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Honeywell International (HON) David M. Cote on Q1 2016 Results - Earnings Call Transcript

Q1 2016 Earnings Call

April 22, 2016 9:30 am ET

Executives

Mark Macaluso - Vice President-Investor Relations

David M. Cote - Chairman & Chief Executive Officer

Thomas A. Szlosek - Chief Financial Officer & Senior Vice President

Darius Adamczyk - President & Chief Operating Officer

Analysts

Scott Reed Davis - Barclays Capital, Inc.

Charles Stephen Tusa - JPMorgan Securities LLC

Steven Eric Winoker - Sanford C. Bernstein & Co. LLC

Andrew Burris Obin - Bank of America Merrill Lynch

Jeffrey T. Sprague - Vertical Research Partners LLC

Gautam Khanna - Cowen & Co. LLC

Nigel Coe - Morgan Stanley & Co. LLC

Andrew Kaplowitz - Citigroup Global Markets, Inc. (Broker)

Operator

Good day, ladies and gentlemen, and welcome to Honeywell's first quarter 2016 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. As a reminder, this conference call is being recorded.

I would now like to introduce your host for today's conference, Mark Macaluso, Vice-President of Investor Relations.

Mark Macaluso - Vice President-Investor Relations

Thanks, Cynthia. Good morning and welcome to Honeywell's first quarter 2016 earnings conference call. With me here today are Chairman and CEO, Dave Cote; and Senior Vice President and Chief Financial Officer, Tom Szlosek.

This call and webcast, including any non-GAAP reconciliations are available on our website at www.honeywell.com/investor. Note that elements of this presentation 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 ask that you interpret them in that light. We 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 and share with you our guidance for the second quarter and full year of 2016. And finally, as always, we'll leave time for your questions at the end.

So with that, I'll turn the call over to Chairman and CEO, Dave Cote.

David M. Cote - Chairman & Chief Executive Officer

Good morning, everyone. As I'm you've seen by now, Honeywell delivered another strong quarter to kick off 2016. EPS of $1.53 increased 9%, coming in at the high end of our guidance range. Sales of $9.5 billion were up 1% on a core organic basis, above the high end of our sales guidance. We outperformed and saw growth accelerate in Aerospace, Commercial Aftermarket and Transportation Systems, in our residential and commercial and China businesses within ACS, and in Process Solutions and Fluorine Products in PMT. Excluding the dilutive impact of M&A, segment margin expanded 20 basis points in the quarter to 18.9%. We generated significant sustainable productivity in the quarter.

The Honeywell user experience is driving new products at higher margins. Our factories and sourcing organizations continue to mature, and we continue to reengineer our products to make them easier and less expensive to manufacture. HOS Gold and our key process initiatives that generated that productivity allowed us to overcome previously discussed significant headwinds in segment profit. These included over $40 million of additional Aerospace OEM incentives, additional depreciation stemming from our ramp-up in high-ROI CapEx, the strengthening of the U.S. dollar, and difficult comparisons at UOP and Sensing & Productivity Solutions, which Tom will take you through further.

Our segment margin rate was slightly lower than our guidance range primarily due to a combination of higher than expected sales of lower margin products like in BSD and Commercial Aviation OE, and lower sales of higher margin products like in ESS and UOP catalysts. We still expect to be within our segment margin guidance range for the full year as sales growth modestly improves in the second half of the year basically just from the absence of declines in UOP that we encounter in the first half. We will of course continue with our disciplined cost controls focused on commercial excellence and execution of previously funded restructuring actions.