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Honeywell International, Inc. (NYSE:HON)
Q1 2018 Earnings Conference Call
April 20, 2018, 7:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen. Welcome to Honeywell's First Quarter Earnings Conference Call. At this time, all participants have been placed in a listen-only mode and the floor will be open for your questions following the presentation. If you would like to ask a question at that time, please press *1 on your touchtone phone. If at any point your question has been answered, you may remove yourself from the queue by pressing *2. Lastly, if you should require operator assistance, please press *0. As a reminder, this conference call is being recorded. I would now like to introduce your host for today's call, Mark Macaluso, Vice President of Investor Relations.

Mark Macaluso -- Vice President, Investor Relations

Thanks, Kathy. Good morning and welcome to Honeywell's First Quarter 2018 Earnings Conference Call. With me here today are President and CEO Darius Adamczyk and Senior Vice President and Chief Financial Officer Tom Szlosek. This call and webcast -- including any non-GAAP reconciliations -- are available on our website at www.honeywell.com/investor. Note that elements of this presentation contain forward-looking statements that are based on our best-view world and on our businesses as we see them today. Those elements can change, and we ask that you interpret them in that light. We identify the principal risks and uncertainties that affect our performance in our annual report on Form 10-K and other SEC filings.

For this call, references to earnings per share, free cash flow, and effective tax rate exclude impacts from separation costs related to the upcoming spinoff of our Homes and Transportation Systems business along with recent tax legislation. This morning, we will review our financial results for the first quarter of 2018, share our guidance for the second quarter, and provide an update to our 2018 outlook. As always, we'll leave time for your questions at the end. With that, let me turn the call over to President and CEO Darius Adamczyk.

Darius Adamczyk -- President and Chief Executive Officer

Thank you, Mark, and good morning, everyone. Honeywell had a very strong start to 2018 with first-quarter earnings per share of $1.95, up 14% year over year, exceeding the high end of our guidance range by $0.02. Our earnings this quarter were driven by organic sales growth of 5%. The growth was strong across the portfolio, particularly in Aerospace, SPS Warehouse Automation, and PMT Process Automation businesses. We expect this momentum to continue throughout the year. Our long-cycle orders are up 35% and our long-cycle backlog was up double digits, with particular strength in Intelligrated, Aerospace, and UOP. I will touch upon our revised full-year guidance in a minute.

Operational performance was also strong, as evidenced by the 40 basis points of margin expansion and 30% growth in free cash flow. We benefited from our continued investments in Commercial Excellence together with material productivity and volume leverage. The margin expansion was within our guide and in line with our long-term target of 30 to 50 basis points' expansion per year.

Free cash flow in the quarter was about $1 billion. The 30% growth follows an exceptionally strong first quarter of 2017, where free cash flow was up more than 500%, so the cash performance is even more noteworthy, and yet, we believe there is even more improvement ahead, driven by our companywide initiative on cash and working capital. Finally on Q1, we continued to aggressively deploy capital, repurchasing nearly $950 million in Honeywell shares. We are also tracking well with the cash repatriation plan we reviewed at our Investor Day in February, which contemplated more than $4 billion of cash being repatriated in 2018.

Today, we are raising our full-year 2018 organic sales growth guidance to a new range of 3% to 5%, our EPS guidance to a new range of $7.85 to $8.05, and our free cash flow guidance by $100 million. Compared to prior range, our EPS guidance is now $0.10 higher at the low end and $0.05 higher at the high end. These changes reflect both our exceptional first-quarter performance and our confidence in our company's ability to continue outperforming for the remainder of 2018. Our end markets are strong, we are experiencing robust commercial activity, we are executing well as evidenced by our margin and cash performance, and we have significant balance sheet capacity to deploy. In summary, an exciting start to what we expect to be a very strong year.

Let's turn to Slide 3 to highlight some of the recent news from our businesses. In Aerospace, we signed three contracts with Singapore Airlines Group to provide the latest Honeywell technologies and solutions to help improve operational capabilities for Singapore Airlines, SilkAir, and Scoot. The agreements include a variety of services and equipment, including weather radar, navigation systems, auxiliary power units, predictive maintenance technologies, and 24/7 engineering and maintenance support.

Additionally, Singapore Airlines Group and Honeywell signed a memorandum of understanding to jointly work to implement Honeywell's Connected Aircraft technologies to reduce operational risk, improve efficiency, and maximize aircraft performance. As a result of the agreements, the family of airlines will receive better and more predictive maintenance services that will reduce mechanical delays and cancellations, and through connectivity and analytics, flying will be more efficient and cost-effective. We are seeing significant demand for our customers for Connected Aircraft offerings, and we continue to lead the industry when it comes to innovation in this area.

In Home and Building Technologies, we launched the INNCOM e7 thermostat for hotels, a new Connected Building offering. This is the first enterprise-grade environmental control and energy management solution that incorporates Amazon's Alexa voice control for temperature, lighting, drapery, and amenity functions. Honeywell's income hospitality solutions are used in more than 1.5 million guest rooms around the world.

In Performance Materials and Technologies, we introduced a cloud-based simulation tool that uses a combination of augmented reality and virtual reality to train plant personnel on critical industrial work activities. With more than 50% of the oil and gas workforce due to retire within the next five years, the Honeywell Connected Plants Skills Insight immersive competency tool is designed to bring new industrial workers up to speed quickly by enhancing training and delivering in new and contemporary ways. An upstream oil and gas customer in Europe is already using this solution to improve the productivity and skillset of its employees.

In Safety and Productivity Solutions, we launched the Dolphin CN80 ultra-rugged handheld computer for demanding environments such as distribution centers and partial delivery. The CN80 is the latest device to run on Honeywell's Android-based Mobility Edge platform, which is composed of common software and hardware, architecture, and a suite of device tools. The scalable architecture allows customers to develop, test, and certify applications just once before deploying them to multiple device types across the enterprise, allowing companies to accelerate deployments, optimize device performance, and extend the total product lifecycle with the objective of lowering the total cost of ownership.

We launched the first Mobility Edge device late last year, the Dolphin 60s for transportation logistics and direct store delivery, and we will launch two additional Mobility Edge devices for a variety of markets later this year. There has been significant demand for our Android-based products, and we expect to see the impact of our new launches in our second-quarter results.

The final highlight is a new environmental commitment we made in China to reduce China-specific greenhouse gas emissions for our facilities by 10% per dollar of revenue from 2016 levels by 2022. We have voluntarily implemented more than 100 energy efficiency projects at our sites in China since 2011. Globally, we have reduced Honeywell's greenhouse gas intensity by more than 65% between 2004 and 2017 and increased our energy efficiency by 60% in the same timeframe. By 2019, we will reduce our global greenhouse gas emissions by an additional 10% per dollar of revenue from our 2013 levels. Since 2010, we have implemented more than 3,600 energy efficiency and water conservation projects. We are proud of our environmental, social, and governance track record and are committed to continued excellence in this area. With that, I'd like to turn the call over to Tom, who will discuss our results in more detail.

Thomas A. Szlosek -- Senior Vice President and Chief Financial Officer

Thanks, Darius. Good morning. I'm on Slide 4. As Darius mentioned, we had a very strong start to 2018, reported sales up 9%, organic sales up 5% in the quarter. The markets we serve generally are strong, but our continued organic sales growth also reflects our strong market positions and the investments we've made in the sales organization and in new product introductions. The difference between reported and organic sales is primarily the impact of foreign currency translation, mainly related to the Euro.

Segment profit was up 12% in the quarter and segment margin expanded by 40 basis points to 19.2%, primarily due to the benefits from material productivity, Commercial Excellence, volume leverage on higher sales, and benefits from previously funded and completed restructuring projects. Earnings per share was $1.95, up 14%, exceeding the high end of our guidance range by $0.02. This excludes spin-related separation costs of about $55 million in the quarter. We'll walk through the details of our EPS performance in a second.

Free cash flow in the quarter of $1 billion was up 30%, driven by strong operational performance, particularly in HBT and Safety and Productivity Solutions. As Darius mentioned, we're still in the early stages of our working capital initiatives, but we're encouraged by our progress and by the additional opportunities that are emerging from the enterprisewide focus we have in this area. We continue to deploy capital, and in the quarter, repurchased nearly $950 million worth of Honeywell shares. After growth investments and paying a competitive dividend, our preference is to deploy capital to M&A, but in the absence of immediate opportunities, we'll continue to opportunistically repurchase outstanding shares. Q1 certainly presented ample buying opportunities given the pricing level and our general positive outlook on the growth of the company.

Overall, we're pleased with the start to the year, with robust sales growth and high-quality earnings. Slide 5 walks our earnings per share from the first quarter of 2017 to the first quarter of 2018. The preponderance of our earnings growth -- $0.21 -- came from segment profit improvement, driven by enhanced sales growth across the company, the impacts from our Commercial Excellence efforts, productivity improvements realized through HOS Gold, and savings from previously funded and completed restructuring projects.

Below-the-line items were a $0.03 tailwind this quarter, primarily due to higher pension income, reflective of strong performance of the assets in our pension plan and lower discount rates. As a reminder, our U.S. pension plan is approximately 110% funded, and we announced in February that we modified the asset allocation in our fund, shifting our plan assets to comprise about 50% fixed-income-type investments, up from 20% previously. This change will not affect 2018 pension income. We do expect a reduction to 2019 pension income but anticipate being able to overcome the impact due to our profit growth prospects. Therefore, this is not expected to be an EPS headwind for 2019.

Our effective tax rate in the quarter was 23.6% versus 22.7% in the first quarter of '17. Our estimated rate for the full year remains in the 22% to 23% range, and most of the tailwinds coming from the tax reform legislation will be in the second half of 2018. In February, I spoke about how the recent U.S. tax reform would impact Honeywell. The $3.8 billion provisional charge we recorded in the fourth quarter of 2017 is still subject to revision throughout the course of 2018, but there was no adjustment to that amount in the first quarter.

We still expect to repatriate approximately $7 billion of overseas cash by the end of 2019, with at least $4 billion of that coming in 2018, as Darius said earlier. There continues to be a regular flow of guidance and clarification in this area, which could result in changes to the provisional charge, the effective rate, and the timing of the repatriation. We'll continue to update you on any material changes that arise. To close out the walk, other items -- including the lower share count from our share repurchase activity and noncontrolling interests -- were a $0.02 benefit versus the first quarter of 2017.

Let's turn to Slide 6. As you'll recall, we changed the HBT organization structure to segregate the Homes business from the rest of the portfolio that will remain with Honeywell after the spinoff. Buildings is roughly a $5.3 billion business, or just over half of the HBT portfolio, and includes building products like fire controls, commercial security, and air and water filtration products. Connected Buildings includes our controls and integrated software for commercial HVAC and building management.

Building Solutions includes our integrated hardware, software, installation, and service offerings for more complex buildings and structures. Homes is roughly a $4.5 billion business that comprises comfort and care, including our residential thermostats and HVAC controls, safety and security, which includes the residential components of our former security business, and distribution, which is the global ADI business. You'll see the sales from the Homes and Building businesses separately presented in our filings beginning this quarter.

Let's turn to Slide 7 to discuss our segment results for the quarter. Beginning with Aerospace, sales were up 8% on an organic basis, led by commercial OE, where growth in both air transport and business aviation was nearly double-digit, driven by robust deliveries on key platforms, including the A320, Boeing 737, and Bombardier Challenger 350. We're on winning platforms and continue to expand our install base. We expect the OE growth and install base to continue, as our long-cycle backlog in the OE business is up more than 15%. As Tim mentioned at our Investor Day in February, we're beginning to see the business aviation OE market recover. Our winning positions across engines, APUs, and avionics will benefit us in the anticipated upturn.

In Defense, we achieved close to 20% growth in U.S. defense, driven by higher sensors, guidance systems, and engines demand, and sales of engines and avionic spares into Army and Navy programs. Transportation Systems grew 7% organically, driven by demand for light vehicle gas and commercial vehicle turbos, particularly in North America and China. Organic growth in commercial aftermarket of 4% was driven primarily by strong R&O demand and another quarter of double-digit growth for our JetWave satellite communications hardware, partially offset by delayed spare shipments. For the full year, we expect aftermarket sales growth in the low to mid-single-digits range.

Aerospace sales were up 12% on a reported basis, with the difference between the organic sales growth resulting from foreign exchange fluctuations, which was a 3-point impact, and the adoption of the new revenue recognition accounting standard, which was a 1-point impact. We anticipate that the revenue recognition impact will be immaterial for the full year. Aerospace segment profit was up 12% and segment margin expanded 10 basis points. We continue to see the benefits from the Honeywell initiative to drive productivity and Commercial Excellence, and we encourage slightly lower customer incentives, but this was largely offset by higher volumes of lower-margin OE shipments, inflation, and foreign exchange.

It's also noteworthy that we expanded margins 90 basis points in the first quarter of 2017, generating significant productivity and repositioning benefits on flat organic sales. We're pleased with the install base growth in Aerospace resulting from the pickup in OEM volumes and expect that margin expansion will improve sequentially throughout the year.

In Home and Building Technologies, our organic sales growth was 2% for the quarter. Homes grew 6%, driven by double-digit growth in residential thermal solutions and robust demand for thermostats in North America. Sales grew across all regions in ADI, driven by Commercial Excellence, new product introductions, and demand in India and Europe. In the Buildings business, organic sales growth was flat year over year.

The legacy Building Solutions business grew 4%, driven by backlog conversion in the energy vertical and strong demand in high-growth regions, but was partially offset in Buildings products as a result of lower seasonal demand for air and water products in China and some February supply chain challenges within the Buildings products business. HBT segment margins expanded 50 basis points, driven by Commercial Excellence, the benefits from previously funded and completed restructuring, and material productivity.

In Performance Materials and Technologies, sales were up 3% on an organic basis, driven by growth in process solutions and in UOP. Sales in HPS were up 4% organically with solid growth globally in thermal solutions and strong demand for gas and electricity meters in EMEA. Short-cycle demand was also strong in the HPS aftermarket and Field Instrumentation businesses. UOP sales were up 3%, driven by robust engineering and catalyst growth in both refining and petrochemicals, the latter being driven by new units in China.

In Advanced Materials, continued customer adoption of our broad range of Solstice low-global-warming products drove growth. The strong orders growth throughout PMT and the UOP long-cycle backlog growth is fueling our expectations for continued PMT sales growth. PMT segment margin was flat year over year. Benefits from previously funded restructuring, productivity net of inflation, and Commercial Excellence were offset by unfavorable mix, the timing of catalyst shipments at the end of the quarter in UOP, and in foreign exchange.

In Safety and Productivity Solutions, sales were up 6% on an organic basis, primarily driven by double-digit sales growth at Intelligrated from major new systems. Orders growth in Intelligrated this quarter was extraordinary and contributed to the long-cycle backlog improvement I mentioned earlier. SPS also experienced higher volumes in sensing and scanning products, with strong demand in India and China.

We were encouraged by the orders momentum stemming from the launch of our first Mobility Edge Android product offering. We expect to see an improvement in mobility sales in subsequent quarters as the remainder of the Mobility Edge products that Darius mentioned earlier are launched. Similar to the fourth quarter, the robust volume growth and ongoing productivity efforts in SPS enabled 130 basis points of segment margin expansion.

Before we get into our second-quarter and full-year outlook, I wanted to provide some information on how the recently announced tariffs will affect Honeywell, as well as the proactive actions we're taking to address these items. So, I'm on Page 8. Regarding the Section 232 steel and aluminum tariffs, based on what has been enacted as of today, our exposure is relatively minimal -- less than $10 million of gross tariff impact. Our direct Tier 1 and indirect Tier 2 spend in these categories across Honeywell is small, and the imported portion of that spend is even smaller. The more significant impact is the secondary effect from the price inflation on non-imported steel and aluminum. Here, we've put in place aggressive mitigation strategies that largely offset any impact to Honeywell.

Regarding the China tariffs, this is clearly a fluid situation. We continue to assess our exposure, while also actively developing mitigation plans. The proposed tariffs do not take effect until May, and the U.S. and China intend to negotiate in the interim. We suspect the scope of impacted products and tariffs is likely to change, but we'll be prepared either way and update you as we learn more. As Darius mentioned, the impact of anything that has been enacted as of today -- so, the Section 232 tariffs -- has been considered in our full-year outlook.

I'll cover the expectations for the second quarter on Slide 9. We exited the first quarter with strong order rates and backlogs, which we expect will drive strong organic sales growth in the range of 3% to 4%. In the second quarter, segment margins are expected to expand 30 to 50 basis points, driven by increased volumes, Commercial Excellence, and productivity net of inflation, leading to earnings per share of $1.97 to $2.03 or growth of 9% to 13%. We expect that our second-quarter tax rate will approximate 24% and continue to expect that our full-year tax rate will be between 22% and 23%. Consistent with our previous communications, guidance for the second quarter and the full year excludes cost related to Homes and Transportation Systems spinoffs, as well as adjustments -- if any -- to last year's provisional charge related to the tax reform legislation.

In Aerospace, we expect continued strength in commercial aviation original equipment sales. On the air transport and regional side, growth will be driven by demand for the Boeing 737 and A318 and A320. We also expect continued growth in business and general aviation as the oversupply of used aircraft continues to subside, OE new platform certifications are attained, and mandates continue to come into effect. Within the aftermarket, we expect strong repair and overhaul demand driven by flight hour growth in both ATR and business aviation.

We anticipate continued double-digit growth in the Defense business, with robust spares volume both in the U.S. and internationally, F-35 demand, and growth in sensors and guidance products. Within Transportation Systems, we expect similar dynamics as the first quarter. That is strong gas turbo demand in China and the U.S. and continued growth in commercial vehicles.

In Home and Building Technologies, we anticipate continued growth in Homes products, driven by strong demand for thermostats and residential thermal solutions and continued strength in ADI globally as a result of Commercial Excellence and high-growth region efforts in that business. On the Building side of the business, strong orders exiting the first quarter point to robust demand for Building products, particularly commercial fire products, and we expect continued momentum in building solutions.

In Performance Materials and Technologies, the second-quarter dynamics are expected to be similar to the first quarter. In UOP, we expect growth across all businesses, including strengths in licensing and equipment, catalyst demand driven by new units and reloads in China, and gas processing and hydrogen backlog conversion. Exiting the first quarter, our order rates were up double-digit for smart energy and thermal solutions and process solutions, which will drive continued demand for those products in the second quarter.

In Advanced Materials, we expect continued customer adoption of our Solstice low-global-warming products for applications like supermarket refrigeration, aerosols, and foam insulation in addition to ongoing momentum in Solstice mobile air conditioning. Second-quarter margin performance in PMT will be driven by similar forces as the first quarter, with benefits from productivity, increased volumes, and Commercial Excellence, partially offset by the mix of higher equipment and engineering growth, sales of lower-margin catalysts, and higher installation services revenue within the gas processing business. Our PMT install base is large and continues to grow. UOP backlog is up more than 15%, putting us in a really great position, which will drive strong future profitable growth as these projects enter into our serviceable install base.

In Safety and Productivity Solutions, we anticipate continued double-digit growth in Intelligrated, building off strong orders and long-cycle backlog from the first quarter. Safety will also be strong with significant demand for gas detection and high-risk safety products. Within the Productivity business, we expect continued demand for legacy sensing products, building on strong first-quarter orders growth in that business. Additionally, our new Android-based product launches are starting to drive growth.

I'll move to Slide 10 to cover our revised full-year guidance. We've updated our full-year sales, earnings per share, and free cash flow guidance to reflect our stronger than expected performance in the first quarter as well as our confidence in the outlook for the remainder of 2018. Our revised guidance incorporates the impacts of enacted new U.S. tariffs for steel and aluminum. As I discussed previously, we expect to fully mitigate the effect of the steel and aluminum tariffs in each business unit. We're also working through plans to address the impact -- if any -- from other potential tariffs that have been announced but not enacted.

Full-year organic sales are now expected to be up 3% to 5%. This is driven by favorable conditions in our end markets, our emphasis on organic growth initiatives like Commercial Excellence, and continued penetration in high-growth regions along with robust long-cycle orders and backlogs. On a segment level, we now expect Aerospace organic sales to be up 3% to 5% versus a previous range of 1% to 3%, driven by an improved commercial OE outlook, particularly in business aviation, and strong demand within our U.S. Defense business.

The organic growth rate and margin outlooks for all other segments are unchanged. We have updated the reported figures to reflect the anticipated continued tailwind from foreign currency translation. Our segment margin estimates for the full year remain unchanged. We raised the low end of our free cash flow guidance by $100 million and continue to target free cash flow growth of more than 20%, driven by higher net income, lower CapEx, and better working capital performance in all of our businesses.

Our estimated full-year effective tax rate continues to be between 22% and 22% and our guidance is planned at the higher end of that range. As Darius mentioned, we also raised our full-year EPS guidance by $0.10 on the low end and $0.05 on the high end. The new range of $7.85 to $8.05 represents earnings growth of 10% to 13%. Our guidance reflects a revised weighted-average share count of 758 million shares, which is down approximately 2% from 2017 and does not reflect additional share repurchases that might occur over the remaining course of 2018.

Let me wrap up on Slide 11. The first quarter was an outstanding start to 2018 with 5% organic sales growth, 14% earnings growth, 30% free cash flow growth, and impactful Connective Product launches across the portfolio. We expect the momentum to continue. We've got strong order rates and a growing backlog as we begin the second quarter. Our second-quarter EPS guide of $1.97 to $2.03 reflects that momentum. We raised our full-year guidance to reflect our performance and the positive macro environment in many of our end markets and continue to be well-positioned for outperformance in 2018. The preparation for our two spinoffs -- Homes and Transportation Systems -- continues, and we're on track for their timely completion. So, with that, Mark, let's move to Q&A.

Questions and Answers:

Mark Macaluso -- Vice President, Investor Relations

Thanks, Tom. Darius and Tom are now available to answer your questions. Kathy, if you could, please open the line for Q&A.

Operator

Certainly. Thank you. The floor is now open for questions. At this time, if you have a question or comment, please press *1 on your touchtone phone. If at any point your question has been answered, you may remove yourself from the queue by pressing *2. We ask that when you pose your question, please pick up your handset. Thank you. Our first question will come from Steve Tusa of JP Morgan.

Stephen Tusa -- JPMorgan Chase -- Managing Director

Hey, guys. Good morning. Can you just walk through the -- as you look at the second half, some of the puts and takes in some of the businesses that will either accelerate or decelerate? I think this quarter was obviously good organic growth; it was a little bit bifurcated, with some doing well and some more in the low single digits. Maybe if you could talk about some of the subsegments that move around in the back half of the year.

Darius Adamczyk -- President and Chief Executive Officer

Sure, I can start and then turn it over to Tom. Overall, the summary note is we're fairly bullish on all the segments. Obviously, Aero started off the year very strong from the top-line growth rate. We anticipate that mix to change a bit more between OE and aftermarket, so that might temper the growth rate at the top level, but nevertheless should improve margin performance.

In terms of PMT, we see acceleration clearly in the second half of the year, particularly in HPS and UOP, especially given the kind of order rates that we've seen, and also, a much more favorable mix going forward. HPT -- a very solid quarter. We expect that one to remain steady for the year. We don't see any major changes versus the kind of run rates we've seen.

And then, SPS... I think that one -- the growth rates there we anticipate to be similar, if not higher, going forward. Certainly, even more upsides from Intelligrated, further recovery from the Productivity products business, and Safety. So, overall, flat to down. That's at a higher level. Tom?

Thomas A. Szlosek -- Senior Vice President and Chief Financial Officer

The only thing I'd add is -- and, that was a good summary -- the strong performance in the first quarter across the board -- I think Aerospace, in particular, was the one that gave us more lift than we'd anticipated, and that's the reason we're principally raising the guide for sales growth for the rest of the year. The other three businesses, the growth guidance is the same. And then, margin guidance for each of the business is relatively similar to what we had guided previously.

Stephen Tusa -- JPMorgan Chase -- Managing Director

And, with the commercial Aero OE drivers, was that large commercial or was that beginning to see some of the business jet pick up?

Thomas A. Szlosek -- Senior Vice President and Chief Financial Officer

It's both. We've got close to double-digit growth in both of the segments.

Stephen Tusa -- JPMorgan Chase -- Managing Director

Okay. And then, one last one, Darius -- acquisition pipeline. Any change in your view there? There was some buzz about perhaps a big catalyst deal. How do view the catalyst space? It's not obviously a software-related asset, but is it something that obviously you guys continue to find attractive, or would you rather focus your acquisition dollars on more software-specific assets and connected assets?

Darius Adamczyk -- President and Chief Executive Officer

I would say the pipeline continues to be robust. I wouldn't believe everything you read, Steve, but I think overall, as we look at our UOP business, that's one of the best businesses we have in the portfolio, and anything we can do to complement and augment it is probably something that would certainly deserve a look. But, overall, you saw we deployed capital in Q1. I thought the stock was a deal at $165.00 a share. In the low 140s, it becomes an absolute no-brainer. So, we did deploy capital a bit more aggressively in Q1 than we anticipated given the opportunistic market that presented itself, but I will tell you that we're very aggressively looking at potential M&A, and we expect something to happen here, hopefully in the next quarter or two.

Stephen Tusa -- JPMorgan Chase -- Managing Director

Okay, great. Thanks a lot.

Operator

Our next question will come from Gautam Khanna of Cowen and Company.

Gautam Khanna -- Cowen and Co. -- Analyst

Yes, thank you guys. Just to follow up on that last question, I was hoping you could expand upon what types of acquisition sizes you're seeing out there. What would be a reasonable expectation this year in terms of how much capital you may deploy for acquisitions? I know it's hard to tell, but any more color...

Darius Adamczyk -- President and Chief Executive Officer

Yeah, it is. There are so many factors involved here that this kind of size and this kind of size -- it all depends on what the opportunities are. I've stated before and I'll stay consistent that our preference is for bolt-on acquisitions, so, in a roughly $3 billion or less ZIP code purchase price. That's a rough figure, but that's what I'd expect, and based on the pipeline and based on what we see in there, I'm still fairly confident of that figure. So, that's my expectation. I don't anticipate any mega deals out there. I don't see that happening. So, expect something $3 billion or less in that kind of range.

Gautam Khanna -- Cowen and Co. -- Analyst

And, one follow-up. Darius, in the past, you've talked about how portfolio review is going to be an iterative process. You obviously have the spins. I'm just curious -- are there other things in the portfolio that, as you learn more about, maybe don't fit? I'm just curious how evolutionary is this process? Do you basically have what you need?

Darius Adamczyk -- President and Chief Executive Officer

Oh, no. It's definitely -- we look at that at least a couple times a year, if not more. We're continuously looking at the deep dive over our portfolio. Our internal strategic planning period is in July, so as you can imagine, it's going to be another full review, and we do that two or three times a year. As I mentioned last year, the portfolio is always going to be evolving. We're always going to be making it better and adding to the top, subtracting from the bottom, businesses that we don't classify as Honeywell businesses that may be fantastic businesses in their own right, but frankly, don't fit the Honeywell portfolio. So, I expect that kind of top-grading process of what is a Honeywell business to continue. By the way, not that there's anything imminent, but you should expect us to continue to review our portfolio.

Gautam Khanna -- Cowen and Co. -- Analyst

Thank you, guys. I appreciate it.

Operator

We will now move to Julian Mitchell of Barclays.

Julian Mitchell -- Barclays Investment Bank -- Analyst

Thank you very much. My first question is really around the segment margin guides. So, Q1 was up about 40 bps, I think the top end of the second-quarter margin guide is up 50, and you've got the full year at the top end up around 60. So, Aerospace, I can understand. You've got the mix headwind maybe abating as you go through the year in terms of OE versus aftermarket, but I just wondered if there was anything else you'd call out within Aerospace or other segments like inflation or currency impacts on margin that you think will reverse.

Thomas A. Szlosek -- Senior Vice President and Chief Financial Officer

No, I don't think there's any major changes from what we talked about in the original guide. We are seeing a little bit more inflation, but I think we're able to offset through our productivity initiatives. Mix-wise, it isn't really much of a different dynamic, except -- as I said -- for Aerospace. We've got a bit heavier on the OE side, and within the Defense business, we've got a different mix on platforms. But, other than that, we're pretty much in line with what we had guided.

Julian Mitchell -- Barclays Investment Bank -- Analyst

Understood. And, the cadence on productivity savings and so on is fairly smooth through the year?

Thomas A. Szlosek -- Senior Vice President and Chief Financial Officer

Yeah, pretty much. The other thing I would point out, Julian, is that this kind of revenue beat -- we still came in right dead center over our range on margin expansion. That's not that easy to do. When you beat revenue, generally, you take some hit in terms of margin expansion, and we did both. We beat revenue and stayed very much bullseye on exactly what we said we were going to do on margin expansion, so I think that's a good set of facts.

Julian Mitchell -- Barclays Investment Bank -- Analyst

Understood. And then, my follow-up would just be around process. I think you called out good short-cycle demand areas like instrumentation and aftermarket activity. Just wondered what you're seeing on the large project side within process solutions in terms of orders and quoting activity at customers.

Darius Adamczyk -- President and Chief Executive Officer

We're actually bullish on the second half, especially as we look at our order pipeline and some of the mega deals that we haven't seen in a while. It's actually -- the order pipeline looks very robust, and we actually expect an improvement in terms of the potential larger deals in the second half of this year. So, we very much remain bullish on the process business with continued growth, and we anticipate securing some of those larger mega deals in the second half of this year.

Thomas A. Szlosek -- Senior Vice President and Chief Financial Officer

The other thing I'd mention, Julian, is when you look at process, you see the impact of the growth in the install base. The service bank continues to grow nicely for us. It's pushing double digits in terms of the backlog of service bank. So, we're really encouraged by continued investments and projects that build out that install base and give us that momentum going forward.

Julian Mitchell -- Barclays Investment Bank -- Analyst

Thank you very much.

Operator

Our next question will come from Jeffrey Sprague of Vertical Research Partners.

Jeffrey Sprague -- Vertical Research Partners -- Partner

Thank you. Good morning, everybody. Just a couple things on my mind. First, just on the cost and the tariff situation, was there a particular reason you called out UOP as a risk to Chinese retaliation? Why that and not possibly other areas of Honeywell in China?

Thomas A. Szlosek -- Senior Vice President and Chief Financial Officer

First of all, on the aluminum and steel, we're not a heavy metal company. We're technology, so not a lot of steel and aluminum. But, when you look at the tariffs that are country-specific, those don't tend to distinguish between commodities, and in our case, there was a fair amount of activity in UOP around catalyst technology and equipment that flows between the two countries. That's one we're watching closely. We've got some fairly good contingency plans that are developing and are in place, so we're not counting on this just evaporating and going away. Some involve changes to the supply chain, some involve acceleration, some involve working with our customers on different outcomes. Rest assured that Rajeev, Rebecca, and Darius are all very much focused on how to deal with the impacts.

Darius Adamczyk -- President and Chief Executive Officer

The other thing to point out is that a lot of this stuff has not actually been enacted yet, but nevertheless, we want to make sure we're prepared. So, through a combination of shifting of the supply chains, alternative supply chains, value capture -- all those elements -- we want to make sure that we're prepared, and also, offering comment to a lot of the proposed tariffs. So, we're working on this one on many fronts to make sure we don't get caught flat-footed.

Jeffrey Sprague -- Vertical Research Partners -- Partner

And then, just a couple other quick ones. On cash flow, Tom, I think you said you're driving toward 20%-plus. Obviously, your range is 7% to 20%, so you've got some confidence or visibility in that. What needs to happen to get to the upper end of the cash flow range?

Thomas A. Szlosek -- Senior Vice President and Chief Financial Officer

I think we need to do more of what we did in the first quarter? What was really nice about the first quarter was that our working capital was about -- when you look at our statement cash flows, you'll see the amounts we put into working capital are identical year over year, despite the significant growth that we had on the top line, so we're managing that well. I think if we can continue to do that, we'll be in good shape. The other thing that is helping us is we've moderated our CapEx spend. I think our CapEx spend in the quarter was down probably $30 million year over year, so between those two factors and the good volume, I think we are on that trajectory that you referred to.

Jeffrey Sprague -- Vertical Research Partners -- Partner

And then, quickly, I understand all the mix effects going on in Aero, but I was a little surprised you said you see aftermarket only growing low to mid-singles this year. The RPMs and other data would suggest it should be better than that. Is there anything unusual going on there for you? Then, I'll pass the floor. Thanks.

Thomas A. Szlosek -- Senior Vice President and Chief Financial Officer

No, Jeff, I don't think so. For us, there certainly is a fair amount of new install base getting built up, and you have some of the older models that would drive good service bank and good service business coming out of service, actually. And, while the new install base is under warranty, you tend to see a little bit lower revenue on the service side. But, overall, both on spares and R&O, the demand is pretty healthy, and hopefully, we'll continue to drive an accelerated growth over the 4% that we had in the first quarter.

Darius Adamczyk -- President and Chief Executive Officer

One other fact to point out, Jeff, is that we're also driving much more service contracts rather than break-fix events, and we feel that's the right way to operate with our customers. So, probably, we'll have a little bit less cyclicality than some of the others because we want to drive a much more consistent revenue stream rather than a break-and-fix approach, and I think it's one that we've done in a lot of our other businesses, which really aligns our objectives, which is greater durability, better reliability with those of the customers, rather than the opposite. So, that's also a factor here, and Tim and his team are driving a lot of service contracts, both around the Connected Aircraft as well as the service agreements.

Jeffrey Sprague -- Vertical Research Partners -- Partner

Thank you.

Operator

And, our next question will come from Andrew Kaplowitz of Citi.

Andrew Kaplowitz -- Citibank Research -- Managing Director

Good morning, guys. Darius and Tom, Aero service -- you just mentioned a little slower, but Aerospace organic growth has been accelerating every quarter for over a year now, as you know. Business jets and U.S. defense spending both continue to accelerate. So, what is holding you back from recording mid-teens and high single-digit organic growth for the year? Is it just the second half comparisons are maybe still a little conservative in your forecast?

Darius Adamczyk -- President and Chief Executive Officer

Obviously, we did bump it up this quarter. Overall, we bumped up the guide on the revenue for the year after one quarter. We're going to see how it goes. Provided we continue to see these kinds of booking rates, these kinds of growth rates, there may be further opportunities in the second half of the year. It's one quarter in, and although I'm extraordinarily optimistic both on the Aerospace prospects as well as the broader Honeywell, I also have to note it's one quarter. So, as we continue to see the business progress, potentially, there could be more upside in the second half of the year, but we'll see.

Andrew Kaplowitz -- Citibank Research -- Managing Director

Darius, you mentioned long-cycle backlog was up double digits, which is really good to see. It doesn't seem like you've had any recent erosion in your short-cycle business, but could you address that? Have you seen anything in March and April with the increase in rhetoric around protectionism, or has it just been steady as she goes for the company?

Darius Adamczyk -- President and Chief Executive Officer

It's been a bit steady as we go. March was actually a very strong month for us. January was a little bit slower on the short-cycle business. It's a little bit difficult for me to develop a trend here, and most of the tariff and trade protectionism announcements have been in March and April, so impact -- if any -- is not yet to be felt. April seems pretty reasonable based on what we see so far, so we're not seeing major impact yet, but I also think it's really important -- as I pointed out to Jeff -- that we're prepared and that we take appropriate actions to mitigate any potential enactment of the tariffs. So, so far, so good, but we don't know what we don't know, and clearly, the geopolitical environment today is different than it was three months ago. We don't know more today than three months ago.

Andrew Kaplowitz -- Citibank Research -- Managing Director

And, as of now, China is quite resilient -- growth high single digits, low double digits, something like that?

Darius Adamczyk -- President and Chief Executive Officer

Yeah. China growth over in Q1 was north of 20%. I was actually a little bit more worried about China for this year, but based on Q1 -- and, that's coupled in Q1 with not a particularly great Air and Water quarter. Even despite all those challenges in that business, we still grew more than 20%, so that gives you an idea of the kind of positions that we enjoy in China, and certainly, the kind of growth that we continue to experience.

Andrew Kaplowitz -- Citibank Research -- Managing Director

Thanks, Darius.

Operator

And, we will now go to Scott Davis of Melius Research.

Scott Davis -- Melius Research -- Chairman and Chief Executive Officer

Hi, good morning, guys. You just talked about China, but can we walk around the rest of the world a little bit more on both the current quarter and what your outlook is?

Darius Adamczyk -- President and Chief Executive Officer

Sure. In general, our overall high-growth region was high single digits, right about where we were planning. I will tell you China was a highlight, growing north of 20%. India was a little bit slower -- think mid-single digits. That was a bit of a surprise, but we expect that to recover in the rest of the year. Middle East, we're seeing some uptick in activity. Think about mid-single digits there as well. In terms of some of our challenges and what continues to be a little bit of a challenge, Latin America, namely Brazil. We don't see much of a recovery. The election later this year -- hopefully, you'll continue to see some stability, but I would say that's a challenge. Solid growth both in North America and Europe, so, that good level of growth continues there. Overall, fairly steady and consistent growth profile, with the exception of Brazil, which continues to be a challenge.

Thomas A. Szlosek -- Senior Vice President and Chief Financial Officer

And, just on India, Darius mentioned it was a little disappointing, but three of the four businesses were actually double digits. PMT had some timing on some projects that will push out into the second quarter, third quarter, fourth quarter, but I would expect that India's overall composite growth number to improve sequentially over the course of the rest of the year.

Scott Davis -- Melius Research -- Chairman and Chief Executive Officer

Okay, helpful. And, just back to -- there have been two questions now on M&A, and I wanted to dig into one thing. When you think about the Analyst Day, I think Darius made a big focus on Connected Products. When we hear the rumors out there of potential deals and such, how important is building a portfolio from here that has that thematically, and some component, at least, of IoT?

Darius Adamczyk -- President and Chief Executive Officer

I think it's important, but if you really take a look at the criteria of what the Honeywell business and what I look for, nowhere does it say it has to be connected, it has to have an IoT component. That's actually not one of the criteria. About the only thing I do say is that I like less cyclical over more cyclical, but I don't think that's a requirement -- obviously, something that we would clearly look at. But, if we take a look at businesses that are less susceptible to disruption where we see good growth vectors which are well aligned to megatrends, tougher to disrupt, steady growing rather than highly cyclical, they don't necessarily have to be IIoT-related for us to have an interest. So, clearly, those have an interest, but so do technology businesses that don't necessarily have an IIoT orientation.

Scott Davis -- Melius Research -- Chairman and Chief Executive Officer

Okay, good clarification. Thanks, guys. Good luck.

Operator

And, we now have a question from Peter Arment of Baird.

Peter Arment -- R. W. Baird -- Managing Director

Thanks. Good morning, Darius and Tom. Tom, quick one on business jet activity because it's been a while since we've seen this more upbeat around the business jets. I know you've got some new launches this year, so I would expect the OE to be up. But, what are you seeing on the aftermarket side? Is this really a new upturn that we're finally seeing?

Thomas A. Szlosek -- Senior Vice President and Chief Financial Officer

Do you mean on the OE side?

Peter Arment -- R. W. Baird -- Managing Director

Yeah, on the OE, but also, what you're seeing in the aftermarket.

Thomas A. Szlosek -- Senior Vice President and Chief Financial Officer

You can read all the stuff that we read about used jet inventory and the prices and so forth. That clearly is a favorable factor for us. But, I think the biggest thing is the new launches that are coming out, and we've talked a lot in the last couple years about our winning positions on the various platforms, and whether it's Cessna, Gulfstream, and so forth, they've got certifications coming out in '18, and that's going to be a nice factor for us. The other thing is the mandates. You continue to see some of these mandates coming into effect up and through 2020, 2021, and that's going to drive growth as well. So, as I said, for the first quarter, we approached double-digit growth in the OE on both ATR and BGA, and knock on wood, we're encouraged by the momentum.

Peter Arment -- R. W. Baird -- Managing Director

Okay. And, just a clarification, on your air transport aftermarket number, you're up 4% in the quarter, but you had some very strong numbers last year. Is this more a normalization or tougher comps when we think about 2018?

Thomas A. Szlosek -- Senior Vice President and Chief Financial Officer

I think it's what I was saying earlier. Overall, the level of activity has been robust. You are seeing a different mix in the install base of newer aircraft that are under warranty that have less maintenance; you see older aircraft coming out. Beyond that, the level of both repair and overhaul activity and spares has been solid.

Peter Arment -- R. W. Baird -- Managing Director

Great, thanks.

Operator

We will now move next to Joseph Ritchie of Goldman Sachs.

Joseph Ritchie -- Goldman Sachs -- Analyst

Thanks. Good morning, guys. Tom, if I heard you correctly, you mentioned the impact from tax reform, which is likely to be felt a little bit more in the second half of the year. So, the organic growth rate has been great the last few quarters. Maybe talk a little bit about how customer conversations are evolving in the parts of your portfolio that you would expect to benefit the most if you do start to see an increase in CapEx investing as the year progresses.

Thomas A. Szlosek -- Senior Vice President and Chief Financial Officer

I would point to our long-cycle businesses. We just got done talking about business jets. That could be a factor that's contributing to that OE momentum that I referenced. I think on the oil and gas side, I think it's more to do with stability on the pricing and the confidence that it's giving the industry, where you're going to see more CapEx or return to -- not return to previous peak levels, but certainly an improvement from the other clients we've seen in the last couple years. I think those are two places that I would say we'd see it the most.

Joseph Ritchie -- Goldman Sachs -- Analyst

Okay. And then, following on Peter's question versus the second, I didn't hear you guys mention anything on the commercial helo market. I'd be curious to hear any commentary there, given this uptick we've seen in oil and gas recently.

Darius Adamczyk -- President and Chief Executive Officer

Commercial helo is probably not a highlight yet. We don't see a major robust level of activity there yet, but I think we're more than enthused based on what we're seeing on our air transport and uptick in activity in business jets. I guess there always has to be a little bit of a lowlight, and I'd say there's not as strong a recovery as we would have hoped on commercial helo, but nevertheless, the rest of the Aerospace business is very strong.

Thomas A. Szlosek -- Senior Vice President and Chief Financial Officer

And, it's not that it's negative. Internationally, as an example, we are seeing very modest growth on the helo side, but it's not what we were experiencing a year ago or two years ago in terms of the pressures.

Joseph Ritchie -- Goldman Sachs -- Analyst

Got it. Maybe if I could sneak in one last one, on PMT, the margin trajectory -- so, it sounds like the first half of the year, you're calling for flattish-type margins in PMT. As we progress through the year, mix gets a little bit better. Do you already have a lot of that mix in your backlog today, or do you need to see something out of orders in order to see the margin improvement in the second half?

Darius Adamczyk -- President and Chief Executive Officer

Joe, as you know, PMT is a tough business to judge based on one quarter because as you know, the catalyst makeup, and what we ship, and the mix -- particularly within UOP -- can dramatically change the result. So, both based on the backlogs that we see, based on the short-cycle activity in HPS, and so on, when we get to the end of the year, we're very comfortable that the margin expansion is going to look very much in line with what we're projecting and continue to be very bullish on the PMT business.

Joseph Ritchie -- Goldman Sachs -- Analyst

Okay, sounds good. Thanks, guys.

Operator

And, we have time for one last question, and that will come from Steven Winoker of UBS.

Steven Winoker -- UBS Investment Bank -- Managing Director

Thanks for fitting me in, guys. I appreciate it. Darius, I can't help but go back to one of your first comments, which was the fact that the stock's a no-brainer in the 140s. You did spend $950 million on the share repurchase this quarter. That's a good number, but if you're only looking for these acquisitions in the $3 billion or less range, you've got cash continuing to come in. Why not step in even more aggressively? How are you thinking about that? Is it just to keep the powder dry and be more methodical, or are you trying to be more opportunistic, in which case it might be larger?

Darius Adamczyk -- President and Chief Executive Officer

Obviously, what we bought back in Q1 is higher than what we normally do. If you look back at our buyback trends, this level of buyback in Q1 is actually relatively aggressive. Like I said, I thought it was a deal at $165.00. In the 140s, it was just absolutely compelling. Now, having said that, you're right. I do want to keep the powder dry. We indicated both at our Investor Day and our Q4 call that we have a slight preference for M&A. So, as we see the year evolve, we'll see how things change.

As I mentioned in the call, we have a fairly robust M&A pipeline. I do hope that one or two deals materialize here in the next quarter or to, and we'll see how it goes. Deploying everything all at once without having further optionality is not a great idea, so that's how we're thinking about it, but I think the value of the stock currently is compelling at the same time. So, it's the constant trade-up that we go through.

Steven Winoker -- UBS Investment Bank -- Managing Director

And, one other one on Aero, which is -- there's a lot still being discussed about the large air framers partnering for success, et cetera, and continuing to apply pressure and thinking about how to change the business models in the industry. Are you seeing any other early developments on that front? What gives you confidence and conviction that your business model will be able to sustain itself in light of that attempted vertical integration?

Darius Adamczyk -- President and Chief Executive Officer

A couple things. 1). Our relationship with Boeing remains strong, and we expect that to continue. 2). As you look at our services that I referred to earlier, you think about the value story around the connected aircraft. That's compelling to our end customers, and that's reflected in the service rates, the order rates that we're seeing, the interest. I talked about the deal with Singapore. You think about Singapore as clearly one of the market leaders in their thinking and their approach to aviation.

So, I remain very bullish on our approach, and given the set of offerings that we have in the Aerospace segment, both in mechanical and avionics, we're uniquely positioned to be a key player in the Connected Aircraft, and it's being reflected in the kind of relationships we're able to formulate and the business we're enjoying, and I think it's only going to accelerate.

Steven Winoker -- UBS Investment Bank -- Managing Director

Okay, great.

Thomas A. Szlosek -- Senior Vice President and Chief Financial Officer

I was just going to say that the technologies that we have invested in -- the number of engineers that we have supporting all of the different product platforms and the verticals that we serve puts us in a very unique position in terms of developing offerings that get us on platforms -- as you've seen over the last few years -- for us to win more than our fair share. So, it's those investments and keeping those fresh and alive are what is going to enable us to compete robustly.

Steven Winoker -- UBS Investment Bank -- Managing Director

Great, talk to you soon. Thanks a lot. Bye.

Operator

And, with that, ladies and gentlemen, that does conclude today's question and answer session. I would like to turn the conference back to Mr. Darius Adamczyk for any additional closing remarks.

Darius Adamczyk -- President and Chief Executive Officer

We delivered exceptional results in the first quarter of 2018 and have strong order rates and a growing backlog as we begin the second quarter. I am confident in our ability to deliver outstanding results for our customers, our shareowners, and our employees. One last note: In a few weeks, we will be hosting an investor showcase to highlight our Safety and Productivity Solutions business, particularly our technologies for the Connected Warehouse and Connected Supply Chain. John Waldron and his team are looking forward to showing you why we're so excited about the growth opportunities in that business. Enjoy the rest of your day, and we'll talk with you soon. Thank you.

Operator

Thank you. This does conclude today's teleconference. Please disconnect your lines at this time and have a wonderful day.

Duration: 65 minutes

Call participants:

Mark Macaluso -- Vice President, Investor Relations

Darius Adamczyk -- President and Chief Executive Officer

Thomas A. Szlosek -- Senior Vice President and Chief Financial Officer

Stephen Tusa -- JPMorgan Chase -- Managing Director

Gautam Khanna -- Cowen and Co. -- Analyst

Julian Mitchell -- Barclays Investment Bank -- Analyst

Jeffrey Sprague -- Vertical Research Partners -- Partner

Andrew Kaplowitz -- Citibank Research -- Managing Director

Scott Davis -- Melius Research -- Chairman and Chief Executive Officer

Peter Arment -- R. W. Baird -- Managing Director

Joseph Ritchie -- Goldman Sachs -- Analyst

Steven Winoker -- UBS Investment Bank -- Managing Director

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