Honeywell International Earnings Call Nuggets: Potential Stock Buybacks and the Repo Pipeline

Honeywell International, Inc. (NYSE:HON) recently reported its fourth quarter earnings and discussed the following topics in its earnings conference call.

Potential Stock Buybacks

Scott Davis – Barclays Capital: One of the things that you didn’t address in the presentation was (indiscernible) investment for 2013. I’m guessing since you don’t have to make the pension contribution you are probably sitting on a fair amount of cash at this point. I mean, what’s your thought on potentially buying back some stock or are there more deals out there like Thomas Russell that, if you could you comment on that?

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David M. Cote – Chairman and CEO: Well, couple of comments and I’ll turn it over to Dave. I think we did go through a bunch of that in the December call. Our plan really haven’t changed all that much. We’ve raised the dividend by 10%. We bought back some shares in December of last year. We’re saying, we’ll hold share count about flat with the fourth quarter of this year and as we’ve said in the past, as policy still hasn’t changed when it comes to acquisitions and additional repurchases we are going to be opportunistic about what do we think makes sense. So hasn’t really changed from what we said in December. Dave anything you want to add?

David J. Anderson – SVP and CFO: I would say absolutely we are on track for that, and obviously fund the Intermec acquisition during course of the year. The one thing I would just say is obviously is the acquisition pipeline continues to be attractive, we are going to continue to leverage our strong disciplines both in terms of price paid as well as execution and integration, but that looks good I think the share buyback is absolutely on track we are going to have over $1.3 billion in cash outflow for dividends in 2013 and obviously very positive feedback we are getting in terms of that continued rate of growth on the dividend. That’s really the story Scott.

Scott Davis – Barclays Capital: One of the highlights to me in the quarter, is the ACS margin and we talked about this I think for several quarters, things have been progressing really nicely there I mean, I don’t think in our model we had ACS margins over (indiscernible) until like 2016 or something at that pace. When you think about this quarter the 15.5 number you referenced kind of positive inflation impact and may be that has some impact, but help us understand what’s sustainable in that kind of over 15% level and what maybe more transitory or mix related?

David M. Cote – Chairman and CEO: Well for ACS none of this is transitory this is kind of consistent with that concept of evolution and everything that we do that we talked about is we are just going to keep steadily building on what we’ve done before so I fully expect ACS continues to increase their margin rates just like I expected in Aero, I expected in PMT and TS and total Company. So we’re not in a very sudden effect I can’t think of any transitory or one-time gains that we generally ever let fall through on anything, we tend to use those for repositioning. So, I’d say very sustainable. Dave, anything you want to add there.

David J. Anderson – SVP and CFO: Well, I just say that we have 14.1% margin for ACS for the year, which is a record. We are going to continue to build there. It’s really – we hope we are going to get a little more volume leverage that would be terrific. I mean, I think we would see really terrific conversion there, given everything that Roger and the team are doing on product category, on the cost side of the equation. So, you are going to see there is going to sequential differences. First quarter is going to be different than the fourth quarter, but when you look at really year-over-year, as Dave said, it’s a sustained improvement that we are really targeting and the business is confident that they are going to be able to deliver. In the formula, Scott, you know the formula that we are using.

Scott Davis – Barclays Capital: No, I think what I was specifically referencing as you do talk about inflation. So I am guessing that if there is a price cost spread that’s in there that has some sort of an impact that we wouldn’t want model that going forward. So I am not talking about one-time gains anything like that?

Elena Doom – VP, IR: Scott, the price – the cost side it’s actually slightly unfavorable, but ACS is mitigating that through strong material productivity and even building on the performance in the quarter there also offsets a negative mix of roughly 20, 30 basis points in the quarter. So, I think its productivity across the board both in terms of operational productivity and material productivity.

The Repo Pipeline

Nigel Coe – Morgan Stanley: Nice quarter. So, obviously, you alluded to the fact that you got a bit more contingency in the plan due to maybe where the FX rate is right now and some other factors such as pension, but obviously, given the conservative view on the year, but I’m wondering if we’re in a situation now where perhaps there has to be more good guys and bad guys as we go through the year, what is the – how does the repo pipeline look at this point and is the policy to accelerate repo this year, or maybe you flow it through next year or do you see the potential for maybe a balance between industrial and repo and perhaps upside to the plan?

David M. Cote – Chairman and CEO: Well, we always want flexibility on repositioning. We’re always looking at projects, but as you know, we’ve got over $300 million worth of projects that are already funded that we need to work our way through. So we like having the flexibility in the event that there is a really good idea that comes forward, but just executing on what we’ve already funded is going to be a real boost for us going forward. Now, I think we survived of those numbers for this year and I don’t know about 2014.

Elena Doom – VP, IR: Yeah, the incremental benefit that we’re assuming is roughly $150 million in 2013.

David M. Cote – Chairman and CEO: This year.

Nigel Coe – Morgan Stanley: Does that then flow through into ’14 as well? Is there an incremental into ’14 too?

Elena Doom – VP, IR: There is Nigel. Off the top of my head I don’t have and I think something we can provide, certainly in March.

David J. Anderson – SVP and CFO: Well, important thing maybe, Elena, just to add to that is we funded on a gross basis $120 million of repositioning in 2012.

David M. Cote – Chairman and CEO: Already on top of what we’ve done.

David J. Anderson – SVP and CFO: We already have done. So, and by the way some very attractive payback projects. So, what you’ll see Nigel, and we can follow-up on that, and clearly we’ll have more about that when we get together on March 6, that you are going to see they are strong there’ll continue to be strong incremental benefit that will flow into 2014.

Nigel Coe – Morgan Stanley: Then just digging into PMT margins. I was just wondering what impact the Thomas Russell acquisition had due to access in accounting in the quarter and you also mentioned unfavorable price rules and you guys have done a great job of mitigating the raw material volatility particularly within the resins business, and I am wondering has there been a change in the dynamic now where price becomes more of an impact going forward?

David M. Cote – Chairman and CEO: Well on Thomas Russell. We had obviously favorability in terms of I cited that when I talked about a recorded versus the organic sales contribution that Thomas Russell made, also Thomas Russell was actually accretive in the fourth quarter. We actually had it made a positive contribution we had talked about that earlier just in terms of the excitement that we have for the transaction both in terms of the tremendous complement that it gives to our current gas technology and gas positioning in UOP, but also what we think we can do to continue to leverage its strength, its market-based strength in terms of the financial performance. So we saw that in the fourth quarter. We are going to see it continue to benefit obviously in 2013.

Elena Doom – VP, IR: Margin rate – about 40 basis points in the quarter.

Nigel Coe – Morgan Stanley: On the price rules.

David M. Cote – Chairman and CEO: Well, (indiscernible) has been dealing with the decreasing spread throughout the year I don’t see the spread getting worst during the course of this year, but that’s something that they just work on managing going forward and like you said it’s become less, significantly less of an issue for us just in terms of how we manage the entire business so I don’t see it creating any issues for us this year.

A Closer Look: Honeywell International Earnings Cheat Sheet>>