Good day, everyone. Ladies and gentlemen and welcome to Honeywell’s Third Quarter Earnings Conference Call. At this time, all participants have been placed in a listen-only mode and the floor will be open for 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 Bendza, Vice President of Investor Relations.

Thank you Emily [ph]. Good morning and welcome to Honeywell’s third quarter 2019 earnings conference call. With me here today are Chairman and CEO, Darius Adamczyk; and Senior Vice President and Chief Financial Officer, Greg Lewis.This call and webcast, including any non-GAAP reconciliations, are available on our website at www.honeywell.com/investor. Note that elements of this presentation contain forward-looking statements that are based on our best view of the world and of our businesses as we see them today. Those elements can change, and we ask that you interpret them in that light. We identify the principal risks and uncertainties that may affect our performance in our annual report on Form 10-K and other SEC filings.For this call, references to adjusted earnings per share, adjusted free cash flow and free cash flow conversion, and effective tax rate exclude the impacts from separation costs related to the two spin-offs, of our homes and transportation systems businesses in 2018, as well as pension, mark-to-market adjustments and U.S. tax legislation, except where otherwise noted. Comparisons are to the prior year period unless otherwise noted.This morning, we will review our financial results for the third quarter of 2019, share our guidance for the fourth quarter, and provide an update to our full year 2019 outlook, and share some preliminary thoughts on 2020 dynamics. As always, we’ll leave time for your questions at the end.And with that, I’d like to turn the call over to Chairman and CEO, Darius Adamczyk.

Thank you Mark, and good morning everyone. Let’s begin on slide two. This has been a very exciting quarter for Honeywell, capped off by another strong financial performance and several important recent leadership changes.I have asked Tim Mahoney who has been the President and CEO of our Aerospace Segment for the past 10 years to serve as our Senior Vice President of Enterprise Transformation. In that role, Tim will oversee Honeywell Digital, our global cross functional and digitization initiative that is driving improvements in customer service and efficiency. Tim's outstanding leadership has enabled Aerospace to deliver exceptional results.Additionally, within Aero, Tim led the creation of Honeywell's best digital environment. I'm looking forward to leveraging that experience and having his expertise in this crucial role as we continue to evolve as a software industrial company.Taking over for Tim as the leader of Aerospace is Mike Madsen, who previously led our Aerospace Integrated Supply Chain. Mike has also served as the President of our Defense and Space business and has held leadership roles within our air transport and regional business.Mike began his career at Honeywell, and he has had three decades of leadership experience here. We are fortunate to have someone of Mike’s extensive background at the helm of Aerospace. These appointments are effective immediately, but Mike and Tim will of course were closely together throughout the fourth quarter to ensure a smooth transition.In addition, Jeff Kimbell has been named Senior Vice President and Chief Commercial Officer who is overseeing our sales and marketing organizations to drive profitable, organic growth.Jeff joins us from McKinsey where he's a partner in the transformation practice. Last, Deborah Flint has joined our Board of Director as an Independent Director. Deborah is the CEO of Los Angeles World Airports, where she is overseeing the complete modernization of…

Thank you, Darius and good morning everyone. Let's begin on Slide five. We posted another strong performance in the third quarter, building on the great first half in 2019. Aerospace had another double-digit organic growth quarter. Sales were strong across process solutions, UOP licensing, and refining Catalyst businesses and building products.Honeywell Connected Enterprise drove double-digit growth in connected software, SPS contracted during the quarter but the turnaround in productivity products is progressing and the large order bookings we anticipated in Intelligrated have begun to materialize as evidenced by the over 20% growth in orders during the quarter.The impact of the spin-offs of Garrett and Resideo in 2018, both lower margin businesses at the time of the spin contributed 100 basis points of second margin expansion this quarter. We will lap the favorable impacts of these actions in the fourth quarter. The remaining 80 basis points of this quarter's expansion was the result of our business performance in Aerospace Building Technologies and Performance Materials and Technologies, partially offset by the year-over-year margin decline and safety and productivity solutions that we had signaled previously.Adjusted earnings per share were $2.08 up 9% excluding the spin-off impact. Adjusted earnings per share excludes $114 million tax adjustment associated with withholding taxes in connection with the fourth quarter of 2017 U.S. Tax Legislation charge.With that benefit, reported earnings per share in the quarter was $2.23. I'll talk in more detail about EPS on the next slide.Adjusted free cash flow in the quarter was $1.3 billion with conversion of 85%. Our total adjusted free cash flow for the first nine months was $4 billion up from $3.9 billion excluding the spins in the first nine months of 2018.Cash conversion for the year has been impacted by the timing in our projects businesses, primarily in Intelligrated and PMT.…

Thanks, Greg. Overall, we are pleased with, and encouraged by the performance from our businesses in the first three quarters of 2019. We continue to execute on our commitments to share owners by generating strong organic growth in many end markets and have many ways to further expand margins and grow earnings.We continue to invest in our businesses growth initiatives and deploy capital to generate high returns. Our track record of execution continues and we're making progress in our business transformation initiatives including Honeywell Connected Enterprise, Honeywell digital and supply chain transformation. We still have a lot of work to do with these initiatives, but I am pleased with the early progress and the significant opportunities to provide for Honeywell.With that, Mark, let's move to Q&A.

Thank you, Darius. Darius and Greg are now available to answer your questions. Emily, please open the line for Q&A.

Thank you. The floor is now open for questions. [Operator Instructions]. Thank you everyone. Our first question is coming from Sheila Kahyaoglu with Jefferies. Please go ahead.

Hi. Good morning everyone and thank you for the time.

Good morning.

Darius, maybe for you on aerospace, can you talk about this business a little bit. How you're thinking about it as part of Honeywell longer term? Does it get bigger or maybe even smaller? I ask this because the management changed clearly, but I look at five quarters of double-digit organic growth and operating margins close to 27% and I ask myself is this as good as they get , so maybe if you could touch upon that for a second?

Well, yes, I think it's pretty good. I mean, anytime you get double-digit growth and the income margin is terrific, but we don't think that that kind of growth is far from over, maybe certainly we're in a very favorable economic condition, but as we kind of look into 2020, we continue to be bullish on this business. The management change really has nothing to do with the market conditions. And I think frankly, Tim has a core skillset that's very unique to what we’re trying to accomplish in Honeywell Digital. We're trying to template what was done in aerospace because they're substantially more advanced than the rest of Honeywell.Tim expressed the desire and I fully agreed and encourage him to take out a new role to wrap up kind of his career, and Mike Madsen has been a terrific leader for decades in Honeywell. So I think that this is his kind of a natural transition. But I wouldn't read into the management changes has anything to do with aerospace market conditions. When I point to figures such as 60% of our orders already backlog through 2020, I think flight hours are going to continue. Our aftermarket business is strong. There's a lot of BGA platforms that our ongoing production rates are strong. Hopefully, we'll see the 737 Max returned to higher production rates and back to service. So, I don't see any kind of a doom and gloom scenario for the aerospace segment for the foreseeable future, and as a matter of fact, I'm quite bullish on it.

Thank you very much. No, I didn't imply that about Tim. I think. Mike and Tim are probably good partners. And then just upon the defense business, do you see that slowing down into 2020. You've mentioned before that you're trying to sell out for all of 2020 kind of how you think about the growth profile of 40% of Aero?

I mean, yes. I think they are tough – the comps are going to get obviously tougher because we hit double-digit growth for five consecutive quarters, but I don't think that there is – I'm anticipating any kind of crash or negative growth. We're still expecting to grow next year. That's the expectations, those are plans. We're going to provide you more detail in early 2020, but overall the business continues to have levers for growth, and also for continued margin expansion, because I think something that gets dramatically understated is our focus on productivity, which you saw on our margin profile this quarter which is continuing restructuring, driving Honeywell Digital, ISC transformation, the power of one on the commercial and fixed cost side, and you'll see that coming through in our numbers. So no matter what the market conditions are, that's part of the Honeywell playbook.

Thank you.

You're welcome.

We will take our next question from Scott Davis with Melius Research. Please go ahead.

Good morning, guys.

Good morning, Scott.

One of the things, I guess, if you just don't mind going around the world a little bit and give us little granularity on what you're seeing in specifically China, I guess and then Western Europe, maybe even Brazil, Mexico et cetera?

Sure. I mean, I think overall despite some of the negativity in the news, we actually saw pretty good growth both from a revenue and orders perspective. By far China, hit the best quarter of the year. I think mid-single digit in terms of revenue growth, strong double-digit orders growth, bookings up double-digit, so actually I had a very, very good quarter in China. Our long-cycle businesses performed extraordinarily well and it was a good quarter. Despite what we read in Europe, Honeywell had a very strong quarter in Europe as well, I mean, up mid-single digits, strong growth across the board, probably the only exception was Italy, we had a little bit of a tougher, but overall Europe was strong.LatAm actually had a pretty good quarter as well. They were up, I think about kind of mid-single-digit growth, and again some of the challenged economies there. It was a pleasant surprise based on how we're doing. Russia actually did well. Middle East did well. Now, a little bit of the soft spot was India, which was bit unusual for us in Q3, but we're still expecting in India double-digit growth for the year. So I'm not particularly alarmed by the one data point. And then, U.S. obviously continues to be strong. So, overall, both as I look at revenues and more importantly orders which is what positions us for 2020 is actually a pretty strong story and one that was very encouraging.

Good to hear. And just completely different follow up, but just be -- what does -- what does the customer adoption of Forge look like in the context of, is it kind of trialing and saying we will give this a try for a year, is it more longer-term contracts, is there something in the middle? Is there some sort of standardized agreement that’s starting to emerge as you get deeper into this?

Yes. I think Scott, that varies based on the franchise, I mean, first, some of the connecteds are further ahead than others. For example, in Q3 we had connected buildings and the cyber security leading in terms of strong double-digit growth. Some of them are a little further behind. We have more mature offerings, I would say in cyber, in the Aircraft segment, the building segment, some of them are still in development stage. Some of them are -- that's typically how you started engagement of our customer. You kind of do a proof-of-concept. The customer is happy that proof-of-concept moves up for an [ph] assignment.So – we are some that are in a broader rollout stage, and some that are in the proof-of-concept stage. As an example of our success, we've had a major player in the Middle East, do a proof-of-concept for us which was highly successful and that same player is now rolling out our Forge solutions to the entire oil and gas infrastructure, which will be worth millions of annual dollars per year. So, I think it just depends which one we're talking about, but I think overall Forge was still in the early innings and we're just launching the various Forge offerings.

Good luck to you. Thank, you guys.

Thank you.

Thanks.

Moving next, we'll go Steve Tusa with J.P. Morgan. Please go ahead.

Hey, guys, good morning.

Good morning, Steve.

Can you just first walk through anything in the model for fourth quarter with regards to the segments that you'd want to highlight, I mean, SPS is obviously one that, I think would be helpful to get a little bit more kind of pointed guidance around whether it's organic growth or profits and any of the other businesses that we may see variability outside of just kind of normal seasonality and comps?

Yes. So, I think you're going to see something pretty consistent with what we've just done in the third quarter. Obviously, there is variability ranges around all of them. But as I described, I think Aero is going to continue to lead the path from a growth perspective. And I think we're going to see mid-single digit kind of growth, low to mid-single digit kind of growth in PMT and HBC, and I would expect to see SPS down single digits again in the fourth quarter.And the on the orders perspective as we talked about in the prepared comments, we had a great Intelligrated quarter, 20% plus growth in orders as we've been talking about those major systems project coming in. We expect more that in the fourth quarter and that will help us get that for next year. And then with the – from a margin expansion perspective, I think you're going to see the – the obviously the removal of the spin comparison is going to change the overall reported numbers, but I would expect to see margin ranges that are going to look fairly similar from third into the fourth quarter broadly speaking. This is the same playbook. I don't expect like a big divergence from one quarter to the next in any particular business.

Is 15% margins still a credible number at SPS and if you don't see progress there over the next 12 months what kind of actions can you take?

Yes. I think 15% is still a credible margin rate to build back from as we enter into 2020 and again, if you look at productivity products as an example, it's essentially kind of flattened out. So we're showing organic declines, but the absolute value of the revenues has really kind of flattened out over the last few quarters. And so -- and as we talked about in the channel, that inventory level is going to come down to a normalized level in 4Q, so, as that begins to reaccelerate, and as we continue to get additional growth and the aftermarket side in Intelligrated, I absolutely expect to see margins continue to bounce back and expand into 2020..

And I just add a couple of things to that. One is, I think, although maybe at a high level, obviously, we would like to print better results from SPS, but in terms of productivity products we're executing what we should be executing. The inventory levels are dropping and our -- and we know exactly what they are and they drove double-digit campaigns for Q3.We see our sales out data improving. We see better activity -- commercial activity on our Tier 1 wins. So it's still not resulting in the financial results we hope to see, but the progress from Q-over-Q is good. We've also enhance some of the talent in that business and we've had some, a new people joined. So I would say that the productivity products, we're very much on track.In Intelligrated which is, maybe the other part of the story. I think as we discussed at the end of Q2, we've got exactly the orders we expected to get 24% growth in Intelligrated year-over-year. They came in late. They came in late in September, which were adversely when they come that late, and it's still projects kind of business, it takes at least a couple of months to convert orders, at least to begin the convert orders into revenues. So probably we won't see more of that until we get to next 2020.But the other expectation I want to highlight is, we're expecting another robust booking quarter in Intelligrated in Q4 this year. So, I think we're -- I'm not worried at all about what's going on Intelligrated. I think the market is being challenged in the first half of the year, when you look at data points from Siemens and some of our industry competitors, I think we're very much in line or even better than some of that. So, I think we're...

One last quick one for you, just on Aerospace. Is the -- can you just talk about what the combination of any kind of potential headwinds from upgrades from this year, combined with kind of the Honeywell specific growth initiatives, whether it's connected or anything like that. Is that a -- is that a neutral to next year, year-over-year? Is that a still a positive, a slight negative? Can you just discuss the kind of dynamics between those two moving parts?

I'm sure. I think the short story is kind of neutral. I think what we get into next year is probably a little bit tougher comps given the double-digit growth rates. So I think that that's realistic. There are some puts and minuses. I mean, is the 737 Max, we anticipate we'll be back in service next year. So that will get a little bit more OE probably some of the older aircraft will not be flying, so we'll probably have a little bit more of the aftermarket stream. I think, with Business Aviation, we'll continue to be robust, we're very bullish on Defense & Space, we're seeing good growth in Space and the helicopter markets again.I think probably the toughest things on a year-over-year basis will be the comps, the comps will be tougher, but I'm not sure there is any kind of major one timer's that I think would prevail in terms your RMUs and so on, we're continuing to invest in our MPD engine on that, that's been very successful for us. And then obviously Forge will grow. So that's, those are kind of the major puts and takes.

Great. Thanks a lot.

Thank you.

Our next question will come from Jeff Sprague with Vertical Research Partners. Please go ahead.

Yes. Thank you. Good morning everybody.

Good morning, Jeff.

Hey, just a couple of things from me. First, could you just elaborate a little bit on what's going on with the net below the line items? What's driving the change from your prior outlook to the current outlook restructuring and other [Indiscernible]?

Yes. I mean, it's primarily the $0.03 favorability, again roughly $30 million in the third quarter, a lot of that has to do with foreign currency and there's still number of the things below the line. So basically the $50 million delta is $30 million of our actual 3Q and a $20 million roundabout lower number in the fourth quarter. Again, there's no huge needle mover in there and there's going to be a range that number too, I mean, we say about 155 but that will move around little bit as well.

I mean, there are some other stuff moving around like other income and pension and the like. What's the actual restructuring outlook for Q4?

Yes. We've got a sizable capacity. If you remember, I think we book something like $300 million of restructuring in 2018 in the fourth quarter. And we've got capacity loaded in there for something similar. We're working our pipeline. And as we always do we continue to carry that restructuring pipeline and we'll take advantage of the projects that we have as we exit the year.

Yes, I think maybe Jeff, just something else to it. We kind of give you a point number on below the line impact, and I think that's approximately. I think we're probably going to revisit that for next year, because it really isn't a point number, there is some movement in it, it can happen from quarter-to-quarter and I think just to be that precise and give you that precise number, it's probably a little bit inaccurate.I mean, we try to get as close as we can to our estimates, but we have some moving pieces in there, that Greg just described. So I think we had -- I don't think there was anything major that move. There is no major assumption changes, but couple of little things move $20 million, $30 million which given the size of our company isn't much, and you'll get a different outcome. So I wouldn't read too much into it.

Understood. And then just on the projects, the late -- the long cycle order dynamic. So I am quite encouraging, can you just elaborate a little bit on the cash flow impact of that, it does sound like maybe the cash cycle on some of this is stretching out a little bit. What kind of opportunity do you see perhaps to unlock some more cash from working capital or other elements into the next year?

Yes. I would say that's, you use the right word, it's the cash cycle, I wouldn't call it a problem. I mean, we had obviously very strong projects related results as we were in last year and then coming into the early part of this year and that's cycle down a bit with the, with the orders pattern that we had seen previously. And now if that cycles back up, you're going to restart the advanced cycle on a lot of those large projects and so we expect to start seeing that coming back through.And then, we continue to do a lot of work around inventory as well. Our inventory while it hasn't been a huge -- year-over-year cash flow comp problem for us, it's still growing and we're trying to take that down every year as we try to become more and more efficient. So we're still working our initiatives around trying to drive that inventory down as well and we hope and expect that's going to be supportive as we continue to move into the fourth quarter and into next year from a free cash perspective.

Yes. As Greg pointed out, I think the biggest mover for us here in the Q3 was sort of this movement around the advances/unbilled in much of our projects business, that's really the biggest needle mover. We got a lot of our orders delay. We weren't able to collect the cash. And from a last year perspective, a lot of those orders came in earlier in the year. So we had the benefit of the advances, that's not the case this year and that was a big swing. I would it -- maybe not as big of a factor, but our reinvestment ratio was the highest in Q3 versus the whole year. So that's probably the other backdrop, not the major one for the cash outcomes.

Great. Thank you.

Thank you.

We'll take our next question from Deane Dray with RBC Capital Markets. Please go ahead.

Thank you. Good morning everyone.

Good morning, Deane.

Hey. On PMT and process in particular, it was impressive to hear about these projects in Russia and China. We've heard from your competitors in process about push outs of projects in particular. And are you seeing push outs anything at the margin that you'd call out?

We were actually very pleased of our global major projects this quarter, I mean we were up strong double digit, actually in that segment. So that was one of the really nice stories for us for the quarter probably even better than we expected. So really, really nice progress and Q4 looks quite robust as well. So hopefully we'll be able to secure those as well, but I think that was one of the more positive stories for us in the quarter and good orders growth in Russia, China, some of the economies that have been, that are presumably challenge but frankly we're not seeing that.

Got it. And this might be a bit of a rhetorical question, but based upon the upside in Defense & Space this quarter, the 17% growth in core revenues and commentary about 2020, are you -- do you see Honeywell disadvantaged at all in some of the defense industry consolidation that we're seeing?

No. I don't. We're not generally a final system provider. We are component Tier 1 provider to those. I don't think that calculus changes with the consolidation that's happening. We'll continue to be a good supplier to a lot of those integrators and system providers, but I don't see that dynamic changing.

That's helpful. Thank you.

Thank you.

Thanks, Deane.

Moving next to Julian Mitchell with Barclays. Please go ahead.

Hi. Good morning.

Good morning.

Hi. Good morning. Maybe just first question around, if you look at how demand trended in recent months, you'd called out Intelligrated picking up late in Q3, and also some of the HBT activity in Europe. I wonder if there was anything else that you would highlight that got better or worse over the past sort of two or three months as you moved through it. And also maybe how your own repositioning and CapEx spending plans may have changed when you're thinking about 2020 if at all?

Yes. I mean, in terms of kind of some of the changes, I think we had a relatively slow start in Europe for month one and month two of the quarter and they were little bit concerned heading in to September, but September actually was very, very robust than economies like Germany, France, the UK, all did very, very well. So we had – although we were worried, but September was very, very robust much better than sort of what the industrial GDP print would have you believe. So that was certainly better.Can as we think about 2020 it's probably, as Greg pointed, it's probably we have tougher economic environment in 2020 that is in 2019. But on the flip side of that, I don't see some fall off the cliff. I don't – as I look at our backlog, as I look at our growth rates in terms of the long cycle businesses, level bookings we have for Defense and Space, SPS pick up that we're expecting, reasonable comps for aerospace although tougher but maybe not double-digit, but still could growth.We're certainly not – we're far from planning 2020 right now based on what we see is doom and gloom kind of a year, that's for sure. And if anything hopefully there'll be some more positive outcomes, looks like Brexit may reach a positive inclusion based on the news we're hearing this morning. Hopefully, there will be more of that positive news to go here in Q4.

Yes. As it relates to repositioning, I think we're – as we go into 2020 we're going to have ample capacity to continue driving our reposition portfolio and pipeline as we have this year as well. So I expect that to continue to be a big part of our productivity playbook for 2020 also.

Thanks. And then just following-up maybe on SPS specifically in that context, you're now in the third quarter of your organic sales decline in that business. When we're thinking about the longevity of this downturn, should we assume a classic sort of short cycle duration of maybe five quarters of sales decline there and then the recovery post that? And highlights of that, maybe just gives an update on how comfortable you feel with the market share in productivity products in particular?

Yes. Well, I think as we've stated in the last quarter, I think productivity products is the business where we're focused on some improved commercial activity. We saw some good signs of that in Q3. And if you look at the margin profile, incremental margin profile from Q2 to Q3, it was better. The team has adjusted their cost structure to the market reality or their revenue base, but yes, I mean, I think we're trending in the right direction. So, we do expect productivity products to return to growth in 2020, that's very much our expectation. Based on what I'm seeing today. I don't see anything which would prevent us from doing that. So, I can't tell you whether it's exactly five quarters or three or four, but we expect growth in 2020 is kind of the short story.

Thank you very much.

Thank you.

We will take our next question from John Walsh with Credit Suisse. Please go ahead.

Hi, good morning.

Good morning.

Just I guess a question around price and maybe also a little bit discussion around the price cost equation, it looks like at least per the Q price decelerated a touch in Q3, but obviously the very strong margin performance, I would assume you're pretty green on price cost, but can you maybe talk a little bit about that dynamic and how that's playing out in the next year as we're kind of still seeing some input deflation?

Yes. I mean, we've continued to have a strong cadence around our price across the company. So, as we head into next year, I'm not expecting that we're going to hit a wall and not be able to continue to get price in the marketplace. And as you said the cost, as markets are slowing down we're also doubling down on our procurement team in terms of driving our material cost deflation program as well. So we're going to keep pushing hard on both of those levers and expect that to be a net positive for us as we go into 2020.

Got you. And then maybe just on highlighting the balance sheet capacity, I mean anything to call out there as we look into next year, if there might be anything to do on the deal front, obviously you announced some small things in the release today, but how should we think about the use and the deployment of that next year?

Yes, I mean, so first of all, we continue to be very active with our M&A pipeline and there is a lot of things going on today as we speak, particularly given everything that's happening in the marketplace and we hope that, that will actually have a benefit as we go forward in terms of asset prices possibly coming down and making some things a bit more attractive.As you saw with our stock purchase program, we continue to do that pretty aggressively, and as we go into next year, I think we'll continue to use that as a lever for us, it's been very successful year and I think, barring any large deals, I think we're going to continue to be targeted to take out at least 2% of our share count on a year-on-year basis, so both of those are going to be consistently deployed in terms of our expectations.We did, as Darius mentioned, refinance of our debt, we've got some debt coming due in October. So we refinance that in the third quarter. So we still retain a very, very strong balance sheet with a lot of access to capital and with our strong cash flow and our repatriation program, I think we've got a lot of ammunition for us to go ahead and use as we head into next year.

Great. Appreciate the color.

And that does conclude today's question-and-answer session. At this time, I would like to turn the conference back over to Mr. Darius Adamczyk for any additional or closing remarks.

I want to thank our share owners for continued support of Honeywell. We have delivered strong results each quarter this year and have continued to make great progress on our initiatives and delivered on our commitments. We are well positioned in attractive end-markets of multiple levers for value creation and operational excellence in place.We are focused and continuing to outperform for our share owners, our customers and our employees. Looking forward to sharing our results, as well as our 2020 outlook during our fourth quarter earnings call in late January. Thank you for listening.

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