Honeywell International Inc. (HON)

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Honeywell International, Inc. (HON)

February 20, 2013 9:45 am ET

Executives

David James Anderson - Chief Financial Officer and Senior Vice President

Elena Doom

Analysts

Scott R. Davis - Barclays Capital, Research Division

Presentation

Scott R. Davis - Barclays Capital, Research Division

Okay, great. Let's get started here. I know we're running a couple of minutes late. It's my fault. I had to get a smoothie, one of those lovely smoothies, you can get a nice straw or an umbrella in it if you really want to enjoy it. And I brought Dave some banana chips, but he informed me he doesn't like banana chips. Too sweet for him. So anyways, we're on to Honeywell. And I think we had a little bit of a dinner last night with these fine folks, Dave and Elena. Dave Anderson is the CFO, I think most of you know, and Elena Doom has been doing Investor Relations a long time. And just to kind of save the time in this meeting, I thought there were some takeaways that were really interesting that we can delve into a little bit. And in no particular order, one of the points that Dave made that I think resonated with me is just driving home the whole theme that the strategies in place are getting a lot of momentum. It's taken a number of years to get there. I think we all know, most of -- I'm sure all of you in the audience know how long it takes to turn around a company. Take whatever you think it's going to and add another 3 to 5 years, and that's probably kind of the right answer. So it takes a very long time to turn around a company. Honeywell obviously had a lot of challenges, call it 10 years ago, that have been addressed. And I think Dave, at least for the crew we had at dinner last night, really resonated on the momentum in those strategies.

Dave came back and talked about growth, and I think growth is going to be a theme in this conference in one way, shape or another, because if you take a look at this particular quarter as an example, and we've had this the last several quarters, the average company that we cover came in at 2% quarter growth. That's a median number. We had to exclude Fastenal and some of the kind of weirder ones, the distributors, but if you take a look at the core manufacturers, came in at 2% core growth. We were forecasting 3%, but the standard deviation around that 2% was extraordinarily tight. It was basically high of 4% growth if you sold into health care markets or had a pull forward like Danaher did, or a negative 2% growth if you had tough weather comps on construction like Hubble[ph] , for example, but -- and Honeywell is at around 1%, I think, or so, which was, in their subgroup of peers, was pretty much right in the sweet spot.

So Dave spoke a bit on growth and now -- how Honeywell is now positioned with the right portfolio and the right leaders and the right R&D Investment and the right amount of time behind these investments to make progress on a forward basis in driving those growth rates to an above peer level.

Given the focus on cost -- and I think one of the things I, if somebody asked me a question, kind of, "What do you think Dave Cote does a very good job of?" I always find it very interesting when he talks about keeping census headcount flat in upturns and really controlling that -- controlling those costs as things get better, and then, obviously, I think we've seen in the most recent downturn that Honeywell has done a pretty good job of getting its cost structure variable enough that muted some of that cyclical recovery.

And lastly, Dave talked about Honeywell having a deeper cultural culture now that is around continuous improvement and productivity. We have some companies that we cover, and I think Danaher was on just on stage that, that culture itself really feeds on itself, and I think we know that. And if it is, in fact, accurate that Honeywell is building a culture that drives continuous improvement and productivity, it will arguably drive to a higher growth rate, a higher margin rate, higher returns on capital and create value for shareholders.

So I think that, from my perspective, is the most important thing -- those are the most important things to focus on today. I personally don't think there's a lot of debates around the Honeywell story right now. I think most of the sell side is relatively favorable towards the story. We don't find a lot of pushback like we used to in the old days and I'd get laughed at when I'd walk into a meeting, and they'd say, "What's your topic?" And I'd say, "Honeywell," then they'd say, "Next, dopey analyst," and kick me out of the door. And now, if you walk in, they say: "Yes, that's interesting." You get much, much greater sense of receptivity.

So Dave wanted to give a quick state of the union, and then, of course, we want to get to our audience response questions and then some of those issues that I think we dove into last night are really work exploring further and trying to figure out what is that next stage for Honeywell and how you as shareholders or perspective shareholders can benefit from that. So with that, Dave, I want to pass it over to you.

Read the rest of this transcript for free on seekingalpha.com