Honeywell International Inc.

Good day, ladies and gentlemen, and welcome to Honeywell's third 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. Please go ahead, sir.

Thank you, Stephen. Good morning, and welcome to Honeywell's third 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 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 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 the 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 third quarter of 2020, share our guidance for the fourth quarter and full year 2020, and share some preliminary thoughts on 2021 dynamics. 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. In the past few months, we celebrated two significant milestones. First, we celebrated Honeywell's 100-year anniversary as a publicly traded company. We are proud of our longevity and long legacy of innovation. Since 1920, we have navigated the Great Depression, World War II, numerous political changes, the Great Recession, the emergence of disruptive technologies in every market we serve. The reason that Honeywell continues to thrive in all these years, plain and simple, has been our ability to adapt to an ever-changing world and to innovate. The long list of inventions from the last 100 years and our legacy of innovation endures today. For example, we're transforming the way our customers do business through Honeywell Forge, a cloud-based operating model. We are helping the world cope and recover from the effects of COVID-19 pandemic for a new portfolio of healthy solutions. In addition, we recently announced a breakthrough in the early era of quantum computing, the introduction of the system model H1, our next generation quantum computer, which offers a proven quantum value of 128, the highest measured in the industry. We also announced new users, including DHL and MERS, which demonstrate the wide range of quantum computing use cases. The second milestone we celebrated was our return to the Dow Jones Industrial Average. The S&P Dow Jones indices announced in August, Honeywell was previously a Dow component from 1925 to 2008. Our return to the Dow 12 years later reflects years of consistent performance and our ongoing transformation to the world's premier software industrial company. We are proud and honored to rejoin the group of companies that comprise the Dow. Both of these milestones serve as timely reminders of our long legacy of innovation and performance. Throughout our over 100-year history, we have continuously risen to the occasion to meet challenges, inventive new technologies, or committed to continue our legacy of innovation to shape the future of the next century. Let's turn the slide through to review our third quarter results. I'm very proud of our third quarter performance. We drove sequential improvements from the second quarter in sales, segment margin, and adjusted earnings per share. Although the COVID-19 pandemic continues to impact several of our businesses and end markets, we began to recover from second quarter lows through a laser focus on demand generation, operational execution, cost management, and our COVID-related new solutions. We delivered adjusted EPS of $1.56 in the third quarter, down 25 year-over-year, a 15-point sequential improvement from adjusted EPS of $1.26 in the second quarter, which was down 40% year-over-year. Organic sales were down 14%, better than the more than 15% organic sales decline we expected in July, and a four-point sequential improvement from the 18% organic sales decline in the second quarter. Our cost plans delivered approximately $450 million of year-on-year benefits in the third quarter. These actions helped us protect margins, limiting our decremental margins in the third quarter to only 29%, an improvement from 33% in the second quarter. Segment margins contracted 130 basis points, also an improvement from the 280 basis point contraction in the second quarter. driven by another quarter of margin expansion, both honeywell building technologies and safety and productivity solutions. We generated $758 million of free cash flow, down from $1.3 billion in the second quarter. As we discussed in July, we expected these cash flow dynamics, which were the result of working capital reductions in the second quarter and higher repositioning cash outflows and CapEx growth investments in the third quarter. In terms of capital, we deployed approximately $1 billion of cash to dividend, growth CapEx investments, and share repurchases. Additionally, we announced our 11th consecutive dividend increase, underscoring our commitment to returning value to share owners even during the current economic downturn. Let's turn the slide forward to discuss our recent corporate development activities. I'm very excited about our recent announcement that we recently completed two acquisitions and established key partnerships to further drive innovation, strengthen our portfolio, and invest in the future. First, we acquired Rocky Research, a technology leader specializing in thermal, energy, and power management solutions. This acquisition will expand our broad existing aerospace portfolio and position us with an advanced capability in the fast-growing power and thermal management market. which is critical to the growing need for aircraft electrification, unmanned and autonomous aerial vehicles, and related systems. We also acquired assets from privately held Ballard unmanned systems that extends our presence into the hydrogen fuel cell market for unmanned aerial systems and strengthens our urban air mobility product portfolio. Ballard unmanned systems designs and produces industry-leading, stored hydrogen proton exchange membrane fuel cell systems that power unmanned aerial systems, or UAS. In addition to the creation of the new business unit specifically dedicated to the UAS-UAM market earlier this year, this acquisition is yet another example of our commitment to invest in our UAS-UAM breakthrough initiative in a growing UAS market. I'm also pleased that we announced a new partnership between Honeywell and Microsoft that will reshape the industrial workplace. Honeywell Forge will integrate with Microsoft Dynamics Field Service to provide cloud-based predictive solutions to building owners and operators with closed-loop maintenance workflows, strengthening business continuity and improving operational efficiency. Moving forward, we're exploring more ways to bring innovation to customers by integrating Hanwha Ford solutions with Microsoft Azure services such as Azure Digital Twins or Azure Edge capabilities. We also announced a partnership with Werder, a global provider of critical digital infrastructure and continuity solutions to improve sustainability, resiliency, and operational performance for data center operations across the globe. We look forward to collaborating with Virta to offer integrated solutions that make it easier for data center operators to distill the mountains of data they pull from their equipment into actions that create more efficient and environmentally friendly operations. The first offering from our partnership will be an intelligent power management solution that features an energy resource management and supervisory control system in a single integrated platform. In total, we expect these investments in partnership to drive over $1.2 billion of sales over the next five years. There's a lot of great progress, and I'm pleased by the momentum in these areas. Now let me turn it over to Greg on slide five to discuss our third quarter results in more detail, as well as to provide our views on the fourth quarter.