Honeywell International Inc.

Good day, ladies and gentlemen, and welcome to Honeywell's first 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 telephone. If at any point your question has been answered, you may remove yourself from the queue by pressing star 2. Lastly, should you require operator assistance, please press star 0. As a reminder, this conference is being recorded, and I would now like to introduce you to your host for today's conference, Mark Banta, Vice President of Investor Relations. Please go ahead.

Thank you, Savannah. Good morning, and welcome to Honeywell's first quarter 2020 earnings conference call. On the call with me today are Chairman and CEO Darius Adamczak and Senior Vice President and Chief Financial Officer Greg Lewis. Also joining us today is Senior Vice President and Chief Supply Chain Officer Torsten Pils, who is here to participate in Q&A related to our supply chain. This call and webcast, including any non-GAAP reconciliations, are available on our website at .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 based on many factors, including changing economic and business conditions, and we ask that you interpret them in that light. Unless otherwise noted, the plans described herein are not final and may be modified or even abandoned at any time. No final decision will be taken with respect to such plans without prior satisfaction of any applicable requirements with respect to informing, consulting, or negotiating with employees or their representatives. We identify the principal risks and uncertainties that may affect our performance in our annual report on Form 10-K and other SEC filings. This morning, we will review our financial results for the first quarter of 2020 and share our views on the second 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 Adamczak.

Thank you, Mark, and good morning, everyone. Before we turn the slides, I would like to make a few opening remarks. We're clearly holding this call during unprecedented times. The COVID-19 pandemic has widespread impacts on our communities, from our families, friends, and neighbors to our employees, customers, and suppliers. At Honeywell, our number one priority is the health and safety of our employees. We have taken many precautions to preserve the well-being of our 100,000 employees around the world, resulting in very few infections across the company. Each of our employees is demonstrating a strong commitment to our company, to our customers during these challenging times. I sincerely thank them for their strength, resilience, and courage. I would also like to express my gratitude to the men and women on the front lines of this fight. The healthcare workers are working every day to overcome this global health emergency. They are the heroes, and we're doing everything we can to support them. Increased production of personal protective equipment and other critical supplies. This morning, we'll discuss six key topics. First, we'll review our first quarter performance, a quarter during which we over-delivered on our original EPS and segment margin commitments, despite a rapidly deteriorating environment. I am particularly proud of this outcome, as even in a crisis, we demonstrated that our investors can count on a reliable say-do outcome. Second, we'll discuss how we're working to keep our employees and the men and women on the front lines safe and healthy. Third, we'll discuss our outlook for the second quarter. The next few quarters are likely to be amongst the most unpredictable quarters we have ever experienced, and our visibility is limited under the current circumstances. Accordingly, our outlook for the second quarter will have less detail than usual, but we'll provide a level of detail that is commensurate with our visibility in the current environment. We're also suspending our full-year financial guidance until the economic environment stabilizes and we can once again provide a reliable forecast. Fourth, we'll provide an overview of our strong balance sheet and liquidity position, which will reflect years of responsible balance sheet management.

Fifth,

we'll outline decisive and expeditious actions we have already taken to manage through the crisis, protect shareholder value, and emerge stronger than ever. We cannot control the pandemic, but we can control how we're mitigating risks to our operations and supply chain, engaging with customers, managing costs, and preserving liquidity. As you will see, we are applying Honeywell's usual level of discipline and diligence to this unprecedented situation. We've already locked in plans which we are executing so that we are not searching for answers as the crisis continues to unfold. And finally, we'll provide an overview of some new opportunities that are well-wired to our portfolio. Let's begin on slide two. We delivered EPS and segment margin expansion above the high end of our original guidance in a rapidly deteriorating environment. Earnings per share for the first quarter was $2.21, up 15% year over year, and segment margin expanded 140 basis points to 21.8%. The global spread of COVID-19 during the first quarter created operational constraints for Honeywell, our suppliers and our customers. In some cases, access to customer sites was restricted, impacting our ability to complete deliveries and provide services. COVID-19 and the OPIC Plus dispute also caused demand weakness, particularly in our short-cycle businesses and in the aerospace and oil and gas and markets. The combination of these effects resulted in an organic sales decline of 4%. As you have come to expect from Honeywell, we responded quickly to changing conditions by implementing cost control measures, which combined with our productivity rigor and commercial excellence drove 140 basis points of segment margin expansion, 90 basis points above the high end of our first quarter guidance. We also generated $800 million of free cash flow despite lower cash collections from customers at the end of the quarter due to challenging macroeconomic conditions. We continued to implement our responsible and balanced capital deployment program during the first quarter. We deployed $2.7 billion of capital across share repurchases, dividends and high return capex investments to position our company for the future. This was a challenging first quarter due to the rapid escalation of the COVID-19 pandemic and the OPIC Plus dispute. We effectively managed to the challenge to over-deliver our profit commitments, demonstrating our strong say-do.

Let's

turn to

slide

three to

discuss our response to the pandemic. As the COVID-19 pandemic started to

evolve, we acted quickly to ensure the safety of our employees as well as to aid in the frontline response to the crisis. We implemented several precautionary measures to keep our employees safe, including travel restrictions for all employees and full-time work from home for nearly all of our non-manufacturing employees. At Honeywell locations where work cannot be performed remotely, such as manufacturing sites, we implemented measures to protect our employees, including restricting visitors, enhancing site cleaning and sanitation regiments, providing hand sanitizers, staggering shifts and lunch breaks, and putting safe distance practices in place where possible. Where social distancing isn't possible, we have also provided employees of masks. We have also implemented mandatory temperature screening at several locations and are putting capabilities in place to expand that practice as needed. We will continue to comply with all local and national guidance from governments and health authorities. In addition, we announced that Honeywell will pay for coronavirus testing and treatment costs that are not covered by employees' insurance and will provide a full year of paid sick time upfront for U.S. non-exempt employees. Finally, we announced the $10 million Employee Relief Fund to help employees in financial distress. We also recognize the urgency to keep medical professionals safe. We have quickly ramped up production of our personal protective equipment to address unprecedented demand. We recently announced that we are adding manufacturing capabilities to our existing sites in Smithfield, Rhode Island and Phoenix, Arizona to produce millions of N95 masks to help support the urgent need for critical safety equipment. The additional capacity of these two facilities is expected to create more than 1,000 new jobs and produce more than 20 million N95 disposable masks monthly to support the U.S. government's efforts to combat the virus. Our Smithfield, Rhode Island facility is already producing N95 masks. We installed a production line in only five weeks, a process that normally takes nine months to complete. Honeywell is supporting the fight against COVID-19 other ways as well, including increasing production of our other critical personal protective equipment, such as safety eyewear and face shields, increasing production of sensors used in ventilators, and providing testing services to ventilator manufacturers. Finally, we recently announced that we will shift manufacturing operations at two chemical manufacturing sites in the U.S. and Germany to produce and donate hand sanitizer to government agencies in response to shortages created by the COVID-19 pandemic. These sites, which manufacture high-purity solutions for laboratory research and testing applications, will produce hand sanitizer reserves over the next two months for government agencies to distribute to entities in need. These are certainly challenging times, and we're proud of our role and the many actions we have taken to produce essential personal protective equipment to keep the heroes on the front lines safe. Now let me turn it over to Greg and slide forward to discuss our first quarter results in more detail as well as to provide our views on the second quarter and the balance sheet.

Thank you, Darius, and good morning, everyone. In the first quarter, organic sales declined by 4% as the effects of the pandemic spread across the globe, creating supply chain challenges and restricting access to customer sites, which constrained our ability to deliver, particularly in the last two to three weeks of the month. Aerospace sales were up 1% on an organic basis as demand for key U.S. Department of Defense programs and guidance and navigation systems in defense and space was partially offset by the steep reduction of flight hours and a slowdown in air transport OE build rates, primarily from our previously communicated lowered 737 MAX deliveries to Boeing and commercial aerospace. Safety and productivity solution sales were down 9% organically. Increased demand for respiratory personal protective equipment was more than offset by weakness in the short cycle part of the portfolio. Intelligrated sales were down about 12% due to the timing of several major systems projects as expected. As a reminder, integrated organic growth in the first quarter of last year was approximately 50% up due to strong major systems backlog conversion, aftermarket services, and increased demand for voice solutions, which created a very tough comp for this quarter. Intelligrated backlog remains robust, approximately up 40% year over year, and as we discussed in our last call, we expect growth to reaccelerate in the second quarter. Honeywell building technology sales were down 6% on an organic basis, primarily driven by softness in building solutions projects and lower short cycle volumes in security and building management products. Finally, performance materials and technologies, down 5%, was negatively affected by the sharp decline in oil prices stemming from the OPEC plus dispute and the COVID-19 related disruptions with HPS down 6% and UOP down 2%. Continued illegal HFC imports into Europe and lower automotive refrigerant volumes and advanced materials also contributed to the sales decline. Despite these challenges, our productivity rigor combined with commercial excellence and swift cost actions drove segment margin expansion of 140 basis points, well above our original guidance of 20 to 50 basis points. We delivered earnings per share of $2.21, up 15%, and well above the high end of our original guidance range of 202 to 207. Segment profit expansion drove 4 cents of earnings growth, while a lower adjusted effective tax rate, primarily due to new India tax legislation, drove 13 cents of EPS improvement compared to last year. Even without the favorable tax impact, the first quarter EPS was 1 cent above the high end of our guidance and up 8% year over year. We generated $800 million of free cash flow, down 31% year over year, primarily driven by lower sales and slower collections, particularly in late March. We continued to execute our capital deployment plans in the first quarter. We deployed over $600 million to dividends and $1.9 billion of share repurchases, substantially completing our full year 2020 share repurchase commitment. We also invested over $100 million in capital expenditures in the quarter, including investments that will enable us to produce millions more N95 masks to help the coronavirus relief effort. Overall, this was a very challenging quarter, but we continued to execute and achieved or over-delivered on our segment profit, margin expansion, and EPS commitments. Now let's turn to slide 5 to discuss our operations. Our portfolio is highly aligned to guidelines for essential and critical businesses around the world. Our teams have been working tirelessly to ensure that we are able to provide equipment and services to our customers in critical end markets globally in compliance with government safety regulations. The spread of COVID-19 has created operational challenges for Honeywell, our suppliers, and our customers as governments and companies implement measures to slow the spread of the pandemic and keep employees safe. These challenges included temporary site closures, staffing shortages, inability to access customer sites for service and project engineers, and transportation and logistics disruptions. The operational constraints change daily, however, we have implemented rigorous business continuity processes to ensure they are proactively addressed and minimized to the extent possible. Though operational disruptions have caused headwinds, our integrated supply chain's efforts under Torsten's leadership have been able to keep us running. After the outbreak in China, we set up a taxable operations center in January to monitor and manage global supply risk and establishes processes to identify and assist suppliers in financial distress. We continue to monitor all suppliers to ensure they remain operational and we provide support to help them reopen when they experience temporary closures. Today well over 90% of our suppliers are operational. Our logistics team has been proactively securing transportation and freight modes to ensure transportation availability amid supply and demand imbalances. As it stands today, over 90% of our sites are operational globally. Approximately 15% of our sites are currently experiencing staffing constraints in select regions around the world, including sites in Mexico, Europe, and Asia-Pac, where governments have mandated up to 25 to 75% reductions in staffing. We are pleased with our progress in responding to these operational constraints and mitigating those impacts. We experience new headwinds every day, but we continue to monitor our supply chain, work closely with our suppliers, and respond swiftly when new challenges arise. Because of these actions, our global operations are running with limited but unpredictable disruptions or interruptions, and these are some of the dynamics that are contributing to our challenge on predictability of our short-term financial outlook. Now let's turn to slide 6 and we'll discuss our segment outlook for the second quarter. As Darius said previously, the next few quarters are likely to be among the most unpredictable we have ever experienced, and our visibility has limits under the current circumstances. Accordingly, we are suspending providing full financial guidance until the economic environment stabilizes and we can once again give reliable and comprehensive forecasts. We believe it is important that we provide a level of precision that is commensurate with our ability to forecast in the current environment, and therefore you'll see a different set of inputs versus our normal guidance. Starting with aerospace, we expect more than a 50% decrease in global air transport flight hours and more than a 40% decrease in global business aviation flight hours in the second quarter based on industry sources, which will significantly impact our commercial aftermarket businesses. In addition, our commercial original equipment business will be impacted by the ongoing 737 max production delay, OEM furloughs, and temporary shutdowns, and lower business jet demand due to the economic slowdown. However, government defense budgets remain intact and we expect continued growth in defense and space, though this will be more than offset by the broader end market challenges and significant demand reduction in the commercial aerospace segment. As a result, we expect aerospace sales to be down more than 25% compared to the second quarter of 2019. Moving to PMT, the dramatic volatility and decline in oil prices related to the OPEC Plus dispute coupled with the COVID-19 related supply chain disruptions has created a challenging environment. We are encouraged by the OPEC Plus production cut agreement and would hope for even broader action, however, we need to see a sustained increase in demand to see a more meaningful impact in the marketplace. As we've said in the past, oil price volatility and sustained pressure on prices often leads to project delays and customer capex and OPEC's budget cuts, which is what we are seeing today. We expect a steep decline in refining production in the second quarter and continued weakness in gas processing. The reduction of customer capex and OPEC's budgets will create headwinds for our products businesses and process solutions in UOP with declines in field services, equipment, and catalyst shipments. Additionally, we anticipate new projects will push to the right, putting pressure on UOP licensing and engineering volumes in the near term. As we have discussed in the last two earnings calls, we enter 2020 with a healthy backlog of global megaprojects and process solutions and we do expect to burn those down over the next few quarters. Although we have not received any long cycle cancellations, we are expecting new orders to decline significantly in the second quarter. With advanced materials, automotive plant closures will drive lower refrigerant volumes and a projected slowdown in global construction will further pressure sales. However, in specialty products, we are encouraged by strong demand for our healthcare packaging, armor, and research chemical products. Altogether we expect PMT sales to be down more than 15% compared to the second quarter of 2019. In HBT, we see the impact of COVID-19 pandemic as potentially shorter term in nature. In the current environment, non-residential projects in multiple verticals have paused and customers are deferring non-essential spending, impacting the timing of long cycle building solutions projects and delaying purchase of security, building management, and fire products. Lower building occupancy and temporary disruptions to site access are driving delayed timing of certain building solution services. However, we believe these are largely short term timing effects and we continue to see underlying demand, particularly in fire and security products and our services where orders grew in the first quarter. So building technologies may begin to stabilize as businesses begin to reopen. We expect HBT sales to be down more than 10% compared to the second quarter of 2019. Finally, in SPS, the surge in e-commerce as government enacts social distancing requirements has created more demand for our warehouse automation business and supports continued conversion of our robust and telegraded backlog. In the second quarter, we will see growth in the major systems projects that we booked last year. Our telegraded backlog remains strong, up approximately 40% year over year, and we expect this business to perform well for the remainder of the year. However, the macro conditions are resulting in headwinds in our short cycle SPS businesses, including productivity products, gas sensing, and retail. Weakness in aerospace, heavy equipment, and automotive end markets is also resulting in headwinds in the sensing and IoT business, which will partially be offset by increased demand for sensors in medical ventilators and respiratory equipment. Finally, we are, of course, seeing record level demand for respiratory masks and other personal protective equipment, and we expect that demand to continue for the foreseeable future. Mask production at our Smithfield, Rhode Island facility is already online, and our Phoenix facility is expected to come online in the second quarter. PPE orders were up triple digits in the first quarter, which strength in respiratory, head, eye, face, gloves, and clothing categories. Our personal protective equipment backlog is now up triple digits. In the second quarter, however, we expect the macro and short cycle headwinds to more than offset the growth in PPE and telegraded. We expect SPS sales to be down more than 5% compared to the second quarter of 2019. So while our diverse portfolio is resilient, the combined impacts of the COVID-19 pandemic and the OPEC plus dispute are meaningful across the global economy. While we have a rigorous MOS in place to manage our operational risks, the continuity of our operations, as well as those of our customers and suppliers, continues to change daily. As the impacts of the health crisis continue to unfold and evolve, as a result, we expect a very challenging second quarter, with sales expected to be down more than 15% for the company versus the prior year. Now let's move on to slide seven and discuss our balance sheet and liquidity. Our strong balance sheet provides a stable foundation as well as opportunity for our company during challenging times such as these. We have maintained a premium credit rating for over 25 years, which has been a long-term competitive advantage for us, especially during difficult times like the downturn in 2008 and 2009, and again today. It reflects many years of responsible capital management, good stewardship of our pension plans, and an emphasis on prudent leverage and significant liquidity. We exit 2019 in an incredibly strong position, and we took additional actions during the first quarter to further bolster our financial flexibility as a precaution in these unpredictable times. As discussed in our Outlook Call, we further derisked our pension plan by increasing the allocation to 60% fixed income in the first quarter, which has proved to be prudent as our pension plan remained overfunded at the end of the quarter and requires no additional funding, even with the tremendous volatility in the capital markets. We also refinanced the billion-dollar euros of February maturities with a Eurobond offering maturing in 2024 and 2032. We have no remaining bond maturities coming due in 2020, and only $800 million of bond maturities coming due within the next year. Most recently, we announced the $6 billion two-year delayed draw term loan agreement, which combined with our preexisting $5.5 billion of undrawn revolving credit facilities, brings our total undrawn sources of liquidity to $11.5 billion. As of the end of the first quarter, we had $8.8 billion of cash and short-term investments on the balance sheet and a net debt to -to-DA ratio well below one. Altogether, we have over $20 billion of cash, short-term investments, and undrawn sources of liquidity readily available compared to only $800 million of long-term debt maturities and $3.5 billion of commercial paper coming due within the next year. As you can see on the slide, our balance sheet and liquidity profile is significantly stronger than it was heading into the 2008-2009 downturn when we were more levered, had less than $6 billion of liquidity undrawn, and our pension was severely underfunded. We will focus on preservation of liquidity during the second quarter and expect to enter the third quarter with significant capital deployment options should we have greater clarity on economic conditions. With that, I'd like to turn the call back over to Darius.

Thank you, Greg. Let's turn to slide eight. As the COVID-19 pandemic started to spread, we immediately acted to maintain the continuity of our operations and keep serving our customers. These actions, in addition to Honeywell's diversified portfolio, strong balance sheet and history of discipline and resilience in uncertain times demonstrate our ability to manage through a difficult situation. We have already discussed our efforts within the supply chain and balance sheet this morning, so let me walk you through our three other key priorities, starting with sales generation. We rapidly redeployed around 1,000 of our sellers to align to areas where we're seeing market demand, particularly on our healthcare, e-commerce supply chain, remote factory operations, cyber security, and PP&E offerings. We modified the sales incentive plans for our 6,500 sellers, ensuring our sales teams have the proper motivation to find the areas of growth in our target markets. Also to ensure our sales managers and sellers have the skills they need and best practices to virtually connect with our customers, we developed playbooks containing sales best practices and lessons learned from our China team, who are the first to implement virtual selling techniques. While not easy, our sellers have embraced the challenge and opportunity of maintaining a high level of communication with our customers. One of our HBT employees even turned a room in his house into a live demo center for customers, and he used it to launch a product to 40 of our top European partners via video. We're also in the process of launching e-commerce websites to enable our transactional customers to receive product information and place orders quickly and efficiently. For example, our research chemicals business launched a new website to enable their customers performing important lab work associated with the COVID-19 pandemic to quickly and easily replenish our laboratory supplies. Our sales and demand generation actions are being reinforced by a rigorous weekly review process led by me personally, together with Jeff Kimball, our Chief Commercial Officer. Demand generation remains a priority even in these difficult conditions. Let's move next to our cost control actions. Our focus is on maintaining our employee base while also positioning the country for long term performance post-crisis. We have rapidly implemented a series of measures to conserve cash and reduce cost, which will help mitigate the potential need for more drastic actions later and will give us more flexibility to respond to prolonged downturn or sudden disruptions in our end markets. Our cost reduction efforts will reduce costs by at least $1.1 billion to $1.3 billion in 2020 and will be more heavily weighted in the third and fourth quarters of the year. This includes approximately $200 million of benefits from prior year repositioning. We have eliminated or sharply reduced discretionary expenses, limited hiring, and canceled merit increases on a global basis for all levels of the company. Additionally, our businesses have in some locations initiated a rotating schedule of reduced work weeks or eliminated work weeks. All executives up through, including senior staff and the board of directors, have also reduced base pay this year and eliminated or substantially lower incentive payouts in 2020. We're also taking proactive steps to preserve jobs at our manufacturing sites, including shortening or stagnant work schedules to match production volumes of demand. The expeditious completion of phase one cost plan previously described is enabling us to complete a phase two cost action plan which should be developed within 30 days. We believe that these cost controls will enable Honeywell to respond to deteriorating market and economic condition as the full impact of the COVID-19 pandemic becomes apparent. Finally, let's discuss how we're optimizing working capital to match demand in the current environment. We have a solid governance model around cash management and working capital, and we executed a comprehensive risk assessment for customers and suppliers to preserve our strong cash position. We reviewed the policies for the highest risk and top revenue customers to make sure we have the appropriate parameters in place to protect our accounts receivable, and we implement tighter exception criteria and enhance executive leadership team review and approval. Additionally, we also set up processes to identify and assess high risk suppliers. We train and mobilize over 600 procurement professionals to contact suppliers and take their financial temperature. Many suppliers have already received essential help to keep their doors open and the products and services flowing through Honeywell's factories. Having agile supply chain processes is more important than ever to manage our expenses and cash investments. Therefore, we condense our sales, inventory, and operations planning process from a traditional monthly cycle to a weekly cycle. Combining this with sales leading indicators, we are sensing demand changes and realigning our inventory and production schedules faster than ever. Together, the actions we have implemented across the company have positioned Honeywell to effectively manage through uncertain times and will confident our continued execution resilience. Let's turn to slide 9 to discuss our repositioning plan in more detail. As you would expect from us, we are accelerating plans for permanent cost reductions to ensure our cost base reflects the macroeconomic environment, particularly in aerospace and PMT, where we see the end market challenges we have discussed this morning. We have ample capacity for repositioning the second quarter and we are planning for a net reposition of $175 to $275 million. Our actions this year will provide cost reduction tails into 2021 and are proactively preparing a phase 2 plan which we will likely deploy as we assess market conditions. Now looking at slide 10, let me take a moment to share some of the emerging areas of demand that we are addressing for our customers. In the healthcare space, we see opportunities across multiple businesses. We are increasing production of sensors for medical ventilators and are sensing an IoT business. Our research chemicals business is supporting scientists around the world in their research, development and production of COVID-19 test kits, therapies and vaccines by prioritizing and ramping production of high quality analytical products that meet their application needs. We are offering expedited support services to our pharmaceutical and biopharmaceutical customers in our Aclart business to help facilitate faster healthcare packaging decisions for COVID-19 oral solid medicine. We have already mentioned that many actions we are taking to meet increased demands for personal protective equipment including masks, eyewear and face shields. In both building technologies and process solutions, we see strong demand for cybersecurity and advanced remote access and monitoring for buildings and plants as people increasingly work from remote locations. Also in HPT, we have a suite of healthy building capabilities ready to deploy for customers or focused on the health and well-being of the building's occupants. In SPS, there's strong demand for warehouse automation and supply chain analytics driven by surging e-commerce. And finally, in aerospace, as passengers return to normal flying behaviors, the newly increased passenger health and safety, which dovetails nicely by leadership in environmental control systems for aircraft. We're also offering creative solutions to airlines and airports to protect passengers and to restore confidence in flying. So although the macro environment is creating challenges, it is also creating new customer needs that we're well equipped to address. With that, let's wrap up on slide 11. This quarter represents the first of what will be some challenging times ahead. We exceeded our segment profit, segment margin and earnings commitment, EPS growth of 15% despite the substantial challenges we faced. We remain cautious as the magnitude and final impact of COVID-19 pandemic and OPEC plus dispute is unknown. As a result, there's significant uncertainty around commercial aerospace, oil and gas and short cycle demand, which we expect will meaningful impact the second quarter. However, we have a diversified portfolio and significant balance sheet strength to provide resilience in these uncertain times. We acted quickly and prudently to ensure the health and safety of our employees continuing to serve our customers and protecting our shareholders in response to the COVID-19 pandemic. We took decisive actions to reduce our cost base, optimize working capital, and further bolster our strong balance sheet liquidity. We continue to actively monitor the COVID-19 impact on our operations and we're confident in our ability to manage through the market volatility. We're playing a critical role in keeping medical professionals safe through expanded production of N95 masks, other PPE, sensor for medical equipment, ventilators, and new production of hand sanitizer. Despite the challenging times, we remain committed to strategic initiatives in the Honeywell Connected Enterprise, Supply Chain Transformation, and Honeywell Digital. And we continue investing in our future through breakthrough initiatives, new product introductions, next generation innovation across our entire portfolio. I am proud of everyone at Honeywell who's working hard to adapt and deliver this challenging environment. I am confident we will emerge from this crisis even stronger than ever. With that, Mark, let's move to Q&A.

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

And the floor is now open for questions. At this time, if you have a question or a comment, please press star one on your touchtone telephone. If at any point your question has been answered, you may remove yourself from the queue by pressing star two. We ask that when you pose your question, you please pick up your handset. Our first question will come from Steve Tusa with JPMorgan. Please go ahead.

Hey, guys. Good morning. Morning, Steve.

So just on kind of the second quarter color, I appreciate that. You guys have a gross margin of around, you know, kind of mid-30s or whatever it is. Should we expect because of the significant, you know, kind of drop off here that and a little bit more of a back half waiting on these cost saves that you decremented kind of a little bit more than that on a headline kind of segment profit basis in 2Q? Just trying to kind of get an idea of the rough deleveraging you're kind of expecting in the business. Is there anything in the mix, you know, that would move that around? Just curious on that front. And then would you expect that that is, you know, kind of the low point of the year given that, you know, this this should kind of all this economic stuff should begin to kind of heal a bit and then the cost saves come in?

Yeah, Steve, a couple of that. I mean, in terms of Q2, yeah, I mean, I think we expect the worst decrementals for the year in Q2. I mean, you know, obviously we're in the middle of some cost actions. We're doing that. You know, we expect Q2 to be the most depressed from a GDP perspective or sort of underlying assumptions here. And I and I emphasize the word assumptions is that, you know, GDP Q2 will be the worst improving Q3 and improving Q4. So obviously our margins will kind of follow that trend. Q2 will be the bottom. We expect some level of improvement Q3 and further in Q4. That's sort of the overall trend. You know, we can't give a level of precision on this because obviously some of the cost actions timing of that, you know, that's still a little bit not totally within our control. And, you know, we're taking aggressive actions, not just with the phase one that was discussed, but we're also looking in phase two, which is going to be deployed. Well, finalized and deployed within the next 60 days for certain.

Got it. So I guess you're not really kind of commenting on something you could hold around that, maybe a little bit higher than that gross margin rate just kind of help frame us for that. Frame that for us.

Well, I mean, clearly our Q2 decadence will

be worse. I mean, that's, you know, and then they'll start improving for that. I don't know that I can give you any more precision than that. I mean, it's OK. Otherwise, we essentially providing guidance.

Right. And then just on the buyback, you guys talked about kind of completing your 2020 program, but obviously your balance sheet is in good shape. I mean, I don't know where you bought back the stock this quarter, but are you do you have kind of capacity and are you willing that as you get better visibility on the second half that, you know, you could be opportunistic in the event, you know, things pull back again?

Yeah, I mean, you know, obviously we have the liquidity and cash is not a concern for us. I mean, given our position balance sheet, you know, the term loan we took on. So, I mean, we, you know, we have a lot of optionality in the second half. I mean, I wouldn't expect much in the second quarter. I mean, I think this is the time to kind of assess the situation, see what's happening, see what's going on in the medical arena, see if the markets are turning around. So, you know, I wouldn't expect much here in the Q2 timeframe, but, you know, we have a lot of optionality in the second half to potentially get back in the market. But we'll see, you know, I think that we're going to kind of hold on, tap on the brakes here in Q2, see what happens, implement both our growth plans, and I emphasize that growth plans because I think that there are some opportunities even this crisis. Obviously also execute the cost plans as well because that's what you have to do in this environment is yield reality. And then we'll relook at capital allocation as it relates to buybacks and so on as we move into Q3 and beyond.

Got it. We're sorry, one more way to go about this. For the year, are the costs saved enough to kind of Is that kind of what these, what kind of the cost saves are aimed to do?

Yeah, I think it's too early to tell Steve because we still haven't fully quantified the phase two impact.

And we don't want, we don't know what the revenue reduction is going to be. Yeah.

So the problem with giving you numbers here is that we're operating with two or three different variables, all of which could move dramatically. So then you get down to a guess and, you know, Honeywell, we don't guess. I mean, when we say something, we do it, which was evidenced by our Q1 delivery of segment profit.

Appreciate it. I had to

try. Thanks a lot.

Yeah. Thanks,

Steve. Our next question will come from Scott Davis with Melious Research. Please go ahead.

Good morning,

guys.

Good morning, Scott. Morning, Scott.

Everybody surviving okay? I could hear your voice at least. In

and in there.

There it is. Yeah. Anyways, I, good. I guess just a little bit of follow up on the balance sheet question from Steve. I mean, you're in a great position and, you know, buybacks is one element, but M&A is another. Is there an active pipeline you can continue to work? Is it just too impossible to even think about doing deals right now? Or is that something maybe for later in the year, just some thoughts on that?

Yeah. Well, I mean, as you can imagine, a lot of the M&A activity is kind of a little bit of on pause. You know, I think, you know, as being a buyer, that's probably a good thing. Because I don't want to necessarily be buying off of 2019 comps. I don't think that that makes a lot of sense. But, you know, given our balance sheet, which is in great position, yeah, I think this is an area which could be an opportunity in the second half of the year. I think the valuation should and will change. I mean, that's pretty obvious. But, you know, whenever you have a sudden change in economic conditions like we do now, which really flipped, you know, I mean, they literally flipped from the beginning of March, the end of March, we're sitting in a dramatically different position. It takes a little bit of time of reality for sellers to sink in, terms of what the valuation should be. I mean, everybody still wants to value their business off of 2019 figures. And that just isn't realistic anymore. And you kind of have to look forward, rather than look backward.

Yeah, I could not agree more. Just a point of clarification. You've, you know, you've got this 1.1 to $1.3 billion cost down, that looks like it's more of kind of a should we think about those as kind of more short term and then the repositioning is the structural stuff? Is there any way to reconcile as part of that cost out into 1.1 to 1.3?

Yeah, let me give you a little color on that, which is don't think of it as mostly short term. Think about that 1.1 to 1.3, 30 to 40% of it is roughly short term, but the rest of it is, permanent. So that's, it's not, it's not all just short term stuff. And I think you should think about the phase two actions. It's not all permanent, but majority permanent.

Super helpful. Okay, good luck, guys. Thank you. Thank you.

Our next question will come from Andrew Oben with Bank of America. Hi,

yes, good morning. Morning,

Andrew.

Just a question on aerospace. 25% decline in second quarter, I think quite a bit better than a lot of the peers that have guided. More

than, just Andrew, more than 25%. Yeah, it's not a 25, it's more than.

More than 25%. So I'm just trying to figure, I think your peers have sort of been guiding more, you know, 30s, 40s, 50s. So just any color between the pieces within aerospace, what's happening into the second quarter, and I know you have provided some. And also, how does it work out sequentially through the year? Is the second quarter the bottom, or is it going to get worse?

So, you know, what you're seeing for us, of course, is that we've got 40% roughly of our aerospace businesses, defense and space, and that's continuing to grow. It grew 7% in the first quarter, and we see a nice growth trajectory in Q2 as well. And it really is in the commercial side of the business that we're going to see a substantial acceleration of that growth rate coming down. So, and again, relative to the back half of the year, as Darius described, we expect the second quarter to be the worst it's going to get, but to be honest, we don't really know. And that's, again, part of the reason why we're not giving full year guidance. We're telling you the best we can see here out in the very short term, 90 days, and all of the aspects of what happens with the health crisis, when do people go back and fly again. You know, that is not something that is very clear to anyone, including us. Yeah, and just to add to that, I mean- Just

follow up on free cash flow. A, you know, any big one-time items that kept cash flow down year over year and ability to release working capital down the line. Thank you very much.

It was mostly receivables. Our collections were down year on year. Again, particularly as you got down to the last few weeks of March, they slowed dramatically. You can imagine there were payments, you know, and other customers are beginning to get a little bit skittish with their payments as well. So that's really the major story for the quarter. And we absolutely are going to do all the things Darius described on working capital, including readjusting our supply plans to these new realities from, you know, from the standpoint of our inventory plan, and that's going on as we speak.

Thank you. Thanks, Andrew.

And next we'll hear from Julian Mitchell with Barclays. Go

ahead. Hi, good morning. Maybe just the first- Maybe just the first question around the SPS segment. So I think it's the one segment where it looks like you're guiding for a narrower decline, perhaps in the second quarter, year on year versus what was seen in the first quarter. Just wanted to check that's correct. And then within that, understood that integrated is a swing factor going from minus to plus year on year in Q2. Maybe help us understand your assumptions about the rest of SPS in terms of safety and the rest of productivity solutions and whether what you're seeing already in April does tally up with that down of a 5% guide.

Yeah, I mean, you know, in SPS, I mean, you think you should think about a couple of businesses, you know, accelerating for the next couple of quarters, one being IntelliGraded. I mean, we, you know, our backlog there is tremendous and continues to grow. So that's, we expect to see growth in IntelliGraded. Obviously, that demand on e-commerce is going to become more acute, not less acute. And we have an order's positions and a backlog, and even our front log that looks extraordinarily appealing. So that's a business. Obviously, we've captured a tremendous amount of business in PP&E. That's, and that business is going to accelerate more or less every single month as we move forward through the year. So we expect to see growth, you know, and then modest to either modest decline in some of the other businesses, you know, although sensing and IoT will see growth in some of the healthcare-oriented sensors. There are other segments that it's exposed to, like aerospace, that are obviously going to be declined. So that's going to be, you know, our productivity products business. Kind of low single digit kind of decline is kind of what we're expecting. You know, some of those segments are going to do pretty well. Transportation, logistics and healthcare retail is not. So that's kind of how we see that one. So overall, I mean, we do expect SPS for the year to be our healthiest and strongest SPG. And, you know, I think it's, you know, we could even see growth in that SPG even this year.

Very helpful. Thank you. And my second question, maybe just a broader one, not so much Q2, but a broader one around the PMT segment. That segment managed to ride the 15-16 energy downturn remarkably well. Just wondered if you saw more pressure maybe in this downturn versus that one because of the aspect around gasoline consumption being down in different markets and maybe more pressure as well in process solutions because of extra mid and downstream capex cuts and how much of the fixed cost out, maybe something from Torson is on that, can help in PMT offset this severe revenue drop?

Yeah, well, yeah, it's, you know, PMT is going to be challenged for the segments that are oil and gas oriented. And obviously, we have exposure in both UOP and NHPS. You know, I remember the 15-16s because I ran that business at that time. It wasn't that much fun. But, you know, I do worry about a couple of factors here. The first one is there's just no demand. I mean, if you think about, you know, what comes out of refinery, whether it's jet fuel, whether it's gasoline, so on, the world needs to go back to work and start functioning again because no one is flying. Very few countries in the world are reopening, so there's very little gasoline and fuel consumption. Price of oil is highly depressed. If you look at, if I remember correctly, the lowest price of oil that I seem to recall back in the 15-16 timeframe was about $27-28 a barrel. You know, we're substantially south of that. So it's going to be a challenging time for PMT. And, you know, we're going to be taking some, we already are taking and we'll be taking even more cost reductions to align with demand. And, you know, you even heard some recent announcements as early as today with Exxon and Chevron further cutting back capex. So, you know, we have to adjust to the reality of today and focus on a lot of our services and a lot of our digital business to drive growth and the segments that are still growing because we do participate in the pharma segment. We have some play in food and beverage, pharmaceuticals and so on. So, you know, it's not all doom and gloom, but clearly it's going to be a challenge time for PMT for a portion of that business, not the entire business. And we have to align that reality and adjust our call space to what we

anticipate will be. Great. Thank you. Thank you.

Next, we'll hear from Jeff Sprague with Vertical Research. Please go ahead.

Hey, thank you. Good morning, everyone. Just a couple quick ones from me if I could. First, just back on the cost reduction actions. The $375 to $500 million of restructuring actions is the same figure that you used back in January, but now we're looking at this additional $1.1 to $1.3 billion of cost of which 60 to 70% is structural. It would seem to me that that does require a heavier lift on actual restructuring spend. So could you just kind of line that up for me and then provide a little bit more color on what the phase two might actually be?

Sure. So, Jeff, a couple things. Number one, the, you know, the $1.1 to $1.3, about $200 million of is carryover restructuring from the prior year, so it's not 100% incremental. And you're right. We guided a pretty sizable repositioning capacity as we always do because we're always building pipelines around repositioning. That's been one of the things that's continued to, you know, feed our productivity delivery over many, many years. And so what you're seeing here is we just accelerated a substantial amount of that into the first quarter and the second quarter mainly to drive, you know, direct and indirect cost reductions to combat this situation. So that capacity has always been there to deal with the pipeline as it gets created. We've just now deployed it or are about to deploy it into some very specific things around direct and indirect cost reductions in the near term.

Yeah. And then maybe just one other thing to add to that is, a portion of that cost savings is also in indirect costs. So as we think about 2021, obviously, as you reduce your indirect costs, that doesn't require really much of any restructuring. So we don't anticipate going back to 2019, indirect spending levels in 2021. That's probably not realistic. So part of that savings that we'll see is going to list through in 2021. And it's going to be someplace between what we're going to come back in 2020 and, you know, what it was in 2019. So part of that is going to be a carryover.

And when you think about this phase two, is this thing that you had really already on the shelf Torsten was working on? And this is also just a, you know, a significant acceleration or you just reflect kind of a new broader reevaluation of, you know, just your cost structure and the current situation.

No, I mean, you know, look, we wanted to do back all the way in the March timeframe is react quickly and decisively because the world really changed in the month of March. So our phase one plan was things that we could do very quickly, very decisively, some moving up, some restructuring, you know, some of the reduced work weeks, pay reductions, you know, all those kinds of things. The phase two stuff is because we don't think that things like aerospace are going to return to normal next year. I mean, I don't know if it's a two year window or three year window. You've heard others applying on that, but I don't think that that's a short term. So particularly in aerospace and PMT, we're going to have to align our cost base to the realities of what we're likely to experience in 2021 and hopefully not beyond, but maybe beyond. So phase two is I would say a further realization of what the markets may look like in the future and our realignment of cost base, more of a permanent realignment to adjust to that reality.

Let's just another real quick follow up just on ERO. You gave us the flight hour numbers. I mean, typically we think of some kind of multiplier to that. Can you maybe give us a little color, like just what the last six weeks have looked like in aftermarket? I would assume it's tracking down more than those flight hour declines, but hard to tell obviously from my seat.

Yeah, I would say Jeff from an aftermarket perspective, it's definitely accelerated in the first, I would say the last six weeks for sure. I mean, the end of March in particular started to see some pretty substantial slowdown. So when we think about it in the second quarter, we're going to have some substantial reductions, probably greater than the flight hour reductions that I mentioned earlier in the discussion. So probably greater than 50% types of aftermarket down in the ATR segment in particular.

All right, thanks for the color. Best of luck.

Next we'll hear from Nigel Coe with Wolf Research. Please go ahead.

Thanks, good morning. I think this is a question for Greg, but this is strategic as well. But obviously you've got a fair amount of exposure to some fairly distressed customers, airlines, commercial aero customers, refineries, et cetera. So how are you thinking about collectability, credit risk, and also pricing? Are you seeing significant concessions on pricing, requests for pricing, concessions, and then how you deal with that? Thanks.

Yeah, so I can tell you that we are in active dialogue with our customer base and particularly in those two segments as you mentioned, because they are hurting. So their customers are coming back to us and talking with us about ways in which we can work together to ensure that they're able to navigate through this environment. And so we're going through what you would expect a Plin company to do. We're doing not only direct dialogue with some of those larger customers, but we're also doing a substantially deeper credit risk assessment on our whole portfolio. And in cases where we need to do things like pay before shipments or require cash before orders are taken, we're doing it. But that's a nuanced strategy because you've got to be dealing with. So it's an ongoing activity. I will tell you that it's got the senior most leadership attention. These are not decisions that are being taken down in low levels of the organization. Each of the SBG presidents and CFOs and Daris and myself are having direct dialogue on some of these larger customers in particular. So it's going to be a challenge. There's no doubt it. I don't think we've seen the impact in the markets yet of what could happen from solvency risk standpoint. And I think that's yet to play out. But we're taking appropriate actions as you would expect us to go do to manage through that.

That's great. And then a follow-up to that, a lot of companies have pulled their earnings guidance. But some of them are pined on free cash flow. And obviously the biggest input into free cash flow is earnings. But can you describe some of the leaders you're calling on working capital and some initiatives to maybe drive free cash flow conversion higher over the boundary this year?

Yeah, the two biggest areas we're focusing on, as you can imagine, is inventory and receivables. So we've got full court press on with our receivables teams and the SBGs, as I mentioned, to make sure that our collections activities are robust. And then Torsten and his team, as Daris highlighted, instituted a weekly executive signup all the way to the Honeywell level. And that's going to be a big focus for us. And I'll let maybe Torsten say a few words about what we're doing there.

Yeah, I mean, the main focus area is to make sure that we follow demand very, very closely and be very reactive and fast in our actions. I think that's the main change that we've instituted over the last couple of weeks. One

other thing, Nigel, though, I will tell you that we are not planning on cutting growth capex. We're in a strong cash position. Those projects are high return projects. I'm not planning on sacrificing the future just to cut back on capex. And that's probably something that we're going to continue to fund. Okay, thanks,

all of us. Good luck. Thank you. Thank you.

And next we'll hear from Dean Dre with RBC Capital Markets. Please go ahead.

Thank you. Good

morning, everyone.

Morning, Dean.

I appreciate hearing all the specifics on the Honeywell's COVID responses. Maybe just to pick up right where you left off, Daris, if you could, you said you wouldn't cut growth capex. But will there be any cuts to capex on the maybe maintenance capex? And could you back for us,

please? Yeah, I mean, there might be because obviously we're not operating our facilities as much as we do. Some of them are operating at reduced work hours. So obviously to align with some of the volumes that we're seeing, obviously the maintenance budgets might be a bit smaller. There might be some, you know, trends around some of the maintenance budgets. Just think that's totally aligned to production. But so there'll probably be some modest reductions in capex. But we are not planning on reducing investments in future growth and future NPI projects.

Yeah, and the N95 masks is a good example. I mean, you can imagine we're putting capital to work right now to go do that. So again, absolutely going back and scrubbing our capital plan and making the appropriate adjustments. But to Daris's point, meaning growth is going to continue to be funded.

That's real helpful. And then just last one for me, if we could talk a bit about potential secular changes, it might be a bit too early. But there's been a lot of discussion about reshoring and specifically shortening supply change and some of the sensitivities there. You've obviously responded with the increase in the N95 masks. But since we have Torsten here, maybe we can hear about how Honeywell is responding. Do you think reshoring of supply chains is something that will be a meaningful driver? And how's Honeywell getting positioned? Thanks.

Yeah, I think it is a little bit too early to tell at this juncture as to what we'll do. But you know, you have to remember that our strategy always has and is kind of a regional for regional or local for local production change. I mean, if anything, I'd like to accelerate that. I'd be really local for local. I mean, we're mostly there. And I think that's still very much the right strategy. You've got to produce in the countries in which you operate in leveraging those supply chains and operate locally. So I'm not sure that's a dramatic change from where we have been. If anything, it's probably an acceleration

of the strategy that we already had.

Great. Thank you. And best of luck to everyone. Thank you.

Next, we'll hear from Peter Arment with Baird. Please go ahead.

Yeah, thanks. Thanks. Good morning, Daris, Greg, Mark. Daris, yeah, and thank you for everything you're doing regarding all the mass and PPE stuff. It's really great. Just maybe a question on aerospace, just to circle back, more of a higher level question, but just, you know, the installed base of equipment and given the aftermarket is so important. You know, you've always been kind of how you're thinking about like aftermarket beyond this. I mean, do you think there's going to be some structural impairment because of the heavy retirement? Probably an unfair question, but I

just figured I'd give

a

shot. Yeah, well, I think, you know, a lot of that depends

upon how quickly we think the air traffic will return. And, you know, there's a little bit of a trade off. Well, airlines want to dispose of cash to acquire new aircraft, or will they want to operate currently to maintain cash flexibility and retain those cash? And then also the timing matters, too. So, you know, is that something we're thinking about? Sure, absolutely. Exactly. There's kind of two different theories. One theory is you retire more aircraft and bring in new ones, okay, because of the efficiencies and so on. That makes sense. But another theory is, okay, you may not want to necessarily as an airline part with a lot of cash and further spend it right now when you're in cash distressed states. So, you know, we'll see which way it goes. I think the most important thing to remember, and we're spending all our time and energy is providing solutions for airlines and even airports in terms of how we can regain passenger confidence to fly again. Because when people start sitting at home and when we finally start opening up the economies, the single most important thing that can happen for this industry is people gaining the confidence to fly again. And that's really where we're spending our time and energy.

Appreciate the details. Thanks again.

Thank you. And next we'll hear from Josh Porkowinski with Morgan Stanley. Go ahead.

Hi, good morning, all. Hey, Josh. Morning. First question. Yeah, can you hear me? Yes. Can you hear me? All right. Yes.

So I guess for a question, impact on of customer shutdowns and kind of this inability to do service or get on site with some folks. I appreciate that we're still kind of operating in some of these loose bands, but relative to that down greater than 15%, how much of that is just kind of an inability to get the work done, whether it's in the building or a finery, et cetera?

Yeah, Jess, it's actually it's really hard to parse it and be able to say for sure. I mean, we think we probably lost two to three points of growth in the first quarter due to some of these issues. And to be honest, it's not like I know what they're going to be. Until people movement becomes freer, we're going to struggle with service and project execution and the solutions businesses. While social distancing norms become clearer in the factories, that's going to have an influence over capacity and attendance and so on. But it's near impossible for us to put a number on that, which is partly why we shared the greater than down greater than this type of a number as opposed to some level of precision, because it's changing almost daily and it's different in every region of the country. It's going to be different in certain states in the US. So I wish I could provide you something more precise. But frankly, that's part of the reason why our level of visibility is precluding us from giving more precise guidance.

Understood. And then just to follow up on Jess's question on the aftermarket versus flight hours. If I think about past downturns in air traffic, any cannibalization risk that comes out the other side and kind of delays that recovery in your business relative to flight hours or do you tend to move in lockstep in both directions? I know everyone's product portfolio kind of lends itself to different exposures on that.

Well, I think there's just a lead lag effect, right? I mean, I think there is clearly a correlation on the aftermarket to the flight hours flown both on the EG and air transport side. There's probably a little bit of a delay in terms of a recurrence and growth in flight hours and that being exhibited in the aftermarket consumption. But other than that, I think that correlation is generally there. And as you see flight hours return, whether it's in the business segment or air transport, you should start to see aftermarket return probably with some lagging effects.

Yeah, I think as you described earlier, Deris, the bigger variable will be the new plane, old plane situation. If people are buying lots of new planes, that's going to have a different effect. If they're running the older equipment and not taking new deliveries, that's going to affect that as well. So these are some of the variables that we'll have to see how they play out here over the coming quarters.

Okay, thanks for the detail. Stay well, guys. To that, I will take one more question, please.

And we'll take our final question from Joe Ritchie with Goldman Sachs.

Please go ahead. Let's move on to the next one, please, Savannah.

Okay, and then we will hear from Sheila Kailhou with Jefferies. Please go ahead.

Good morning, everyone, and thanks for the time. Deris, on HBT, a large portion is exposed to commercial construction. What are you hearing from your customers in terms of service versus products? How are they doing? How do you think about a recovery? I think you noted you think it's a short-term demand issue. Do you think we see any sort of structural change for commercial demand?

No, I mean, to answer your second question first, I don't see any structural change for commercial demand. I mean, I actually think there's an opportunity of our HBT business because what CEO of any commercial building isn't going to want to provide a safer, cleaner environment for his or her employees? So I think that in terms of overall commercial construction, I don't see any structural change. Short-term is a little bit tougher to predict because, as you can imagine, throughout the world, you have different rules and regulations. Some regions, some states, some countries are allowing construction to keep going. Others have put more restrictions and it's not allowed. And as the world kind of comes back, we're going to have a little bit better visibility and actually access both to service some of these buildings as well as to provide products and solutions. So it's a bit of a mixed story, but it's more or less realigned to the world kind of returning to some level of normalcy. And it really varied throughout the world in terms of some places construction is moving, others it's in a paused state.

And then I guess my second question, maybe can you talk about what sort of recovery you're starting to see in Asia and China by segment? How quickly are some of these businesses coming back?

Yeah, I think it's a little bit of a mixed story and maybe I'll use China as an example. So as you imagine, in China, January and February were extraordinarily slow that the business was there wasn't really much of anything happening. March was better. March we saw a bounce back, which was encouraging. But April has been not horrible, but soft. I mean, think about negative single digit kind of business. So I think the assumption that China is back to normal, at least based only on the April data point may not be correct. Aviation is just starting to pick up in China. And this is a little bit of what I talked about before, which is we have to get the passenger comfortable to fly again, because just because you lift some of the restrictions, that doesn't mean that people are going to jump on airplanes the second day after that. So there's got to be a real level of focus and effort to make sure that they come back. And that's what we're working with a lot of our airport and airline customers on some of the solutions. And we have some really good ideas to help them think through that.

Okay, great.

Thanks for the color.

And that concludes today's question and answer session. At this time, I'd like to turn the conference back to Mr. Darius Adamczak for any additional or closing remarks.

I want to thank our

shareholders for their continued support of Honeywell. These are challenging and uncertain times for all and remain focused on continuing to perform for our shareholders, our customers and our employees. While we cannot predict how the COVID-19 pandemic will ultimately impact our business and the global economy, we are well positioned to weather the storm with a balanced portfolio, track record of execution and strong balance sheet. We've managed to answer in times before and we'll do so again. The 2020 will be challenging. I continue to be excited about the future for Honeywell. Our operational rigor will serve us well given the near-term economic outlook. Thank you all for listening and please stay safe and healthy.