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 touch-tone 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 And I would now like to introduce you to your host for today's conference, Mark Benza, 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 Adamczyk 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 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 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, Dariusz Adamczyk.

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've taken many precautions to preserve their well-being. Over 100,000 employees around the world result 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 with increased production of personal protective equipment and other critical supplies. This morning we'll discuss six key topics. 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 line 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 reflect years of responsible balance sheet management. Fifth, we will 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 aligned 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 OPEC Plus dispute also caused demand weakness, particularly in our short-cycle businesses and in the aerospace and oil and gas end 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-controlled 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 the 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 in the OPEC Plus dispute, but we effectively managed through the challenge to over-deliver our profit commitments, demonstrating our strong say-do.