honeywell International (HON) Earnings Report: Q4 2014...

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