Honeywell International Inc. (HON)

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Honeywell International, Inc. (HON)

March 21, 2013 4:50 am ET

Executives

David James Anderson - Chief Financial Officer and Senior Vice President

Elena Doom

Analysts

Andrew Obin - BofA Merrill Lynch, Research Division

Presentation

Andrew Obin - BofA Merrill Lynch, Research Division

Good morning. Thank you very much for being here. We're going to start our second session of the day. Once again, I'm Andrew Obin, BofA Merrill Lynch's Multi-Industrials analyst. And with us today, we have a team from Honeywell. We have Dave Anderson, company's Senior Vice President and CFO. And we also have Elena Doom, the company's Vice President of Investor Relations. Very happy to have them here after a very successful Investor Day that you guys had in New York a couple of weeks ago. So very good to hear what's new and your vision. Thank you very much for being here. And Dave, over to you.

David James Anderson

Thanks, Andrew. It's great to be here, brings back a lot of memories. I'm really glad that you've resumed the program here. It's always been, I think, a very successful conference, Andrew, and it's been one for Honeywell. We've had really an opportunity, I think, to reach a number of both current and prospective investors in a great format, so we appreciate the opportunity.

What I want to do just quickly, obviously, there's going to be some forward-looking statements here. Obviously, our 10-K provides a number of, we think, very relevant points in terms of what are the factors in terms of some of the key assumptions that would influence the outcome and could change the outcomes relative to those forward-looking statements.

The theme that we've struck, Andrew referenced the Investor Day in New York City that we had a couple of weeks ago, which again was very well attended this year. I think, Elena, one of the really high points for us was the ability to showcase again our senior leadership team, including our SBG presidents, the business segment presidents, and really focus on the theme of achieving results and delivering growth and confident in the growth outlook for our company.

So really, the themes that I talked about at that program were, we set pretty high expectations in 2012. We met those expectations. I think, in fact, we increased guidance over the course of 2012. We had record segment margin expansion. I'm going to talk about that in a minute. We were up 90 basis points year-over-year in segment profitability. We're confident in our 2013 outlook. We reiterated our guidance for 2013 on March 6 when we met in New York, basically sales at the midpoint of that guidance, and if anything, a kind of a greater visibility and confidence in terms of our continued margin rate performance, given what we're seeing in terms of continued productivity and strong performance by a strong contribution margin businesses as far as the mix.

We continue to invest. Our CEO, Dave Cote, uses the phrase seed planting, which really encompasses, not only the traditional, if you will, R&D and technology investment, but also the investment that we're making in our ERP or SAP investments, the platform that we're building across the company, the capabilities that we have in terms of the Velocity Product Development, just delivering more with the same amount of resources in terms of spend, in terms of our R&D productivity. And we're a big spend. I noticed in 3M, the numbers, I think, approached about 6% of sales in terms of aspirational. We're at 5% of revenues today, which ranks very high across the peer group on almost $40 billion revenues. Think of that as $2 billion of R&D firepower for Honeywell. That continues, and we're really, we think, setting up for out-performance again in 2014 and beyond. That was really the theme of our Investor Day, our March 6 New York Conference was really just the platform that we've created really, we think, provides the foundation for sustained positive outlook for the company. So we did more, if you will, sort of defining the future and setting the framework for Honeywell for the future in that program, which I think worked very, very well. I think it resonated with the audience very effectively. I'm going to talk little bit about that this morning and cover these few slides, Andrew, upfront and then turn it over to you for Q&A. I know you told me at the break you've got some tough questions for me, so we'll get to those.

One of the things that we did, and I think relatively creatively, is try to better define and create greater transparency in terms of what is Honeywell. And here, what we're showing in terms of the breakdown in terms of our revenues by end market, you can see that between industrial, homes and buildings, commercial aerospace and oil and gas, 4 major segments that represent just under 80% of our revenues, 77% of our revenues. And you can see the remainder really made up between U.S. DoD, our total defense and space business there, up 6% and 8%, respectively; and then the transport business of 9%.

But a lot of the macro trends, a lot of the positioning that the company is taking in where a lot of our growth drivers are for the future, these are important mainstays. And a lot of the investment we're making, a lot of the growth and a lot of the positioning that we have against the emerging markets in High Growth Regions can really be explained in that industrial, homes and buildings, commercial aero and oil and gas space. And for sort of, not for getting into detail today, but as takeaways, you get to know -- for those of you, who don't know the company well, the subpoints here in terms of the pie charts and additional information provides a lot of perspective to, in terms of insights, in terms of where we're making investments, where we're growing through acquisition, and again, where we're positioned for growth longer term. So we think this is a helpful chart in terms of understanding the company.

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