WHEN: Today, Thursday, October 13th
WHERE: CNBC's "Mad Money w/ Jim Cramer"
Following is the unofficial transcript of a CNBC EXCLUSIVE interview with Honeywell Chairman and CEO David Cote on CNBC's "Mad Money w/ Jim Cramer" (M-F, 6PM-7PM ET) today, Thursday, October 13th.
All references must be sourced to CNBC.
JIM CRAMER: Dave, welcome back to Mad Money. Good to see you.
DAVE COTE: Jimmy, always nice--
JIM CRAMER: Good to see you.
DAVE COTE: --to see you.
JIM CRAMER: All right. Dave, you know, we're neighbors. Known each other a long time. But I listened to the first presentation. And I said, "Holy cow. Maybe this is why they felt they had to buy United Technologies. Maybe this is--" you know, and then I-- after the bell, I saw a presentation that instead of sending the stock down 10 bucks might have actually had the stock go higher. So what happened here?
DAVE COTE: What happened in the third quarter?
JIM CRAMER: What happened between one presentation, which was very short term oriented frankly, and this-- second deck that has come out after the bell that to me offers a view of 2017 that is incredibly strong and reminds me that you reiterated guidance. You didn't cut guidance.
DAVE COTE: No, that's the point we kept trying to make. And it seemed to get lost in the third quarter. 'Cause if you recall, that presentation started out as, "Hey-- we're going to-- splitting ACS. We want to be able to explain the reorg. We want everybody's numbers to be right when we--"
JIM CRAMER: You want--
DAVE COTE: Yeah. And we wanted to say, "Okay, here's an update on everything." 'Cause we also spun a business. We sold a business. We did a bunch of restructuring. So we had a lot of moving parts. Said, "Let's clarify all this so that earnings day, it's not going to be a problem." And, I have to say I was astounded by the reaction. And if you recall, we actually had in there, "Hey, 2017, this is what it looks like--"
JIM CRAMER: Yeah, but, Dave, I think candidly I got to tell you, you did talk right upfront weakness in aerospace. And a lot of people really associate Honeywell with aerospace. But there were other things in the deck tonight which made me feel that we're actually at an inflection point in oil and gas. You were negative on oil and gas. And that the issue of aerospace is not nearly as dire as what people have made it out to be.
DAVE COTE: That's true on aerospace. It's one of those things that we-- have to deal with 'cause the bizchip market is declining. Commercial is still doing find. D&S defensive and space will do fine. I did say though that oil and gas was going to bottom this year. I've said that several times. And we were more definitive saying it's bottomed in the third quarter.
JIM CRAMER: Right. Well, more definitive. I mean--
DAVE COTE: Actually, I take it back. We also talked about fourth quarter, how UOP in particular was going to be coming back--
JIM CRAMER: Right, okay.
DAVE COTE: But it just seemed like and we tried to say, as you know, on the guidance for the year is we started off at 6 to 10% EPS. We took it to 8 to 10% in July. And now, we made it 8 to 9%, which is hardly dire.
JIM CRAMER: No. But, again, I want to go back over this. Because you talked right to-- even at the beginning of our interview, that you reshuffled the portfolio. But you-- what was lacking when I listened, okay, was that you were improving the growth profile through portfolio management, which is something that you really made clear tonight. Why did you feel like you needed to clarify that?
DAVE COTE: Because the long-term message seemed to have gotten lost. I just--
JIM CRAMER: No, no, no. Totally got lost.
DAVE COTE: Totally.
JIM CRAMER: Totally got lost--
DAVE COTE: Well, it was one of those where I think I give credit sometimes for-- we said some of the stuff enough that everybody gets it. But we didn't really put it together in an overall package. So shame on me for not communicating that more. But I didn't think anybody would really be interested in that at the moment. They'd want to understand exactly what the moving parts were.
JIM CRAMER: True. But, you know, it's only in this deck that I really felt that-- to use your term, that there is a favorable setup for 2017.
DAVE COTE: Oh yeah. And we've been investing heavily. 'Cause that's one of the other things that we end up hearing, is, "Gee, with the transition-- Dave's been squeezing-- the business in order to generate margins."
JIM CRAMER: Yes. That was another thing analysts said--
DAVE COTE: No. It's just the opposite. I said, "I can understand how you might feel that way. I can understand feelings. But then you—should at least search for some data that causes you to say that?" Set capex reinvesting at about 1.6, 1.7 times. Number of salespeople? We've add 1,000, 1,500 salespeople, which you don't pay off in the first year. It is just an expense that you're taking. You take a look at R&D. Over 7% of sales. The amount of restructuring dollars that we take, all of which we take into expense. And then you take a look at the aero concessions that we spend. Again, which we all expense. We don't put on--
JIM CRAMER: Right. But on the original--
DAVE COTE: --the balance sheet.
JIM CRAMER: --equipment-- the chart showed very clearly this time that you are at the peak of the original equipment incentives.
DAVE COTE: And it's a 25-cent headwind this year.
JIM CRAMER: Yeah. But, again, you know, going back to the previous meeting, I had felt that 2017 was going to be filled with perhaps ever-rising OEM incentives. That's not true--
DAVE COTE: No, I don't, no, no, it's not the--
JIM CRAMER: That's the way I felt. And then Alcoa pretty much said that 2017 is not going to be so hot. And then you start extrapolating.
DAVE COTE: And you get carried away.
JIM CRAMER: Yes. You get carried away. Now, let's talk about internet of things and turbo golden age. These were terms that were introduced and far more about software, where – who you're hiring. The Honeywell that's in this deck is a company that's moving to software and service.
DAVE COTE: Yes. Well, the software business, as you know, is really important to us. Almost half of our engineers are developing software today. And I always think if you look at our products and stuff, you'd say, "Okay, it's chemical, mechanical, electrical engineers." But half of our guys are developing software. So it's a big deal for us. And that's why I always say in this industrial internet of things and our M&A profile, that's why we focused on software and technology as much as we have. I think we're the best-positioned industrial company out there when it comes to understanding not just digital but physical. Because that's going to be what internet of things is, is how do you match digital-physical as opposed to just digital-digital like everybody else does.
JIM CRAMER: Okay. So talk to me about the connected aircraft so I feel better about even if there is aerospace slowing, so to speak.
DAVE COTE: Yeah, that is pretty cool. You'll watch the Super Bowl this year.
JIM CRAMER: Yes. You know, you heard – you saw that. I mean, that's very important obviously. I was just on a Continental flight. I had Gogo again. Only, you know, well, there is another system. But all new planes will be able to allow us to stream Netflix because of yours.
DAVE COTE: Yeah. Actually, we're in the process right now of getting all the OEMs certified. So hopefully we'll do a bunch of that during the course of this year. Once that's all certified, then they can start putting on the new equipment. And you'll be able to download a two-hour movie in two minutes. And you could have 100 passengers doing it at the same time, and it'll work. And you can be 45,000 feet over the Pacific using it. You don't have to be connected to land. So it's quite impressive.
JIM CRAMER: Are you also – a lot in here. But, you know, about the notion of – that so much of your business is energy solutions, which, again, is a secular growth market.
DAVE COTE: Yep. Well, when it comes to energy efficiency and the world growing from 7 billion to 10 billion people – air, water, land cleanliness – going to be more and more important. Energy efficiency's going to be more and more important. 50% of our portfolio addresses that. And if you take a look at the new refrigerant that we've developed, this solstice that we have talked about, this thing is magnificent and has a zero ozone depletion and has global warming potential less than CO2. So everybody always gets cranked up as a measure – a factor of CO2. This is actually less than CO2. So it's that good.
JIM CRAMER: Okay. Now, we know that this is, I believe, your last big analyst meeting. Because you're retiring. Did you do something – would you say – because, again, I want to qualify this because the stock was down 10. And people were concerned.
DAVE COTE: Yeah. I was shocked.
JIM CRAMER: But there have been times where you have been so conservative at the beginning of a conference call that we have had to talk about that. Was this just one, I mean, I expected a swan song that was more positive. Was it – it was conservative, Dave. And this is something, for instance, I did not see the slide, "Honeywell is a bargain," in the previous analyst meeting. Right?
DAVE COTE: Well, that means—
JIM CRAMER: I mean, you left me thinking that Honeywell should be sold unless you can buy United Technologies. Why did you hold this back? Again, people made decisions to sell the stock, Dave. And that was harsh, but they did.
DAVE COTE: Yeah. Well, you know the part that's unusual about that chart? Is that I get a lot of comments from analysts that they don't want me focusing on PE or saying that we're a good deal. And I keep saying, "But that's an important part of the story, is that we are still a good buy." And if you take a look at our long-term earnings that what we've done since 2007 versus our peers, and you take a look at our profile going forward, our peg ratio show looks pretty darn good.
JIM CRAMER: Right. The priced earnings. And this is a price-to-earnings ratio chart that shows you versus 3M, Illinois Tool Works, GE, Emerson. It's just very – you're a cheaper – particularly, after the decline.
DAVE COTE: Yeah.
JIM CRAMER: So if you had it to do over again, would you use this deck and not what you used?
DAVE COTE: I would put a lot more of the stuff that I've already got in there.
JIM CRAMER: Golden age of turbo. Could you put that in there? I'd like that.
DAVE COTE: Yeah, I mean, because this is all true. Golden age of turbo, this is going to go on for another 10 or 15 years. Yes, I wish I'd included a lot more of this stuff. I gave credit for people understanding what our long-term profile was. I was wrong. This is one where I could have done a significantly better job of communicating this story. And we tried to do it in the context of 2017 is going to be good. But it seemed to get totally lost.
JIM CRAMER: Well, I think that you just clarified it for a much more frankly larger and more important audience. Because of our people. Thank you so much, Dave Cote, outgoing CEO and chairman of Honeywell. Mad Money is back after this.
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