Honeywell International Inc.

Thank you for standing by and welcome to the Honeywell fourth quarter 2022 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. Please be advised that today's call is being recorded. I would now like to hand the call over to Sean Mecham, Vice President of Investor Relations. Please go ahead.

Thank you, Crystal. Good morning. and welcome to Honeywell's fourth quarter 2022 earnings and 2023 outlook conference call. On the call with me today are Chairman and CEO Darius Sadamchik, Senior Vice President and Chief Financial Officer Greg Lewis, President and Chief Operating Officer Vimal Kapoor, and Senior Vice President and General Counsel Ann Madden. This call and webcast, including any non-GAAP reconciliations, are available on our website at www.honeywell.com forward slash investor. Honeywell also uses our website as a means of disclosing information which may be of interest or material to our investors and for complying with disclosure obligations under Regulation FD. Accordingly, investors should monitor our investor relations website in addition to following our press releases, SEC filings, public conference calls, webcasts, and social media. Note that elements of this presentation contain forward-looking statements that are based on our best view of the world and of the 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. 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 fourth quarter and full year 2022 and discuss our 2023 outlook, including sharing our guidance for the first quarter of 2023 and full year 2023. 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, Sean, and good morning, everyone. Let's begin on slide two. The fourth quarter was another challenging one with supply chain constraints and inflation had to instill its play. But Honeywell's disciplined execution and differentiated solutions enable us to deliver on organic sales, segment margins, earnings, and free cash flow commitments. Organic sales were up 10% year-over-year, or up 11%, excluding the impact of the wind-down of operations in Russia, led by double-digit growth in commercial aviation, building products, advanced materials, and UOP businesses, a testament to the underlying strength we're seeing across our end markets, particularly in long-cycle businesses. The fourth quarter was another strong one for our backlog, which grew to a new record of $29.6 billion up 7% year-over-year, and 2% sequentially due to strength in aerospace and performance materials and technologies. Orders were also positive story in aero and PMP, leading to a 2% organic orders growth and 6% sequential growth in the fourth quarter. The tailwinds we'll continue to see in these two businesses gives us confidence in our 2023 outlook, which Greg and Vimo will share more detail about in a few minutes. Our segment margin expanded 150 basis points year-over-year, led by over 900 basis points of expansion safety and productivity solutions as volumes improved and we continued to stay ahead of the inflation curve through our strategic pricing actions. Excluding the year-over-year impact of our investment in Quantinium, the margin expansion was 180 basis points. Free cash flow was $2.1 billion in the fourth quarter, 125% adjusted conversion, down 18% year-over-year, but delivering in line with our original guidance for the year. Capital deployment in the fourth quarter was $2.3 billion, including $1.4 billion of share repurchases, bringing our full year total to $4.2 billion in shares repurchased and exceeding our goal of $4 billion from our March investor day. For the full year of 2022, we delivered outstanding results above the high end of our initial guidance for segment margin and adjusted earnings per share, despite approximately $2 billion in year-over-year top-line headwinds and constantly shifting macroeconomic conditions. We finished the year with 6% organic sales growth, 70 basis points of margin expansion, and $8.76 of adjusted earnings per share, up 9% year-over-year and above the top end of our original $8.70 guide. Orders ended the year up 8% on an organic basis, and our backlog reached an all-time high of $29.6 billion. We generated $4.9 billion of cash in the year, 14% of our revenue. The appendix of this presentation contains a slide highlighting our guidance progression through 2022, as well as our performance against these guys. Capital deployment for 2022 was $7.9 billion in total, in addition to the $4.2 billion in share repurchases, which lowered our weighted average share count by 2.5%. We deployed $800 million to high return capital expenditures and $200 million on closing the acquisition of U.S. Digital Design. Finally, we maintain our dividend growth policy, paying out $2.7 billion and raising our dividend for the 13th time in 12 years. As always, we continue to execute on our proven value creation framework, which is underpinned by our accelerator operating system. I am confident in the strength of our backlog and the tailwinds we're seeing across our end markets, and I'm proud of our ability to execute and drive shareholder value through the current challenging environment. Now let's turn to slide three to discuss an important development from the fourth quarter which further improved our company's strength for the future. In the fourth quarter, we announced the final court approval of our buyout agreement, the NARCA Trust, providing the elimination of our funding obligations in exchange for our $1.325 billion cash payment to the trust. This liability has been weighing on our balance sheet since 2002, one of the numbers of legacy liabilities the company has been carefully managing. We recognized the charge from the buyout in the fourth quarter, and the cash outflow took place in January. Partially offsetting the impact of the buyout is the sale of Harbison Locker International, the reorganized and renamed entity that emerged from the narco bankruptcy, which announced which announced it and will be acquired from the trust by private equity firm Platinum Equity. We expect this transaction to be completed later in 2023, reducing the net free cash flow impact by approximately $300 million. This development represents a significant improvement in our financial strength. Specifically, this simplifies our balance sheet by eliminating our evergreen funding obligations, eliminates quarterly asbestos charges related to NARCO, and extinguishes any further uncertainty on our company's financial health. Now let me turn over to Vimal to discuss our fourth quarter results in more detail on slide four.