Good day, ladies and gentlemen, and welcome to Honeywell's Second Quarter 2014 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 would now like to introduce your host for today's conference, Elena Doom, Vice President of Investor Relations.

Good morning. Thank you, Leo. Welcome to Honeywell’s second quarter 2014 earnings conference call. Here with me today are Chairman and CEO, Dave Cote; and Senior Vice President and CFO, Tom Szlosek. This call and webcast including our 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 second quarter, then review our outlook for the second half and the rest of the year and then leave time of course for your questions. So with that, I’ll turn the call over to Dave Cote.

Thanks, Elena. As I’m sure you’ve seen by now, Honeywell had another terrific quarter and a very good first half 2014. EPS of $1.38 increased 12% year-over-year when normalizing for tax, so another quarter of double-digit EPS growth, with earnings coming in above the high-end of our guidance range. We saw strong execution across the portfolio with margin expansion in each of our four businesses. We’re continuing to benefit from our enablers and keep process initiatives that are delivering growth and productivity benefits and we’re achieving this while continuing to invest for the future, planting the seeds that will drive our performance and achievements of our new five-year plan. In the quarter, we were encouraged to see that our organic sales growth accelerated to 3%. We saw continued improvement in our short cycle order rates quarter progress with steady growth in ESS, a return to growth in advanced materials especially in flooring products and a continued healthy pace of recovery in Transportation Systems. Our robust long-cycle backlog which stands at 15.7 billion, up 4% from the end of last year, continues to support a favorable outlook with record orders for UOP and a continued uptick in new process solutions orders. We’ve also seen a moderation of the sales declines in Defense and Space that we saw earlier in the year. Speaking of D&S, I’m encouraged to see that the headwinds are nearly behind us. We’re expecting growth in D&S in the third quarter. In fact, we had 9% international growth in this last quarter. And early indications point to a modest increase next year. We recently celebrated the sentential anniversary of innovation and leadership in the Aerospace and the oil and gas industries, two examples of where we have great positions and good industries. Honeywell Aerospace has been a pioneer…

Thanks, Dave, and good morning. On Slide 4, let me walk you through the financial results for the second quarter. Sales of 10.3 billion were up approximately 6% on a reported basis. That’s 3% organically. It came in just above the high-end of our guidance range. As we highlighted previously, the low first quarter organic growth was a bit of an anomaly with declines in Defense and Space and scanning mobility driving roughly two points of top line decline in the first quarter. As we signaled, these headwinds have dissipated. The contributions in 2Q from the businesses were broad-based with each SPG sales growth at or above the guidance we had communicated. Regionally, organic sales were up 2% in the U.S. despite the drag from defense and space; 5% in Europe, Middle East and Africa and 10% in China. In China we saw a good growth in our short-cycle businesses namely ESS and Transportation Systems in addition to continued long-cycle growth particularly in UOP and process solutions. Once again, our quality of earnings was strong with most of the improvement coming from segment profit which increased 10% in the quarter. Segment margins expanded 60 basis points to 16.7%. That’s 70 basis points excluding the dilutive impact of M&A and 20 basis points higher than the top end of our guidance. We had profit growth and margin expansion in all four businesses, so really a balanced contribution across the portfolio. It’s also notable that the better-than-expected performance from Intermec reduced the segment margin dilution from M&A in the quarter. Overall, we continue to see significant benefits from our productivity initiatives and proactive restructuring actions while continuing to invest for growth. Items below segment profit were mostly as anticipated. You’ll recall that in the second quarter of 2013, you’ll recognize an OPEB…

Thanks, Tom. Leo will now take our first question.

The floor is now open for questions. (Operator Instructions). Our first question is coming from Scott Davis of Barclays.

Hi. Good morning, guys.

Hi.

You didn’t really talk much about M&A in the release, right, I’d say not at all, but Roger Fradin now has had a couple of months in the role. I mean, can you give us a sense of how he’s progressing as far as pipeline and changing the M&A process and your confidence in being able to do deals in the next 12 months?

Yes, Scott, I’m happy to answer that. As you know, historically, our approach to M&A has been really a bottoms-up process from the businesses. So each business has resources, it has an action plan to maintain a robust portfolio of M&A targets and that’s what you’re seeing generate the deals that are done over here. And as you alluded to, did the appointment of Roger into the Vice Chairman’s role and one of the things Dave tends to do was to focus with our M&A team on the pipeline and that portfolio. So we’ve kind of gotten a top sound focus from Roger in addition to the process that we’ve had in our history. So, what you’ve got is you’ve got two ways of looking at it and when you look across the portfolio, we are seeing quite a bit of interest as a result of this process. As you know, we’re quite active in looking at potential deals in Aerospace, ACS and in PMT and I think that activity will continue.

For what it’s worth, Scott, Tom has also said he enjoys having Roger report to him on that.

Well, good luck. We’ll be watching closely on that. But, guys, can you give us a better sense – I mean I’ve struggled to understand this business for a lot of years and I’m talking about UOP and kind of the quarter-by-quarter variability. I mean it’s a fantastic business but I have no idea how you forecast or how you – you’re really having in confidence one quarter to the next in that regard. But how does a business like that have such a strong quarter without there being an inventory build or some sort of – something going on at the customer level that may come back and bite you in the tail in a quarter or two? I mean I just don’t understand it I guess.

I’ll answer first and turn it over to Tom, but I’d say on an annual basis it’s pretty forecastable. They don’t have a lot of inventory to have to fool with in the first place. A lot of this is a technology sale. I mean there is some inventory but not a huge amount. It’s between quarters that can be more variable but even that variability is generally forecastable. It’s just that you can end up with lumpiness when it comes to one quarter versus another, but we generally have a pretty good handle on what’s going out the door.

Yes, I think Dave hit it on the head, Scott. It is quite lumpy but because of the long-cycle nature of it and we referenced the backlog earlier. I mean we had a record backlog 2.6 billion, up double digit from last year and we have good insight into what’s going to happen quarter-over-quarter and that backlog dissipates and will end up in our P&L over a fairly short timeframe, a year and a half to two years. So, we do feel like we have a good track on forecasting that.

Okay. And last just quickly. Guys, we used to think about – in TS we used to think about turbo as being one of those businesses that was kind of 600 basis points over to auto SAR, maybe a little bit better in some quarters, maybe a little bit worst. But has that changed at all? I mean is there a different thought process in how that grows versus auto SAR globally?

Well, we do end up with a regional mix difference that can impact us, because we’ve got a strong position in Euro diesel and that was one of the things that really helped us with that industry bottoming out this year, so all the wins finally started to show up as opposed to mitigating the decline we were seeing in Euro auto. But overall, yes, it’s going to continue to grow well for a long time.

Yes, I mean I guess what I’d say is that I reemphasize that the growth profile that we’ve got going, I mean it’s in all of our big regions; I mean in North America both on the diesel and gas side with strong double digit growth, China’s strong double digit growth on both diesel and gas as well and Europe’s doing pretty well as well and the commercial vehicle side in Europe particularly is very strong.

But that’s 600 basis points above SAR, I mean is that changed or are you punting on the answer?

Scott, I would say that you’re seeing light vehicle production in the quarter was flat and so for turbo we had organic growth of 5%, so 500 basis points was within that range.

Okay, good. That’s what I really wanted to know. Thanks guys. Good quarter and thanks. Good luck.

Thanks, Scott.

Our next question comes from Steven Winoker of Sanford Bernstein.

Hi. Thanks and good morning, everybody.

Hi, Steve.

Dave, just an initial question on that turbo move and transport to Aero, how much is cost a part of that or should I say how much cost reduction are you expecting from de-layering? Is there any in there in addition to the technology justification?

No, not really. In fact, our turbo business is pretty lean already and I’m hoping when we reference operating practices in the release, I’m hoping for more leanness to transfer into the Aero business looking at turbo as a model.

Okay. So the rationale here is sort of subscale in existing – separate reporting segment now. Obviously the technology is always overlapped but you could have gotten that otherwise and maybe some practice opportunities here. Is that how I should think about it?

I might modify that a bit. I agree on size. Subscale, I don’t know whether I’d call it that. Including that industry their scale is quite good. On the technology side, it’s one thing to tell two businesses that, hey, would you guys cooperate but I could say over 12 years there’s been an evolution there. It used to be the Aero business wanted to charge the turbo business $200,000 per person for cooperation. Yes, you might remember those days. Things have changed a lot and we’ve progressed to the point where we co-locate engineers, as I’ve mentioned in the past. That being said, you still get a different dynamic when you put the businesses together. We’re putting them together in a way that allows us to get much further advantage on that technology benefit that we have with Aero technology because turbo is just a derivation of a jet engine and we’re the only guys who have that. We want to take further advantage of it, but I’m also hoping for a lot more of those lean practices to transition into Aero, because the Aerospace industry is, let’s say, right with opportunity when it comes to running more leanly than it does today. And while I’m pretty proud of what we’ve been able to do, where we’ve been able to get to it, at the end of the day I think there is still one hell of a lot more opportunity there for us and this is a good way to have best practices in-house that they can be looking at.

Okay. And speaking of moving organizationally to drive better financial results, HPS within PMT now, but just maybe talk about the projects that are completed? It’s down 1% flat organic, but again this sort of North American build out that suggest that they’re very, very early stages. What are you seeing there? Any hopes that we should anticipate a ramp up soon?

Steve, like we said, first of all there is a lot of excitement around the combination of those two businesses and we do think that marketwise it’s going to enable us to better serve the common customer base that’s there. I think you’re referring specifically to HPS. I mean the second quarter orders were very strong, up 7% on an organic basis and that’s another quarter of pretty good growth for them on the order side. As I said, that hasn’t factored into our full year guidance, UOP as well. As I said, both orders and backlog are strong. Talked about the lumpiness, but the same trajectory. Both of those businesses [really fits] (ph). And unlike the TS1 that Dave said, I do hope we get a little bit of productivity out of that combination as well.

Okay. And just lastly, you mentioned you just wrapped up the STRAP process. Again, just remind me, what macro assumptions did you give the business, the STUs to use for the five-year plan in terms of top line base growth?

I think we used the global insights, GDP forecast like 3%...

Okay.

About 3% to 3.5% is kind of the assumption globally.

I mean a lot different than what we said back in March just because I don’t think that much has changed since that time.

I think the FX, we assume at about 30.

Okay, great. Thank you. I’ll hand it off.

Thanks, Steve.

Our next question comes from Steve Tusa of JPMorgan.

Hi. Good morning.

Hi, Steve.

How bad is UOP going to be in the fourth quarter?

What an interesting way to put it. I don’t know whether I would say it is bad, I would say it’s all contemplated within our fourth quarter guidance which you can see churned up pretty well for the year. I don’t know Tom if there’s anything else you want to add there?

No, I mean full year UOP will be 5% as I said, down 8% in the fourth quarter. First quarter was 9%, the past quarter was 17%. We’ll see mid single digits in the third quarter and probably 8% to 10% down in the fourth quarter. But full year we remain on track and again that order and backlog should be very strong.

Yes, I don’t think there is an issue with trend of the business, I’m just trying to kind of reconcile the 3% organic growth you did this quarter and the only thing that really seems to be getting worst just on lumpiness or a quarterly basis, whatever is in the math, would be UOP. I mean everything actually seems to be looking better like accelerating and so I’m just kind of like the 3% organic even with UOP which is dramatic with 8% is a pretty big number. So I’m just trying to reconcile that 3% you did this quarter versus why with things getting better, why that should be 3% in the fourth quarter?

I think we also mentioned that we do have other softer comps, in particular Aerospace for OE and also the Transportation Systems relative to both were up mid teens in the fourth quarter of 2013.

Right. But I mean you didn’t really grow in commercial Aero this quarter, so are you going to be done in commercial Aero in the fourth quarter?

Our ATR OE growth this quarter was [over 6] (ph).

Okay. So there was – the jet stuff kind of offset that, okay.

Your thesis, Steve, is not – the way you’re talking about it seems reasonable.

Right, okay. And then I guess I’m just going to ask this every quarter and this quarter was particularly interesting because DuPont preannounced negatively and I got a flood of emails about R-22 pricing. I don’t really get chemicals – the question is around chemicals pricing for a lot of the other companies that I follow and with the re-segmentation you just did, you kind of went to a little less disclosure which I don’t particularly view as a good thing. Is this the final kind of iteration of outside of acquisitions of what the portfolio looks like or could we maybe breakout the more process kind of oil and gas related businesses and maybe again kind of at some point evaluate this chemical business as a part of the Honeywell portfolio?

I would say in terms of our organization, I kind of like it just the way it is now.

Okay, so no change.

No.

Okay, thanks.

If it was you couldn’t expect me to say anything anyway, Steve, so…

It’s my job to ask the question. Thanks.

All right.

Our next question comes from Jeff Sprague of Vertical Research.

Thank you. Good morning, folks.

Hi, Jeff.

Hi. How is it going? Could we get a little more color on the commercial building for U.S. specifically? The color Tom gave I think it was global and helpful but I’m going to lay the land on U.S. specifically if you have it?

Yes, I would say Jeff the growth in the products business that are serving commercial buildings are reasonable, I mean mid single digits in the second quarter. I expect that to continue for the remainder of the year if not accelerate a little bit more modestly. In terms of the pure building solutions business, the business in the U.S. was tempered a bit by the energy business. We have a couple of really large projects completed since 2013 that tempered the sale. In terms of the orders broke there, it’s flat globally but on the Americas side it’s been picking up to mid to high single digits.

Mid to high single digit U.S. energy retrofit but global flat on orders?

Yes.

Okay. Thank you. And I was just wondering, Dave, if you could address Europe a little bit more specifically? I think the plus 5 was in an EMEA comment. That was kind of core Europe actually doing and was running a slowdown in Europe in the quarter in June that you noticed?

Overall, what kind of interesting is our Europe orders have actually done okay as you’ve been hearing us say for the last two or three quarters. So I’m a little surprised actually given that the overall economy doesn’t perform all that well and we don’t have a lot of expectation to the economy to perform all that well over the, say, next two or three years. That being said, our orders were okay there.

And just one final one from me and I’ll move on, perhaps too granular for this call, but are you seeing any signs of kind of toppiness, pressure in the commercial helicopter market?

No, I don’t think so. We actually think that’s going to be a pretty good market for a while.

Yes. Just some cautionary comments out of Eurocopter this week and Farm Bureau and some toppiness at [Bell] (ph) also. Maybe it’s just some noise in the quarter…

I’m not sure what their expectation was either but I’d say overall we still think that’s a growth market.

Great. Thank you, guys. Take care.

You’re welcome.

Our next question comes from Howard Rubel of Jefferies.

Good morning.

Hi, Howard.

How are you?

Good.

Number look nice.

Thank you.

A couple of things. You never stop pushing excellence and while Friction Materials is the last obvious divestiture, how do you think about keeping the guys at the back of the line equal with the people outperforming at the front?

Well, that’s something we pay a lot of attention to all the time and in several different ways. One of the things we’ll be doing that more in the future is through this HOS Gold effort that you’ve heard us talk about and as especially as we go through the planning or what we call STRAP exercise, we spent a lot of time looking at that. And I can’t say that we look at it with threatened to fail if they don’t kind of come up to par, but at the end of the day I’d say I’m really encouraged by the upside I see across the portfolio and the implementation of HOS Gold and the ability to raise sales growth and margin rates everywhere.

And then kind of staying with that theme, you’re spending a lot of money on new products and you highlighted a couple of them in ACS. Can you sort of talk about, are you getting the productivity you want and are there – how do you think about maybe – how much of this is contributing to organic growth as opposed to just the normal economy?

Sorry, to products or productivity, Howard?

Well, I guess I’ll mix them both. I mean one is the productivity associated with new product development and then second is how is that contributing to the organic growth, Tom?

First off, if you look at it in pure financial metrics, we’re not decelerating at all on investment with new product. For example, if you look at R&D investments it’s not – that’s not per se generating productivity, but when you look at productivity across direct materials and our people costs, I would say that has been as strong as it has been in the last couple of years which is the way I look at it.

And then last, Intermec, looks like you’re getting the top line you expected. How would you evaluate where you are in terms of the integration process and when do we really see its profitability normalize with the rest of the business units?

Yes, I’d say, Howard, the way we look at that one is a year ago everybody – when we closed the deal it was a business that was not very profitable at all and you fast forward to now and if you look at what we’ve done just to look at the multiple that we pay in Intermec today and you would say we’re at 17, 18 times multiple. And you factor in synergies it’s gotten and that are in place, we’re down to sub 5 type multiples. It kind of gives you an idea that we feel like we’ve been successful. So when you look at the plan itself, when you look at both revenues and the income and the cash, all of those metrics were performing a lot better than the plans. John and his team with Scanning and Mobility as well as the Intermec have really have done a nice job integrating those two businesses.

Thank you very much.

You’re welcome.

Our next question comes from John Inch of Deutsche Bank.

Thank you. Good morning, everyone.

Hi, John.

Good morning. So how did your businesses – I realize it’s not a huge exposure but how did your businesses fair in Latin America and the (indiscernible) does market weakness in Latin America, Dave Cote, maybe provide you an opportunity perhaps with respect to capital and deployment or step up some investment spending there or something like that?

We continue to do very well with everything south of the Rio Grande and you look at the big ones; Mexico and Brazil, we continue to do well there. Mexico, we’ve got about 14,000 employees. In Brazil we’ve got about 1,000 and our sales have been quite good there. In terms of investing, I still think that there are places where you think about it before you do it. It’s not a no-brainer. But overall those have been very good markets for us.

Your Brazilian business is up in the quarter?

Yes.

Defense and Space, were there any pockets of Defense and Space or expectations of Defense and Space pockets like within the framework of that business that you expect to actually get better over the course of the year? And I’m curious kind of how if anything has changed with respect to how you were seeing this business, how are you’re going to manage it? I’m assuming it kind of gets managed down over time, but maybe not?

Yes, John, the way I think of the Defense and Space business is it has two pieces of products business where we’re dealing with the U.S. government and/or the prime contractors. And then there’s the service business that’s largely unrelated to the Aerospace industry and that’s where we’re seeing the most pressure. Thankfully it’s a lower margin business, but that’s where the top line for Defense and Space are the most pronounced for us. We’re now approaching periods where we’re going to start lapping comps, so that pressure will subside. The other thing we’ve got going on there is the international side. If you’ve read the paper this morning, I mean unfortunately those things happen but that tends to bode well for military budgets outside of the U.S. and so we’re seeing an uptick, as Dave referenced, in sales in the international side of Defense and Space. So you got some balancing dynamics going there. I think they’ll net to the positive as we head into the second half of the year.

The other thing to recognize, John, is as we’ve said before, Defense is really more of a sales channel for us. It’s not like we have – while the jet engine might be unique to a certain defense application, at the end of the day it’s still coming out of a jet engine factory that also produced in commercial.

Right, and all incremental. Maybe one more. Global markets, Dave Cote, kind of do not begin to show more signs of life. I realize you’re outperforming today but let’s call it over the course of the coming year. Does that cause you to perhaps modify or even accelerate aspects of your operating framework to hit or totally exceed your five-year targets?

Well, as you know, I’ve been one the guys who has generally been more negative on the global outlook for the last four years and so far it has been a pretty good call. So I’d say the way we’ve forecasted this year and the way we’ve looked at our five-year plan is pretty consistent with that. I never counted on much and so far it has been a good call. So I feel pretty good about where we are and what we’re saying.

Thank you very much.

You’re welcome.

Our next question comes from Christopher Glynn of Oppenheimer. Christopher Glynn - Oppenheimer & Co.: Thanks. Good morning.

Hi, Chris. Christopher Glynn - Oppenheimer & Co.: Hi there.

Your brother-in-law Tom says hi. Christopher Glynn - Oppenheimer & Co.: Thanks for passing that along. I got a text from him last night.

I guess this is going to be an easy question. Christopher Glynn - Oppenheimer & Co.: We’ll see. So I wanted to follow-up on the M&A and part of Roger’s job now I think is the opportunity to look at sourcing larger deals and we see the Intermec integration was pretty rapid fire with the benefits. So, I’m wondering are you just starting to develop the pipeline for larger deals or is that something that’s already kind of established?

There’s been a conservative effort to find larger deals with Roger joining in that area. I do think that he has the tendency and the license and idea of looking across Honeywell and trying to identify opportunities that might touch on more than one business or that might be an adjacent to the three business segments that we have. That might lead you to think there is larger deals in the making. But I would say that’s not the primary objective. The primary objective is to augment those existing portfolios and find good growth ideas that are in industries alike.

I’d add, Chris, that while we did an okay job on origination, as Roger started to get into this around the company looking at it within the businesses, across the businesses and adjacencies that might make sense, he’s really invigorating the overall kind of origination process. But I think it’s going to give us a lot more ideas to work with than what we’ve had in the past. And you’ve heard us talk about many times that we have and want even more of a robust pipeline. If the more ideas you have, the more stuff you can go after, the more opportunities it gives you and it also allows you to be more selective. You can end up being I’d say in a much better position to negotiate if you have nine other good deals that you can’t do so that you don’t do something silly when it comes to pricing. Christopher Glynn - Oppenheimer & Co.: Right. Well, we haven’t seen that be a problem, so I think our bias then would be more to higher frequency of deals in your accelerated capital allocation rather than seeing something larger.

Well, I guess it depends how you define larger but I would say – you have heard me say many times we never say never on any of this because it’s going to depend upon the construct of the deal. But whatever we do I can promise you we’ll be consistent with the financial and operating discipline model that we’ve talked about in the past and we’ll have strong cost synergies that come out of it consistent with Tom’s point of Intermec because that certainly is one of the things that I think has helped define our track record. Christopher Glynn - Oppenheimer & Co.: Great. Thanks, guys.

Leo, we have time for just one more question.

Very good. We’ll take a question from Andrew Obin of Bank of America.

Yes, good morning. Just a little bit more color on UOP and HPS. Could you just comment more on petchem demand by region because we’re hearing mix commentary this earnings season?

UOP by region?

Yes, and HPS as it seems that some pieces of oil and gas and petchem industry are moving in different directions. Just trying to get what you guys are seeing.

It’s really broad based I think if you move across all the regions. I mean oil and gas has been particularly strong in the U.S., the Middle East, China in particular. Anything, Tom, you could add there?

Yes, I would say the Middle East has been outstanding for both UOP and HPS and China’s [lending] (ph) those were very good. But it’s not like the U.S. is…

And just a question on Aerospace, you sort of noted that RMU’s growth is moderating and I think you guys were positive. Can you just talk about what’s happening there and any sort of broader trends that are taking place?

Well, I think on RMUs the sales levels are very strong. It’s just that we had such an uptick in the early and middle part of 2013 and really into '14 that we’re starting to lap through that are really strong, but we’re sustaining the level of new product development there and the offerings, they’re going on to those platforms particularly on BGA side particularly as it relates to software.

Thanks a lot.

Well, thank you for your participation today. I do want to turn the call over to Dave Cote for any final comments.

Well, we’re quite pleased with our second quarter results and our outlook for the year and I think it’s a good reflection of our expectations for ourselves over the next five years. We have a great portfolio to grow with, our process initiatives continue to progress and our culture provides sustainability as we evolve and continue the seed planting. We’re building on a great base and with the addition of our drive for HOS Gold, software including CMMI level 5 and HUE, we see a lot of good things to come from Honeywell. Thanks.

Thank you. This does conclude today's teleconference. Please disconnect your lines at this time and have a wonderful day.