Honeywell International Inc.

Good day ladies and gentlemen and welcome to Honeywell's fourth quarter earnings and 2019 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. If you would like to ask a question at that time please press star 1 on your touch tone phone. If at any point your question has been answered you may remove yourself from the queue by pressing star 2. Lastly, if you should require operator assistance, please press star zero. As a reminder, this conference call is being recorded. I would now like to introduce you to your host for today's conference, Mark Macaluso. Please go ahead, Vice President of Investor Relations.

Thank you, Marguerite. Good morning and welcome to Honeywell's fourth quarter 2018 earnings and 2019 outlook call. With me here today are Chairman and CEO Dariusz 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 forward slash investor. Note that elements of this presentation contain forward-looking statements that are based on our best view of the world and of our businesses as we see them today. Those elements can change, and we ask that you interpret them in that light. We identify the principal risks and uncertainties that affect our performance and 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 impact from separation costs related to the two spinoffs of our homes and transportation systems businesses, as well as pension mark-to-market adjustment and U.S. tax legislation, except for otherwise noted in 2018. With regards to 2019, references to adjusted free cash flow guidance and associated conversion on this call exclude impacts from separation cost payments related to the spinoff. This morning, we will review our financial results for the fourth quarter and full year 2018, share our guidance for the first quarter of 2019, and discuss our full year outlook. As always, we will leave time for your questions on the end. With that, I will turn the call over to Chairman and CEO, Darius Adamczyk.

Thank you, Mark, and good morning, everyone. Let's begin on slide two. We're extremely pleased with our results in 2018. We made progress both from a portfolio and financial perspective, continued smart investments in our businesses and our people, and took steps to position the company for the next 20 years. This quarter, we successfully completed our second spinoff of the year for Resideo Technologies, launching our New York Stock Exchange in October. We also continue to advance our software strategy while growing our core businesses in attractive end markets. And most importantly, consistent with what we've done all year, Honeywell delivered on its commitments to our shareholders. We met or exceeded our financial commitments on all metrics, delivering adjusted earnings per share of $1.91 in the fourth quarter, driven by 6% organic sales growth and 80 basis points of segment margin expansion. We continue to see strength in our long-cycle businesses, most notably in commercial aerospace, defense, and warehouse automation, where our integrated business is a global leader. Furthermore, we are aggressively planning and mitigating the impacts of the tariffs dispute in all of our businesses, as evidenced by the strong margin expansion we generated this quarter. Based on what we know of today, we do not expect any material impact or results in 2019 related to tariffs. For the full year, we achieved 100% free escalation cash flow conversion, and 105% conversion in the fourth quarter. We generated over $6 billion of free cash flow for the year, excluding spend cost payments up 22% even after spending nearly 20% of the company in the fourth quarter. This was principally driven by profitable growth, higher net income, and continued efforts to free up working capital, all the while funding smart growth investments through $800 million of CapEx. Our free cash flows percent of sales is the highest it's been in at least 15 years, and we expect it will continue to grow from here. Importantly, our U.S. pension is funded at over 105%, and we do not expect any cash contributions in the near term. The financial health of this company heading into 2019 is as strong as it's ever been, and we still have ample resources to deploy. Lastly, we continue the steady cadence of capital deployment of an additional $1.7 billion of Honeywell share repurchases in the quarter, bringing the full year total to approximately $4 billion. As a result, and now expect the fully diluted share count to be down at least 3% in 2019, based on our plan to reduce share count by at least 1% from 2018. As we continue to return cash to our shareholders through $2.3 billion in dividends, following another double-digit dividend increase in 2018. This was a particularly good year for Honeywell. We have a simpler, more focused portfolio after the spins and continue to execute on our initiatives as we look to the future. We see strength across several end markets and have significant balance sheet capacity to deploy. And while we're not planning for recession 2019, we are taking steps now to ensure we delve on our commitments in an uncertain economic environment. Let's turn to slide three to review some of the progress from last year. As I mentioned, we took significant steps through 2018 to transform the business. One of my key priorities from the outset was to accelerate organic growth. As we've seen by results, we're making good progress on this front. We're encouraged by the fact that nearly 60% of the portfolio grew, sales 5% or more organically for the full year of 2018, with several businesses growing above 10%. With the spin-offs complete, we now operate a more focused portfolio and a smaller number of attractive end markets. Portfolio optimization is central and will continue to be part of Honeywell's operating system. We plan to continue effectively deploying capital by funding high-return CapEx and returning capital to shareholders through dividends and share repurchases. We have had nine consecutive double-digit dividend increases since 2010 and still have a strong and flexible balance sheet The bill will deploy over $14 billion of cash to M&A, CapEx, dividends, and share repurchases. The combination of strong sales growth, favorable end market exposure, and significant balance sheet capacity positions as well as we head into 2019. We are now on slide four. As I mentioned, continuous transformation is part of Honeywell's operating system. On this slide, we highlight three key transformation initiatives to establish Honeywell and is a premier technology company for the future. Earlier this year, we established Honeywell Connected Enterprise, or HCE, which is a strengthened and centralized organization that will serve as a software innovation engine for all of Honeywell. HCE operates with speed and agility of a startup, working close to our businesses and our customers across the entire portfolio to build the world's best software solutions rapidly and efficiently on a single platform. Our transformation to a premier technology company will require us to look beyond just spinoffs. Our chief supply chain officer, Torsten Pils, is leading Honeywell's efforts to improve our supply chain and optimize our global footprint. You see a lot of opportunity here to drive margin expansion and operational efficiency, and you'll learn much more about this from Torsten at our annual investor conference in May. We are making similar enhancements on our capabilities internally with Honeywell's digital initiative. This requires people, process, data, and technology elements to come together, which will allow for more effective and efficient decision-making throughout Honeywell. This effort includes a continuation of our progress to centralize ERP systems. Thus far, we have eliminated 35 unique systems in 2018, going from 106 to 71, and we're on path to just 10 ERP applications by the end of 2020. The result will be consistent processes and centralized data governance with a common IT foundation. As you can see, we have achieved a lot this year and continue to redefine the limits on what Honeywell can achieve to be the best positioned multi-industrial company for the future. Let's turn to slide five to briefly review progress against our key priorities. I laid out my key priorities for the company in 2017. Since then, we've continued to foster a cultural of doing what we say, or as we call it, the say-do ratio. As you stack the results against our long-term commitments, you can see we're clearly making progress, and in some instances, achieving milestones sooner than we thought, such as with our organic sales growth and free cash flow conversion. We're accomplishing these objectives while making smart investments for future through CapEx, restructuring, and research and development. Our software businesses grew in the mid-teens range last year on a path to the 20% long-term compound annual growth rate we anticipate. We've taken steps to unify and strengthen our software strategy through the Honeywell-connected enterprise and continue to invest in software development, sales and marketing capabilities, and build out of the Sentience platform. In 2018, Honeywell Ventures made five investments, including in soft robotics, a developer of automation solutions and soft robotic gripping systems that can grasp and manipulate items with the same dexterity of the human hand, and in IOTEM, a managed secure network infrastructure platform for the industrial Internet of Things that primarily serves building technologies and industrial customers. We also completed two bolt-on acquisitions totaling roughly $500 million. Artloff Engineers is a privately held licensor and industry-leading developer of specialized technologies that drive high returns in natural gas processing and sulfur recovery. This complements our existing UOP offering, which allows us to better meet customer needs for high recovery non-gas liquid extraction plants globally. TransNorm, now part of Safety and Productivity Solutions, is a global leader in high-performance conveyor solutions that are used in diverse end markets such as parcel delivery, e-commerce fulfillment, and airports. The acquisition strengthens Honeywell's warehouse automation portfolio and positions the company to support the growing European e-commerce market while broadening Honeywell's connected distribution center and aftermarket offerings. I'll stop there and turn the call over to Greg, who will discuss our fourth quarter results and 2019 outlook in more detail.