Mark Macaluso - VP of IR Dave Cote - Chairman and CEO Tom Szlosek - SVP and CFO

Scott Davis - Barclays Jeffrey Sprague - Vertical Research Partners Joe Ritchie - Goldman Sachs Howard Rubel - Jefferies Andrew Obin - Bank of America Merrill Lynch Gautum Khanna - Cowen

Good day ladies and gentlemen and welcome to Honeywell’s Third Quarter 2015 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 [Operator Instructions]. As a reminder, this conference is being recorded. I would now like to introduce your host for today’s conference, Mark Macaluso, Vice President of Investor Relations.

Thanks, and good morning and welcome to Honeywell's third quarter 2015 earnings conference call. With me here today are Chairman and CEO, Dave Cote and Senior Vice President and CFO Tom Szlosek. As a reminder, this call and webcast including any non-GAAP reconciliations are available on our Web site at www.honeywell/investors. 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 and we ask 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’ll review our financial results for the third quarter, share with you our guidance for the fourth quarter and as well provide initial framework for 2016. Finally, as always, we’ll leave time for your questions at the end. So with that, I will turn the call over to Chairman and CEO, Dave Cote.

Good morning, everyone. As I am sure you seen by now, Honeywell delivered another quarter of double digit earnings growth highlighted by our strong execution across the portfolio. Reported EPS of $1.60 increased 10% normalized for tax reaching the high end of our guidance range for the quarter. Sales of 9.6 billion were up 1% on a core organic basis. We saw continued growth in our business jet engines and repair and overhaul activities in aerospace, and in our short cycle residential, commercial and industrial products businesses and ACS. In PMT demand for UOP catalyst and sources applications continued. We generated free cash flow of 1.4 billion in the third quarter with free cash flow conversion coming in above 100%, and we expect that to continue in the fourth quarter. While we always like more, our top line growth was respectable in this softening macro environment and our relentless focus on execution once again resulted in outstanding margin expansion and cash conversion while continuing to do the seed planting for a bright future. Our segment margin expanded 190 basis points to 19.3%. Each of our three segments delivered margin expansion above the guidance we communicated in July. HOS Gold and our key process initiatives continue to drive productivity benefits. And our previously funded restructuring actions will help us to continue improving our operations. We proactively funded over $60 million of new restructuring in the quarter, building on a healthy pipeline of new projects and we intend on keeping that pipeline full to support strong margin expansion next year and beyond. There continues to be a lot of exciting developments across the portfolio, so let me tell you about a couple of them. We announced the acquisition of Elster on July 28 for $5 billion. Elster is a leading provider of thermal gas solutions for commercial, industrial and residential heating systems, and gas, water and electricity meters, including smart meters and software data analytic solutions. Infrastructure investments and increasing gas consumption in high growth regions like India or in China, will continue to drive demand for Elster’s gas heating assets, strengthening our existing gas combustion portfolio to create a full solution offering. Elster’s metering portfolio consists of basic and smart meters which measure volumes consumed by commercial, industrial and residential users. The growth here will continue as the adoption of smart meters and data analytics increases and as the legislative mandates in Europe, China or in other major regions take shape. In addition, Elster has a complementary presence to process solutions in natural gas transportation and storage. A large portion of natural gas reserves are found in remote regions. And as the long term trends in natural gas remain positive the need to transported from these geographies to the rest of the world continues to grow. That means more pipelines, regulators, control valves and metering systems. And with Elster we’ll be positioned well at each point of the value chain. Elster’s expected to add $2 billion in sales at approximately 20% operating margin building on our great positions and good industries in ACS and PMT. We expect approximately 8% of sales as cost synergies and our deployment of HOS Gold across the Elster enterprise will be the key to achieving the integration benefits. We're also confident that there are significant sales synergy opportunities particularly in high growth regions like China by leveraging our current channels and infrastructure. We continue to expect the deal to close in the first quarter of '16 and we're actively planning the integration. We continue to believe, we can significantly enhance share owner returns through M&A as we've proved in the past with acquisitions like UOP, [indiscernible] Thomas Russell and EMS. In August, Honeywell's partner Inmarsat successfully launched the third Global Xpress or GX satellite. The latest launch completes the GX satellite constellation which will ultimately provide passengers, air cruise and operators with high speed internet connectivity anywhere in the world, including on transoceanic flights. Aircraft connectivity is one of the biggest technological revolutions happening within the commercial aviation sector as the number of aircrafts equipped with passenger connectivity systems is expected to double to more than 4,000 by 2016 and wireless inflight entertainment is expected to be on about a quarter of the global commercial fleet by 2018. Honeywell's position to benefit from the growing demand and connectivity as the exclusive hardware provider for Inmarsat's GX satellite constellation and the exclusive wireless airtime reseller Inmarsat Global Xpress Ka band aircraft connectivity services for business aviation operators. As airlines increasingly look at how they can utilize real time connectivity for flight operational task like real time weather and database updates to the cockpit and proactive maintenance and as passengers continue to request faster Wi-Fi connections in flight, the need for Honeywell's Jetway high speed satellite communications hardware will continue. We currently have orders for over 300 Jetways systems in 2016 across our air transport and business aviation customer base with additional orders expected soon. In transportation systems, we unveiled our 2015 Global Turbocharger forecast at the annual Frankfurt international motor show. We now estimate that by 2020, roughly half of all cars on the road will have Turbocharged engines up from one-third of all passenger vehicles today. In addition, global market demand will drive an increased desire for turbo technology innovations that enhances vehicles overall power train system, reduced complexity and are catered to local market needs. In this period of accelerating turbo penetration, Honeywell is well positioned to meet the changing demands of our customers and we expect to continue growing faster than the industry due to our differentiated technology, global footprint and the Honeywell operating systems. With just over two months left in the year, we're confident in our ability to deliver on the earnings guidance we set for 2015 last December, despite the slower growth environment in the global economy since then. We are conserving our full year 2015, earnings guidance that approximately $6.10 per share, representing growth of 10% versus 2014, which would be our sixth consecutive year of double-digit earnings growth. We'll continue to be flexible and plan conservatively as we move into 2016. Tom, will preview our initial planning framework for next year. And as you will see there are bright spots in what will be a slow growth environment. We've demonstrated that we can execute well particularly in a tough macro environment, a big reminder of the value of our diversified and balanced portfolio and the strength of the Honeywell process initiatives. Segment margins are expanding, while at the same time, we are continuing seed planning in high growth regions, high ROI CapEx, process improvements and new products and technologies. The restructuring we funded will provide runway for future margin expansion throughout our five year plan. We're excited about the year ahead and look forward to discussing our plan with you in December. So with that, I'll turn it over to Tom.

Thanks, Dave and good morning. I'm on slide which shows the third quarter results. Sales of 9.6 billion, were up 1% on a core organic basis as we’re able to overcome a sluggish macro environment. Growth was particularly noteworthy in BGA OE where engine shipments were strong in our ACS short cycle products businesses across residential, commercial and industrial end market, in UOP catalysts and in our Solstice suite of refrigerants. The growth in these areas helped us to mitigate the ongoing challenges we have discussed in the oil and gas, commercial vehicle and energy retrofit markets, which we served. On a reported basis, the sales decline in this quarter was again driven by foreign currency and lower pass-through pricing in resins and chemicals. Segment profit increased 5%, with segment margin expanding 190 basis points to 19.3%. As Dave mentioned, all three of our segments came in above the high end of the guidance we issued back in July. We continue to benefit from HOS Gold, our focus on commercial excellence, new product development, functional transformation and strong cost control across the portfolio, while maintaining our investments for growth. So really nice work for us each of the businesses in a relatively tough environment. Similar to the prior quarter items below segment profit was favorable on a year-over-year basis, as we had anticipated. Higher pension income was offset by additional restructuring, as Dave said we funded over 60 million of new restructuring projects this quarter. Building on our $300 million plus pipeline as of the end of the third quarter, which positions us well for continued margin expansion throughout the five year plan. On share account in addition to our normal repurchasing to offset current dilution. We accelerated our repurchase activity in the third quarter, given the market downturn in the late summer. This actions will enable us to offset the expected dilution in the next few quarters and broader weighted average fully diluted share account were approximately 790 million shares for the quarter. We expect account to be approximately 781 million shares in the fourth quarter, as the forward impact of this repurchasing activity kicks in. Reported earnings per share of $1.60 was up 10% normalized to our expected full year tax rate of 26.5% in both period. Again coming in at the high end of our EPS guidance range and marking another quarter of double-digit earnings growth. Finally free cash flow was strong in the quarter at 1.4 billion up 43% versus 2014 with conversion of the 110% largely driven by improving in net income and working capital. We anticipate free cash and flow conversion to continue above the 100% in the fourth quarter, so overall another quarter of strong earnings growth, we are confident in achieving our EPS guidance for the year. Let me move on to slide five, you'll recognize this format we used to explain the components of our robust margin expansion in the quarter. A majority of the expansions coming from our operating initiatives, which as you can see generated a 140 of the 190 basis point margin improvement. HOS Gold is the overall driver, new product introductions and commercial excellence continues to drive volume growth despite than the slow growth environment. Each segment is generating significant productivity and we're continuing to see that improve our gross margin rates. Our supply chains are becoming more lean and there is a strong collaboration across the organization to drive down on material cost and indirect spend. We're also seeing savings from the previously funded restructuring actions. Moving over on the slide the bricks and material divestiture, our foreign currency hedging approach and lower raw materials pass through pricing in [RMC] also enhance margins collectively to the tune of about 50 basis points. We sold bricks and materials in July of 2014, so we've largely lapsed this benefit. However it is the permanent improvement for our margin rate reflecting our continued approach to capital location. On foreign currency our hedging strategy protects our operating result even if sales fluctuate with changes in currencies, so there is a lift in margin through yearend. And finally as we discussed our pricing model in Resins and Chemicals protects profit dollars in a period of lower selling prices, they are by increasing the margin rate. So another solid quarter of margin improvement driven by our operating system and key process initiatives. We expect to see similar outperformance in the fourth quarter as we explained shortly. Moving to slide six, and the Aerospace results. Sales for the third quarter were up 2% on a core organic basis driven by continued growth in BGA, OE engine shipments. Commercial after market and light vehicle gas volumes offset by lower commercial vehicle production and transportation systems. Segment margin expansion continue to be strong at a 150 basis points and we exceeded the high end of the guidance in the quarter. Commercial OE was up 4% on a core organic basis driven by double-digit increase in BGA engine shipments. As sales were up across all of the large business jet platforms in which we participate. Deliveries of our HTF engine continue to grow and we expect engine demands to be robust into the fourth quarter. Similar to last quarter air transport OE sales reflect as planned, while regional sales decline due to intentional delays on shipments to certain emerging market customers. Commercial aircraft sales were up 3% on an organic basis driven by continued strong growth and repair in overhaul activities, partially offset by lower spare sales. R&O sales were up high single-digit in the quarter and have improved sequentially throughout 2015. We saw a strong growth globally in ATR R&O particularly in Europe and APAC well our BGA R&O business continues to perform well at key North American market. On the spare side RMUs were Retrofit, Modifications, and Upgrades have continue to moderate us we have planned and ATR spare sales were slower than expected approximately flat in a quarter driven primarily by lower than expected demand in certain high growth regions principally China. Looking ahead we expect that our set com and other RMUs will offset some of this spare softness. Depends on space sales were up 2% on a core organic basis driven by double-digit growth in our International Defense Business. Demand from our Middle East and Asia Pacific customers was strong, while the U.S our sales were slightly down. Finally in transportation system sales increased 1% on a core organic basis due to new platform launches and continued volume growth in light vehicle application. Sales growth overall was lower than expected due to lower commercial vehicle volumes particularly in North America and China. We expect that commercial vehicle volumes will improve sequentially in the fourth quarter. On the reported basis sales declined 16% reflecting foreign currency headwinds and the [printing] materials divestiture I talked about. I want to take a minute to address some of the questions we received about the impact of the Volkswagen emissions matter on turbo technology and on our turbo business. I wanted to explain why this is far from a disaster from Honeywell and in fact it’s still an organic growth story. First, while we value the relationship with VW as we do every customer, our sales to VW represents less than 1% of total Honeywell sales. So, while significant, we’re not dependent on any one vehicle manufacturer globally. Second, the benefits of diesel engines remain compelling. Diesel engines operate at higher levels of compression enabling them to achieve higher fuel efficiency and lower CO2 emissions than gasoline engines. In addition, diesel delivers significantly higher torque enabling better acceleration and greater towing capacity and payload instruction like commercial vehicles. Third, the output for diesel supply continues to be robust as diesel will always be one of the useful outputs from the oil refining process. So as long as there is oil being refined there will be an ample supply of diesel. And last in the unlikely events there was a gradual shift away from diesel technology or from a particular OEM, we are well positioned on other existing OEM platforms and expect that we’ll continue doing a significant share of new platforms particularly in gas where we have an increasing position. On a year-to-date basis, our TS business has grown 3% organically and we expect that growth to continue into 2016 as global penetration of diesel and gas turbo charger technology accelerates to roughly half of all vehicles on the road by 2020. Transportation systems continues to be a key element of the Honeywell growth story. Aerospace margin expanded 150 basis points above the high end of our guidance range driven by commercial excellence, productivity net of inflation and the favorable impacts from foreign currency hedges. And [printing] material divestiture, partially offset by the margin impact of higher OE shipments and continued investments for growth. These includes flight testing of our connectivity offerings on the Boeing 757 test aircraft which some of you may have seen in Paris and new product introductions across our mechanical and electrical portfolio to ensure we continue to win on the right platforms. Let’s turn to the ACS results on Slide 7. In ACS Alex and his team continue to advance our connective ACS initiative. ACS has realigned four of its businesses into two strategic business units namely, Honeywell Security and Fire or HSF and Sensing and Productivity Solutions or S&PS, which encompasses the legacy testing and control and scanning and mobility portfolios. The broader scope of these businesses will provide us better scale in our high growth regions and differentiated connectivity solutions and will position us to better capitalize on growth opportunities across residential, commercial and industrial markets. You will hear us reference these businesses throughout the rest of the presentation. ACS sales were up 3% on a core organic basis in the third quarter as we experienced continued growth in our short cycle products businesses. ACS continues to outperform in China up 10% in the quarter, driven by our connected ACS China business and continued investments for growth. The ACS margin expansion was again very strong at 130 basis points and we exceeded the high end of our margin guidance range this quarter. Energy, safety and security sales were up 4% on a core organic basis in the third quarter, driven by the strong performance in our Security and Fire and Sensing and Productivity Solutions businesses. S&PS delivered another quarter of solid double digit core organic sales growth driven by volume from co-brand wins most notably from the U.S. Postal Service agreement along with new product introductions in China. The rest of ACS also continues to benefit from new production introductions and further penetration in our high growth regions. This was partially offset by volume declines in our industrial safety business due principally to oil and gas related discretionary cut. Building solutions and distribution sales were up 1% on a core organic basis in the third quarter. We continue to see strengths in the Americas distribution business or sales growth has improved sequentially every quarter in 2015. This was offset by decline in building solutions driven primarily by softness in the project installation and energy retrofit businesses. In the energy retrofit business, we currently have been selective in competitive RFPs for approximately 500 million of U.S. Federal and Municipal business, which will subsequently convert to orders and then to revenues. The conversion of these RFP wins in orders has unfortunately taken a longer time than we’ve historically seen, driving this pool of preorders to more than 2x prior year’s level. But as a precursor to future orders and backlog, this is a positive sign. And on the federal side, in particular, with the presidential challenge requiring award by the end of 2016, we believe these big orders will start to convert to orders in the coming quarter. Overall in ACS the backlog is flat year-over-year as growth in products and services has been offset by this energy challenge. Also conversion of orders and backlog has been slower than anticipated, particularly in Americas and EMEA. ACS margins expanded 130 basis points to 17.2% in the quarter. The business continues to benefit from good conversion on higher volumes and significant productivity improvements net of inflation. At the same time we continue to make strategic investments in new product development, connected product offerings and in our high growth regions which as we've noted, drove double growth and continued order momentum particularly in China. We expect further margin expansion in 2016 and beyond as the team integrates and builds out the connected ACS initiative we described at our Investor Day. And now on Slide 8 to discuss PMT result. PMT sales were down 3% on a core organic basis in what continues to be a challenging market environment for oil and gas. There is a PTM team had been resilient and unrelenting and they're focused to overcome these headwinds. We exceeded the high-end of our segment margin guidance by 80 basis points driven by strong execution and continued productivity action while maintaining our investments for growth. UOP sales were down 15% on a core organic basis driven by lower gas processing, licensing and equipment sales partially offset by robust catalyst demand as we had planned. Catalyst shipments to the new Holophane units accelerated in the quarter while catalyst orders were strong which we expect will drive substantial catalyst sales growth in the fourth quarter. The higher catalyst sales benefited PMT margins in the quarter as well. In gas processing, we're seeing some signs of life coming out of a quiet first half. We signed orders for two new Russell modular units and expect the orders to further build into the fourth quarter driven by international opportunities. In process solutions, core organic sales were down 5% driven by double digit declines in our short-cycle field product business and weakness in long-cycle projects partially offset by higher sales in our service contract business. The HPS projects and services backlogs remain solid up over 15% on a combined basis. In services, we saw an increase in demand for our Assurance 360 service partnership offering which is a multiyear agreement to maintaining support and optimize performance of Honeywell Control Systems. Organic orders were down 6% in the quarter and we expect similar challenges for the rest of the year in HPS as customers delay capital spending decisions and cut discretionary spend. Some of the spending cuts reflect the hesitancy in our installed base to remove high capacity and highly profitable plans from operations even for short maintenance periods. This deferred maintenance will eventually require addressing which will benefit our HPS service business and for that matter our UOP catalyst business. Advanced material sales were up 8% on a core organic basis driven by Fluorine Products which grew double digit for the fifth straight quarter as demand for Solstice low global warming products continues to ramp. In addition specialty products continues to benefit from investments in new products. On a reported basis, advanced material sales declined 8% primarily due to the impact of the lower pass-through pricing in Resins & Chemicals as we've highlighted previously. PMT segment margins were up 330 basis points to 20.8% which again exceeded our guidance driven by significant productivity actions net of inflation, commercial excellence and the favorable impact of raw materials pass-through pricing in Resins & Chemicals. PMT initiated cost management actions late in 2014 to address the challenges we anticipated in the oil and gas environment and have been very focused on reducing direct material and indirect cost. This was partially offset by continued investments for growth and capacity expansion and R&D to develop groundbreaking new products like Solstice. We have also benefited from ongoing restructuring reducing our fixed cost structure which should help to sustain the strong margin expansion we've seen here today. I'm now on Slide 9 with the preview of the fourth quarter, before I get into the preview, I want to spend a moment reminding everyone of the gain from the sale of the B/E Aerospace shares and OEM incentives from the fourth quarter 2014. We sold the remaining 1.9 million of B/E shares in the fourth quarter of last year and separately incurred a charge of 184 million for commercial OEM incentives in aerospace. On after tax basis there was no impact at EPS for the quarter or full year from these two transactions. The cost for these OEM incentives was included in the aerospace segment as a reduction of revenue while the gain from the sale of B/E shares is below line and not included in the aerospace segment. So the 2014 reported sales and margins for aero were comparably low. Moving to the fourth quarter of 2015, we're expecting another quarter of double digit earnings growth to cap off the year. EPS excluding pension mark-to-market adjustment is expected to be approximately down 58%, up 10% year-over-year. Total Honeywell sales are expected to be 10 billion to 10.2 billion or up 1% to 2% on a core organic basis. Segment margins are expected to be up approximately 120 to 140 basis points excluding the impact of the 184 million fourth quarter OEM incentives in 2014. We expect our margins will continue to improve on operational excellence similar to what we've seen throughout the year. We're still planning the full year tax rate in 2015 at 26.5% inclusive of the fourth quarter tax rate of approximately 27.5%. As I mentioned earlier, we expect the share count to be approximately 781 million shares in the quarter on a weighted average and fully diluted basis. We intend to be opportunistic based on market volatility and be ready to step in again when we see good buying opportunities. Aerospace sales are expected to be up 1% to 2% on a core organic basis. In commercial OE, we expect that core organic sales will be up mid-single digits driven primarily by continued healthy engine demand in mid to large cabin business aircraft. In commercial aftermarket, we expect core organic sales to be up low single digits with similar trends to what we saw in the third quarter, that is strong repair and overhaul offset by [fair softness]. Defense and space sales are expected to be flat to slightly up on a core organic basis with continued modest declines in the U.S. and slower growth in international business against a more difficult prior year comparison. As a reminder, defense and space international increased 17% in the fourth quarter of 2014. In transportation systems, sales are expected to be up low single digit on a core organic basis driven by both light vehicle gas and diesel turbo volumes, partially offset by continued headwinds from lower commercial vehicle production particularly in China as we’ve discussed previously. Aerospace segment margins are expected to increase 40 to 60 basis points excluding the fourth quarter of 2014 incentive and this is driven by commercial excellence, further productivity improvements and partially offset by the margin impact of higher OE shipments. Moving on to ACS sales are expected to be up 2% to 3% on a core organic basis with low single digit core organic growth in both ESS and BSP. Growth in our residential and commercial businesses within ESS should be similar to what we saw in the third quarter with good performance in Security and Fire in particular. On the industrial side, S&PS growth will be slower with the completion of the U.S. Postal Service deployment. And we expect continued oil and gas related headwinds in industrial safety. In BSP, we expect continued growth in Americas distribution to be partially offset by a slower conversion of orders out of backlog in building solutions. ACS margins are expected to be up 70 to 90 basis points driven primarily by commercial excellence, continued productivity net of inflation and the benefits of prior period restructuring. We will continue the investments in new product development and in high growth regions to support further growth in the fourth quarter and into 2016. PMT sales are expected to be down 2% to 3% on a core organic basis reflecting the slowdown we’ve experienced. We’re expecting UOP to be up mid-single digit on a core organic basis primarily due to strong double digit petrochemical and refining catalyst growth partially offset by continued declines in our gas processing and process technology and equipment businesses. In HPS we’re expecting core organic sales to be down mid to high single digits with declines in each line of business. We continue to see delays in discretionary spend across the portfolio and the conversion of orders into revenue has slowed. However, our win rate on mega automation projects is helping to mitigate these declines and drive a strong backlog. Year-to-date, we’ve won well over 50% of these mega competition. In advanced materials we’re expecting core organic sales to be down slightly principally driven by timing [employing] products. PMT segment margins in the quarter are expected to be up 300 to 320 basis points driven by strong productivity net of inflation and the favorable margin impact of raw materials pass-through pricing in resins and chemicals. While the fourth quarter will again be challenging for PMT, our disciplined cost management and productivity initiatives give us confidence to deliver on our commitments. Let me move to Slide 10 where I’d like to review on our full year 2015 outlook. Our sales are now expected to be approximately 38.7 billion, up approximately 2% core organic and down 4% reported versus the prior year. As for segment margins, we’re expecting the full year to be approximately 18.8% up 220 basis points or 180 basis points excluding the fourth quarter OEM incentives from 2014. This puts us well above the high end of the margin rate guidance we shared with you last December and on track to achieve our 2018 long term targets. There are some puts and takes among the segment since our last update, but we continue to have confidence in the segment margins for each business, its roughly 21% for both aero and PMT and 16.5% for aero. Strong performance across the portfolio and as Dave mentioned earlier we’re confirming our full year EPS guidance at approximately $6.10 representing 10% growth. While there is still work to do to ensure we deliver on our full year results, we have commenced our 2016 plan. On Slide 11 I’d like to walk you through some of our key planning assumption and initial thoughts by business. The table you see depicts our initial 2016 view by business compared to 2015. So just so I am clear neutral indicates the similar growth rate in 2016 as 2015. Likewise plus indicates a stronger growth rate in 2016 versus 2015. In aerospace, commercial OE growth will be in line with 2015. Our strong positions on successful platforms will drive continued shipments of new engines to key OEM following double digit BGA OE growth in 2015. On the ATR side, we expect slightly better growth as production of the Airbus A350 ramps. These and other new platforms will continue to support growth in our ATR and BGA install base and service businesses as we move forward. Our aftermarket business will be slightly better in 2016 due to continued strength in airline repair and overhaul activities and higher engine maintenance events in BGA, attracting in line with fleet hours. Our aftermarket business will continue to fluctuate based on flight hours and maintenance events, inventory levels and customer buying patterns. Defense and space sales are expected to be largely in line with 2015, or approximately flat to up slightly. We anticipate the U.S. portion of the business will continue to stabilize as we benefit from our strong install base and service offering. Our international business should continue with strong performance despite facing tougher comps year on year after several quarters of double-digit growth in 2015. As Tim highlighted back in March, direct international sales are expected to be above 35% of our defense and space business by 2018. So it will remain at growth engine for us as we move forward. Finally, we expect growth in transportation systems from new platform launches and steady volume growth in light vehicle gas applications globally, particularly in Europe. Similar to 2015, we expect to see moderate headwinds from lower commercial vehicle sales but also anticipate that this steep declines in CV sales will moderate. Overall turbo penetration continues to growth as OEM develops global engine platforms which can fill needs in multiple markets and we believe, we've well positioned to meet those OEM demand and win a significant portion of all new platforms. As a reminder a majority of our FX exposure is in aerospace within transportation systems, based on today's rate and our FX hedging strategy, we continue to expect the year-over-year EPS headwind in 2016 at roughly $0.15. For ACS we're expecting growth similar to what we've seen throughout 2015, roughly 20% of the ACS portfolio is in residential markets with reminder serving the commercial and industrial markets, growth in ESS will be driven by new product introduction and further penetration in high growth region. Our security and fire business is well positioned for continued growth and we expect with our energy efficiency and connected products and technologies will drive further outperformance. As we've mentioned the acquisition of Elster is expected to add approximately 2 billion in annual sales, so the sooner we close the deal the better. On the industrial side, we don't expect any near-term improvements to the headwinds we're facing in industrial safety and also see more difficult comps in S&PS after four straight quarters of double-digit growth. In BSD, we expect the Americas Distribution business to continue to perform well and that's a building solutions backlog and service bank will continue to grow. However, we expect a continued slow conversion into revenues particularly in Americas and Europe. Moving to PMT, we do expect improvement in HPS growth rates driven by strong backlog and improving service bank and UOP, we've seen increased levels of project quotation and the UOP team is optimistic of strong fourth quarter orders. But the backlog of equipment and gas processing orders will be down year-over-year which will make growth in 2016 challenging. UOP expects sustained catalyst demand after growth in the mid-single digits in 2015. In advanced materials, we expect the benefit from our significant Solstice win as demand for our next generation refrigerants continue to grow and we build upon our over 3 billion in signed agreements. We’re continuing to make significant CapEx investments in UOP and foreign products. In 2016, we'll be at a similar level of spend to 2015, this will support an expansion of catalyst production capacity in both the U.S. and China, including MTO and other catalysts as well as growing backlog of Solstice orders. Looking at segment margin, we have strong confidence in our ability to sustain the pattern expansion you come to expect from us, even in the slow growth in environment and even with the potential foreign exchange movements I've mentioned. As we pointed out we continue to have opportunity to close the margin rate gap versus our peers, starts with new products, they are almost always margin enhancing and our investments to develop new products are [indiscernible] in Honeywell. As the evidenced by our R&D as a percent of revenue averaging approximately 5% over the last three years. Our HOS Gold enterprises have the market and customer connections to ensure that the R&D spend is properly allocated. Pricing has also continued to hold up well. We have a standard pricing methodology tools and organization focused on maximizing value capture. We are equally focused on cost. The Honeywell operating system permeates everything we do, take our number one cost category direct and indirect material. We continue to mature our already world class sourcing processes and tools, which are creating an ongoing productivity paradigm. We're also continuing to invest in value engineering to lower our existing [bond cost] and make products easier to produce. There is also our factories. The HOS methodology is pervasive throughout the supply chain and in every one of our factories you can see the lean manufacturing supplier [indiscernible], the visual process management and collaboration that make HOS work. Also our creation of production centers of excellence where we perform similar activities in one place is starting to mature and payoff. An example is our electronic and manufacturing COE and ACS where we’re now producing printed circuit boards in one location instead of seven. And our high growth region footprint is providing a low cost based to support this consolidation, one where we derived the benefit of the stronger U.S. dollar as well. In addition our functional transformation and organizational initiatives designed to improve quality of support to the businesses at reduce cost are stronger than ever. We have dedicated teams supporting FT efforts in our back office organizations like IT and finance and we’re confident that these groups can drive sustained productivity while improving service level. Backing up all these efforts is our restructuring pipeline. We have over 300 million in unspent funding that will enable us to support the initiatives I mentioned. So we’re in the middle of our annual planning process and we look forward to providing you more details regarding our 2016 guidance during our Outlook Call on December 16th. Let me sum it up on Page 12. Once again we demonstrated we can deliver on our earnings commitments, despite limited help from the macro environment, a big reminder of the value of our diversified and balanced portfolio and of the strength of Honeywell operating system. We met our margin expansion and earnings growth expectations in the quarter with margins expanding in each business as we continue to execute well across the portfolio. We did this while maintaining our focus and investments to the future as our investments in new products and technology, high ROI CapEx, process improvements, restructuring and high growth regions continue to grow. As we are headed in the fourth quarter, we expect earnings to grow again 10% which will set us up for our sixth consecutive year of double digit earnings growth. We’ve had good momentum on margin expansion and free cash flow conversion which will continue as we close out the year. There’ll be continuing to be puts and takes across the portfolio as we headed in 2016, our strong segment margin performance and balance sheet capacity give us the confidence and flexibility to manage through the uncertain economic climate and provide a good foundation for continued earnings outperformance in 2016 and throughout our five year plan. With that Mark, let’s move to Q&A.

Heather if you could, please open the line for Q&A.

Certainly. The floor is now open for questions [Operator Instructions]. Our first question is coming from Scott Davis with Barclays.

It’s good to see a descent print in what’s been a pretty crappy tape overall, so…

Thank you.

So keeping the wheels on. But in that spirit, it’s interesting I mean you’ve done a lot of what you call seed planting already years, and your margins are exceptional, the core growth continues to be just a little shy of global GDP. I mean what do you really attribute the core growth, the lower core growth and the [bps] in margins. And what I mean is that, is the seed planting and such in the new products, is that more of a margin mix shift improving position and you’re willing to trade some volume for margins, or is it just a function really of the end markets you’re selling into?

I’d say it’s a combination of things Scott and I think we touched on most of them. One is it a slow growth environment overall. Within that we’ve been able to -- with the new product launches that we’ve done, those end up being margin enhancing launches. But as we also said back in the Investor Day a couple of years ago that we were really going to start to see the sales inflection as we got towards the end of ’16 and into ’17 as we got the planned expansions done, the aerospace launches occurred. So we pretty much expected it was going to work out this way. In the meantime, we had a lot of seed planting we've done on the process improvement side, which continues. There is just a lot of process improvement still available to us that’s going to allow us to continue to expand margins at the same time that we invest in R&D. So from an overall sales perspective, while I wish that macro environment cooperate a little more and more than we certainly it’s less than what we expected at the beginning of the year, we’re going to continue to deliver very well on that sales growth because we anticipated that it was going to be on the lower side for ’15 and some into ’16 but that the inflections would occur after that.

So Dave you’ve been doing this a long time and I mean we see at least -- those are spin around a while, see some similarities here in 2015 to 2001 and even 2007 early 2008. I mean how do you think about the weakness in emerging markets and the follow up and how that increases risk at least to the -- I mean that's called a recession risk that we could -- a small event could take us off the cliff. I mean how do you think about that and how do you plan for it?

At least from my perspective, it feels like markets really think there is a chance of a recession here. And I guess while there is always the chance if there were some un-forward terrorist events somewhere or something drastic like that, I really don’t see that. This feels a lot different than it did in 2001 or 2008 to me, just because after a great recession we’ve never really had a recovery. 2010 was the only real recovery year that we had. After that it’s really been the slow growth environment and I think that’s kind of what we can expect over the next 2 or 3 years in the just way we ought to think about things, so I don't see boom coming but by the same token I don't see a crash coming. And I really think that the ability to perform in that kind of slow-growth environment is what's going to differentiate companies and that's the way we're playing that's the way we're thinking about things. As you know we always tends to be conservative on sales and we're continue to do that specially in this kind of environment. Does that help us?

Yes, it does. I guess I went back and I read all the transcripts from 2008 and everybody held on, held on, and held on and some of the similar comments then all of a sudden it will spell off and I just -- you have to -- in our job at least you have to start scenario analysis planning here and it's feeling a little sloppy, that's all. I don't disagree with your assessment.

No, I can understand the transcripts but if you look at like debt position of the say just the American consumer back then versus today, very different, bank capability, bank reserve, they're very different than what we're dealing with today.

Yes, certainly on credit. Okay, I'll pass it on and I know you have lots of questions. Thanks guys.

We will take our next question from Jeffrey Sprague with Vertical Research Partners.

Guys I wonder if we can drill a little deeper into UOP and what you're actually expecting in Q4 in terms of kind of catalyst and other activity? And then just kind of triangulate it somewhere, where does that bring UOP for the year in terms of year-over-year change versus the prior year for the total year and really where I am going with that too then is thinking about your framework for ‘16 the reduction that you're looking for in activity is that actually an outright decline in UOP for ’16 and any other color there you could give us would be helpful?

Some overall comments and I'll turn it over to Tom. I'd say you're going to see at least three different phenomenon, I guess, one would be what happens on orders, what happens sales, what happens on catalysts. From an orders perspective that's been declining as you know and it's been a little lean here during this year and I would expect next year orders activity is going to pick up and we see that already as Tom mentioned on quotes activity. So we expect the backlog to start building again next year. I want to come to sales because of the lag from backlog to sales. We expect that sales will be down next year in UOP versus this year largely because of that backlog completion, the time it takes to build it back up again. The third phenomenon catalyst, we've seen that starting to pick up again which is a very good sign as you know and we also feel that there is this unrequited demand at this point for refinery reloads that refineries have been making a lot of money. So they have been wanted to ever shutdown to reload in the preferred dwindling yields to shutting down and getting the better productivity. In other words, we wanted to produce while the timing was in their and pricing was in their favor. And we see catalysts start to pick up when we expect that will continue through next year. You put all those together next year we expect sales to be down but orders backlog to start building up and this is just why we have a diversified portfolio, I would say diversity of opportunity for us to be able to manage that because it will come back and I have no doubt in a very good way. Tom, if you have…

Yes just to for a little more specific timing, definitely as Dave said, orders have been down particularly on the equipment and gas processing side. But with that said, there is a very strong pipeline for the fourth quarter and we kind of track the quotation activity in our salesforce.com applications and we are seeing a significant amount of inquiries and request for proposal and the like. And so we've got a very visibility to some what could be a strong fourth quarter, in terms of the backlog -- by the end of year sure it will be down year-over-year, but it's not going to be earth-shattering down, could be high single digits maybe slightly into double digits but that will be manageable. On the catalyst side, they're having a fantastic year and they had a fantastic orders quarter in the third quarter and it's going to lead to a really strong fourth quarter on the catalyst side. We'll probably be mid-to-high single digit growth on the catalyst for the full year and we hope to sustain that level of sales in 2016 on the catalyst offset, there is pressure that you will see a bit from the backlog I mention.

Jeff, I should add on the process control side, we actually expect sales will be up next year versus this year as we start to see the benefit of those megaprojects that we want.

And we'll take our next question from Joe Ritchie with Goldman Sachs.

Thanks. Good morning everyone. Maybe I'll follow-up on that last point on HPS because it seems like the growth in HPS clearly hasn’t been as some of your competitors and so if you can comment a little bit on the share opportunities there and what if anything you're seeing in terms of pricing pressure in that market?

Well. It's a kind of a tale of two cities on the short cycle side. We have seen the decline there that we've talked about. On the other side looking at these big projects the mega projects where we've always said that is really where our big market is and where we do a [projectedly] well because of the complexity and the numerous amount of input and output points that you have to maintain, we've always done well there and we've done really well over these last couple of years printing a lot of these big orders that are going to do very well for us and plan to see it through the future. We put all that together while this year has been a little tougher because of that short cycle impact and the tax at the mega projects still coming right away, that reverses next year and we start to see the benefit of that mega project kind of coming through.

Another thing I would add, Joe you asked about pricing in process solutions. Yes it is holding up well as you might expect with the discretionary cuts in our customers basis, you'd see some pressure there, but give the technology that we have really allows us to deliver some value that we are capturing pricing on. So it's holding up fairly well in that segment.

Okay. No it's helpful. And maybe kind of following up a little bit on Scott's comments from earlier and asking explicitly, we've been in inorganic growth, you call the [indiscernible] for the last few years and your margin expansion has been really impressive. And you've been able to kick out double-digit earnings growth, as you look into '16, I mean is there an opportunity for you guys to continue to do double-digit type growth in the environment that we're in today?

I want to say that certainly one of the things we're going to be looking at as we go through our AOP planning and as I probably mentioned in the past we started planning for 2016 in particular back in January of this year recognizing that the kind of macro environment, we were in and that it would require more advanced planning than a lot of companies do when it comes to how far out you look. And we're going to talk a lot more about that at the December call. But I fully expect that in a slow growth environment we're going to continue to expand margins in a way that people are going to like.

Will take our next question from Howard Rubel with Jefferies.

Thank you very much. You gave your China numbers were pretty good. Could you elaborate a little bit on that, I mean it's probably a tale of the multiple cities and products as to what worked, what didn’t and how are you seeing the environment?

Well, you're right. China is a bit of I think dichotomy at this stage because there is somethings that are still doing well and something's that aren’t doing so well and depending upon which company you talked to, you can end up on either side of that. We are one of the guys that are doing pretty well overall. I say we are seeing the oil and gas negative impact there just like we are around the rest of the world. But when we take a look at our Aero and Turbo business that’s doing fine and when we take look at ACS in particular that’s doing great, still doing double-digit and as you know it's been very good for the whole year and I'd say driven by a couple of things. One is the kind of seed planting that we've done in the past, that we've talked about, where we want to be the local guy and there have more mid-market product and that’s really helped us to be able to expand the markets that we serve and pulling together all of the ACS stuff into a single China operation has helped us a lot there also. But I think some of this a good chunk of it is just our increased competitiveness and the ability to go after mid-market. On the other side of it, we're still in the second point of it. We're still in a decent spot when you take a look at the overall needs for construction and retrofit, old buildings there is still a lot of upside there for us with ACS so I'd attributed it to. Tom I don't know if there is anything you want to add?

And then just as a follow-up on a little bit broader, a lot of the results were driven by productivity or HOS Gold or some things like that and this has been a terrific program for a long time. How do you modify it or change it so that people don’t become complaisant?

The other thing I would add is that all the new products that we had, that we introduce into the systems that have higher margin rates that what we have before because of the value was able to provide to the customer through either [Huey] or combing functions or been able to give them a better price with the better performance. That really does make a difference over time and just makes you much more competitive and a lot more profitable, so that impact is there in there also. In terms of keeping it fresh that's not that difficult I'd say for us to do and often times say the only thing that I ever worry about when it comes to Honeywell generally is that we lose our hunger. And I don't think that's going to happen, everybody still pretty hungry and wants to perform and we want that multiple premium that we think we deserve and we're going to keep doing everything we need to get it then I could promise everybody think in that way.

And we'll take our next question from Andrew Obin with Bank of America Merrill Lynch.

A question on BAC conversion, it has been slow for a while, what do you think it really takes for to pick up and what was the last time we saw that kind of phenomenon?

I think Andrew you're referring to the orders phenomenon and I talked about the backlog yes. I think it's interesting the mandates on the federal side by the President then pretty clear to the agencies and they have gone out and done all the outfield work. They have found the vendors they want to work with and they've held the competitions and right now they're in the state of needing to move close these out and actually get to the work implemented. And we're seeing some delays on that as a go through the budgeting process for next year, but I fully expect that is as they are preparing budgets which is on the federal side that this will be a practice they have to consider and incorporate.

And what was the last time we saw something that [ph]?

I don't recall -- that meeting everything is in.

This one kind of an unusual I have to say. We've got a little by it ourselves than it just shows there is a lot of pent up demand out there and I mean you're dealing with government, so they don't always move as quickly as any of might like, but that's all going to play in at some point here.

And then can I ask you, sorry.

I would say it's a good deal for them. This is one of those things where with no money out on from them, they end up saving money which oftentimes takes them some work to be able to understand and convince others, but once they do it generally gets there. So I am pretty confident the stuff’s going to convert, it's a question of timing.

And if you can give us a preview and I know you guys are going to have a sort of a call about this, but just in terms of five year plan if you look at revenues, it's no surprise I think that the revenues are running at the low end of the expectations. At the same time if I look at the margin performance it's just amazing, how should we think this framework growth versus margin in the longer term and do you need to adjust people's behavior inside the Company to sort of get more margin in a lower growth environment?

I am not worried about changing behaviors to get the margin rate performance because we're doing all that stuff now, so it's going to work out, that will work out fine. When it comes to how do we perform versus the five year plan, who knows what the economy does in ‘17 and ‘18 as I often times say the future has this odd way of unfolding differently than all of us predict and while I am predicting slow growth right now, there is a chance it could go the other way around. I don't see a recession; however, there is a chance that this could just become something a lot better. Put all that together and I would have to say the sales growth to your point that we estimated in the five year plan looks 40 at this point even with the inflexion that we're expecting. On the margin rate side still have high expectation there and as you recall in the Investor Day, one of the things we try to show was not just the 5-year plan but where we thought each business in the Company could get to. And when you look at that you’ve got pretty sure we had a chart in there a couple of years ago when we did this, when you look at that you see, jeez, there's still a lot of room to penetrate and we have higher margin rate peers in every single business that we're in and for the Company in total. And we're going to be able to continue to drive that and everybody in the Company is driving to those long-term numbers not just to achieving the 5-year plan.

And we'll take our final question from Gautum Khanna with Cowen.

I have two questions if you wouldn't mind. You mentioned the strong bid pipeline for the Thomas Russell [indiscernible] gas processing opportunities, I was just wondering if you were to book a couple of those in next few quarters, could there actually backfill the decline you are expecting at UOP next year or are these projects mostly for delivery beyond 2016 and then I had a quick one on the aftermarket as well.

I would say on the gas side, to the extent that we get those quarters, we can turn them pretty quickly. We’re going to stay concerned on what do we really expect when it comes to orders, we were encouraged that we got a couple of orders there in this past quarter versus none in the first six months of the year and we’re hopeful that we land a couple of more in the fourth quarter and early next year, but too early for us to commit on that. In terms of with that alone be not have decline in EOP sales next year, I’d say that’s unlikely. Most likely what we’re going to be dealing with is sales decline when it comes to EOP. But as you know catalysts are pretty good for us and we expect the catalyst to form well and that let’s say good mix to have.

And if you could talk a little bit more about the commercial and aerospace, ATR spares trends you mentioned some of the geographies were weak. Do you think there has been destocking going on in certain geographies this year? And can you also talk about provisioning this year and perhaps next year given the A350 ramp you sided on the OE side? And thanks.

Well, a couple of comments and then I’ll turn it over to Tom. Trying to understand exactly what is happening out there when it comes to spares is always worth you’ve probably heard me saying this before but it’s kind of an amorphous blob in terms of trying to understand what’s in there and what’s happening. So as a result of that another reason we tend to [technical difficulty] to stay pretty concerned in terms of what we expect. Overall though we’d expect continued spares growth next year it may show as in the repair and overhaul area rather than what we might define as spares. But overall, we’d expect growth to continue there and there has been some softness in China that we’ve talked about. The overall way to look at it I think the indicator that I always pay attention to is what’s happening on flight hours and as long as flight hours are growing, it means that there is going to be a demand and pull for spares and repairs of some kind and that’s the overall long term phenomena on that matters. How it plays out in the short-term is a little tougher to figure out. Tom?

I mean you pretty much said it Dave. The R&O work that we do does consume a lot of spares and that R&O business is growing very strongly. And so when you consider them in their totality I think it’s very healthy and it is in line with the flight hour growth. So that’s what we expect to continue, yes maybe there is some consolidation in airlines or different buying behaviors but overall we have kind of become accustomed to those and dealing with our approach. So I expect us to be continue to be in line with the flight hours.

And provisioning, do you expect any change there year-over-year?

I think year-over-year it should be fairly stable.

And what percentage of the ATR aftermarket today is provisioning if you could just remind us?

I don’t think we go into that generally. Nice try though [indiscernible].

That concludes today’s question-and-answer session. At this time, I’ll turn the floor back over to Dave Cote for any additional or closing remarks.

Thanks. We’re quite pleased with our continued ability to deliver double digit earnings growth even in this slow growth economy. And we recognize that kind of outperformance as what you have come to expect from us and we intend to continue outperforming. The growth programs that we have funded in every business and region will continue to deliver, and even more so in the future. That growth combined with continued process improvements from things like HOS functional transformation and GOE and the like will add to our capability to margin rates and we look forward to continuing to deliver for our investors. Thanks.

That does conclude today’s teleconference. Please disconnect your lines at this time and have a wonderful day.