Good day, ladies and gentlemen and welcome to Honeywell’s Fourth Quarter 2014 Earnings Conference Call. At this time all participants have been placed on a listen-only mode and the floor will be open for your questions following the presentation. [Operator Instructions]. As a reminder, this conference is being recorded and I would now like to introduce your host for today’s conference, Mr. Mark Macaluso, Vice President of Investor Relations.

Thank you, Lisa. Good morning and welcome to Honeywell’s Fourth Quarter 2014 Earnings Conference Call. With me here today are Chairman and CEO, Dave Cote and Senior Vice President and CFO, 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 contains 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 principle 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 fourth quarter and full year 2014 and share with you our guidance for the first quarter and full year of 2015. Finally as always we will leave time for your questions at the end. So with that I’ll turn the call over to Chairman and CEO, Dave Cote.

Thanks Mark, good morning everyone. We delivered another excellent quarter capping off terrific 2014. In this fourth quarter we delivered better than expected operational performance in each of our key metrics at sales, margin, earnings, and cash meeting or exceeding our guidance across the board. We have delivered 4% organic sales growth following 5% growth in the third quarter and we continue to drive margin expansion up 130 basis points excluding the impact of the fourth quarter 2014 aerospace OEM incentives which we discussed in detail last month. We delivered earnings per share of $1.43 up 15% year-over-year or up 11% normalized for tax. So another quarter of double-digit earnings growth and $0.01 above the high end of our guidance range with strong execution across portfolio. For the full year we increased sales on an organic basis 3% while continuing our seed planting with investments in new products and technology, high ROI CAPEX, and expansion of our global footprint. We achieved significant margin expansion with benefits from our key process and productivity initiatives and we have been able to achieve all this in what continues to be a slow growth macro environment. The momentum we saw in the second half gives us confidence in this year. Our short cycle businesses continued to improve with good organic growth in the commercial aftermarket business, ESS, advanced materials, and transportation systems all suggesting a modest improvement in end market conditions overall. We are also seeing good momentum out of our long cycle businesses building on our robust backlog. We believe the portfolio is well positioned to deliver this year and beyond enhanced by the smart gain deployment actions we have taken over the past years. While I believe the global economy could be a bit better this year than economists are forecasting currently,…

Thanks Dave and good morning. Let's begin on slide 4 which recaps our fourth quarter results compared with the guidance we gave you last month at the December Outlook call. On the left hand side we have outlined the guidance we shared with you in December. On the right you can see our results for the quarter as reported. I am not going to walk through each line item here but you can see based on the check marks that we delivered or exceeded our guidance on each line item including the top and bottom line. The incremental sales and segment profit enable us to beat the higher end of our EPS guidance range and also perform incremental restructuring and other actions in the quarter. There are couple of transactions that occurred in the fourth quarter that are worth reminding you and again they unfolded exactly as we forecasted in December. First we completed the sale of the remaining BEAV share as Dave said resulting in a $114 million gain, $0.14 per share on an after tax basis. The timing of the sale was important from a tax perspective as we noted in December. The timing allowed us to offset that gain with other items and therefore incur very little income tax on the transaction. Also in the quarter our aerospace business recognized the cost of certain commercial OEM incentive that became due when our customer achieved contractual development milestones on platforms which will include Honeywell avionics and mechanical content. The cost was 184 million or 114 million on an after tax basis, that is $0.14 per share. As you know we have won significant content in the air transport and business aviation sectors and such upfront incentives are part of the business model. And as you are also aware,…

Thanks Tom. Lisa if you would please open the line for questions. Operator Thank you sir, the floor is now open for question. [Operator Instructions]. Our first question comes from Steve Winoker with Bernstein.

Hey, good morning all.

Hey Steve.

After last quarter's multitude of congratulations, I am hesitant to say it again Dave, but I will say nice quarter and I guess I will get blamed by all my colleagues out there for doing this.

Yeah but same thing is nice. You wouldn’t want to do something like that.

Well, I am trying to be very cautious on that front. It is one of my development needs. So any way listen, on the outlook call we spent a lot of time, you guys provided a great amount detail for thinking through the oil price -- declining oil price impact across all your businesses and I am trying to compare that to what Tom just walked us through but the thing that really is of maybe concern to me is that midstream downstream commentary where in December you really talked about how it was a net positive in terms of refined product demand investment downstream and other areas. I would just like to get a little more color on that particularly around the impact of maybe narrowing oil and gas spreads on some of those investments that are happening out there, just some more color on why we shouldn’t be worried about this for you guys and why is it actually a good thing?

I will kind of start with my perspective on it and turn it over to Tom for even more color commentary. But there is a difference between the upstream and the mid and downstream segments as you know and the mid and downstream in my view are going to be driven more by overall economic activity. Demand for that could be driven more by overall economic activity than whatever oil prices are. As a result of that I am expecting to see increased demand for refined goods and products which is going to cause greater demand on the mid and downstream side. Offsetting that at least in the short term is probably going to be some of the investments in places like Russia and Middle East, perhaps some in Brazil but they had already slowed significantly. That we will be more than offset by where everybody has to crank up everywhere else around the world. So that's kind of an overview that I see for it and as you probably know for the first time in five years I am actually a little more bullish on where the global economy is going than economic forecasts are. For the last four years I had been more negative generally and so far that's been a good call. But this time I think it could be more positive than what they think because that impacts. The lower oil prices is causing this major redistribution from oil producing to oil using economies and those oil using economies are quite large. So overall I think this is a good phenomenon, it is going to help drive more of that mid and downstream investments. Tom.

Yeah, again what I would reiterate is the portion of our HPS and UOP business that's in the mid and downstream number one. Number two, the backlogs really backed up by the strong second half particularly in HPS are really strong. If you look at HPS, the backlog on a constant currency basis up 12% year-over-year and UOP backlog is also the UOP backlog is relatively flat 0% to 1%. But when I look at UOP continue to be always a lumpy business. Fourth quarter was a difficult comparison as I said, we had 17% growth from the fourth quarter 2013. But the backlog is strong as it’s ever been, its holding up, and our growth rate in 2015 are forecasted for UOP is at mid single digit growth or constantly look at all the indicators.

And UOP is lumpy but with a very positive trend.

And Tom you are not seeing any backlog price renegotiations. There is a lot of chatter about that in the market. No not at all we probe and probe this you might imagine and the only development I would say is you know deferral on new orders where you know multibillion dollar investments where decisions are being thought through carefully in the regions that Dave mentioned. But by and large that’s about the only impact we’ve seen so far.

Okay I’ll hand it off, thanks.

Our next question comes from Scott Davis with Barclays.

Hi, good morning guys.

Hey Scott.

I am glad to see you guys are bullish. We haven’t had a lot of positive conversations in the last couple of months. But maybe you can, I think your view on oil was pretty clear Dave but give us a sense of a view on currency and really the angle I am looking for is we’ve had a such a violent move that how does it change to competitive landscape. Do you see guys who can come in from Japan or other high cost regions like in Europe that can now suddenly compete against you and areas where they couldn’t compete against you before is that real or not real.

Well as you know the Japan phenomenon on this been a currency phenomenon. It’s been a couple years in the making and I can’t say that we ever saw much of an impact from any of that. I guess it remains to be seen on what happens with European competitors but again not thinking much of anything happening there when it comes to the overall currency we’ve assumed the U.S. dollar would strengthen for a while now and we’re little surprised actually that didn’t happen sooner than it has. So I would say it is one of those things we’ve been kind of counting on happening and as you know this is the first time in, well this is my going into my 14th year, this is the first time we’ve ever hedged the Euro translation and its solely because it seems like that was the 70% debt at this point. Who knows, things have a way of changing in ways that you never predict. But I still think that the prospect of 110 Euro this year is entirely possible.

The other thing I would add Dave is the hard cost base. We do benefit in some cases from the decline Scott, you are are fully aware we have significant production capacity in China and Mexico and other parts of the Eastern Europe. So we do feel like our position from a supply chain perspective and cost base perspective does enable us to continue to compete with the – of the competitors you referred to.

I hope you got the good point Tom just made Scott.

Okay.

We have great presence in Europe already. We have a big base there about 30,000 employees so we have a base to compete from.

Okay fair enough and then guys give us a -- I was encouraged by what you said about non resin, our forecast is actually a little bit higher than your forecast so I hope we are right and you are not right but either way directionally it is the right answer. But can you walk around the world a bit on that and what’s really tough for us to get a feel for as we’ve got great data in the U.S. on non resin and things that we use to contract and once we get outside of the U.S. it starts to get a little bit more difficult. So can you walk us around the world and more in context on maybe your order book or backlog or how you see it playing out in different regions?

Sure, it will be pretty consistent with how we’re seeing the economy. The U.S. would say I hope you are right also. We’re little lower in our estimation but we think that continues to rise upward and it’s still kind of a reflection of the great recession and you heard us say the time about we shape in, we shape out, slow in, slow out, and non res construction is more of a slow in, slow out. So we think it’s a nice steady gain and that just continues. You can argue there is some offset to that with the oil and gas CAPEX but that has really minimal effect on our non res construction business. In Europe it is consistent with the economy, it is going to be very slow. China probably going to continue to be a mix and interesting phenomenon there because the tier one cities that are still experiencing more of the economic slowdown, they still could use more housing and in the some of the tier 2, 3, 4 cities where GDP is going to be growing faster may have been over built a little bit. So that one is still to be figured out but overall we think it is still a net positive on non res construction. India there could be an awakening in India. I have never seen such excitement in the business community in the 20 plus years that I have been going there so I am actually pretty encouraged about what they could be doing and in fact I am going there tomorrow to be there for the President’s visit as part of this U.S. India CEO forum. And I really think there could be a kickoff there that we’ve all really been waiting for, for at least 10 or 12 years now. And one could turn out to be quite a good positive.

The thing I would add to that Dave is, Scott to get your questions on the non resi, I look at our exposure in the products businesses in ACS principally in fire and in some of their commercial business in ECC. As I said in my comments the growth rate had been very nice, mid single digits approaching and double digits in some cases. So you know good trends there and then in building solutions where we have the -- we provide both projects and services in that same space. The order rates and backlog has been good. If you look at the backlog overall for the business it’s up about mid single digit over last year. And its across all the regions. It is actually double digit in Europe but that comes off a lower comparison but overall each of the regions are in that range. So we feel like its heading in the right direction.

It’s encouraging. Well have a safe trip to India Dave and give the President my best.

Okay.

Thank you.

Our next question comes from Jeff Sprague with Vertical Research.

Thank you, good morning gents.

Hey, Jeff.

Hey, just a couple things back to the energy exposures and the like. On UOP in particular and kind of the capacity that you put in place, do you guys have people contractually locked up there, is there any kind of take or pay or if this thing does kind of unexpectedly to kind of a sharper turn to the worse you are kind of exposed there?

Exposure is not that great it helps that we get up front payments on the technology licensing. So yes, if there was a severe downturn of course we feel it but I am not that worried about it right now.

I mean we are seeing a few refinery cancellations in the U.S. just two this week alone. I was also just wondering on hedges, Tom how those work, was there a P&L expense in 2014 to prep yourself here for 2015 or is that running through on the balance sheet somehow?

No, good question Jeff. All of the hedges qualify for mark to market accounting. I am sorry qualify for not mark to market, I am sorry about that. So the impact of the hedge instruments when they settle would be recognized at the same time the underlying items that are being hedged are recognized. So there is nothing unusual, it’s just the extent of the currencies that we’ve gone out and hedged.

Okay and I was just wondering if you could give a little more specific color on aero spares. When you spoke to kind of aftermarket generally and kind of all in with R&O but what’s going on in spares trends, are you seeing more activities over aeroplanes that might be fuel cost related or anything that kind of stands out?

I’d say on the -- it’s a little bit of a dichotomy between ATR and BGA but real strong growth on the ATR side than mid single digit growth on the spares. Its growing on BGA side as well but not as significantly but we do expect that to improve and the ATR trends to continue for 2015.

Okay, great. Thank you guys.

You’re welcome.

[Operator Instructions]. And we’ll take our next question from Steve Tusa with JP Morgan.

Hey guys, good morning.

Hey Steve.

Mediocre quarter but you now it’s good enough for you Dave. Just on UOP, just remind us how much of that business is new projects and if you were to see an air pocket in new projects what kind of backlog do you have today to kind of give you a little bit of leeway to take action. So for example in the first quarter if you saw that number go down 30%, when would that hit you revenue wise, I mean is that even a 2016 issue or is that more like a 2017 issue? Or is it a 2015 issue?

I guess I would consider the composition that UOP backlog Steve to kind of answer that question. As I said the backlog has held up very well.

But you have a tough time even in the recession I don’t think it’s more that often.

I think on the capital side a lot of these where we come in on these capital projects is towards the middle or the end and so the most of the capital spent in the ground and we can make it solid and the systems and the technology. So the backlog is holding up. I would also say that if you look at the composition of the backlog it’s in the catalyst, it’s in equipment, and it’s in gas and in all three places its holding up and there is really not any material difference from what we are seeing. So like Dave said I haven’t heard or seen anything in terms of potential declines there.

Right but I guess I am just trying to understand what kind of visibility and timing dynamics play in to your ability to take action if you do see something like that?

Well we have time to react not just there but around the company.

Right and your orders and backlog in UOP, and the orders in the fourth quarter and then what your backlog in the year at.

I don’t know that we disclose that backlog.

Wasn’t it like 2.8 billion or something like that at the end of the third quarter. I know you guys gave a number your HPS day at November I believe?

Not at the top of my head but we can get back to you on that one.

Okay and I guess just one other question on the capital allocation. And any kind of change in philosophy around buybacks versus deals here, anything getting a little more attractive and is the market kind of bumps around?

I wouldn’t say our philosophy has changed and that’s why you saw that’s increased dividend greater than the earnings rate this year because that’s consistent with our five year plan of raising the payout ratio over this five year period. So that is going to continue to be a priority for us. And I’d say on the M&A pipeline I am actually feeling better about that then I have in these past few months. I always felt good about it but I’d say the work Roger is doing and its businesses are doing is improving that overall pipeline. Doesn’t mean anything is going to be happening soon. But I can say I feel better about it. I think there is some increasingly let’s say good properties, it would be very good fit with Honeywell if we can make them have them.

Got you, great. Thanks a lot.

You’re welcome.

Our next question comes from Nigel Coe with Morgan Stanley.

Thanks good morning.

Hey Nigel.

Hey Dave, so you mentioned you’re feeling more bullish in the consensus for first time in the five years and everyone is against CFO, hot spot is coming somewhat, it sounds like you might be about to deploy the balance sheet, is that a fair comment, you mentioned the backlog is looking pretty – but just conceptually is that correct?

Just like trying to study you’re saying am I getting ready to do something?

Well just give me assets and multiple that comes down a little bit and you got more bullish view on the economy then most competitors?

Yes well I would never of course say anything one way or the other there Nigel. I’d just say I am encouraged by the work the guys are doing on the pipeline and the stuff I am seeing. And we’ve got the capability and we are just going to continue to be smart about it.

Okay, that’s fair. And you all see the commissary around done solutions is really encouraging and its because he will be general construction activity. But I am wondering the end, the performance contracting, and the saving part of that circle for you. are you seeing similar trends there and there is bit of debate that’s low energy prices may some of this look pickup pushed out do you agree with that whole process?

I guess you would have to say yes, possible but we are not seeing that because it’s not like $50 oil is cheap. It wasn’t that long ago that we were concerned that it could be a recession if it hit 35? So 50:50 is not cheap, it’s cheaper than it was but not cheap.

Okay and you’re similar trends in the before the contracting side of things?

Yes orders are good there.

Okay and just a quick one on the hedge accounting term. So the way that works is you take the full impact on the top line and then the mitigation institute the line?

Well actually the items that we are hedging and we can get into a complicated accounting lesson here but the items that we are hedging are actually cost items and we are doing it selectively throughout the portfolio. As you can appreciate we have a global supply chain and a lot of currency movement across borders. What we do is focus on hedging the expense items and that enables you to protect the overall P&L but what that leaves open is the top line and so the top line is in a lot of cases exposed to currency movement.

Right and then just quickly, I think you mentioned you hedged down to 110 is that correct Tom?

No, I said our plan was based on 120, and we’ve hedged at a rate that I think protects that pretty well.

Okay, great. Thanks guys.

We’ll take our next question from Joe Ritchie with Goldman Sachs.

Thank you, good morning everyone.

Hey Joe.

Dave I guess since last time I saw you guys say congratulations to your past just like notwithstanding. But the…?

Not reading the post and the news just ahead of the ball so to speak with this.

Indeed they are and they probably should but moving on to maybe a question on capital allocation I just want to ask Nigel’s question slightly differently valuations have come down especially in oil and gas, has your priority in terms of where you are looking for the next target does that change at all just given clearly they’re more attractive valuations on the oil and gas side today?

Well I would say I would backup on it I guess and say that great positions in good industries are still going be kind of a fundamental for us. And secondly pricing makes the difference. So there is a lot of stuff that we’ve liked in a lot of different segments many of which we’ve outlined for you in the past. And we’re going to continue to look at does pricing makes sense, does it makes sense today versus further into the future. And we tend to try to be pretty careful about timing when it goes into even picking of a great position in a good industry.

Okay that makes sense and I guess given this month you just got back from your top 300 meeting I’d be curious to hear how do you feel about the progress that you guys are making in terms of pivoting the company really to an organic growth story. The margin story is there but really pivoting to organic growth and improving your cash flow conversion over the next few years?

Maybe the best way to say it is that coming out of that meeting we had 300 unbelievably energized people even more so than I’ve seen in the past and everybody is really pretty bullish not just about what we’ve done but about where things are going. And HOS Gold and what we are doing to develop and fund the breakthrough initiatives, the 76 enterprises is really energizing everybody around the world, it’s just wonderful to see.

Okay, alright. So pretty confident in the outlook there and I guess maybe one last follow up question on TS. Tom you mentioned that the growth has been really good. Your exposure is predominantly to Europe and you’ve got auto builds that are expected to moderate in 2015. You mentioned in your prepared comments that there has been increasing improvement in the light vehicle gas application. Is your portfolio positioned well for that opportunity and maybe just a little bit of color there?

Well first of all the and what I am referring to is that the increase penetration turbos on the gas combustion engines on light vehicles that that’s just a trend that we’re seeing in the U.S., China, India everywhere and we are well positioned to take advantage of that. We have got not just manufacturing capacity in each of those places but also your local product development capacity and engineering teams that work with the OEMs in those region. So it feels like we’re pretty well positioned and the growth rates support that.

Okay, thanks guys. I’d get back in queue.

And we’ll take our final question from Christopher Glynn with Oppenheimer & Co.

Thank you, good morning. Hey, a lot of detail already just drilling into ACS a little bit. It’s nice to see a 6% organic number against the 5% organic comp a year ago in particular, just wondering how you guys are kind of processing attribution here in terms of markets first, execution against VPD and HUE and things like that?

Pretty well overall. I think some of the businesses are doing extremely well with it and so the scanning and mobility for example, we have to highlight the gas detection business is done extremely well with it and then I’d say everybody else is kind of in the middle of progress but progress is good everywhere. It is really working well.

Okay, thanks that was all.

You’re welcome.

I would now like to turn the conference back over to Mr. Mark Macaluso for any additional or closing remark.

Thanks Lisa. With that I’d like to hand the call back to Dave for final remarks.

Well we’re proud of what we’ve done but even more importantly we are excited about where we are going. Our business model really does work and while I believe that lower oil prices will lead to a slightly better global economy than what’s forecasted currently, will plan conservatively as always to ensure that we do deliver on our commitments to you. We believe we are well positioned to deliver on our five year commitment to you and we look forward to seeing many of you at our March Investor Day where we’ll share more about how and why we’ll get there. And in the mean time the following Sunday in a very American Sport I hope we can all be Patriots. Thank you.

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