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Honeywell International Inc. (HON)
Q1 2013 Earnings Call
April 19, 2013 9:30 a.m. ET
Elena Doom - Vice President of Investor Relations
David Cote - Chairman and Chief Executive Officer
David Anderson - Chief Financial Officer and Senior Vice President
Peter Arment - Sterne, Agee
Jeffrey Sprague - Vertical Research Partners
Howard Rubel - Jefferies
John Inch - Deutsche Bank
Deane Dray - Citi
Scott R. Davis - Barclays Capital
Stephen Tusa - JP Morgan Chase & Co.
Steven Winoker - Sanford C. Bernstein & Co.
Previous Statements by HON
» Honeywell International's Management Presents at Bank of America Merrill Lynch Global Industrials & EU Autos Conference 2013 (Transcript)
» Honeywell International's CEO hosts 2013 Investor Conference (Transcript)
» Honeywell International Inc. Presents at Barclays Industrial Select Conference, Feb-20-2013 09:45 AM
Thank you, Leo, and good morning. Here with me today are Chairman and CEO, Dave Cote; and Senior Vice President and CFO, Dave Anderson. Today's call and webcast, including any non-GAAP reconciliations, are available on our website at honeywell.com/investor.
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 as we see them today. Those elements can change, and we would ask that you interpret them in that light. We do 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 first quarter, share with you our outlook for the second quarter and the remainder of the year, and finally we'll leave time for your questions. So with that, I'll turn the call over to Dave Cote.
Thanks, Elena. Good morning, everyone. A very good start to 2013. EPS in the quarter was $1.16 and that’s normalizing for tax, that came in a penny above the high end of our guidance range and up 12% driven by the strong margin performance across the businesses. And we accomplished this in a slow growth macro environment that was really coupled with some particularly challenging prior year comps. And I think there is a nice reinforcement of our conservative sales planning process and the results you can get from that.
Sales of $9.3 billion were aligned with guidance and like we talked about during investor day, it demonstrates the importance of a balanced portfolio. Now I say that because while we saw our headwinds from lower defense spending, lower European auto production and generally challenging comps, we also saw modest signs of improvement at several of our key short cycle ECS businesses and across another quarter from EOP, not just in sales but in what the future is for sale.
Similar to prior quarters, EPS growth was driven by strong margin expansion. We were up 100 basis points to 16.2%, and this was driven by cost management or productivity. That focus on material cost and remaining conservative in our census planning. This discipline, along with our considerable amount of seed planting, helped us to deliver these results while maintaining our investments for the future.
Now as a result of that success, we are raising our full year pro forma EPS guidance by a nickel on the low end, making our new range $4.80 to $4.95, up 7% to 11% versus prior year. This reflects our strong first quarter performance as well as our confidence in our ability to drive continued margin expansion. However, also as we’ve been saying since October, we want to ensure we’re remaining balanced in our planning and as a result we’re maintaining a range that incorporates possible risks and opportunities.
We’re achieving these results while continuing our investments in the future or that seed planting that you always hear us talking about. In the quarter we proactively funded over $30 million of new restructuring projects, building on a healthy pipeline of projects as we’ve talked about in the past. This is more than we originally expected which again speaks to the strength of our first quarter results. We also continue to invest in stuff that’s really just terrific when it comes to new products and technologies and that are winning with our customers.
As an example, Honeywell SmartPath was selected by the Airport Authority of India or AAI to be part of a pilot project for satellite based precision approach and landings at the Chennai International Airport. As you know airport congestion remains a major issue globally and SmartPath will support this increasing demand by reducing delays, lowering operations costs for airlines and increasing traffic throughput. Think of it as like the Honeywell operating system for an airport so same concept.
We also saw a number of new wins from UOP, building on our already record backlog levels and setting them up for a multiyear cycle of continued up performance. For example UOP announced its 12th all fixed project win since the beginning of 2011 driven by the renaissance in petrochemical investments spurred by low natural gas prices.
Now if we take a step back for a moment, we see ourselves in what continues to be a slow growth microenvironment. We do see some reasons to be optimistic on the horizon, but we also see plenty of reasons to continue to remain cautious. For example U.S and European sales were as expected in the quarter. However, China saw a weak start to the year, reflecting a government austerity and a concerted attempt to contain growth. That being said, the majority of our businesses there are quite healthy. Inventory levels are returning to normal and order rates are improving, particularly in our long cycle businesses, signaling our modest recovery over the remainder of the year.