Dave Cote: "CEO of Washington"
April 27, 2017
“The animal spirits clearly improved with the election. There’s absolutely no doubt about it… but the government needs to do something to follow up and show that it’s real,” including moving the needle on tax and regulatory reform and addressing the Affordable Care Act.
On reaching 3%-3.5% U.S. growth, “I think that’s going to be a little tough... there’s a chance we could get up closer to 3 percent, which would still be wonderful.”
When it comes to spending, “in general, tax planning is not going to be what drives my CAPEX…. It should make sense regardless of taxes” and over the long-term. “If you’ve got a project that was that marginal that you required a faster write-off to make it useful, it’s probably not a really good investment to begin with.”
During the 20 minute interview, Cote also discussed how a territorial tax system could impact the way we think about capital deployment, a key priority of successor, Darius Adamczyk. “If we can repatriate cash, then we have a lot more flexibility when it comes to buybacks or dividends… as a way of putting money back into the system and returning it to investors, shareowners and pension funds,” concluding that it could be a good thing for the economy.
When it comes to being a global company, Cote noted, “You’re not going to be successful in China, India and Europe by just being an exporter. You have to be there… It’s a matter of having a smart, global policy when the U.S. needs to be more global than we ever have.”
Cote also discussed the industrial recovery since the election, and while there’s still a ways to go, “everything is starting to come back.” He mentioned notable growth in Honeywell’s Building, Home, Automotive, Aerospace and Oil & Gas sectors. Last week, Honeywell reported a strong start to 2017, beating earnings forecasts with over 2 percent organic sales growth, 70 basis points of segment margin expansion, and free cash flow of nearly $800 million that was more than six times greater than 2016. Normalized for tax, Honeywell reported a profit of $1.66 per share, or 2 cents above the high-end of first-quarter guidance and up 11 percent versus last year, excluding divestitures.
On contributing to organic growth, “warehouse automation is going to be tremendous for us,” Cote said, noting the company’s recent acquisition of Intelligrated, which reported double-digit growth in the first quarter. “When it comes to acquisitions… you have to be 10 for 10. I’d rather pass on a good deal then do a bad deal… I think it’s one of the reasons we’ve done so well, and Darius has taken the same approach.”
Honeywell’s connected offerings will also contribute to the overall growth profile for the company, as more than half of its 22,000 engineers globally are developing software. About 60% of the company’s growth over the next five years is expected to be linked to software. When it comes to the “Internet of Things,” which Cote likened to the impact the internet had on business in the ‘90s, “you still have to be smart,” Cote emphasized. Honeywell is uniquely positioned to blend physical products with software to support connected systems that improve homes, buildings, factories, utilities, vehicles and aircraft, and that enhance the quality of life of people around the globe and create new markets and even new industries.