Honeywell International Inc.

Good day, ladies and gentlemen, and welcome to Honeywell's fourth quarter earnings conference call. At this time, all participants have been placed in a listen-only mode, and the floor will be open for your questions following the presentation. If you would like to ask a question at that time, please press star 1 on your touchtone 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 0. As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Mark Benza, Vice President of Investor Relations.

Thank you, Abby. Good morning, and welcome to Honeywell's fourth quarter 2019 earnings and 2020 outlook 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 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 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 spinoffs of our homes and transportation systems businesses in 2018, as well as pension mark-to-market adjustments and U.S. tax legislation except were otherwise noted. Comparisons are to the prior year period, unless otherwise noted. This morning, we will review our financial results for the fourth quarter and full year 2019, discuss our full year 2020 outlook, and share our guidance for the first quarter of 2020. As always, we'll leave time for your questions at the end. With that, I'll turn the call over to Chairman and CEO, Darius Adantra.

Thank you, Mark, and good morning, everyone. Let's begin on slide two. We are very pleased with our results in 2019. We finished a great year of another strong quarter. In the fourth quarter, we delivered $2.06 adjusted earnings per share above the high end of the guidance range, 130 basis points of margin expansion, and maybe most importantly, $2.3 billion of adjusted free cash flow resulting in a fourth quarter conversion of 154%. With this conclusion to the year, we met or exceeded our financial commitments on all metrics in 2019, managing through a volatile environment and delivering adjusted earnings per share of $8.16, six cents above the high end of our initial 2019 guidance. Despite the challenging broad macro environment in 2019, we grew organic sales 5%, driven by strength across much of our portfolio throughout the year. Growth was driven by commercial aerospace, defense, asset solutions, and building products. We also had strong orders for HPS mega projects, UOP equipment and defense, and over 100% increase in telegrader orders during the fourth quarter. These robust orders contribute to a 10% year-over-year increase in long cycle backlog. Additionally, in 2019, Honeywell Connected Enterprise drove double-digit software growth. We expanded segment margin 150 basis points or 70 basis points, excluding the impact of the 2018 spinoffs, both 10 basis points above the high end of our 2019 guidance. Our growth, combined with productivity rigor and commercial excellence, drove margin expansion in aerospace, building technologies, and performance materials and technologies. We generated $6.3 billion of adjusted free cash flow for the year, exceeding the high end of our initial guidance by approximately $300 million and resulting in 105% free cash flow conversion or 114% free cash flow conversion, excluding pension income. We continue to make smart investments in our businesses, people, and communities. We deployed $7.8 billion of capital in 2019 across share repurchases, higher dividends, high-return CapEx, and two acquisitions, including Rebellion Photonics, a provider of innovative, intelligent, visual gas monitoring solutions, which we closed in the fourth quarter. This also included over 10 investments by Honeywell Ventures for over $50 million deployed in 2019, bringing our total venture investments to date to over $75 million. We continue to have our robust pipeline of M&A opportunities with significant balance sheet capacity deployed. We launched a new brand campaign to highlight some of the most exciting innovations and we're ranked number 13 on the Forbes magazine list of the world's most reputable companies for corporate responsibility. Lastly, we continue to make progress in our breakthrough and transformation initiatives, which I'll cover next in more detail. Let's turn to slide three. We continue to make significant progress on three key initiatives in support of our transformation to a software industrial company. In 2019, we commercialized Honeywell Forge enterprise performance management software, which helps companies in a variety of industries gather, gain insights from, and ultimately autonomously control their operations to drive efficiency and safety. Honeywell Forge helped drive double-digit connected software growth this year. Additionally, HCE is leading that transition to more recurring revenue models across the company, has delivered key wins and stronger customer relationships throughout 2019, and will continue to drive growth across Honeywell, including a 20% connected software growth component and overall growth rate over five years. We also made great strides in our integrated supply chain transformation. We established supply-based management strategies for 11 categories across the enterprise, enabled our businesses to take actions to substantially reduce their distribution and manufacturing footprint, drove improvements in sourcing productivity, and in the fourth quarter, we began seeing broad improvements in our inventory. We are on track to achieve our long-term targets, including half a billion of run rate benefits and a $1 billion reduction in inventory. On Honeywell Digital, which is foundational to running Honeywell with data-driven decision-making, We have matured our data management practices, digitized key processes through the deployment of new technology platforms, rationalized over 500 software applications, cleansed 5.2 million critical master data records, eliminated 20 ERP systems, and reduced websites by 58%. When complete, we expect our digital transformation to deliver half a billion dollars of run rate benefits across sales, productivity, and working capital improvements. We are very pleased the progress we made with each of our transformation initiatives in 2019, and we'll continue to build on this momentum in 2020 as we transform into a software industrial. In summer, we had a terrific 2019, both in our short-term operating performance and longer-term transformation agenda. And we're setting ourselves up for a strong 2020 and beyond. Now let me turn it over to Greg on slide four to discuss our fourth quarter results, and provide our 2020 outlook.