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Honeywell International, Inc. (HON)

March 21, 2013 4:50 am ET

Executives

David James Anderson - Chief Financial Officer and Senior Vice President

Elena Doom

Analysts

Andrew Obin - BofA Merrill Lynch, Research Division

Andrew Obin - BofA Merrill Lynch, Research Division

Good morning. Thank you very much for being here. We're going to start our second session of the day. Once again, I'm Andrew Obin, BofA Merrill Lynch's Multi-Industrials analyst. And with us today, we have a team from Honeywell. We have Dave Anderson, company's Senior Vice President and CFO. And we also have Elena Doom, the company's Vice President of Investor Relations. Very happy to have them here after a very successful Investor Day that you guys had in New York a couple of weeks ago. So very good to hear what's new and your vision. Thank you very much for being here. And Dave, over to you.

David James Anderson

Thanks, Andrew. It's great to be here, brings back a lot of memories. I'm really glad that you've resumed the program here. It's always been, I think, a very successful conference, Andrew, and it's been one for Honeywell. We've had really an opportunity, I think, to reach a number of both current and prospective investors in a great format, so we appreciate the opportunity.

What I want to do just quickly, obviously, there's going to be some forward-looking statements here. Obviously, our 10-K provides a number of, we think, very relevant points in terms of what are the factors in terms of some of the key assumptions that would influence the outcome and could change the outcomes relative to those forward-looking statements.

The theme that we've struck, Andrew referenced the Investor Day in New York City that we had a couple of weeks ago, which again was very well attended this year. I think, Elena, one of the really high points for us was the ability to showcase again our senior leadership team, including our SBG presidents, the business segment presidents, and really focus on the theme of achieving results and delivering growth and confident in the growth outlook for our company.

So really, the themes that I talked about at that program were, we set pretty high expectations in 2012. We met those expectations. I think, in fact, we increased guidance over the course of 2012. We had record segment margin expansion. I'm going to talk about that in a minute. We were up 90 basis points year-over-year in segment profitability. We're confident in our 2013 outlook. We reiterated our guidance for 2013 on March 6 when we met in New York, basically sales at the midpoint of that guidance, and if anything, a kind of a greater visibility and confidence in terms of our continued margin rate performance, given what we're seeing in terms of continued productivity and strong performance by a strong contribution margin businesses as far as the mix.

We continue to invest. Our CEO, Dave Cote, uses the phrase seed planting, which really encompasses, not only the traditional, if you will, R&D and technology investment, but also the investment that we're making in our ERP or SAP investments, the platform that we're building across the company, the capabilities that we have in terms of the Velocity Product Development, just delivering more with the same amount of resources in terms of spend, in terms of our R&D productivity. And we're a big spend. I noticed in 3M, the numbers, I think, approached about 6% of sales in terms of aspirational. We're at 5% of revenues today, which ranks very high across the peer group on almost $40 billion revenues. Think of that as $2 billion of R&D firepower for Honeywell. That continues, and we're really, we think, setting up for out-performance again in 2014 and beyond. That was really the theme of our Investor Day, our March 6 New York Conference was really just the platform that we've created really, we think, provides the foundation for sustained positive outlook for the company. So we did more, if you will, sort of defining the future and setting the framework for Honeywell for the future in that program, which I think worked very, very well. I think it resonated with the audience very effectively. I'm going to talk little bit about that this morning and cover these few slides, Andrew, upfront and then turn it over to you for Q&A. I know you told me at the break you've got some tough questions for me, so we'll get to those.

One of the things that we did, and I think relatively creatively, is try to better define and create greater transparency in terms of what is Honeywell. And here, what we're showing in terms of the breakdown in terms of our revenues by end market, you can see that between industrial, homes and buildings, commercial aerospace and oil and gas, 4 major segments that represent just under 80% of our revenues, 77% of our revenues. And you can see the remainder really made up between U.S. DoD, our total defense and space business there, up 6% and 8%, respectively; and then the transport business of 9%.

But a lot of the macro trends, a lot of the positioning that the company is taking in where a lot of our growth drivers are for the future, these are important mainstays. And a lot of the investment we're making, a lot of the growth and a lot of the positioning that we have against the emerging markets in High Growth Regions can really be explained in that industrial, homes and buildings, commercial aero and oil and gas space. And for sort of, not for getting into detail today, but as takeaways, you get to know -- for those of you, who don't know the company well, the subpoints here in terms of the pie charts and additional information provides a lot of perspective to, in terms of insights, in terms of where we're making investments, where we're growing through acquisition, and again, where we're positioned for growth longer term. So we think this is a helpful chart in terms of understanding the company.

It's the breadth of attractive and growing market spaces that really underscores our confidence and our outlook. And we're very comfortable operating in this space, in this arena. We think our operating systems, our operating model and disciplines lend itself very well for it.

Our performance summary really speaks to that confidence. You can see the '10 through '12. It's one thing to look at '11, '12, it's also helpful, just put a little bit into context with '10, '11, '12. You can 8% on revenues, up 170 basis points in terms of margin. I talked about the 90 basis points of margin expansion, which is a record for us, '11 to '12. That's on top of the 80 basis points, '10 to '11.

There continues to be for Honeywell, we think, upside in terms of that margin expansion. David Moline from 3M in his comments earlier referenced sort of, how they're looking to get the right balance between growth and margin, and if anything, sort of an emphasis on growth and reinvestment in the business. For us, it's doing both. It's both reinvesting in the business and also driving additional organic growth, as well as selectively filling in, in terms of inorganic growth. You can see the EPS at 22% compound growth rate, 128% to conversion. And by the way, since 2003, we've averaged about 125% in terms of free cash flow conversion.

We're growing faster than our end markets. This chart deserves a little bit of explanation. What we've done is we've indexed back to 2009 at 100, the GDP growth rate for the Americas, for Europe, for EMEA and also for Asia-Pac. And you can see in the red, our constant currency organic growth rates for Honeywell revenue top line growth rates; and in the dash lines, the reported growth rates. So we've outstripped, which we think is a measure of our performance. One of the things we said is our objectives in terms of our strategic goals for our businesses is to obviously grow faster than the markets we serve. So this is sort of a fundamental measure for us in terms of how we're doing against those served markets.

And by the way, just to comment on some of the emerging market components, they're embedded particularly in Asia-Pac, but also in EMEA and components of the Americas. We've really invested heavily in advance of that growth in terms of creating localized capabilities, R&D capabilities, manufacturing, engineering capabilities that we think are going to continue to position us for outperformance in those markets.

Segment margin expansion, I referenced this earlier. You can see the improvement of the curb from '03 to '09 and then the acceleration of that improvement that's really supporting the EPS growth. It's really an organic and segment margin growth story for Honeywell.

Organizational efficiency or effectiveness is behind that. Just to explain that a little bit, really, during the economic downturn of '08, '09, we felt we needed to have much greater visibility and analytical capability on total labor costs or the cost of people across the company. And you can see that OEF, as a percent of revenues, labor costs as a percent of revenue, all in, 28 7 [ph] 160 basis points of improvement, 2010 to 2012. And we used this metric not only on a, if you will, a historic basis, but also on a what-if basis in terms of different scenarios for revenues and different [indiscernible] or filling in, in terms of additional labor across the organization. And it's really become a very important modeling capability that we have to effectively manage in an uncertain economic environment and where we have very strong diversity in terms of the rate of growth that we're seeing in terms of our end market.

Repositioning, this also goes hand-in-hand because that's really supporting our OEF costs. You can see in the red line, the cumulative growth funding that we've had. It's almost $900 million from 2009 through 2012. And you can see the cumulative savings. And we're decking up for another positive -- it's $135 million to $150 million of incremental pretax profitability that we'll get from repo benefits in 2013. That's going to continue to be an active redeployment for us of either gains, positive gains that we get or higher-than-anticipated operational performance. Andrew, it's one of the questions we get a lot about is the pipeline of repositioning. And the fact is, it's a rich pipeline. We're going to continue to fund that actively.

2013, our core assumptions in terms of GDP growth. We're continuing to forecast a sub-2% GDP growth for the U.S. Some of this is related to sequestration impact that's probably, right now, between 10 and 20 basis points of a haircut off the U.S. GDP. We're looking at negative in terms of continued recession here in the Eurozone. China at a -- in the 7, high 7s to low 8s kind of range, looks very reasonable right now. 8.2 is the latest data that we have; India in the nature -- in the range of about 6%. And global GDP of 2.6%, basically even with what we've experienced in '12.

In terms of end markets, just a quick summary. You can see that there's a few green arrows there with commercial aerospace, both the OE and the aftermarket side. And also notable are our UOP business. UOP with backlog of about $2.7 billion, which by the way, was up 18% compared to the previous period a year ago, so very strong performance here and continued tailwinds on the commercial aerospace side.

Defense and space, obviously, we've planned down in the range of -- the slide says 3%, but really 3% to 5% depending upon how sequestration plays out. So we think the likely sequestration scenario would translate for us to a negative 3% to 5%. Again, that's on about $4.8 billion, just under $5 billion of revenues.

For the ACS businesses, we're looking really up low-single digits given the macro conditions that we're dealing with; low-single digits on the Advanced Materials side of PMT.

In Transportation Systems, flat to up slightly with passenger vehicles continuing to have headwinds here in the EU in terms of EU production rates for light vehicles, but growth in the other regions and also the benefit of new platform wins that we have that are supporting that.

Full year guidance, we iterated -- reiterated guidance, as I said, on March 6. And you can see that we're looking at revenues again on a reported basis, 4% to 5%, 20 to 50 basis points of margin expansion, 6% to 11% in terms of EPS growth from $4.75 to $4.95. And factors includes seeing both low end and high end, really no change since our December guidance that we gave for 2013.

Cash deployment, obviously, a hot topic for all of the multi-industries. For us, the priorities are pretty clear, which is to continue to invest in our high ROI businesses. And we have significant increase, about a $300 million increase planned for 2013 CapEx. That's on about $100 million increase in 2012 compared to '11. A lot of that growth is going into, or that CapEx growth is going into PMT, and a lot of that, about 50% of that growth is going into UOP to really fund investments, to really meet the demand that we have in the order rates and the backlog that we have, particularly in oil and gas, as well as in petrochemical.

Paying a competitive dividend, I've got a slide coming up on that. Returning cash to shareholders is a high priority for us. Strategic M&A, we think we have best practice capability, and we've demonstrated that in M&A. We've done about 75 acquisitions during my tenure as CFO since 2003, and by and large, just extremely pleased with the outcome of those deals. It's a very disciplined process in valuation and screening. I can talk more about that later in terms of the criteria that we apply. And integration, we're really -- we've really focused intensely on integration irrespective of the size of the transaction. And by the way, we've had success across the range in terms of size of deals that we've done.

Opportunistic share buyback, the theme here is we're holding share count flat at our 2012 levels. In pension, we don't see contribution requirements in the U.S. pension plan this year, and frankly, I think unlikely to have those through 2015.

Returning the value of the shareholders, I mentioned that in terms of our dividend history, more than doubled over the 2003 to 2012 timeframe. And you can see here the total shareholder return of Honeywell over that 10-year period compared to the S&P. You can see dividend, an important component, but obviously, we've done well in terms of the share price appreciation as well. I mean we're focused on that because ultimately, that's what it's all about. That's the benchmark obviously that we compare ourselves to.

Our long-term outlook, in 2010, February of 2010, really coming out of the downturn of '08 and '09, we established long-term targets for both revenues and for segment margin. The revenue targets that we established at the time were $41 billion to $45 billion. Again, if you think about that in terms of putting in perspective, 2009 revenues were almost $6 billion less than 2008 from some $36 billion down to about $31 billion. So to step up and say, "Well, we're going to be in this range, we believe, $41 billion to $45 billion in 2014." This is the guidance range we have for '13. We think these numbers are clearly in sight, and that's despite the fact that we've had some headwinds, and headwinds have included a lower global GDP growth rate than we assumed back at the time that we've developed the forecast and also less favorability in terms of currency.

In terms of margin rate, we were at 13.3% in 2009. We said we wanted to be in the 16% to 18% range. Our guidance for 2013 is 15.8% to 16.1%, so achieving the high end of that range. And as I said earlier, right now in terms of our forward visibility for 2013, we feel very confident about our ability to be -- to deliver a strong margin rate for '13. Assuming that we're in that 15% sort of range, we've already achieved obviously the low end of what we targeted for 2014. And that really is, again, against a backdrop of some headwinds that we faced relative to the attainment of those targets. So what we communicated at the Investor Day on March 6, that next year, March of 2014, we'd revisit targets and talk then about the next future period and provide some perspective in terms of what we think Honeywell's able to achieve as we go forward.

And finally, let me just conclude, I'll do this very quickly, but why -- what do we think the investment thesis is around this company? What have we been able to deliver, and what do we see going forward? And why should you care, and why do we think that's relevant from an investor perspective? First of all, I mentioned that we're on track, confident about achieving our long-term targets. Again, place yourselves back into that '09, early '10 timeframe when we established those. And we feel very good about just how we've executed in that environment.

Robust margin leverage, we continue to have margin upside. We'll continue to do that, while also focusing on our growth tailwind. The $11 billion of opportunities represents opportunities that are either in the end in terms of backlog today or represent, we think, very realizable performance potential over the next 3 to 5 years.

Strong capital deployment, we think we've done this very effectively, delivering high ROI through internal reinvestment, as well as through our disciplined M&A practices. We've returned cash, we think, smartly to shareholders. We'll continue to do that. And M&A will represent, continue to be a complement to our reinvestment in core businesses and our organic growth story, but an important element, we think, of continuing to add value for Honeywell.

So with that, Andrew, I'll skip through the reconciliation slides here and go to the audience for questions.

Question-and-Answer Session

Andrew Obin - BofA Merrill Lynch, Research Division

And so I guess, let me ask you the first question, the really tough one. What are you guys seeing in terms of your short-cycle businesses in this quarter? Because I think one of the themes of this conference, and I asked 3M similar question, is this macro uncertainty? Just if you could give us a little bit more color beyond your outlook for the years to what you're seeing right now?

David James Anderson

Sure. Well, I didn't have a slide up here for the first quarter, but just maybe summarize that quickly, and Elena, just help me with this in terms of anything that you want to add to this. But what we've guided to is sort of a flat to slightly up revenue for the first quarter of 2013. Pretty good segment margin expansion, and I think we've had EPS growth pretty consistent with our full year guidance, sort of in that 9% to 11% kind of range for the first quarter in terms of our guidance.

Elena Doom

Similar to -- more what we saw in 2012 relative to the quarterly breakout.

David James Anderson

Yes. So basically, as we said on March 6 when we reiterated full year guidance and we also reiterated our first quarter guidance, if you look at the, kind of the breakdown by business, it'll be a flat to potentially slightly down revenue quarter for the Aerospace business, really significantly driven by the defense and space. So that's consistent, I think, Andrew, with your understanding. For ACS, we'll see some modest growth that's consistent with that sort of directional flat to slightly up Aero, low-single-digit Aero that I had for the full year for the full spectrum of ACS' Products. For PMT, we're going to see very good growth. In UOP, we've been signaling that this is going to be a particularly strong quarter for UOP. UOP, we use the phrase lumpy or the term lumpy to describe UOP. You'll see ups and downs in terms of quarter-to-quarter. It just has to do with the timing of delivery and revenue recognition for their mix of products, and particularly, they're going to have a very strong catalyst business in the first quarter of this year. The AMC, the Advance Materials piece of PMT is going to be a little softer. Again, we've signaled that just because of benzene pricing and lower resins in chemicals revenues. And Transportation Systems is going to be down a little bit, driven by softness, continued softness in the European automotive production. And also, a little tougher comps on a year-over-year basis for Transportation Systems. So basically, what we're seeing is in line with what we've discussed previously. There's really nothing, I don't think, significant to highlight in terms of variance from that, continue to see good recovery out of the emerging markets. We saw some softness. You'll recall in the middle part of 2012, we had a nice finish in emerging markets performance. That would be, notably both China and India. In 2012, that's continuing into 2013. And essentially, right now, I would say, basically, things are on track and as expected.

Andrew Obin - BofA Merrill Lynch, Research Division

Let me ask you, at the Analyst Day, you sort of give us a glimpse without obviously providing the next 5-year target. But you gave us a glimpse for ACS, what Honeywell operating -- what HOS can do sort of to drive the margin improvement as you transition sort of to more silver from bronze and the margin differential. As we think broader about Honeywell's portfolio, and particularly, the businesses where maybe you've done more work on HOS, can you just -- obviously, without giving numbers. But can you just talk broadly about the scope of potential improvement operationally in businesses other than ACS? Is that sort of a similar trajectory going out? And what can you do in businesses that are maybe ahead of ACS in terms of HOS implementation to drive the margin up?

David James Anderson

Well, the -- it's a really good point. And I think for those of you who are not familiar with it, that's really our, call it, our application of Lean to the manufacturing processes of Honeywell. And the HOS, being what we call it, everybody's got their own acronyms, right, the Honeywell Operating System. But it's a very disciplined set of improvement processes that are really designed at a -- developed at a total Honeywell level, but deployed at a very local and very site level that really we have found to be powerful in terms of an enabler and an energizer at that local level. Whereas ACS has a lot of runway in terms of the deployment of that, Andrew, I would say there's still a lot of runway across the rest of the company as well, particularly in Aerospace where we've seen some notable benefits from HOS improvement with a lot more to go, a lot more runway on -- for HOS within Aerospace. And given the size, significance of Aerospace, that's really going to play out in terms of supporting their continued margin expansion over the future period. And I would say also that we have some of that same opportunity within PMT. PMT is going to be more influenced obviously by new -- we think, by new product introductions and applications and also continued growth in emerging markets in High Growth Regions. Transportation Systems has some HOS runway, but probably less significant. In there, it's going to be more a story of their end market recovery and particularly the acceleration of the adoption of Turbo technology in terms of the adoption of Turbo as a way to achieve fuel efficiency, drive greater emissions, improved emissions, et cetera. And with the regulatory, global regulatory environment, that's going to support it. But I would say the biggest HOS opportunity outside of ACS is going to be the Aerospace business.

Andrew Obin - BofA Merrill Lynch, Research Division

We have a question at the back.

Unknown Analyst

Dave, you've got a pretty broad portfolio, as you highlighted in one of your slides. Where are the gaps that you see or the main opportunities to fill for reinvestments? And are we looking at the bolt-on type auxiliary deals or something majorly new that can come in the portfolio?

David James Anderson

Well, the priority for us right now and come directly at your question in a moment. But the priority for us right now, and hopefully, that came through in my remarks, is really to invest in the, if you will, the infrastructure and the capacity to deal with some of the demand levels that we have today, most notably, within PMT. UOP, that also exists selectively in Aerospace, ACS. And for Transportation Systems, the investment that we're making there is a shift and a continued improvement in their operating footprint, and specifically, moving to and increasing our capacity in higher-growth markets and lower-cost regions. So the CapEx that's taking place in the company, the investment, the reinvestment that we're making in our existing businesses is really our top priority. It's really front and center for us in terms of executing that effectively, 2013, 2014. Now some of that's been in the works '11 and '12, but it's really imperative that we execute that very, very successfully in order to meet end market demand, fulfill customer orders and requirements and do that in a way in which we can continue to progress our operating margins, deliver the organic growth and deliver the operating margins in an otherwise sort of uncertain and challenging macro environment. So really, we've got this benefit of this tailwind of demand and capacity addition that's really driving the company right now. To your point in terms of M&A, if you -- I referenced the 75 transactions that we've done over the last 10 years. Some of those are notable, like UOP or like Novar that are sort of more notable and more headlined. The majority of those are below the radar screen, names that you would know, but aren't really obviously household names or that significant. But cumulatively, together with some of the divestitures that we've made over that period of time, have really helped this, very significantly helped and supported this transformation of Honeywell into a higher performance business -- set of businesses and on a better trajectory, a much improved trajectory. That's going to continue to be the theme. So what you're going to see is, again, the $300 million, $400 million, $600 million, $800 million-sized transactions are going to be the critical mass, if you will, of what we continue to execute in M&A. Not to rule out, as Dave Cote would say, our CEO would say, not to rule out something larger and more significant, but the likelihood of that is very, very well. It's just not, it's really just not in our DNA, our mental DNA to actually pursue something that we get this -- sometimes the phrase that's used is transformational or very, very large or significant. It's really not in our DNA. And instead, it's back to the Honeywell execution of the Honeywell Operating System. We got a ton of neat stuff that continues to go on, again, behind the scenes in something we call, Functional Transformation. It's sort of HOS for the administrative side of the organization, but very important in terms of driving increased productivity, greater service levels as we become an increasingly global company and also contributing to margin expansion. So there's just a ton of work and focus and energy around the execution of our existing operating model, which would include that range of acquisitions in that $300 million to, call it, $800 million size. That's really our mindset.

Andrew Obin - BofA Merrill Lynch, Research Division

And can I just -- oh, sorry.

Unknown Analyst

Yes, to the theme of Honeywell outperforming certain markets, I was wondering if you could elaborate in 2 of those instances. The first is China. When I look at the data, it does look like Honeywell has done better than peers in China. Why, and do you think that's sustainable? And the second is the Commercial Aerospace aftermarket.

David James Anderson

Sure. Let me talk about China a little bit and get Elena to add to that, if you will. In fact, I'll let you talk about the Commercial aftermarket, and I'll take the China portion of the question. Really, going back to 2003, 2004, we identified the need to just dramatically change the strategy and the caliber of leadership in our entire approach to emerging markets, and particularly, just to the broader theme of globalization in the company. And we've really, we believe, created, call it again, I'll use that phrase, but best-practice capability and top talent, leadership talent that's really supporting our High Growth Region strategy and its execution. That together, that operating model -- and I'll talk just a little bit more about it. Together with the Honeywell offering, the Aerospace, ACS, buildings, residential as well as PMT notably, particularly UOP, but also in the floorings business, the resins and chemicals business and in our transport business, but kind of in that order, our offering, as these markets emerge and continue to increase in terms of their, if you will, middle-class contribution to spend to GDP and to GDP growth, we're just extremely well positioned. So it's really, I think it's the complement of a localization strategy and a localization capability that we've created, combined with our product and technology offering and increasingly developing what we would call, East-For-East. In other words, the design and development of products and services that are really specifically developed for those end markets in terms of the, if you will, the customer demographics and economics. That's what's really, I think, driving our success. And it's just going to continue. So we've taken the model that we've successfully deployed now in China. We've now seen the benefits of that. In India, we're expanding that to Vietnam, Indonesia. Obviously, we're increasing very, very successfully our penetration in Brazil, Russia, Eastern Europe, Middle East. I mean, those are our priorities for us. And each -- the model that we've used with some tailoring and that we've been successful with in China and India will be rolled out and will be increasingly felt and you'll see greater visibility. And we'll provide even greater highlights going forward on the success of the expansion of that into some of those other markets. Elena, do you want to talk about Aero aftermarkets?

Elena Doom

Sure. I would start with, on the Aerospace aftermarket, a little bit with respect to our portfolio mix. So we're about 1/3 spares volume and about 2/3 Repair & Overhaul. And I think when we went through the recession, and obviously, the destocking effect of the airlines in the 2009 timeframe, we saw our spares decrease pretty dramatically, roughly 20, high 20s, low 30s in terms of that deep decline. So then we ended up coming out of that recovery and having some debate as to the shape to which that recovery was going to extend. We saw about 10 consecutive quarters of very strong growth coming out of that. We call it, sort of the end of destocking. And as a result, finishing up, I would say in the 2011 and early 2012 timeframe, we continued to have double-digit growth in the commercial aftermarket, both if you look at, for example, the first quarter of 2012, we had low double-digit growth in the large Air Transport & Regional market. And then we also benefited very well in the Business and General Aviation space, both as a function of some increased flight activity on certain types of aircraft. And so I think that's another element of the story, if I could transition to really being on the right platforms and not just from a -- again, in the Business and General Aviation space, a proliferation of the larger cabin class that happened to have more mechanical content relative to Honeywell's mix. But we also have, across all of the large Air Transport, Business and General Aviation space, we really have a broad mix of what we're supplying to that aircraft. So in Air Transport & Regional, for example, we have chipset value in excess of $1 million per aircraft. And again, it's a mix of mechanical components and electronics. But for us, for Honeywell, it's not binary, right? You can pretty much think of almost any aircraft, Scott [ph], some significant content. I think as a result of some of our High Growth Region strategy, we've been very, very successful with respect to winning a fair amount of selectables in some of the higher growth regions. If you take a look just at one product line, APUs, for example, we've had 100% win rate on our APU selectables in that region. So if you think about 2012, then we've sort of -- it ended this recovery, the V-shaped recovery period. We're now moving into the latter part of 2012. And now our outlook for 2013, this sort of recoupling, if you will, of the flight hours, but still able to grow in excess, driven by fleet mix and I would say also, good geographic exposure to the markets that happened to be growing the fastest. Anything that you would add?

David James Anderson

Well, I think that you hit on the key points in terms of our platform exposure and our success in the -- if you will, with airlines in terms of selectables. That has been a key factor that's really supported the growth. Now we expect that to basically, significantly moderate as that restocking, if you will -- or the destocking has ended and restocking has ended. So we see that now as been pretty much a stable, and as you said, in line with flight hours.

Elena Doom

Yes. Although I mean to your point, clearly, going to be facing some difficult comps in the early part of 2013 because we're still lapping double, very strong double-digit growth rates in early 2012.

David James Anderson

Yes. ATR, just to add. Just one quick one, because it's a very good question. The ATR business in the first quarter of 2012, the aftermarket was up 11%. BGA was up 30%. So the first quarter of 2013, we're going to be comparing against very tough comps in terms of the first quarter 2012, which kind of goes back, Andrew, to one of your opening questions with respect to what are we seeing, what are we expecting in the short-cycle business.

Andrew Obin - BofA Merrill Lynch, Research Division

I believe we're out of time. Thank you very much for being here. Thank you for the opportunity.

David James Anderson

Thank you.

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