漢威聯合 (HON) 2014 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to Honeywell's third-quarter 2014 earnings conference call.

(Operator Instructions)

As a reminder, this conference call is being recorded.

I would now like to introduce your host for today's conference, Elena Doom, Vice President of Investor Relations.

Thank you, Leo.

Good morning and welcome to Honeywell's third-quarter 2014 earnings conference call.

Here with me today are Chairman and CEO, Dave Cote; Senior Vice President and CFO Tom Szlosek.

Today's call and webcast, including any non-GAAP reconciliations, are available on our website at Honeywell.com/investor.

Note that elements of today's presentation do 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 and we would ask that you interpret them in that light.

We identify the principal risks and uncertainties that affect our performance in our Form 10-K and other SEC filings.

This morning we will review our financial results for the third quarter, share with you our outlook for the fourth quarter, and provide an initial framework for [2015].

Finally, we will have time for your questions.

So with that, I'll turn the call over to Dave Cote.

Good morning, all.

As I'm sure you've seen by now, Honeywell had another terrific quarter, with better than expected operational performance and sales margins and earnings all exceeding our guidance.

In the quarter, our organic sales growth accelerated to 5%, a continuation of the positive trend we've seen throughout the year.

Even more encouraging was the fact that we saw organic sales growth, broadly across the portfolio, in all our segments.

So it truly was a balanced contribution, highlighting great positions in good industries.

Our short-cycle order rates continue to trend positive, as we saw strong quarters from Energy, Safety & Security, and Transportation Systems, as well as continued improvement in Advanced Materials.

Our long-cycle businesses are maintaining robust backlogs, with strong orders and sales growth this quarter from UOP, Process Solutions, and Aerospace, giving us confidence in our outlook beyond this year.

Geographically, where, as you know, we are well diversified, we're seeing strength in the US, particularly in our residential and industrial markets.

As you know, we've been conservative over the years in our planning assumptions for Europe and that's been a good call.

China continues to be a strong market for us, both on the short- and long-cycle sides of the portfolio, and we saw double-digit increases this quarter in both the Middle East and India, reinforcing that our focus on high-growth regions is paying off.

EPS of $1.47 increased 19% year-over-year or 14% normalized for tax.

So another quarter double-digit EPS growth with earnings coming in above the high-end of our guidance range.

Our continued progress on the Honeywell Operating System, or HOS, and other key process initiatives are delivering meaningful growth and productivity benefits.

We're seed planting all the time to drive top- and bottom-line growth.

Complementing the balanced portfolio is our relentless focus on new products and technologies, which help us to differentiate.

Innovation remains the lifeblood of the organization and we continue to win big in the marketplace and we've got some really good stuff to talk about today because we're really excited about the Gulfstream new 600 and 500 series planes that were announced earlier this week.

We have several innovative Honeywell technologies onboard, including our avionics and mechanical portfolios; a sampling includes synthetic vision, wireless connectivity, cockpit avionics, traffic and 3-D airport maps, and our APUs and environmental controls.

We also have another first, the Gulfstream flight deck called Symmetry will include, for the first time ever, integrated Honeywell touchscreens that will be used for cockpit systems controls, flight management, communication, checklists, and monitoring weather and flight information.

This new approach reduces pilot workload, while improving communications in a more natural and intuitive way.

These new products are part of our Company-wide [Huey] initiative and reflect the most integrated and streamlined flight deck in business aviation.

Staying with Aerospace, in September, we announced that Bombardier business aircraft will be the launch business aircraft manufacturer for Honeywell Aerospace's JetWave Ka-Band satellite connectivity system.

Our JetWave hardware exclusively supports Inmarsat's forthcoming Jet Connex service, which when it goes live in 2015, will provide biz jet passengers with high-speed, in-flight connectivity virtually anywhere in the world.

To put it in perspective, this will allow passengers to videoconference, send and receive large files, and access streaming content while on the move by enabling them to access Inmarsat's service.

This exclusive high-speed connectivity will also enable us to differentiate our cockpits and mechanical systems through innovative data sharing and services, making aircraft and pilots more efficient.

In our Scanning & Mobility business, we're working with the United States Postal Service, one of the largest global mail carriers, to deploy more than 75,000 units of our next-generation mobile delivery device by year's end.

This custom branded mobile device is based on our market-leading mobile computing technology, the Dolphin 99EX.

Clever name, eh?

Used by postal carriers and mail processing employees, the device improves critical activities related to making on-time deliveries, including reliable tracking information, proof of delivery for priority mail, and postal route navigation support.

We're also excited about the growth we're seeing from Solstice, our new line of refrigerants, insulation materials, aerosols, and solvents that have global warming potential lower than CO2.

In September, at a White House event, we announced that we will increase production of Solstice products, and as a result, will drive a 50% reduction in our annual production of high GWP hydrofluorocarbons, or HFCs, on a CO2 equivalent basis, prior to 2020.

We project that the use of our Solstice products will eliminate more than 350 million metric tons of CO2 equivalent by 2025.

That's equal to removing 70 million cars from the road for one year.

And in mobile air conditioning, we've had significant wins from global customers and expect our sales to continue to ramp as Solstice helps customers meet CAFE standards in the US and the new MAC regulation in Europe, which goes into full effect in 2017.

So with increased order book for Solstice applications and the new capacity coming online, Fluorines is positioned for terrific growth in 2015.

If I take a look at where we stand for the year, with just about two months left, we're confident in our ability to deliver at high end of the guidance we set for this year last December.

As a reminder, we've stuck by our sales and earnings outlook all year, steadily increasing the low end of our pro-forma EPS guidance to reflect the strong year-to-date performance.

We're doing it again this quarter, raising the low end of our 2014 EPS guidance by $0.05 to $5.50 to $5.55.

That's up 11% to 12% year-over-year.

Not bad at all.

Turning to 2015, and you'll hear more from Tom on this, we're going to continue to remain conservative on the global economy.

We haven't counted on much from the macro environment historically, and so far that's been a good call.

We're confident in our continued to outperformance because, one, our portfolio is aligned to favorable trends like energy efficiency, clean energy generation, safety and security, urbanization, and customer productivity that continue trend positive; and two, we have been conservative on costs.

We're in the process of completing our annual operating plans, and overall, we see prospects for another good year in 2015.

As I mentioned already, we have a very healthy backlog and see positive order and win rates across the portfolio.

We're also expecting another year of margin expansion.

We're going to continue to executing on our key strategies for growth, including penetration in high-growth regions, and sustaining our investments in high ROI CapEx, and new products and technologies, while maintaining our cost discipline, and ensuring we deliver the savings from restructuring projects that we funded over the last few years.

Our strength of execution, as Honeywell in the past, [is] strong earnings growth and another year of outperformance in 2015, remaining on track to the long-term targets we gave you back in March.

So with that, I'll turn it over to Tom.

Thanks, Dave, and good morning.

On slide 4, let me walk you through the financial results for the third quarter.

As you can see, some very strong numbers, and every metric came in at or above the guidance we provided in July.

Sales of $10.1 billion were up 5% on a reported and organic basis and the growth was pervasive throughout the portfolio.

We'll dive into some of the business specifics in a moment, but we're encouraged by the improvement in organic sales growth as we progress throughout the year.

Remember it was 1% in the first quarter, 3% in the second quarter, and now 5% in the third quarter.

On a regional basis, organic sales were up 5% in the US, 1% in Europe, 4% in China, and double-digits in a number of our other high-growth regions.

In Europe, we have experienced stable growth rates in the first three quarters of the year, modest growth rates, which are very consistent with what we saw in 2012 and 2013.

We are planning more of the same for Europe in the fourth quarter and into 2015.

As for China, the growth was impacted by our deliberate shift of resins and chemicals exports to other parts of Southeast Asia, so excluding that, our China sales would have been up 7% in the quarter.

On a similar basis, we expect China to grow sales faster than GDP for the full year.

Segment profit growth and margin expansion were both strong in the quarter.

Segment profit increased 9%, while segment margins expanded 70 basis points to 17.4%, which by the way, is 20 basis points more than our guidance.

We had profit growth and margin expansion in each of our three SBGs, so again, a balanced contribution across the portfolio.

The business has benefited from higher volume in the quarter and productivity continues to be a key driver of margin expansion.

These elements more than offset inflation and our continued investments for growth in sales, marketing, and product development.

Items below segment profit were mostly as anticipated and so our net income increased 14% normalized for tax.

Not bad compared with a 5% sales increase.

Also, we funded $21 million of restructuring projects in the quarter, bringing the year-to-date total to approximately $120 million.

The third-quarter tax rate came in at 24.6% versus 27.2% in 2013 and versus the 26.5% we planned.

There are a number of moving parts that sometimes make the tax rates vary quarter-by-quarter; however, we continue to expect a tax rate of 26.5% for the full year, consistent with our initial planning.

So reported earnings per share of $1.47 in the quarter, up 19% versus the prior year, normalizing for tax EPS, would have been $1.43, up 14%, which is $0.01 above the high-end of the guidance we provided in July.

Even with essentially flat share count, we once again achieved double-digit EPS, driven primarily by stronger sales and segment margins.

Finally, free cash flow of $1 billion in the quarter was 12% higher than 2013, despite an approximate 28% increase in CapEx investments.

Overall, another strong quarter, giving us confidence heading into the last three months of the year.

Moving to slide 5, we are looking at Aerospace results, which as you will recall, include Transportation Systems in both years.

Aerospace sales were flat in the quarter on a reported basis, reflecting the Friction Materials divestiture, but were up 3% organically, which was at the high end of our guidance range.

Organic sales growth accelerated in both Commercial Aero and Defense & Space, while Transportation Systems saw continued strong top-line organic growth.

Aerospace margins expanded by 150 basis points, driven by productivity net of inflation, where material productivity continues to be a significant driver.

Also commercial excellence and the favorable impact of the Friction Materials divestiture.

Starting with Commercial OE, sales increased 5% with good growth in both Air Transport & Regional, as well as Business & General Aviation.

In ATR, we saw the continued benefit of higher OE build rates, while Business Aviation saw increased engine shipments coming with certifications on the Bombardier Challenger 350 and Embraer Legacy 500.

Commercial aircraft sales were up 2% the quarter, with strong spares growth in ATR.

ATR had double-digit spares growth, with increased mechanical and electrical demand across the major regions.

We're expecting the ATR aftermarket growth to be in line with flight hours in the fourth quarter and would characterize current airline buying activity as stable to modestly better.

The ATR spares growth was offset by anticipated lower repair and overall [hack] activity and a decline in BGA RMUs, that is retrofit modifications and upgrades.

You will recall that RMU sales growth has been on a tear for the last couple of years, making the comparisons to prior periods challenging.

We're still excited by this business and continue to invest to develop new offerings.

Defense & Space sales returned to growth in the quarter, increasing 3% and continue the improvement we've seen throughout 2014.

You might recall we were down 8% in the first quarter and 1% in the second quarter, so the trend, as we predicted, is improving.

International programs continue to drive growth, with double-digit sales increases, while our US DOD sales grew modestly, and government services declines continued to moderate on a year-over-year basis.

Transportation Systems sales declined 10% on a reported basis, again reflecting the Friction Materials divestiture, but were up 4% organically.

Once again, we saw strong Turbo volume growth across our three largest regions -- Europe, North America, and China -- and in each of these regions, our volume growth outpaced auto production.

Two-thirds of the volume growth was attributable to light vehicle gas applications, where we continued to see increased global penetration.

We also saw our European commercial vehicle volume more than double in the quarter, as we continue to benefit from new programs following the implementation of Euro 6 emission regulations in the region.

On slide 6, we're looking at ACS results for the quarter.

Sales were up 9% on a reported basis and 4% on an organic basis, again, at the high-end of our guidance.

The difference in the two rates principally reflects the contributions of Intermec.

ESS sales, so the products businesses, were up 6% organically, continuing the trend of progressively stronger growth we have seen in each quarter in 2014.

It's hard to single out one business in the ESS portfolio, because the growth was very broad, but Scanning & Mobility and Industrial Safety accelerated the most.

ESS benefited from new product introductions; higher US residential sales, which benefited both ECC and Security; US nonresidential improvement in ECC, Fire, and Industrial Safety; and further penetration in high-growth regions, particularly in China, where ESS once again had double-digit sales growth in the quarter.

Building Solutions & Distribution, or BSD sales, were up 2%, with continued strength in the Americas Fire and Security Distribution businesses, offset by flat sales in Building Solutions.

We are encouraged, however, as Building Solutions has seen an increase in North American service and energy retrofit orders.

Both the global solutions backlog and service banks are up handsomely from the same point last year, supporting our outlook for sales acceleration into 2015.

In the nonresidential sector, the trends are similar to the first half of the year.

In the ESS products businesses that serve nonresidential, we've continued to see modest growth in commercial products throughout the third quarter.

However, we did see an acceleration of growth on the industrial side, with strength in the Americas business particularly.

We anticipate further improvement in the fourth quarter and into 2015 on a commercial and industrial product side.

As for Building Solutions, I mentioned that the backlog in service banks are up year-over-year.

We continue to expect energy efficiency project to support global acceleration into next year.

ACS margins expanded 40 basis points to 15.9% in the quarter, and were up 50 basis points, excluding the minor dilution from M&A.

ACS continues to benefit from higher volume, commercial excellence, and productivity net of inflation, while also continuing to invest for future growth.

One such investment area is connected homes, where we are quite excited by the road map of future integrated offerings in heating, air-conditioning, security, and lighting controls; already we have more than one million Internet-connected devices.

Moving to slide 7, Performance Materials and Technology, PMT sales were $2.5 billion, up 7% organically, and were above the high-end of our guidance, driven by stronger than expected results in both UOP and Process Solutions.

UOP sales increased 8% in the quarter, driven by increased catalysts and gas processing sales, reflecting continued strong refining, petrochemical, and gas markets.

We continue to see strong orders trends in gas processing, particularly at Thomas Russell.

At the end of the third quarter, UOP's backlog stood at $2.6 billion, driven by strong customer adoptions of new technologies and investments in new capacity.

In Process Solutions, we are encouraged by the accelerated growth of 5%, driven by our Advanced Solutions software and service businesses, as well as higher sales in field products.

High-growth regions remain a huge priority for Process Solutions and they delivered double-digit sales growth from China, India, and the Middle East.

Orders growth also continued at a strong pace, continuing the second-quarter trends, and the HPS backlog is up nicely over the same point in 2013.

As we will preview later on, we're expecting the sales improvement in the second half of this year to continue into 2015 for HPS.

Advanced Materials sales increased 7% in the quarter, also continuing the trend we've seen throughout 2014.

We saw volume increases across the businesses, with particular strength in Fluorine Products, which was up double-digits, driven by new, low global warming potential products.

Segment margins in PMT were up 20 basis points to 17.5%, consistent with our expectations, driven by higher volume and productivity net of inflation, partially offset by price raw headwinds in resins and chemicals, and continued investments for growth.

HPS converted particularly well, continuing its successful business transformation, and benefiting from the growth I mentioned in higher-margin Advanced Solutions Software and services.

UOP continues also to deliver outstanding profitability.

Now I'm on slide 8 with a preview of the fourth quarter.

We're expecting sales of $10.3 billion to $10.4 billion, approximately flat reported, or up 3% on an organic basis, and again, this assumes a euro rate of $1.25 for the quarter.

As a reminder, we're facing a tougher set of comps in the fourth quarter, as organic sales were up 5% in the fourth quarter of 2013 versus only 1% in the third quarter of 2013.

Segment margins for the fourth quarter are expected to be up approximately 120 basis points, with pro-forma earnings in the range of $1.37 to $1.42 per share, up 10% to 15% versus the prior year.

As a reminder, we're still planning a full-year 2014 tax rate of 26.5%, so that implies the fourth-quarter tax rate to be approximately 28.8%.

For Aerospace, sales on a reported basis, are expected to be down approximately 3% reflecting the year-over-year absence of Friction Materials in the quarter.

On an organic basis, sales are expected to be up approximately 2%.

As a reminder, in the fourth quarter of 2013, Aero recognized a significant IP litigation settlement, resulting in a royalty gain of $63 million in Defense & Space, that was offset by OEM payments in BGA.

Both of these items were included and therefore netted out in sales and segment profit at the Aerospace level last year.

In the fourth quarter, commercial OE sales are expected to be up mid-teens on a reported basis, and that's mid-single digit, excluding the year-over-year impact I mentioned from the higher BGA/OEM payments.

The growth is driven by the favorable trend in demand for high-value business jet platforms, where we have significant new engine content.

Commercial aftermarket sales are expected to be up low single-digit in the quarter, with an improvement in airline and business jet repair and overhaul activity, as evidenced by the increase we've seen in shop receipts.

However, this strength will be partially offset by more modest spares growth, driven by declines in BGA RMU activity that I mentioned earlier.

Defense & Space sales are expected to be up slightly, excluding the impact of the royalty gain in the fourth quarter of 2013 I discussed earlier.

In Transportation Systems, we're expecting sales to be approximately flat on an organic basis, primarily due to a challenging comparison in the prior year.

You'll recall that in the fourth quarter of 2013, TS was up 15%.

We're expecting Transportation Systems to have good volume growth in the first quarter of 2015, driven primarily by new launches entering the market.

As for Aerospace margins, we expect an increase of approximately 200 basis points in the fourth quarter, driven by significant productivity improvements across the portfolio and commercial excellence.

Continued focus on driving productivity in direct material costs and the benefits from a functional transformation are helping to support the growth investments we're making in the business, as well as to drive the improvement in profitability.

For ACS, sales are expected to be up approximately 4% on an organic basis, excluding an approximate 2% headwind from FX.

We expect both ESS and BSD to grow in the low to mid-single digit range on an organic basis, supported by the trends we're seeing in our short-cycle order rates.

This is also supported by continued growth in our projects backlog and the service bank and building solutions that we mentioned earlier.

ACS margins are expected to be up approximately 60 basis points, with continued benefits from productivity net of inflation and commercial excellence, while accelerating investments for growth in new product areas, such as connected homes, and in high-growth regions.

In PMT, sales are expected to be up approximately 2% on an organic basis.

The strong and improving growth rates we have seen throughout the year across the PMT portfolio, including in the fourth quarter, are being temporarily offset by the previously signaled decline in UOP sales for the fourth quarter, in the range of 8% to 9%.

To remind you, we had an exceptionally strong fourth quarter in 2013 for UOP, where sales were up 17% organically.

Needless to say, a difficult comparison.

On the other hand, a higher mix of licensing revenue in the fourth quarter will result in a tailwind to UOP and PMT margins.

In HPS, the favorable orders and backlog growth will support fourth-quarter sales acceleration, which will also carry into 2015.

HPS margin expansion will also continue.

In Advanced Materials, we anticipate another quarter of broad sales growth; however, resins and chemicals will continue to face lower margins rates, exacerbated by planned plant outages and price/raws pressures.

Overall, PMT margins in the quarter are expected to be up approximately 60 basis points versus 2013, driven by UOP and HPS.

Let me move to slide 9, where I'd like to refresh everyone on our full-year outlook for 2014.

As you know, we take a conservative view on sales expectations.

This approach continues to serve us well because it forces us to also be prudent on our cost structure, so if sales grow better than our conservative expectations, we tend to do very well and I think 2014 demonstrates this.

Our sales are coming in a little better than where we planned, whereas we've raised our EPS guidance three times during the year.

And as Dave indicated, we are taking EPS guidance up a third time, this time to a range of $5.50 to $5.55, up 11% to 12% over 2013, so another year of double-digit earnings growth.

This is our planning model and we'll continue to follow it.

As you see on page, we've tightened our sales range to $40.3 billion to $40.4 billion, up approximately 3% to 4% versus the prior year.

And as for segment margins, we're expecting the full year to be approximately 17%, or up 70 basis points over 2013.

Again, this puts us at or above the high-end of the sales and margins guidance we shared with you last December.

The full-year outlook by individual segment is similar to what we shared in July.

Considering the performance year-to-date, we continue to feel confident in the [segment] margins for each business: 19.5% for Aero, 15% for ACS, and 18% for PMT.

Strong performance across the portfolio with every business contributing to the 70 basis points of segment margin expansion.

While there's still work to do to ensure we deliver 2014, we have commenced our 2015 planning.

On slides 10 and 11, I'll walk you through some of our key planning assumptions and initial thoughts by businesses.

While it's still early, slide 10 lays out some of our current views.

From a macro perspective, we're not expecting much in terms of global GDP growth, slightly north of 3%.

As I said earlier, we continue to be conservative in our planning and 2015 is consistent with that thinking.

Our short-cycle businesses represent about 55% of our sales and we're expecting continued growth from new products and technologies in the short-cycle.

Examples include products derived from our Solstice molecules in PMT and our new platform launches in Transportation Systems.

Our growth in 2015 will also be supported by continued favorable end market trends; a modest improvement in nonresidential spending, benefiting both the commercial and industrial businesses; and continued flight hour growth.

On the long-cycle side of our business, which represents the remaining 45% of our sales, we have good visibility into growth for 2015 based on, one, the strong order rates; two, our robust backlogs; and three, the capacity from our new plants.

We will benefit from the increased oil and gas investments globally, particularly in the downstream markets, where the build-out continues, with both UOP and Process Solutions well-positioned for growth.

Aero will also contribute to organic sales growth, based on our expectations of a ramp up in new BGA OE platforms and the strong trend of international defense wins.

In total, our long-cycle orders and service banks are up single-digits for the year, which will also drive higher sales in 2015.

From a total of Honeywell perspective, the strength in the US dollar will likely be a minor headwind in 2015.

Our largest exposure to the euro is in Transportation Systems where we have locked in for 2015 already.

With that, to give you a very rough sensitivity, if the euro were to go to say, [$1.10], we would expect approximately a $0.10 EPS impact for the full year.

Manageable exposure and right now we're at $1.28, but we will keep our eye on it.

Overall, the below the line items for 2015 remain stable.

Even with the recent investment market slide and the continued low interest rate environment, we are currently expecting pension income to be roughly neutral next year and continue to not expect a significant required contribution to any of our plans for the foreseeable future.

Finally, we anticipate the continued benefits from our proactive restructuring activities to yield $125 million of incremental savings in 2013.

I'm now on slide 11, which depicts our preliminary growth outlook by business, compared to the expected growth in 2014.

The colored arrows denote whether we currently see the growth rates improving; improving, remaining steady, so growth similar to 2014, or receding.

Again, this assessment is based on our preliminary assessment of the key macro inputs and variables, our current orders and backlogs, and the things we're in control of from an execution perspective.

As you can see, there are a lot of green arrows, again, driven by our great positions in good industries, new product introductions, high-growth region expansion, and confidence in our long-cycle backlog.

In Aerospace, on the commercial side, ATR OE growth is expected to be similar to 2014, but with an improvement in the second half of 2015 and into 2016.

This is based on the build rate schedules and ramp-up in Airbus A350 and other new platforms.

In BGA OE, we expect the continuation of growth to outpace the market, with strong shipments of new engines, new business jet platforms like the Bombardier Challenger 350 and Embraer Legacy 500.

We are well-positioned in the medium to large BGA segments, which are expected to grow the most in the next five years.

Dave also referenced earlier our excitement around the launch of the new Gulfstream 500 and 600 platform, with the first flight of the G500 scheduled in 2015 and shipments starting soon thereafter.

We have been working with Gulfstream for some time in developing these products, so we don't expect to incur significant R&D-related expenses relative to these platforms that you normally might expect at the rollout of a new commercial platform.

These and other new platforms support the continued growth in our ATR and BGA installed base and service businesses.

Of course, the growth has to be profitable, so we also continue focus on the cost side, with planned cost productivity in direct materials and functional spending, along with process improvements, which will further support further margin expansion in Aerospace.

The commercial aftermarket sales vary based on the quantity of flight hours and maintenance events, inventory levels, the customer buying and inventory patterns.

We anticipate that sales will grow slightly better than they have in 2014, with an expected improvement in airline repair and overhaul activity and higher engine maintenance events in BGA.

Defense & Space is expecting a modest sales increase, call it low single-digit, in 2015, based on the strength of the international business, which represents about 25% of the portfolio.

Our recent win rates support this outlook and we also expect the full sequester to remain in place, with the US portion of the business stabilizing.

Finally, Transportation Systems is poised for continued growth in 2015, driven by significant new launches, modestly better European light vehicle productions, and the acceleration of gasoline Turbo penetration, particularly in the US and China.

For ACS, we're expecting similar growth in ESS to what we've seen throughout 2014.

This growth will be led by new product introductions, further penetration in high-growth regions, and continued non-res recovery.

As a reminder, roughly 75% of the ACS portfolio serves commercial and industrial markets, where we tend to be tied more so to retrofit activity than in new construction, so our portfolio is well-positioned to capitalize on improvement in these areas.

On the commercial products side, we've seen modest sales improvement over the course of 2014, which we expect to continue into 2015 with better growth in US driven by improvement in ECC and Fire Systems businesses.

In the industrial markets, we're expecting higher sales of industrial safety equipment, particularly in the Americas, which represents about one-half of our exposure.

Residential growth will continue, particularly in the US, where we are accelerating our investments in the connected home space.

In Building Solutions, which is a longer-cycle business, sales growth has been muted year-to-date, but we're encouraged by the improvement in project orders and services backlog, which will benefit in 2015.

In PMT, our robust orders growth and backlog position at both UOP and Process Solutions support growth acceleration.

PMT continues to benefit from oil and gas investments occurring around the world.

You're probably aware, we are primarily focused on midstream and downstream segments.

These are less impacted in the near-term than the upstream segments might be, by any reduction in capital spending that could come from recent crude oil price declines.

In fact most, of our UOP and HPS backlogs will be executed over the next two or three years, and are for projects where the bulk of our customers' capital has already been spent.

The risk of cancellations is low and is already reflected in our initial planning framework.

Lower oil prices also mean lower fuel prices at the pump, which drive more demand for refined products and production.

This also plays to the strength of our portfolio.

Also, we're excited by the recent loosening of US restrictions on energy export and are well-positioned to win new business in related verticals like liquid natural gas.

And last, in Advanced Materials, we expect to continue to benefit from our Solstice products and higher production volumes in resins and chemicals.

Given the balance of these various dynamics, we are encouraged about our prospects for 2015.

We are in the middle of our annual planning process and we look forward to providing you with more details regarding our 2015 guidance during our outlook call on December 16.

You can expect that we will count on only modest sales growth and we'll stay conservative on costs so that we deliver earnings growth on a basis consistent with our five-year plan.

Let me wrap up on slide 12.

The strong third-quarter results came from every part of Honeywell.

We have a solid and diverse portfolio and a Management team focused on execution.

Combined, these enabled us to add to our performance track record, as we exceeded our guidance on sales, margins, and EPS.

With one quarter left to go, we are confident in our ability to continue outperforming despite the continued slow-growth macro environment.

We're going to continue investing in our future with a focus on profitable sales growth.

This means investing in high ROI CapEx, in new product development, and in sales and marketing resources, particularly in high-growth regions.

The investments are paying off.

You can see it in the results.

As we turn our attention to 2015, we recognize the uncertainty in the macro environment, but this is not new for us.

We have and will continue to plan conservatively.

Also, we are confident that our portfolio is well-positioned for continued outperformance.

Our order trends, both short- and long-cycle, point to accelerated sales growth for next year that should enable continued strong improvement in our profitability and we will continue to execute to deliver 2014, 2015, and beyond.

So with that, Elena, let's go to Q&A.

Thanks, Tom.

Leo, we will now take our first question.

(Operator Instructions)

Scott Davis, Barclays.

Thanks for helping the market go up today (laughter).

We needed it.

Yes.

I agree.

I've got to give you crap about something, Dave.

You know I can't go a conference call without criticizing you, but 16 slides and not a word on M&A or buybacks or any cash reinvestment.

What's -- you've had a nice pullback here.

What's holding you back from buying back some shares?

First of all, I don't think that we ever provided a chart commenting on that.

So that's not unusual.

No.

I know (laughter).

19%, 14%, depending upon how you want to look at it doesn't suffice, so I understand (laughter).

But at the end of the day, our strategy is still the same.

It's to stay opportunistic on both the M&A side and the share repurchase side and M&A conditions are starting to improve with the pullback we've seen.

So who knows how things develop?

I'm not promising anything.

You never know where things are going to go.

But at the end of the day, times are getting better to buy, so we'll see what happens.

Dave, what is the ideal size of transactions?

In the past, you've done some pretty interesting deals and some of them a little bit big.

Would you be willing to go a little larger in size where there's some value now?

Well, I've always said, I never say never on doing anything large, so we'll say, I don't know, $5 billion to $10 billion, but at the end of the day we've never done it either.

Doesn't mean we won't, but I've never done it.

We still continue to maintain a very active pipeline of projects from small stuff to big stuff and we're going to keep doing that.

And who knows?

Maybe some day, something bigger strikes.

In the meantime, we still keep looking at stuff that's more bite-sized, more manageable.

And it's tough to predict where these things go.

As Anne Madden keeps reminding us, you kiss 100 frogs to find, in my case, the princess.

So it's just one of those things that we're going to keep looking at and keep working.

And just lastly, non-res has been a bit of a mystery this year, but it looks like you made some positive commentary that there.

Do you see projects as finally breaking ground or have you got some visibility that we can make some shipments?

This quarter was pretty good actually?

Yes.

I would say -- you've been hearing me say now for over a year that we've been seeing increased quote activity, but no results from it.

We're finally starting to see some slight improvement in growth rates from what we've seen in some of our other businesses.

I'd like to think that portends a trend.

I'm not ready to declare that yet, but I do believe the time has come.

And for me, part of this is just the aftermath of the recession.

We said at the time, how you went in is likely how you're going to come out.

And it was stuff that went in quickly, like aircraft spares, came out quickly.

Stuff that went in slowly, like non-res construction, has been slow to come out.

We're finally at that point where we're in the slow to come out range.

I don't expect a boom, but I still think it's going to be a tailwind for us.

Good.

Well done.

Thanks and I'll pass it on.

Sorry, Scott.

What was that?

(laughter) He must have gone on to the other call already.

Steve Tusa, JPMorgan.

Just on UOP, people are obviously a little bit worried about what's happened with oil prices here.

Could you maybe just get into specifics on what percentage of UOP, specifically, is oil price exposed, if you will?

I know maybe there's some offshore projects that they may be involved in, FPSOs, I'm not sure.

Just want to get some further clarity on that.

And I totally understand the positive long-term trends, but UOP is obviously one that people worry about every day, so just maybe if you could give us a little bit of color there?

Steve, the last thing I'd ever expect from you is a bouquet, but not even a flower or a rose petal or something?

(laughter) Not even a little bit?

Solid quarter, I guess.

(laughter)

Well, thank you.

I'll take what I can get.

Overall --

You're doing okay.

I never worry about you.

You're doing fine.

(laughter)

Here's how -- a reasonable way to think about it is, if we take a look at our overall sales, about 15% of it is represented by oil and gas in total, so it is not just UOP, but includes process.

If you broke out that 15 points, 12 points of it are in the mid-to downstream segment.

So yes, there is some upstream, but not a huge amount.

And when we think about oil prices, Tom was talking about some of this, that pump prices tend to be sticky in both directions.

And when oil prices are going down, that's a good thing for refiners.

So all of those projects, especially if the money has already been spent, we really don't see it having that much of an impact over the next two or three years.

So most of those projects are still going to get done.

We also think, over the long term, there's some natural floors here that exist.

There's been a big increase in oil production over the past year, it's up something like 3% in total, with a big chunk of it driven by the US.

But there's an natural floor that occurs that at about $80 when you look at shale oil production, so -- where a lot of capacity just goes offline, so it gets the supply and demand much more in balance.

So overall, I really don't see it having that much of an impact to UOP.

It might have some.

There might be some projects that go a little bit sideways, but overall, very manageable is the way I think about it.

Tom, I don't know if there's anything you want to add?

There's discussion of cancellations, and we've thoroughly assessed our backlog and we're really not seeing anything of meaningful significance.

As Dave said, there's a natural floor and maybe if you get significantly below that, you might see more activity but the only impacts are minor delays in project financing.

But really won't have -- really haven't shown any impact on the [backlog].

Dave, just one last question following up on Scott's question about buybacks.

When you think about the reticence to buy stock back at this stage, given the prior experience, and just worried about buying close to the peak, how do we think about that in terms of your relative valuation and the relative attractiveness of your stock?

Because it doesn't seem like the stock is holding up as well as it should in these pullbacks.

And so it -- does the mindset change if they're not giving -- even though we're at -- in a tough economic time, if people aren't giving you the relative credit, does the mindset change?

No.

Not really.

I would say, going back to what I've said before, is we're going to stay opportunistic.

We have a lot of faith in our ability to continue growing and we've certainly demonstrated that again this quarter.

And when it comes to both repurchases and M&A, we're going to stay opportunistic and having money gives you opportunities.

Once the money's gone, the opportunities aren't there anymore.

So we're going to continue to drive really strong earnings growth, especially versus our peers, with or without a buyback.

And it's always an opportunity for us.

Great.

Thanks.

Nigel Coe, Morgan Stanley.

It sounds like buybacks are a hot topic this morning (laughter), so I won't go there, but I do want to switch to the 2015 framework, if you like.

And thanks for the detail.

That's really helpful.

The top-line beat will be to understand about the macro, but (technical difficulty) should we think about your margin expansion and what you can control.

Obviously, this year is very strong, with a fairly weak-ish top line year-to-date.

But next year, based on the restructuring pipeline, do think you can be in line with the 70 bps long-term framework, or do you think you can do better than that?

Or how should we think about the OM next year?

Well first of all, Nigel, same thing.

Not even a rose petal?

No, no, Dave.

Great quarter.

(laughter)

Not even a splash of toilet water?

Something?

I'm splashing away here.

(laughter)

First of all, it's too early for us to declare.

We're in the middle of a planning cycle and we just don't do that.

In December is when we talk about it.

But overall, you can expect something that's consistent with our five-year plan, because as you recall, in the five-year plan we were pretty conservative on what we expected over five years from the global economy.

Unfortunately -- well, fortunately and unfortunately -- the fortunate side is we planned for it that way, so we're prepared; the unfortunate part is it's turning out that way.

We hoped that there might be a nice surprise at some point, but we'll talk a lot more about it in December on the conference call.

What date is that?

December 16.

December 16.

And we'll talk about it more then, but you can expect something that's consistent with our five-year plan, where you'll look at it and go, oh, we're still on track.

Okay.

No.

That's fair.

Thanks, Dave.

And then one of the real hallmarks of Honeywell over the past decade has been growing top line, keeping fixed costs flat or in some cases down.

This year, SG&A has been growing quite a bit ahead of sales and I'm wondering -- there's obviously a lot of moving parts in SG&A and COGS -- but how much of that increase in SG&A is growth-driven?

I'm thinking here about initiatives like HUE?

Quite honestly, I don't really look at the SG&A line all that much, so I should describe it more as how I do look at it.

On the sales side, we have been adding feet on the street when you look at high growth regions, and that's one of the reasons that you're seeing such good performance there, because if you have great products and services and one guy covering a country, you're just not going to sell as much.

You've got to have somebody who could be out there and can represent.

I do know on the G&A side, that's going down, because a lot of that is part of functional transformations.

You think about legal, finance, IT, HR, all that stuff is going down consistent with functional transformation.

So all the stuff that we've talked about is continuing to happen and I suppose we can get a better SG&A answer for you.

Happy to help out with that, [too].

Okay, great.

Thanks.

Just a quick one for Tom, perhaps, the hedge on TS for next year, I believe that's a new -- I don't think you've hedged in the past, so number one, is that new?

And second, is there anything we need to think about in terms of hedge accounting and sensitivity to certain rates?

You are correct.

Is new.

And I'll turn it over to Tom to discuss further.

It's at or around the current rates now, Nigel, is essentially the way to think of it.

If you think of the current exchange rates for TS, it essentially locks us in to what [you see] today.

But there's no mark-to-market effect.

No.

It's pure hedge accounting.

The mark on the hedge goes to [singles] translation or goes below the line outside of operating profit and [appears as] offsets.

Because at the end of the day, the change in the thought process has been, historically, I've been pretty adamant about never hedging on translation, just because over the course of 20 years, you're basically out the cost of hedging.

This year, I would say, while there's always the possibility it could go the other way because these things are unpredictable, the prospect of it going to $1.10, $1.20 is very real.

We looked at it and said, better to, say, protect ourselves on half or so of our exposure and forego a bit of that upside just to protect ourselves on the downside in what could be a tougher macro again.

And that was the thought process behind it, and we were able to do it with a very good understanding of what the impact was month by month.

So we were able to avoid having to use that mark-to-market approach.

Great.

Thanks.

Steven Winoker, Bernstein Research.

Dave, I'm going to save you the pain of soliciting another compliment and just say, good quarter to all the guys inside the SBGs.

Okay?

We'll leave it there.

Thank you, Steve.

As you've probably noticed, I'm a very needy person.

I do and as long as that makes to keep delivering, I have no problem with that.

(Laughter) It helps.

It helps.

So a few questions here.

One, I hate to keep coming back to the capital deployment, but I also remember you often talking about telling investors, now that we've gone through the turnaround some years go, what are we going to do with the cash; don't worry we're not going to blow the cash.

To the extent that you are ramping up M&A and Roger is out there looking pretty aggressively, I'm sure, as well, what are the minimum financial hurdles we should still think about for mid-to large-sized deals that you're thinking about in terms of return on capital or otherwise, the stuff that Anne would actually let pass through, for example?

Our hurdles are not going to change and they're the same ones that we've used for 13 years.

And that's accretive in the second year; IRR clearly above the cost of capital, so think of it as in the 11% to 12% range; and ROI above 10% in the fifth year and that's all in.

So that includes all the amortization and everything else.

So it's more difficult a hurdle than people might think.

And at the end of the day, regardless of the size, we'll be able to demonstrate 6% to 8% of sales as cost synergies, because I don't want to count on any sales synergies, as you know.

I want to make sure that we stay disciplined as hell in terms of our deployment, so we're never going to panic.

The nice thing about it is we have a terrific organic growth prospect, so it's not like I have to do M&A in order [to deliver].

And that's why we construct our five-year plan the way we do, so that you would look at it and go, geez, these numbers are awfully good, whether they do M&A or not.

I never want to feel panicked and we don't.

So you can expect that if we -- whatever we do, whatever we do end up going, whether it's a bunch of small stuff, something big, various big things, depending on how you want to classify it, it's all going to meet those criteria.

Okay.

And Tom, a little bit on how you're starting to think about pension.

I'm sure you'll go into more detail in December.

But given rates, direction, and all of that, how should we think about sensitivities in the current accounting structure?

Yes.

Good question, Steve.

When you look at -- if you drew the line today, for pension expense, considering given the most recent market developments and the low interest rate environment, we'd be about flat year-over-year for pension expense, etc., as I said.

Right now, no foreseeable contributions from a cash perspective in the next couple years.

Mark-to-market-wise, for 2014, as you know, if there is one we would do it in the fourth quarter.

Right now, again, based on the assumptions as we understand them today, at least for our major plants, the US plants, there would not be a mark-to-market.

Okay.

If I could just sneak one more in, which is in UOP those CapEx investments, how do you see that continuing to play out through the next year?

In terms of the quantity of the CapEx, we peak in 2015 in terms of the expenditure levels.

But as you know, starting in the second half of this year, we've got some of that capacity coming online this year, mostly for the Solstice product portfolio and a little bit in the UOP catalyst.

But those plants, as we've said over and over again, are pretty much hit the ground running at near full capacity.

So when you look at the growth rates that you're seeing in PMT, that 7%, that's a reflection of being able to put that capacity to work right away.

Great.

Thanks.

And the projects are on track, which is always a good place to be when you've got full plants.

Okay.

Thanks a lot.

Jeff Sprague, Vertical Research.

I've been brushing up on my accent, Dave.

It was a pretty good quarter.

(Laughter) I think it was wicked good, myself.

(Laughter) Just a couple little clean-up things.

On UOP, can you give us a sense, just following up on that last comment from Tom, what type of top-line benefit do you foresee next year as those plants come on?

The question is the cumulative revenue weight of that capacity as it turns on?

I would say Jeff, still a little too early to declare on any of that.

We'll do more of that in December.

But I'd say you can expect that UOP is going to continue to do well.

And it's a big driver for the incremental growth in UOP versus the growth rate we're seeing in 2014.

And then on international defense, where you're seeing some acceleration it sounds like, can you give a little color on countries or programs where that's actually happening?

Yes.

In Middle East, Israel, Turkey, some of the regions that you might expect would have the funding and where there's activity a little bit in India, as well.

And this one might be a little bit in the weeds, but getting into fluorines and the like, with the SEER transition coming in the US here, in the fourth -- really, at the beginning of the year, do you see any noise in the fourth quarter around that?

Do you see signs that people are pre-building?

Just anything to be aware of there?

No.

We're really excited about fluorine overall and the transition we've got going.

But nothing significant from that perspective.

Just a quick one and I'll jump off, Tom, you did end your remarks by saying accelerated organic growth in 2015.

Obviously, it also hedged the macro and everything.

But are you suggesting you do have line of sight at least of being inside that 4% to 6% organic growth score, which is the compound goal out to 2018?

Dave is telling me not to share anything until December 16, which I'm going to follow my boss's orders.

(laughter)

All right.

Sounds good.

Thanks, guys, and Elena.

Andrew Obin, Bank of America.

Just to clarify, on Advanced Materials, why is it not growing faster in 2015 versus 2014, given that this is where the CapEx is going and Solstice is ramping up, sorry?

And congratulations, by the way.

Thank you.

I thought I was going to have to beg again.

No.

(laughter)

We are seeing good growth in Advanced Materials, Andrew.

In the quarter, Advanced Materials grew 7% organically.

What we're saying is, at this point, the continuation of that type of mid-single-digit growth rate is what we're expecting for next year, given it's still early days.

Just a reminder on how to read that chart, the side arrows mean the growth rates themselves for 2015 compared to the growth rates for 2014.

So as Elena points out, we've seen really decent growth, especially in the second half, in the Advanced Materials portfolio, including in Fluorine or led by Fluorine, so we're expecting that trend to continue in 2015.

So it's a good story.

Got you.

Besides [that, Andrew], if we had a whole page of green arrows, you'd be asking how could we possibly believe the environment could be that good?

I appreciate that.

And just a comment on BSD.

You commented that you're seeing non-res accelerating.

Could you just give more color on what specifically you're saying, what areas, because it would be really good news if we are seeing non-res cycle pick up?

Yes.

It's been moderate.

I don't want to overplay the pick-up on the commercial piece of the non-res, but we are seeing a significant amount of quotation activity in the US, and particularly on the federal side of the energy vertical.

The municipalities and other institutions are also coming along, but overall, the orders are starting to pick up.

We'll have a good -- we're expecting good orders, story of performance in fourth quarter that should serve us well in 2015.

Terrific.

Thank you.

Howard Rubel, Jefferies.

I thank you, Dave.

Numbers like this, only come from Honeywell.

Now, that's what I'm talking about, Howard.

Thank you.

Boy, this is really amazing, the suck-ups we're doing here, but anyhow--

(Laughter) Only if it's deserved.

Right.

Exactly.

You know that.

But to talk about a couple of business fundamentals, talk about what you've done to make Intermec work right.

It looks like it had a very nice top-line contribution.

The US Postal Service piece of business looks like its market share pick up, and when I walk into Starbucks, I see a Honeywell logo.

So what's gone there that's set you apart, because this is a difficult market?

I've got to say, we appreciate you picking up on that one, because we're quite proud of everything we've done there, not just with Intermec, but by really pulling together several players in the industry in creating a one Honeywell approach that's really made a difference.

And they all brought different technologies and perspectives, whether it was Hand Held, Metrologic or Intermec.

Our guys starting, with Darius, then leader originally, and then John Waldron who is in there now, have done a great job pulling all that together and rationalizing it so that we expanded our offerings, pushed the technology, and more so than others have, including what we've been able to do with voice, or Vocollect, coming out of the Intermec acquisition, and getting better coverage.

Just being out there and being able to tell our story with feet on the street in a way that we weren't able to before.

So it's really just a matter of running it better and taking advantage of the technologies that were brought together and running it better.

When we look at the Intermec numbers year on year, they're up -- it's hard to totally tell, but it looks like high single-digits, so that's -- I know that's only one part of everything you're doing there?

Yes.

That's right, Howard.

And we're getting at, as Dave said the technologies are very strong, and they're complementary to what exists in the Scanning & Mobility business.

We didn't have printing.

We didn't have voice.

We did have mobile computers, but Intermec had a very strong platform, and so we've been able to integrate all three of those product lines nicely and to accelerate the growth there.

And as you alluded to, the performance against what our expectations were has been tremendous.

When you look at the headline multiple versus where we are today, it's quite remarkable.

It's also good how -- you know that we never count on sales synergies, which always provides a nice upside and we've gotten a pile of them here.

Thank you.

And then one just final question.

I'm not sure I'm going to ask it right, but as you look at new products that you're introducing with the R&D spend, because in each of the business units you've talked about there being, I'll call it, growth investments.

How are you measuring the premium you're getting on the new products relative to the spend you're making?

Are you -- how fast do you decide that, gee, this is working really well, let's put more in, or no it's not working very well and let's scale it back?

That's something we defer to each of the businesses, make those kinds of decisions.

And each of them has their kiss-or-kill approach to all these projects.

Some of it's by country, some of it's by business.

So they're constantly looking at making sure that we get the biggest bang for the R&D buck.

I'd say it's one of the things that I would look at and say across the Company, we still have opportunity for.

Sometimes we'll have a project that we look at and go, geez, this is going to cause sales to grow 8%.

That's great.

Let's do it.

But we really don't push ourselves, because it might be a business that could be growing 20%.

We're just not thinking big enough for it.

On the other side, there's still projects that we linger with too long or we focus on little stuff when we should be agglomerating some of that and focusing on something bigger.

So I'd say we do a good job overall, certainly a hell of a lot better than we used to, but I still see more upside to being more disciplined on that in every business.

Thank you for your help today.

We hope -- we'll see what 4 o'clock shows.

(Laughter) Thank you, Dave.

John Inch, Deutsche Bank.

Last but not least, so congratulations, Dave.

Thank you.

You're welcome.

Tom, you gave us the 2015 restructuring tailwinds of $125 million.

Just to try and make sure we have the framework, could you tell us what, or remind us what your spending expeditions are for 2014 and then savings that would have been from 2013 and 2014 and then what you expect to spend in 2015 that dovetails with the $125 million?

I believe the actual savings from 2013 and 2014 is similar.

It's in that $125 million to $150 million range for 2015.

Yes.

In terms of the cash spend, for 2014 it'll about $200 million.

Yes.

We had an elevated first-quarter restructuring charge, obviously, with the sale of the B/E Aero shares.

It's probably, maybe for the just repositioning portion only, it's probably more in the $140 million, $150 million range in terms of spend.

Tom, do you want comment on next year?

Yes.

Next year, I would expect -- our unspent backlog as of the end of the third quarter is about $350 million, a little less than that.

I would expect that we would spend $150 million to $200 million of that in 2015.

That's where I was going with the B/E Aerospace share gains.

Is this, all else equal, are we going to see some sort of a spending tailwind, if you will, or absence of spending, that could be actually material or impactful?

Or perhaps you're thinking about some other offset, because you are pretty good at doing some matching opportunistically?

John, I thought you were asking about cash before.

Well, I was asking about both?

Right now, as I said our expense, our P&L expense of restructure is about $120 million and we spent the cash that we have indicated.

We're always looking at opportunities.

Every quarter, we review with Dave -- every business reviews a portfolio of restructuring opportunities, just like we do for M&A opportunities.

We look at them in a disciplined way.

We look at the paybacks.

We look at the ROIs and so far.

Yes, it's true that we tend to look for opportunities to fund those restructurings.

Yes, it's also true we have some potential funding capacity, as we look out.

But I don't think we've come to any conclusions at this point on what we're going to do in 2015.

We'll take it opportunistically as we go through the year, like we normally do.

That's fair.

And then, can I just follow up?

You are a very large Aerospace company and your commentary around Aerospace and aftermarket is still pretty constructive heading into next year.

You do have this Ebola thing that's in the background and I'm trying to understand, would the analogy be perhaps to what happened during SARS and the possible impact on flight hours?

I'm just trying to understand, at this juncture, how are you thinking about the planning process for the business next year as it pertains to flight hours, perhaps, based on past experience?

Or is it just -- should we just really not be concerned about this?

As usual, you can expect us to plan for some of the worst just so that we know that our downside is.

I don't think that's what's going to happen here, though, just based upon what you read about Ebola.

In terms of its actual impact on the US, in terms of how many people actually get ill, at least from the best I've been able to glean, we don't expect much of an impact there.

The thing you can't predict is what that fear quotient is going to do.

And as people just start to become afraid and as the media has something new to talk about, tough to predict where that will go.

So I would say overall, I don't expect the actual impact, in terms of illness, to be consistent with what we saw with SARS.

You still need to start to factor in what that fear quotient could do.

And that we're not really going to know, except over the next two or three months, I'd say.

We're going to plan, make sure that we have a plan to address it in the most conservative way possible, just so we're prepared.

Okay.

Thanks very much.

Appreciate it.

I want to hand the call back over to David Cote for some closing remarks.

Over the last few years, we'd have to say the global macro economy really hasn't provided much help.

We expect it's going to continue that way, as we outlined in our five-year plan back in March.

As Tom and I both mentioned, conservative sales planning has clearly been the way to go and we are going to continue with that approach.

It's probably obvious by now that we're pleased with our outperformance this quarter and this year and for that matter over the last few years.

We intend to continue outperforming, consistent with our five-year plan.

Within the slow global economy, we will get all the sales we can, because of our great positions in good industries, our high-growth region presence and focus, and new products.

With that sales growth, we'll continue to drive cost and process discipline through our focus on HOS goals.

Said more simply, we intend to continue outperforming.

So thanks for listening, and of course, thank you to all our owners.

I promise we won't disappoint you.

Thanks.

Thank you.

This does conclude today's teleconference.

Please disconnect your lines at this time and have a wonderful day.