Honeywell International, Inc. (HON)
2012 Outlook Conference Call
December 15, 2011 9:00 am ET
David James Anderson - Chief Financial Officer and Senior Vice President
Elena Doom -
Scott R. Davis - Barclays Capital, Research Division
Peter J. Arment - Sterne Agee & Leach Inc., Research Division
Shannon O'Callaghan - Nomura Securities Co. Ltd., Research Division
Jeffrey T. Sprague - Vertical Research Partners Inc.
Steven E. Winoker - Sanford C. Bernstein & Co., LLC., Research Division
Deane M. Dray - Citigroup Inc, Research Division
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Thank you, Giovann. Good morning, and welcome to Honeywell's 2012 Outlook Conference Call. Here with me today is Senior Vice President and CFO, Dave Anderson.
And this call and webcast, including any non-GAAP reconciliations, are available on our website at www.honeywell.com/investor. Please 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 filings with the Securities and Exchange Commission. Now this morning, we will review our financial expectations for the remainder of 2011 and discuss our 2012 planning and, of course, allow time for questions of you.
With that, I'll turn the call over to Dave Anderson.
David James Anderson
Thanks, Elena. Good morning, everyone. So let's begin this morning on Slide #3, first by confirming that the fourth quarter for this year is advancing mostly as we expected with about 2 weeks left in the year. Order rates continue to be positive in our short-cycle businesses, although we've seen some weakness in Europe and China, while our long-cycle sales continue to ramp nicely in commercial Aero, UOP and also in the ACS Solutions businesses.
We're reaffirming our full year 2011 estimate. We expect sales to be about $36.5 billion. Earnings per share, on a pro-forma basis, about $4.03. And that, of course, excludes the impact of the fourth quarter mark-to-market adjustment for pension. I'll talk about -- more about that in just a moment. And lastly, we expect free cash flow of approximately $3.5 billion, excluding the expected incremental pension funding of approximately $250 million that we plan to make in this quarter.
Now the 2011 performance underscores, clearly, all the work that we've done to strengthen Honeywell's portfolio over the last decade. It also reflects the strength and very solid execution that we've seen out of our business leadership on a global basis. New products, geographic expansion, the traction on key process initiatives, all of these are translating to record organic growth and continued strong margin expansion and strong free cash flow generation in 2011. And I'm going to take you through a little more color on 2011 in just a minute.
Of course, based on all we're seeing and hearing, 2012 will be a more challenging economic environment. Today, we're going to take you through a bottom-up portfolio view. We're also going to do a regional buildup of our 2012 outlook. And we'll also remind you of the core elements of the Honeywell playbook, which enabled flexibility in our planning through continued cost and census management, which, of course, enables us to leverage upside in market conditions as they present themselves.
But before talking about '12, let's go to Slide 4 and discuss 2011 in a little more detail. Now over the course of 2011, as you know, we saw continued strengthening, resulting in the company raising guidance 4 times throughout the year. We estimate that we're going to finish this year with record organic growth of around 8%. We anticipate segment margins will end up the year at about 70 basis points up from 2010. And pro forma earnings per share are expected to be up a notable 34%, reflecting what we think is top-tier performance for the sector. Again, this excludes the impact of the fourth quarter mark-to-market adjustment for 2011.
And as a reminder, we provided sensitivities to the potential range of pension outcomes we could see on December 31. We provided you that in our third quarter earnings conference call. We've also included that same table in the appendix to today's material. And while it continues to be a moving target with the volatility we're seeing in the markets, particularly with asset returns, asset return volatility, we would expect the mark-to-market adjustment for 2011 to be in the range of $1 billion to $1.5 billion. And again, you can see the intercept of the key sensitivities in the slide in the appendix.
Further, in 2011, we funded repositioning actions by smartly deploying onetime gains, which will yield benefits, obviously, for us in 2012 and beyond. These actions will make meaningful improvements to our cost structure and continue to advance our competitiveness. The businesses remained focused on commercial processes, including Velocity Product Development or VPD, which is really enabling a robust pipeline of new products and technologies for Honeywell and accelerating our penetration in emerging regions. If you look at the bottom left side of the page, you can see that 2011 is yet another year added to the company's performance track record on sales, earnings and cash flow.