Honeywell International Inc. (HON) Q1 2018 Earnings Report, Transcript and Summary

Good day ladies and gentlemen and welcome to Honeywell's 2018 Outlook 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, Mark Macaluso, Vice President of Investor Relations.

Thanks Kathy good morning and welcome to Honeywell's 2018 outlook conference call. With me here today are 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 in 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 principle risks and uncertainties that affect our performance and our Annual Report on Form 10-K and other SEC filings. Yesterday we filed an 8-K regarding a new release smart energy business for home and building technologies to performance materials and technologies and the numbers presented here today reflect smart energy’s inclusion in PMT. This morning Tom will provide an update on our expected financial results for the fourth quarter and full year 2017 and discuss our outlook for 2019 and as always, we'll leave ample time for your questions at the end. So, with that let me turn the call over to Senior Vice President and Chief Financial Officer Tom Szlosek.

Thanks Mark and good morning everyone. Let’s start by highlighting some recent commercial achievements on page two. In Aerospace, we signed a 15-year component service solutions agreement with Dubai based Emirates airlines to maintain aftermarket components on the airline suite of Airbus. A-380 and Boeing-777 aircraft, Honeywell will provide Emirates with 24x7 aircraft on the ground support and 24-hour critical shipment of Honeywell, Avionics and mechanical parts helping emirates reduce departure delays and cancellations. In PMT, we announced the Kuwait integrated petroleum ministries company will use a range of process technologies from Honeywell UOP. For the expansion of this refining and petrochemical complex, South of Kuwait City. Upon completion, this will be the largest integrated refinery and petrochemicals plant ever constructed in Kuwait. UOP has been winning internationally all year with about 70% of its wins coming from outside the US and this is another great example. In late November, announced the acquisition of SCAME Sistemi, a Milan based provider of all in one fire and gas detection systems that uses single interface and supervisory software platform. SCAME Sistemi adds new fire and gas safety capabilities to our existing portfolio of connected building solutions. When combined with Honeywell’s wide-ranging fire and gas product portfolio SCAME’s industrial controllers and management systems will provide powerful integrated solutions for customers. Installers and operators will benefit from seamless integration that provides access to critical information alerts and control. The acquisition also presents you with global growth opportunities in the company’s high growth region including the Middle East, Asia and the Americas. In safety and productivity solutions, we launched a new rugged Android based tablet called ScanPal EDA70. This tablet is design to support the most advance connected mobile user facilitating the large file transfers, video streaming and remote access to business applications quickly, the workers can more effectively manage a wide variety of task. It’s ideal for scan sensitive workflows including in retail, customer engagement and field maintenance. We expect further new product launches on the Android platform throughout the coming years. Also in SPS we launch Sensepoint XRL connected Gas Detector for hazardous environment that protect people in assets from hazardous gas like carbon monoxide and methane. Unlike other fixed Gas Detector Sensepoint XRL is Bluetooth enabled, which allow users to install, commission, maintain and control detector from a smartphone using Honeywell Sensepoint app. And lastly, we announced our agreement to acquire 25% ownership stake in China based FLUX information technology and separately just started joint venture 75% owned by Honeywell with FLUX to serve markets outside of China. Please turn to slide 3 for more information on this exciting global partnership. FLUX develops and implements warehouse management systems and other supply chain software solutions for customers in multiple industries and is a leading player in China's ecommerce, pharmaceutical, retail, third-party logistics and manufacturing sectors. The company has solutions deployed in more than 400 warehouses and manages more than 12 million square meters of warehouse space. FLUX is a great fit with our safety and productivity solutions business and will help expand our capabilities within the connected supply chain. The warehouse management system space is growing more than 10% a year in the Asia-Pacific region. In addition to warehouse management solutions the FLUX portfolio includes other offerings like transportation management and order entry capability to complement our existing portfolio of supply China solutions. Now this will help Honeywell to more broadly serve our customers. We are thrilled about the opportunity that the Honeywell and FLUX combination we bring. Now let’s turn to slide 4 to discuss our updated fourth quarter and 2017 full year outlook. For Honeywell in total we expect both fourth quarter and full year EPS to be at the high-end of our previous guidance ranges with full year EPS up an expected 10% year-over-year very strong results. Reflected in the fourth quarter EPS is funding of additional restructuring projects that will benefit 2018 and subsequent years. We now expect that our fourth quarter effective tax rate will be in the mid-teens versus previously guidance of about 21%, which has enabled this additional restructuring. Our 2017 guidance excludes the fourth quarter pension, mark-to-market adjustment, which at this time is expected to be about 50 million based upon current discount rates and asset return assumptions subject that finalization at year-end. The Q4 and 2017 guidance also does not include the estimated cost to prepare our homes and transportation systems businesses for these spins. We’ll provide you with more color on the spin-offs and the related cost later in the call. We’ve updated our fourth quarter and full year organic sales guidance to reflect stronger and calibrated sales building on the robust orders and backlog growth throughout 2017. Vigorous activity in the aerospace aftermarket driven by air transport repair and overhaul activity in sales of spares in business aviation and continued growth in gas processing in catalyst in UOP. We now anticipate fourth quarter organic sales growth between 7 and 8% and full year sales growth of about 4%. Our reduced segment margin outlook from our previous guidance reflects the impact of lower security volumes and unfavorable product and regional mix in HBT. The dilutive impact of higher sales and then calibrated and a combination of unfavorable mix of equipment versus catalyst sales and an unplanned plant outage in PMC. For the full year, we’re expecting about 60 basis points of margin expansion, so still a strong result overall and in line with our long-term target of 30 to 50 basis points a year. We’ve earned a free cash flow where we’re affirming our full year guidance of 4.6 to 4.7 billion, representing a 5 to 7% increase year-over-year, primarily driven by our continued focus on improving working capital. All-in-all, we expect a strong finish to 2017. Let’s move to slide 5. A year ago, Darius introduced his four key priorities for the company. Accelerate organic growth, continue margin expansion, become a software industrial company and deploy capital smartly. I’d like to update you on how we’re progressing on these items this year. To accelerate organic sales growth, we’re expanding our commercial excellence effort, increasing our sales force in targeted regions and businesses by about 4% and revitalizing our product line to our company wide velocity product development process. We’ve also introduced a companywide management operating system including tools and metrics to give us regular visibility on our sales and order progress and performance. The results have been clear, 2017 marks a significant sales growth inflection. While we’re proud of what we’ve achieved, we know that our improvement is there a need to continue and this remains a focus for us in 2018. Growing profitably and continuing our track record of margin expansion is the second key area of long-term focus. We continued our deployment of HOS Gold across our businesses including launching a new working capital playbook that I’ll touch on a little bit more later. We expect to fund more than 300 million in high return restructuring projects in 2017 including footprint reduction and cost structure improvements that will provide ongoing benefits, especially as we prepare to spin-off businesses comprising more than 7 billion in revenue. We also continue to rationalize the approximately 115 ERP systems we have across the company to value engineer our product cost and to develop software and aftermarket base business models. So, our margin expansion story is far of the motto. This was the foundational year or evolution into a software industrial company. We install general managers in each of our strategic business groups that are responsible for their connected enterprise. We also further developed our Honeywell Sentience platform and are working on creating applications that solve complex problems for our customers, leveraging the data as being generated by our large install base. We’ve some work to do in this area but our early customer wins have been encouraging. We intend to showcase much more of this at our annual investor day at the end of February, meanwhile we’re on track to grow roughly 20% in 2017 and our connected enterprise businesses. Also, our track record of smart capital deployment continues. At our annual investor conference in March, we committed to deploying 6 billion in capital this year. Fast forward to today, we expect to deploy that 6 billion including repurchasing of about 1.5 billion in Honeywell shares in the fourth quarter alone bringing up total 2017 repurchases to 2.9 billion. We also took advantage of our strong credit rate standing in today’s variable interest rate environment to refinance 1.6 billion of our debt, which will extend certain maturities and decrease our interest expense going forward to an all-in weighted average cost of borrowing of less than 2%. Our balance sheet remains strong giving us plenty of capacity to reinvest in the businesses and in M&A, while also returning capital to our investors. I will talk more about our 2,000 capital deployment priorities later. On page 6, we outlined our primary end markets and provided an initial assessment of our outlook for each. The green arrows are indication that we expect market conditions to improve in 2018 while the grey flat arrows indicate that we expect market conditions to remain relatively similar in 2018. I want to highlight a few key points here. First in Aerospace, we expect to see increasing production rates in narrow body aircraft along with continued production ramp in new models, primarily the A350. Slightly offset by production rate slowdowns in other wide body aircraft. In the Business Jet market, we expect that the approximately 4% decline and the overall industry in 2017 will temper, but used aircraft pricing will continue to be a headlines and new deliveries. And the aftermarket, we expect mid-single-digit growth in air transport flight hours with decoupled growth from connectivity and mandate pushing Honeywell’s growth above the market. Growth in the Business Jet aftermarket is expected to be robust given the ADS-B compliance mandate deadline and demand for connected aircraft solutions. We’re well positioned to sell serve customers in both areas. Next in oil and gas, we expect petrochemical market growth of about 4% driven by increased construction and demand for packaging, plastics and transportation fuels. Oil and gas industry CapEx is expected to decline in 2018, while OpEx is expected to grow modestly. The basis for our 2018 plan and HPS and UOP is that oil prices remain in low to mid-50s per barrel. The refining market is expected to be robust driven by continued demand or cleaner transportation fuels. The U.S. natural gas market, which is primarily serve by UOP Russell business is expected to slow as sources of low production wane. 2017 was a strong year for Russell, we won more than 15 new prior units in the U.S. Again, this backdrop, we believe P&T will continue to outperform executing and strong backlog of new order and continuing to expand our market leading positions through technology differentiation and growth from our breakthrough initiatives. In the industrial productivity segment, which in composes both the safety and productivity solutions business and the non-oil and gas related exposure and process solutions we expect to see improve activity that will drive continue demand for our products and services. In HPS demand for cyber security, plant efficiency, asset life and our automation management should continue to drive strong orders growth in our short cycle software and service offerings. In SPS, where we serve customers and distribution, warehouse, manufacturing, retail and transportation logistics, we expect that global macro trends will slightly improve. Growth in ecommerce will stand out as our customers continue to implement differentiated warehouse solutions. The last two sections on this page encompass the primary end markets for our future spinoff of homes and transportations systems, while strong we don’t expect to sit and change in these markets in 2018. So, for all of Honeywell, the environment is positive and with the backlog up about 6% across the long side portion of the portfolio we are nicely positioned for growth in 2018. We are conscious of the fact that approximately 60% of our business is short cycle, so we will continue to monitor the dynamics there closely. With that, let’s move to slide 7. We want to provide some color on some of the key inputs to the 2018 planning. We’ve received questions about accounting changes required for 2018 including the pension, revenue recognition and tax accounting standard changes. None of these is expected out of material impact on our 2018 results. We’ll see slightly higher reported revenues and segment profit in aerospace from the revenue accounting change. The geography of certain cost below segment profit will change as a result of the pension standard but this will not impact segment margin or EPS. The tax accounting change is expected to offset most of the benefits from the revenue recognition change at the Honeywell level. Seeing [ph] expansions our US pension plan remains in great shape with funding greater than 100% of the projected benefit obligations. In 2018, we do expect a higher tax rate closed to 25%, we also anticipate lower restructuring funding. Foreign currency translation is expected to be a minor headwind for us in 2018. We had hedged more than 60% of our 2018-euro exposure and the impact from all those currencies is expected to be minimal. Also, as we previewed, our CapEx spend continued to come down and we expect it will be decline 15% in 2018. We are still making investments required to drive future growth but we are now past the peak investments in PMT capacity and are actually reaping the benefits from past investments today. Our plan does not reflect possible US tax legislation; we’re monitoring the reconciliation of the housing of senate bills and are encouraged about the enhanced global cash mobile that could result if reform is enacted. As things currently stand, or upfront charge related to mandatory repatriation of non-US earnings would likely be more than a billion which will be paid ratably over an approximately eight-year period. We’re still assessing the impact of the potential legislation to our ongoing tax rate if the legislation comes to fruition we’ll update our 2018 effective tax rate guidance. Our 2018 plan assumes a weighted average share count of 762 million shares. Last week, our Board of Directors approved an $8 billion share repurchase authorization which will serve us well as evaluate alternatives for deploying cash from our operations. The anticipated dividends from next year’s spin-off and the repatriation opportunities that will arise of US pact reform is indeed enacted. Our plan does not include the one-time cost associated with the planned spin-offs of our homes and transportations systems businesses. Later in the presentation I’ll update you on our progress to prepare for those transactions as well as in our current estimates for those cost. I am now on page 8. Our HOS gold operating rigor with a focus on new product development, productivity initiatives and repositioning combined with recent investments in the portfolio has positioned us well for continued performance. We anticipate organic sales growth of 2 to 4% in 2018 driven by favorable conditions in our end markets, our emphasis on high growth initiatives like commercial excellence, continued penetration in high growth regions and the robust orders and backlog growth in our long cycle businesses in 2017 which I mentioned earlier. Anticipated segment margin expansion of 30 to 60 basis points is in line to the long-term target there is outline in October and reflects our continued emphasis on the Honeywell operating system, commercial excellence and execution and previously refunded, restructuring projects. Earnings per share is expected to be between $7.55 and $7.80 or growth of 6% to 10% year-over-year excluding the spin-off costs. Normalizing for tax this EPS growth is 13% to 17%. We expect strong free cash flow performance targeting growth of more than 20%. Stronger net income, lower CapEx and better working capital performance will be the drivers here. The playbook for 2018 is not changed and we are confident about the year ahead. But turn to slide 9 for more detail about our 2018 earnings per share. We’re planning another year of high quality earnings for Honeywell with most of our EPS improvement coming from operational growth and execution including volume leverage and commercial excellence, as well as our productivity efforts including fixed cost reduction and benefits from restructuring projects we funded in 2017 and prior years. Regarding below the line items restructuring funding will be less than we had in 2017 considering the elevated level of funding in ’17 enabled by the lower plan tax rate. We also anticipate higher pension income of about 100 million. The effective tax rate will be higher in 2018 as a result of accounting benefit from fewer stock option exercises and lower benefits from tax planning. In 2017, we actively drove the realization of various foreign tax credits and those benefits are not expected to repeat in 2018. And as we said earlier, our 2018 financial plan does not reflect any impact from the potential U.S. tax legislation. The last slide among slide 9 is the share count impact on earnings per share. The 1.5 billion shares repurchase in the fourth quarter will result in a roughly 1% lower diluted weighted average share count of about 762 million shares in 2018, which contributes most of the benefit you see in that other count. Overall, excluding the spin offset ratio costs and pension mark-to-market adjustment we anticipate 2018 earnings per share 755 to 780, up 6% to 10% or up 13% to 17% as I said earlier normalized to the 2017 tax rate in both periods. The reported EPS over the course of 2018 will be lower as a result the spin-off related separation costs. Let me move to the business segment on slide 10. Starting with Aerospace organic sales are expected to be up 1% to 3%. In commercial OE, we expect low-single-digit growth due to an increase in volumes from narrow body platform offset by weakness in the business share OE market, which while improved will still be a slight headwind in 2018. Longer term, we’re still conservatively planning for the business shed only market to recover at the end of 2018 or in early 2019. In the commercial aftermarket, we anticipate mid-single-digit growth fuel by the strong market conditions I mentioned earlier. Defense growth should be firm driven by core U.S. and international defense offering and partially offset by continued weak demand in space and commercial helicopter. There are some signs of growth in the commercial helicopter market overall, but in the medium and heavy industry where Honeywell participates excess inventory and slow build rates are still happen in growth. Transportation system should again be a strong contributor driven by gas turbo penetration. Like last year, our forecast reflects a slight decline in light vehicle diesel sales more than offset by continued increases in light vehicle gas turbo penetration. In commercial vehicles, we anticipate roughly flat market with highway growth offset by a slowdown on highway vehicle demand in both China and in the US. Our long-term strategy is selecting the right platforms to invest in aerospace and building our install base will again serve us well in 2018. We’re well positioned on attracting new business jet platforms, for when the business jet market does recover and our large install base is driving both traditional and decoupled growth in the aftermarket. Aerospace margins are expected to expand 40 to 70 basis points driven by that volume leverage. Also, productivity, net of inflation and commercial excellence. In HBC, we anticipate organic sales growth of 1 to 3%. The building solutions combined with new product introductions in environmental and energy solutions and in security and fire will continue to drive growth in high growth regions including double-digit growth in China. We expect low to mid-single digit growth in our distribution business as ADI [ph] continues to expand it internationally and business solutions executes on its strong backlog and accelerates its outcome based service offerings. A3T’s expected margin expansion of 30 to 60 basis points will be driven by savings from prior restructuring actions and ongoing commercial excellence and productivity initiatives. Our 2018 performance materials and technology guidance reflect the inclusion of smart energy. We announced the move of that business from HBT into PMT in early October. Because of the synergies between smart energy and our process solutions business. Both leverage the connectivity and data management competencies with Honeywell – platform and generates new offerings that help our utility and other customers operate more efficiently. Both the project based businesses and smart energy will benefit from process solutions expertise in developing attractive recurring streams from an expense install base. 2018 with PMP sales are expected to be up 3 to 5% organically as we continue to outperform in a stable yet low for longer oil and gas environment. EOP is expected to deliver another strong year with high single digit growth driven by a strong backlog, particularly in engineering and services revenue. We expect low to mid-single digit growth in process solutions with advances across the portfolio primarily fueled by demand for our short cycle software solutions and control products and by our connected planned solutions. Advance materials are expected to be up low single digits due to continued demand for our – line of low global warming materials. PMT segment margins are expected to be up 20 to 50 basis points driven by commercial excellence and productivity net of inflation. As we’ve mentioned, the mix of sales in UOP can by lumpy and recently has been migrating to higher content of process technology and equipment versus licensing and catalysts and that has dampened the shorter-term margin outlook in PMT. However, we continue to build a strong backlog and grow our install base which positions the business for sustainable long-term revenue and margin growth. In safety and productivity solution, sales are expected to be 4 to 6% on an organic basis in the safety business we anticipate low to mid-single digit driven by new product introduction for the gas and high risk personal protected equipment segment and the realization of benefits from our direct selling strategy in the retail segment. In productivity, we expect to grow mid-single digits driven by robust orders and backlog growth and calibrated and an improvement in productivity products as we launched next generation products on the android platform. Margins in SVS are expected to grow 30 to 60 basis points driven by volume and productivity, net of inflation. And as expected, we will have a dilutive impact on margins from Intelligrated business, but this improves overtime as we augment our project oriented install based build-out with software and service offering similar to what we did in our HPS business. Now on slide 11. Our 2018 plan calls for significant free cash flow growth year-over-year greater than 20%. We thought it would be helpful to bribe you with some history and context, they give us confidence in our projection of 5.2 billion to 5.9 billion of free cash flow in 2018. On the left you can see our historical free cash flow growth, as well as the red new line that show free cash flow as a percentage of sales for both Honeywell and our core peers respectively. We believe this is a good measure of our free cash flow performance and a good indicator that our 2018 plan is achievable and not out of range for our historical performance with that of our peer companies. We have an incredible plan to deliver these results, we’re now passed our heavy CapEx investment cycle. At its peak our CapEx is 1.1 billion per year for 2014, ‘15 and ’16 as we built the now very profitable production facilities for [indiscernible] global warming materials and UOP catalyst in PMT. In 2018, our CapEx will decline to about 900 million. In addition, every business and function in Honeywell is focused on improving working capital. We’re on track for an improvement in our 13-point working capital turns in 2017. This after having declined each of the last three-years. So, there has been an uptake in our performance that we intend to sustain. [indiscernible] and I are personally reviewing metrics related to each element of working capital on a monthly basis. Each business has a leader that [indiscernible] for driving results in each area of working capital and working capital performance is a key metric including the incentive pay calculation for every member of our management team. Working capital management is now part of our Honeywell operating system playbook, which is facilitating cross functional best practice sharing across our portfolio. We have introduced new HOS tools that are reducing order to cash cycle time throughout our business and we’re working with our suppliers to decrease their required lead times. I expect working capital to modestly decrease next year despite 2% to 4% expected organic sales growth, which will result in further working capital turns improvement. Our pension plans will not require significant contribution 2018 given their strong funding levels and we expect that our cash contributions for legacy liabilities will be similar to 2017. We’re confident that our free cash flow will be strong in 2018, our targeting growth there will be two times our earnings growth. Let me move to slide 12. The chart on the left shows our 2016 and estimated 2017 uses of cash as well as our 2018 capacity broken out by uses or potential uses of cash. We fully expect to achieve the committed 6 billion of capital allocation in 2017. And if you look at 2016 and 2017 combined we will have deployed nearly 130% of our free cash flow through a combination of reinvestments in the business via M&A and returns to our shareholders via dividends or share repurchases. Our balance sheet remains strong and the capacity for capital deployment will be robust in 2018 driven by the attractive free cash flow and dividends from our spin-off transaction. Further, if the U.S. tax reform legislation is enacted they were likely be more capacity for U.S. capital deployment. However, it was not reflected any impact of that legislation of plans. We’ll provide more color on the 2018 capital deployment at our Annual Investor Day in late-February at which point the legislation outcome and its impacts on Honeywell should be clear. Couple of other points I mentioned on the page, we’re committed to continuing to grow our dividend. At our February investor day, Darius will share more of his thoughts on the rate of dividend and growth to expect. Second, we continue to target approximately 2.5 times leverage is defined by Moody's to maintain our credit rating which has served us well in the debt market. On page 13, we’ve provided a brief update of our progress to spin-off our homes and global distribution business and our transportation systems business in the two separate publicly traded companies. Since our announcement on October 10, we have established a cross functional team that includes both Honeywell employees and outside advisors and appointed a dedicated transition leader who is overseeing both ends. Team members are working on the spin-off full time to ensure there are no distractions to meeting Honeywell’s financial commitments. The team is leveraging the work plans and lessons learned from our spin-off of advance last year. The spin-off team has two objectives, first to establish the capabilities within each of the two businesses to ensure a readiness for day one. And second, to isolate and eliminate any stranded cost at [indiscernible]. We’re already begun to aggressively branded cost and are using restructuring funding to ensure projects are funded quickly and that returns are realized rapidly. We’re also working on the structure of each transaction to ensure that the legacy liability is mostly specs and environmental. Our properly allocated amongst three resulting companies. As we mentioned in October, our objective is at the two spins with high yield credit ratings with access to the credit markets. As indicated previously, for 2018 our earnings per share and free cash flow guidance exclude separation cost related to the two transactions. We’re estimating these to range from 800 million to 1.2 billion for the full year including 5 to 700 million of cost related to internal pact spreads. These costs are in line with comparable industrial spend on a percentage of enterprise value basis. We’ll provide you with an update on our spin-off progress in late February at our Annual Investor Day. Let’s turn to slide 14 to wrap up. We expect that to finish strong in 2017 with higher than anticipated organic sales growth and earnings per share that is at the high end of our guidance range for both the fourth quarter and full year, will strengthen our end markets combined with our growing backlogs, give us confidence in our 2 to 4% organic growth projection for the year. We also expect continued margin expansion in 2018 and our sales and margin performance is expected to contribute to another year of high quality earnings growth. Honeywell’s balance sheet remains strong with room for continued aggressive capital deployment and we’re off to a good start on our transformative spin-off which are on track from completion by the end of 2018. Honeywell is well positioned for another great year in 2018. And with that Mark let’s move on to Q&A.

Thanks Tom we’re now available to answer your questions. So, Kathy if you could please open the line for Q&A.

Certainly. The floor is now open for questions. [Operator Instructions]. And we’ll take our first question Joe Ritchie of Goldman Sachs.

So maybe starting off Tom, what’s this talk about the margin guidance for 2018. So, you know the 30 to 60 basis points, when I think about the restructuring and repositioning that you guys have done over the last couple of years, call it roughly between $250 million to $300 million with the one to two-year payback, that alone, you kind of get you to above the 60-basis point number that you have out there. And OEM incentives also stepping down in 2018. So maybe just talk to us a little bit about the puts and takes in that 30 to 50 basis point number for 2018?

Yes. I mean, Joe, the margin guide will reflect the combination of number, I think you mentioned the repositioning that’s clear. But the volume should give us maybe half of the, if you look at the high-end of the range should give us the volume expansion. And then between productivity and restructuring, we expect to drive the remainder of the growth. Now you mentioned incentives and we’ve talked about incentives, the Aerospace incentives ’15, ’16, ’17, ’18, they can be a bit lumpy. We’ve actually had a bit fewer incentive payout in 2017 and really due to just [indiscernible] of production schedule, some of those have move to 2018. So, when you look at the expected headwind we had talked about earlier North of 100 million our expected to tailwind from incentive to north of 100 million that number is much less and due to the timing that we talk about. So, all in we’re confident on the expansion, I mean hopefully to your point, we do a little bit better, I think it’s what you’re hinting at. There is no hidden surprise in here we just, we just wanted to be prudent in terms of factoring in the growth and productivity that we can see.

Just to be clear on the incentives part. So, incentives are still a tailwind in 2018 or more flat for 2018?

Yes. Very modest tailwind, I mean, we had originally talked to something north of 100 million pre-tax. That’s probably closer to 30 million to 40 million. And again, it’s just a reflection of timing of customer production schedules. As you know, the incentives take the form of free product delivery and it’s the schedule to production schedules of our customers move were not delivering in that three products or pushes out that can have an impact on when those incentives at our P&L.

And then maybe just switching to growth kind of similar line of question. You mentioned earlier that your long cycle businesses are up 6% clarity exit rate, exiting 2017 is good. Again 40% of your business, up 6% exiting the year, you can easily get above the bottom-end of your organic growth range for next year. Talk us through a little bit around like, is it just conservative 2% to 4% just given what you’re seen in your businesses today. And maybe even talk a little bit more about slide 6, because it seems like things are either growing at a similar rate or getting better as we get into 2018?

Yes, that’s fair. And you’re right to point out. I mean, our guide for the beginning of ’17 was 1% to 3% organic growth and we’re pushing closer to 4%. Should give you a sort of an indication that with more than half of our business on short cycle, it’s tough to have clear visibility throughout 2018. And so, while, the markets are overall favorable and we do anticipate to continue we do want to reflect that, we don’t have clear visibility to the short cycle piece of the business. Trends are good and we talked about aero [ph] very strong and UOP and PMT being very strong but we want to see the [indiscernible] of growth in the early parts of the year and hopefully that will accelerate as it did in 2017.

Yeah, fair enough. And maybe one last quick one, the free cash flow guidance is fairly wide. Is it fair to assume that if you get towards the higher end of your earnings growth range call it 10% for the year that you’ll bet at the higher end of that free cash flow number which would imply 100% conversion? Is that the right way to think about it?

Yeah, well I mean on the low end of -- I mean the way we’ve ranged the free cash flow is call it 90 to 100% on both the low and high end of the net income growth is the way to think about it. So, we’ve done 86% in the last couple of years. 2017 marks an inflection for us in terms of working capital performance as I said for our internal measures is a 13-point working capital term and will actually improve a couple of basis points which for us is big because in ’14, ’15, ’16 we were going in the wrong direction. So, we think the combination of better working capital performance sustaining that the lower CapEx and the better net incomes you talk about should drive that higher end of the free cash flow range.

Our next question will now come from Scott Davis at Melius Research.

I’m intrigued by this FLUX deal, it sounds pretty interesting. I mean there can you flush out what you’re buying is it technology that you don’t kind of have and how does it integrate with Intelligrated and how easy is it to get it out China and expand the offering around the world.

First of all, in China itself they are one of the leading solutions providers when it comes to warehouse management technology and software. As you know in China the warehousing, the warehouse base is growing as fast or faster more than it is in US. These guys have, they are based in Shanghai, they have more 500 clients. Its software managed as we’ve said a significant amount of warehouse space. And we are acquiring 25% of that China business. We expect that in itself to be a nice grower for us. In addition, we are with the founder of FLUX forming a joint venture that [indiscernible] will control 75% that will enable us to drive its offering outside of the US. Now, you remember when we bought Intelligrated most of it is the US business and so there is big growth opportunities in both Intelligrated and FLUX outside of the US. What this specifically does is it better positions us with our customers because we have warehouse controls technologies and as you know it's been growing leaps and bounds for us but the warehouse management solution as well as some of the other solutions including order entry and transportation management are new segments for us altogether. So, we’re both enhancing our warehouse management, warehouse control presence as well as getting into some new sub-segments that I think are going to be pretty exciting for us. All software related and all with nice growth in margins.

So, I’m not an expert on warehouse automation, Tom. But how does Intelligrated software and FLUX software kind of -- do they integrate? Do they compete against each other? Help us understand that.

It is a vertical integration, it’s not capability that we have in Intelligrated today, so it enables us to provide a more complete offering to our customers.

Okay. And then the Business Jet compliance deadline, I mean what does that -- are this high margin upgrades and how long does this last and what's the actual compliance date? Not as familiar with this?

Yes. There are a few mandates in play, I don’t have the details I have in front of me. But they continue to affect both the Business Jet space and even in some of the air transport space, so it is fueling above average growth for us in the aftermarket for Aerospace.

I mean in the past when you had these upgrade cycles it’s been extremely high margin. Is that the case with this particular upgrade?

Yes. It is, I mean, you heard us talk before about modifications and upgrades RMUs, so retrofits and modifications and upgrades, those are all software based offerings. And these complaisance mandate generally follow in to that category. And you’re right, they should help us to drive better margins.

Our next question will come from Stephen Tusa of JPMorgan.

Just on restructuring, where you’re going to finish the year for 2017 and year-over-year benefits. I think at least in our model we had something kind of $275 million range as per prior disclosure.

Yes. I think it’s pretty much in line with what we’ve disclosed previously in that regard roughly 300 million, Steve.

And then what’s -- I think we were thinking 175 something like that for ’18, I mean there is been a bit more here in the second half maybe a little more in the fourth quarter. What are you expecting, what’s embedded for ’18?

We’ll give you a little bit more guidance on that in January as we finalize. We have a good sense of the projects we’re looking at that will get us the spending levels we talk about. But the prioritization of projects will impact the payback. But I’m expecting similar improvement in 2018, maybe not quite as high as 300 million, but there will be sizable growth to year-over-year in that structure.

What’s the last number you guys gave, you guys given this number before I think, its 150 or something that?

We haven’t give anything on ’18 restructure.

And now in the filings a little over 300 million for the full year.

Yes. For 2017, but it will substantial for ’18.

Yes. I don’t think it’s going to be quite 300 million, but it will be substantial.

Okay. And just along the lines to that question, you know we’re getting a little bit few questions about just you know the incremental conversion, the kind of conversion margin if you look at restructuring and clearly you guys are now delivering on the growth which is fantastic almost 5% I’d say more like 4.5 or 5% this year than 4%. But obviously the margins aren’t incredibly as robust from a conversion perspective. Can you just talk about maybe the businesses where just kind of list out the businesses where the mix would have more of an impact because obviously Intelligrated is in there that’s the lower margin business you know maybe [indiscernible] is coming through with some of the acquisition related headwinds there. Can you maybe just give us some color on the major businesses that are influencing you guys from mix perspective?

Yeah, one of the bigger trends that you’ve seen in the last 18 months or so for us is the mix in HBT. We’ve been getting fantastic growth in the distribution side of that business. As you know, that’s a bit lower margin than the products portion of it. That’s one element of mix I’d say the second one is in PMT. Just due to lumpiness of the business, and you recall the fourth quarter of last year, we had a significant amount of catalyst sales in PMT and it had a really nice impact on the margin rates. And if catalyst sales subside and yet you have good growth on equipment and other parts of PMT which we’ve talked about, you’ll see a mixed impact there. And then the third thing is Intelligrated that you mentioned, now Intelligrated we'll emphasize again that’s eyes wide open intentional and we’re building out install base. It's the model that we’ve followed at HPS and we believe that some of the software offerings including I talked about FLUX earlier with Scott and service offerings will help us to drive the margins there. But that’s the nature of the mix, I think it's just a reflection of where you’re getting higher growth than anything else.

One more quickie, just R&D as a percentage of sales it was about 5.5% last year in ’17 will that finish up a little bit. Do you have a number, a rough number where that’s going to finish?

Yeah, I think it will be inline I’m not expecting any significant movement.

Our next question will come from Christopher Glenn with Oppenheimer.

Thanks, good morning. Just wondering on capital allocation if the FLUX capability sort of complete your vision in the warehouse space for now. And then on 2018, what looks right, are you targeting new adjacencies or existing platform scaling?

Yeah, first on FLUX there are significant amount of additional opportunities in SPS in general but in particular in this space there is a broad supply chain but when you think you start all the way at the materials management and go through transportation management, warehouse management, delivery execution. We don’t have offerings across that entire chain and FLUX helps us to build that out a bit but there is certainly many more opportunities that we would be looking at in that space. In terms of the rest of M&A, I’d say the pipeline across all of the businesses is quite attractive. Each SPG is updating Darius and I regularly with opportunities. And while 2017 doesn’t look like a year we will have significant activity, you only have to go back a year and two years to see spending 7 billion or 8 billion in M&A. So, it’s lumpy, but I don’t see anything different in terms of both the quality and the size of the pipeline. So, I will say that the pricing and the valuations can be challenging at these levels. We are adhering to our criteria, and we’ve been pretty discipline in terms of allocation capital and we’ll continue to do so.

And follow-up on the FLUX JV. Any comments on start-up costs in the ramp cycle thoughts there?

Nothing. Chris, you’re talking about like the start-up M&A kinds of costs or you’re talking about the 75% venture, can you clarify?

Yes. Exactly. Yes.

Yes. I mean, it will, I mean, first of all the existing businesses, it’s running on its own, I mean it’s a full enterprise and doing quite well and I talked about the footprint. The new businesses, the new platform will have staffing costs for the staffing out of the venture but many of the offerings will be through FLUX and through existing Intelligrated products and product portfolio. So, I don’t expect that you’ll see a massive injection of costs going into that in 2018.

We will now take our next question from John Inch of Deutsche Bank.

Tom, the 2% to 4% core growth, just going to go back to that. With the fourth quarter 7 to 8 and I think '17 is about 4%. It still kind of seems a little light given the momentum of your businesses like Aero and the PMT businesses at 3% of the mid-point. I was thinking, maybe what’s the pro forma ex-homes and turbos, is there a way to calc that, maybe that helps to bridge some of the upside?

Well, again I go back to the visibility that we have. Strong visibility through our backlogs, which are attractive, we talked about the 6% growth. But that’s less than 50% of our business. And you can have movement, over the course of the year the markets that we serve as evidenced by 2017. The movement was upward there and hopefully it’s upward in 2018. But if you look at each of the individual businesses on the air transport side, I would say that, we’re going to be low to mid-single-digit from a guidance perspective that’s both OEM aftermarket combined, Business Jets will be the same closer to mid-single-digits and I think the Defense & Space will be kind of flattish to up a little bit low-single-digit and transportation system will be low-single-digit. So that gets you to that 1% to 3% for Aero. In terms of the HBT business, the security and fire platform which includes ADI should be low to mid-single-digit. The same thing with the other products business, E&S [ph], and HPS will be low single digits, so that gets us to the 1 to 3% in HBT. And them PMT, I do agree that the backlogs are factored into higher expectations for UOP. They should be high single digits in 2018, maybe double digit HPS will be a little bit less, may be low to mid-single digits and I think the advance materials will be kind of in that low single digit area. So overall 3 to 5% for PMT. And then when you look across the SPS portfolio, the highlights are definitely on the retail side of that business, we’ve had a new business model to talk about should be high single digit also both the work flow solutions and Intelligrated are both driving double digit business growth. We’ve been a bit cautious on productivity products given the performance this year but there should be a mid-single digit kind of performer and then the safety business should be low to mid-single digit, that’s what gets us to that 4% to 6% on SPS. So overall, I mean 2 to 4% is what that kind of works out to. Like I said, we’re kind of confident with the visibility that we have, that that’s a good starting range for as we had in ’18.

No, I think if the starting range is fine, maybe let me ask it this way. If we were to back up a year, the 40% of Honeywell that’s long cycle it means where does long cycle stand today heading into ’18 versus a year ago heading into ’17 is the backlogs and the trend stronger because you’ve guided conservatively.

They are definitely stronger. The order rates for long cycle have been high single digits, low double digits depending on the quarter. So, I’d say year-over-year the momentum in long cycle has been better.

Yeah, we can plug-in our own shorter cycle assumptions. Hey the pension plan, I wanted to ask you about that. The over funding, I think it’s a great situation to be in. I think if we did our calc right, your own stock is about 13% of the asset base. You know some might look at that and say that could be a little higher or maybe a little risky in terms of the way you manage your plan. I think I remember that they’ve already put in stock into the plan which was a gutsy move and it paid off. Are there plans to maybe minimize that stock as a percent overtime to kind of work that down or are you comfortable with the thresholds today?

I think we have a very thoughtful and disciplined approach to the asset allocation and the pension plan. I mean its professionally managed internally, the returns on that plan have been quite attractive overtime. It is invested in many asset classes, so you’ve got equities, bonds, real estate, alternative investments. It's very well diversified, yes Honeywell is part of it, Honeywell has contributed to the growth for that plan for sure but it’s a combination of many of the investments that we look at. We always look at the pension plan and want to make sure that we’re providing fully for the obligation we have to our employees. The funding has improved overtime as a result of that prudent asset management. And we’ll continue to look at it, we’ll continue to evaluate the waiting of the assets and we’ll continue to evaluate our ability to continue meet the commitments to our employees. So, I don’t in the short-term expect any massive changes in how we’re managing that. I will say Darius has us looking at everything and anything in the company to understand what our current and long-term projections are. This area is no different and so we’ll continue to look at it and explore. But I wouldn’t say that there is anything eminent.

Maybe one more for me. I think we had calculated that deemed repatriation tax closer to 2. And Tom you had said it was going to be just over 1. Is the number closer to 2, is it closer to 1 based on sort of what you’re looking at today?

I mean, the house in the Senate are in their reconciliation process. And knock on wood, hopefully they come up something maybe even as soon as Friday. But if it’s as we’ve seen and you look at the rates that are apply both to the cash piece of the unremitted earnings and the already invested piece of the unremitted earnings. We’re pretty confident it’s closer to 1 than it is to 2. Call it 1 to 1.5, but I’d say closer to that 1.

We’ll now move to our next question from Jeff Sprague of Vertical Research.

I just want to come back to growth one more time. When you look at your guide and think about the growth initiatives of the new product momentum. Is there any discernible impact from those efforts on your top-line net of kind of the natural obsolescence that you always have on the other side of these equations? That is first one.

Yes. So, when you think about the things that’s the four objectives that Darius has made as priorities for the company and organic growth is the clear first and foremost. And it come from a couple of things, Jeff. Certainly, commercial excellence and we throw that term around a lot it can mean a lot of different things to a lot of different people. But for us, it’s making sure that we have the right people and the right sales channels in the right geographies and regions that we’re incentivizing them properly that we’re measuring their results and that we continue to change the mix based on how the margins are changing. So, it’s becoming much more disciplined and scientific around the support staffing, the resourcing, the measurement and the management of our selling forces in our selling channels. It’s also -- and that clearly is coming through. We look at sales per person and sales through channels, clearly improving across the company, I mean we have some, but it’s also highlights some areas where we can improve further. I’d say also that when you look at the new product development process, we have made ourselves more focused and disciplined on measuring the outcomes of the commitments that we make at the beginning of the year on investments. We invested in a new product, we establish very clear milestone that culminate with the introduction of the product to the market. But there are several milestones before that, that need to be measured and we need to have schedule here and there and that hasn’t always going to be the case for us. But you’re seeing again with some of these initiatives that we’re very much having visibilities to that and seeing the scheduled adherence and able to measure what we call the say due ratio which is really how much revenue you’re generating based upon what you said when you made the initial investment case for that new product offering, that I think also is coming through very clearly in our organic sales growth. So yes, the answer to your question with a couple with a little bit color there is I think definitely we’ve seen the impact.

I then want to come back to margins to, I mean you can tell by this line of questioning we all think that the sales and or the margins you know could or should be better based on the fact pattern that we see here. I just wonder on the restructuring right there is probably a spreadsheet by us for us on this slide the one that dropped the variance into a bottle. But can we just talk a little bit about the other maybe headwinds to understand this, you went through mix but was there anything on price cost that’s impacting the margin bridge and I also wonder our guess maybe there is some negative FX impact on the margins [indiscernible] some topline benefit but no earnings benefit from that?

Yeah, I would say just to give a complete picture of the margin story, we’ll have volumes that’s going to drive as I said more than half of that, half of our margin expansion, just getting the volume leverage on our fixed cost. On the price equation, throughout 2017 we’ve kind of been one step ahead of the share in terms of the price and inflation netting out to a very modest favorable impact. Kind of expect that to moderate and maybe we’re flattish on the two in 2018. And when you look at some of our other initiatives aside from, apart from the growth you mentioned FX, that’s a modest headwind to us just based on how we’re hedging things. We do have a bit of a contingency as well which you’d expect us to and so we’re confident that we’ve got a prudent setup in terms of margin expectations for next year.

One last quick follow-up from me, just on the actual, I think you went through the restructuring phase on Steve’s question just on the restructuring spend, can you just give us a more precise answer on what you’re actually spending in ’17 and what the expected '18 number is?

In terms of the [indiscernible]?

Yeah, the actual cash out P&L impact.

Its somewhere between 200 to 300 million. Jeff, we can get you a precise answer on that.

No problem, thanks.

We will now take a question from Gautam Khanna of Cowen & Company.

Yes, thanks. You mentioned working capital starts to become a tailwind, could you just talk a little bit about where that opportunity is the greatest and if you have any metrics you can give us to kind of size the opportunity over the longer term?

Yeah, I mean if you look at the way, we calculate, working capital, I go back to 2014, 2013. 2013 was a great year for Honeywell in terms of working capital management. We were over 7 turns in the way we calculated. In the last couple of years, we’ve been at 6.5. As I said 2017 was a nice inflection point for us. Knock on wood that will sustain through the end of the year. And what we’re doing for ’18 is looking at working capital flat or to modestly decrease it versus the sales growth that we talked about, the 2% to 4% sales growth. So that in itself will improve the turns. Where our biggest opportunities are is in our supply chain. And it has to do with our sales, planning process and the integration of our factories with our supply based. Being much more scientific on understanding cycle times is the way, I would characterize it. And there is a cycle time for everything. There is a cycle time between when a customer expresses interest and when it turns into an order, and when there is a cycle time to when the order turns into a production element. And then for the production, what it goes in the production plan there is supplier lead time and getting the order to the supplier and then getting supplier commitment and then getting supplier to deliver. There is the manufacturing lead time, there is a distribution lead time. We’re getting much more scientific about measuring those times, measuring and comparing to industry norms and best practices as well as within the company where we have opportunities to decrease those cycle times. And we expect the biggest impacts to be on inventory. Receivables is also an area that we’re closely focusing on. We want to make sure that we’re selling our product and not just selling based on terms. I think we’ve got that pretty much well understood and we’ve got controls around that. Our biggest issues, when it comes to receivables are just making sure that we’ve done a good job fulfilling all of our commitments to the customer that means getting them and accurate invoice, getting them a complete shipment, making it free of any shortages and defects or anything like that and especially that there are no disputes at all. And so, the customer has -- we have a full basis for full expecting full collection. And we’re measuring every element of, in that process, in that cycle as well. So, each of these are continue to point opportunities to us in terms of having more metrics and having regular accountability and visibility to how we’re performing and how we’re driving down those cycle times and having clean shipments to the customers.

And just one quick follow-up. A year ago, obviously opportunistically looked at UTX, the company is going to be a bit smaller post the spin. So, I’m just curious, what is the appetite for a larger transaction when you look at the M&A pipeline. Are there opportunities like that and actually are viable that could actually happen? Or are we going to expect more to be tuck-in deals like Intelligrated and Elster and the like?

Yes. I think that was really a very unique once in a lifetime kind of opportunity. Not something that we’re trying to reinvigorate or by any stretch of imagination. We think our pipeline is more reflective of what we’ve typically done in terms of the size of the transaction, the nature of the transaction in the context of being in spaces that we have DNA and we have installed base. I think what I would characterize and its taking time.

We move next to Deane Dray of RBC Capital Markets.

Just we’ve got a lot of good color specifics on the call today and just sticking with that margin theme, I was hoping you give some additional color on the 4Q margins you decided three factors in the shortfall, there is security volume, some Intelligrated mix, I think we covered that but also the plant outage at PMT, maybe you can size those please?

Yeah, I mean in terms of the individual amounts, let me discuss the individual interest [ph] the planned outage had a lot to do with the weather-related issues that we had coming through and some minor technical things in P&C. Those are behind us but certainly had an impact on the earlier parts of the quarter. Intelligrated is kind of a good problem to have in terms of the growth in the install base build out that we have backlogs are very strong. HBT has just been a little bit choppy in particularly on the security size, in terms of the product offerings that we have. They are high margin offerings and we’ve seen some volume softness and that is coming through on the margin rates. You know in terms of the overall volumes in the security business when you include AVI, the volumes are pretty good. So, you have a bit of a mix shift going there. So those are the three items that you referenced.

Got it. And just the last question from me is, how does tax reform potentially change your M&A focus especially with regard to repatriation of cash, more cash potentially in the US but how does that potentially change at the M&A outlook?

Yeah, I think the most of I think two points really one obviously we would factor a lower tax cost and for the deal modeling which I think everybody will so it's not going to be like gives us a competitive advantage but it’s something to watch for. I think the bigger impact is the mobility of our capital, as you know on our balance sheet we have 10 billion of cash most of it outside of the US. If the legislation comes through there is a mandatory tax on that capital that’s outside the US. So, you have to pay the tax anyway as it may as well become available for deployment inside the US. It's not that we’ve had opportunities from an M&A perspective that we’ve had to forgo for lack of capacity but I do think that it will make us maybe a little bit more focused on generating further opportunity here from a US perspective on M&A.

Our next question will come from Andrew Kaplowitz, Citi.

So, in the spring this year, at the Aero investor showcase I think Tim Mahoney suggested that you can see Aerospace growth start to recover towards 3% to 4% in 2018. Given the A350 ramp up and stabilization in Business Jet space helos. You did give some color on and already in this call Tom. But you do have lower OEM incentives, incentives against small one as you said. You beat Aerospace expectation basically every quarter in ’17. So, is it really just conservatism? Or is there something else that’s changed from that [kind of state] [ph] that we had in the spring?

I think it’s just been a fantastic 2017. I mean particularly on the aftermarket side both on ATR Business Jet, the spares, the connected services, the software offering. All have been quite robust and the business has done well on executing on those. I’d love for that to continue. I’m not seeing any as you said any hidden kind of obstacles from a growth perspective. But again, this is a short cycle business, where a lot of the growth is coming from. The longer cycle pieces of Aerospace are not high margin and is not high margin business. It’s probably 40% of that business, 50% of that business. And so really dependent upon this short cycle growth. It’s spiked in the second half of the year and accelerated and we just want to be cautious that, that’s a sustainable trend. We’ve also established the higher base for ourselves in 2018. So, I mean, call it prudent or conservatism or whatever you want. But I think we’re trying to setup a plan that we are confident in being able to achieve.

Another thing I want to add Andy is also the broader Aerospace, we still have challenges in space and that’s just going to be slow for a little bit and TS is kind of in that low-single-digit. So broader Aero with those impacts get us closer to that 1% to 3% versus kind of the 3% to 4% I think in long-term.

And then Tom, I am not sure if you told us, UOP backlog, at the end of this year. I’m sure, it’s going to end up being quite strong. We know you have difficult comparisons in PMT, but you did talk about, there is a certain amount of large project exposure in the overall PMT business. With oil prices firming here, we start hearing some whispers of large projects coming back, it doesn’t seem like you have that in your expectation. Is that correct and are you seeing any sort of evidence of large projects beginning to come back?

I mean, certainly the plan is not based on any material turnaround in the project business. In fact, yes, you’re right. I mean UOP is in the backlog is fairly high-single-digits maybe double-digits on the equipment side. And that both well and is reflected in the growth rate, so I talked about it. It’s a very attractive growth rates I talked about for UOP and PMT. The project side of HPS, on the other hand and backlog there are impacted more impacted by these global mega projects that you typically see. And that can make the backlog fairly lumpy. But right now, the backlog in HPS does not suggest that there is going to be an unleashing of CapEx in the segments we serve.

And with that, this concludes today’s question-and-answer session. At this time, I’d like to turn the conference back over to Mr. Thomas Szlosek for any additional closing comments.

Okay, thank you as we finish 2017 we’re confident in our strong position and our markets are showing nice growth. Our ’18 plan I think is attractive and achievable, even as we embark on a transformational year in term of the portfolio of actions that we’ve taken with the two significant spin-offs that we have to complete before the end of the year. But as always, we look forward to meeting or exceeding your expectations, delivering outstanding results you’ve come to expect from us. So, with that I just want to wish everyone you and your family say a wonderful holiday season and thank you for tuning in.

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