Honeywell International Inc.

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

Thank you, Lauren. Good morning, and welcome to Honeywell's second 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. This call in 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 cost action 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 second quarter of 2020 and share our views on the third 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. Let's begin on slide two. The second quarter was one of the most challenging quarters Honeywell has ever faced. The widespread repercussions of the COVID-19 pandemic and oil price volatility impacted many of our businesses and in markets. There are a number of factors beyond our control in the current environment. We are laser-focused on the drivers of value that we can control. In the second quarter, we made numerous investments in newly emerging growth opportunities. We aggressively managed costs to protect margins, and we generated very strong cash flows. We delivered adjusted EPS of $1.26 in the quarter on sales that were down 18% organically, consistent with the greater than 15% organic sales decline we signaled in May. Our Phase I cost plans delivered approximately $500 million of year-on-year benefit in the second quarter, and we completed planning for a Phase II plan. These actions helped us protect margins, limiting our decremental margins in the quarter to only 33%. In fact, we were actually able to expand segment margin in two of our four segments. Despite the challenging macroeconomic conditions, we generated $1.3 billion of free cash flow driven by cost actions and customer collections, resulting in adjusted free cash flow conversion of 140%. We prudently deployed approximately $900 million of cash, primarily to dividends and CapEx investments. We committed approximately $250 million of incremental growth capital expenditures compared to our previous allocated budget for new projects to accelerate investments in safety products, integrated and other growth opportunities. These are high return investments expected to generate triple-digit IRRs. Let's turn to slide three to discuss the work we've done to pivot our business given the current environment and emerging customer needs. I am proud of the quick mobilization by employees throughout the company to rapidly innovate and provide solutions for both urgent and long-term customer needs. To address the urgent need for PPE, we are significantly growing our personal protective equipment business. We've expanded face mask productions, and specifically our N95 and equivalent mask production in Arizona, Rhode Island, the United Kingdom, India, the UAE, and China. In the UK, we created a new manufacturing line capable of producing a significant amount of masks at our new house site in Scotland, which will assist the UK government's response to the COVID-19 pandemic and as well as serve the European region. In addition to our expansion of United States, India, and China capacity, we have added capacity in the UAE. We're a partner of Strata Manufacturing, a subsidiary of Abu Dhabi State Fund Mubabala Investment Company, to produce N95 masks. Beyond masks and other PP&E, we are innovating to provide creative solutions for new areas of customer demand. We recently announced our partnership with SAP to create a joint cloud-based solution to improve building performance based on Honeywell Forge and the SAP Cloud Platform. Building owners often need to pull data from disparate sources that are not normalized, making it extremely difficult to determine the true efficiency and utilization of their portfolios. The Honeywell Forge and SAP Cloud for Real Estate solution will streamline and combine operational and business data, enabling customers to benefit from building performance optimization, including reduced carbon footprint and lower energy costs, as well as improved tenant experience. This will be especially useful as buildings come back online in the midst of the COVID-19 pandemic and economic crisis. as building owners are expected to focus on key performance indicators tied to enhanced occupant safety and reduced operating costs. We have also launched an integrated set of healthy building solutions to help building owners improve the health of their building environments, operate more cleanly and safely, comply with social distancing policies, and help reassure occupants that it is safe to return to the workplace. We are partnering with pharmaceutical and biotech customers in our Aclar Healthcare Packaging business to develop innovative packaging solutions for future COVID-19 therapies and vaccines. We have launched new bottles and vials called Aclar Edge that enable ultra-high moisture barrier without the limitations of glass. We have also launched a Honeywell Thermal Rebellion temperature monitoring solution which can be rapidly deployed at the entry of a factory, airport, distribution center, stadium, or other commercial buildings to quickly and efficiently identify whether personnel exhibit an elevated temperature using advanced infrared imaging technology and artificial intelligence algorithms. In aerospace, we are helping to provide a safer and healthier travel experience with an ultraviolet cabin cleaning system. The Honeywell UV cabin system can treat an aircraft cabin in less than 10 minutes for just a few dollars per flight for midsize to large airline fleets, significantly reducing certain viruses and bacteria on cabin surfaces. I am very proud of the part we are playing to keep people safe and healthy by providing new solutions for urgent customer needs. We remain committed to continuing Honeywell's long legacy of innovation. We will continue to invest in our future in good times and bad. We also recently formed new business units dedicated to advancing our position in growing industries for sustainable energy and unmanned aerial systems. Our new sustainable technology solutions business in PMT will develop and commercialize new technologies that will help meet the growing demand for solutions that accelerate the path to a low-carbon economy. This includes growth opportunities in the plastic circular economy, energy storage, gas decarbonization, and renewable fuels. In aerospace, our new unmanned aerial systems business has continued to introduce new, innovative products for this exciting market and recently conducted in-flight testing of sensors that will guide urban air mobility vehicles to land without pilot intervention. These are challenging times for all, and we are rapidly addressing our end market and customer needs through innovation and mobilization of resources across the organization. Finally, I'd like to make a few comments about our commitment to diversity, inclusion, and equality. Let me be clear. We will never tolerate racism at Honeywell. Fully embracing the principles of diversity, inclusion, and equality in treating all employees with the utmost respect are requirements for working here. In addition, we are committed to the following actions. We'll continue to evolve our community relations programs and partnerships with key external organizations to promote diversity, equality, and opportunity for all. We will intensify our focus on the recruiting, retention, and development of women veterans, and minority groups. And we will continue to rigorously enforce our code of business conduct, which makes it explicit that there is zero tolerance specifically for racial discrimination. We recognize that these steps are a starting point, not an end, and we are committed to continuing to make progress. Now let me turn it over to Greg on slide four to discuss our second quarter results in more detail as well as to provide our views on the third quarter.