Honeywell International Inc. (HON)

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oneywell International Inc. (HON)

Q2 2013 Earnings Conference Call

July 19, 2013 09:30 AM ET

Executives

David M. Cote - Chairman and CEO

David J. Anderson - SVP and CFO

Elena Doom - VP, Investor Relations

Analysts

Steven Winoker - Sanford C. Bernstein & Co.

Scott Davis - Barclays Capital

Howard Rubel - Jefferies & Co.

Stephen Tusa - JPMorgan

Jeff Sprague - Vertical Research Partners

Andrew Obin - Bank of America Merrill Lynch

Peter Arment - Sterne, Agee & Leach

Shannon O'Callaghan - Nomura Securities

Presentation

Operator

Good day ladies and gentlemen, and welcome to Honeywell's Second Quarter 2013 Earnings Conference Call. At this time, all participants have been placed in a listen only mode and the floor will be open for your questions following the presentation. (Operator Instructions) As a reminder, this conference call is being recorded.

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

Elena Doom

Good morning. Thank you, Jack. Welcome to Honeywell’s second quarter 2013 earnings conference call. 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 contain forward-looking statements that are based on our best view of the world and of our businesses as we see them today. These elements can change, and we’d ask that you interpret them in that light. We do identify the principal risks and uncertainties that affect our business performance in our Form 10-K and other SEC filings.

This morning we’ll review our financial results for the second quarter, and share with you our outlook for the third quarter and full-year, and of course leave time for your questions.

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

David M. Cote

Thanks, Elena. Good morning, everyone. As I’m sure you’ve seen by now Honeywell had a good second quarter capping off a strong first half, which puts us well on our way to achieving the full-year guidance that we set back in December.

Normalizing for tax, EPS was $1.22, up 8% year-over-year on an adjusted basis and in line with our guidance of a $1.18 to $1.23. Sales of $9.7 billion were near the high-end of guidance and if you exclude defense where the headwinds are well known and as we expected them. We saw our sales growth in each of the four businesses.

We also continue to benefit from margin expansion, up 30 basis points to 16.1%. Part of the driver here has been the savings from the proactive repositioning actions we have taken in prior period. As we continue to face an uncertain macro outlook, we think it's prudent to keep that pipeline full. So we funded over $60 million of incremental restructuring this quarter, more than offsetting an OPEB curtailment gain and bringing us to approximately $100 million of repositioning actions funded this year.

Dave is going to take you into more detail on that later. However, while investing for productivity is important, it sure is a lot easier to expand margins when sales are growing. So even in this tough environment, we’re planting the seeds that will drive future topline growth. Some of the lowest the risk, highest return projects available to us are organic. So we continue to invest in R&D, new product introductions and capacity expansion.

Our long-cycle businesses, including Commercial Aerospace, Process Solutions, and UOP, continue to benefit from a strong backlog, which ended the quarter roughly $15.5 billion. The businesses are also winning in the marketplace. And some examples in Aerospace, we now – it’s the newest version of our HTF7000 series engine, the HTF7350 will power the new Challenger 350 super midsize business jet.

As we have said before, we think the super midsized and longer range segments represented an attractive space for growth and we’re excited about this most recent win. Additionally, if you were at the Paris Air Show, you may have noticed an awful lot of excitement around an A320 sprinting along the tarmac. This was a demonstration of our electric green taxiing system or EGTS, developed in partnership with Safran, which uses the APU rather than the main engines to taxi during preflight operations.

This can provide operators up to $200,000 a year in fuel savings per aircraft. We also had another important win with Airbus. Though not from the from the business you were probably expecting. Honeywell Building Solutions was awarded a $37 million project to build, operate and maintain a power facility for airbuses new assembly line here in the U.S. The project which will be done to LEED certification standard is a great example of one Honeywell cross-selling between businesses to the benefit of both Honeywell and our customers.

And finally, because there are a lot to choose from, I’d like to highlight one UOP win. Our Oleflex technology which converse propane into propylene was selected again this time by Ascend Performance Materials Operations, the world’s largest on-purpose propylene production facility. As you’ve heard I’ve said before petrochemical makers are installing additional capacity to meet growing demand and to make up for the shortage of propylene production from traditional sources.

Once again, order rates were mixed in the quarter, with the U.S. stable, Europe trending slightly positive in both short and long cycle and a notable turnaround in China from the first quarter with sales up mid teens. The inflexion point of China recurred in June with broad based performance improvement in all businesses. ACF short and long cycle businesses along with stellar growth in UOP, added to a much stronger performance in China than Q1 in last year, while transportation systems continued its growth momentum from Q1.

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