Unnamed: 0 int64 | symbol string | quarter int64 | year int64 | date string | company_name string | company_id float64 | text string |
|---|---|---|---|---|---|---|---|
2,900 | HD | 2 | 2,024 | 2024-08-13 09:00:00 | The Home Depot, Inc. | 278,679 | Michael Lasser: Okay. My follow-up question is the longer that this downturn persists, does Home Depot have an inclination to invest more in price or value as a way to grab market share that it could sustain on an eventual upturn? And maybe as a part of this, could you pull apart your updated gross margin guidance to reflect the underlying dynamics within core Home Depot versus the influence of SRS on this line item?
Billy Bastek: Yes, Michael, thanks. I'll take the first part of that, and then I'll hand it to Richard on a second piece of that question. As it relates to just the promotional activity, I mean, listen, we're going to continue to drive innovation and create value for our consumers. We are in a very rational environment as it relates to the home improvement sector, while there's been some pressure in the category like appliances. We don't see the need nor are in the environment where we need to be more promotional. We're focused on driving innovation and value, creating opportunities for our customers to come into our stores every day. We don't want to be in the promotional business. We feel very good about our position and creating these opportunities and excitement in our stores around just those things, and we've seen great adoption. We've been able to bring value into the marketplace. Areas like our proprietary brands continue to perform very well and we're very pleased with that and don't see a change in really the promotional cadence going forward. Now, I'll toss it to Richard for more on the gross margin piece. |
2,901 | HD | 2 | 2,024 | 2024-08-13 09:00:00 | The Home Depot, Inc. | 278,679 | Richard McPhail: Yes. Great. So let me actually broaden the question because I think it's important to give the broader context, if you're asking about gross margin, let's just talk about SRS for a moment. So, in last June's Investor conference, we laid out a base case and we said that there could be contributors to that base case that would push us to grow sales and earnings faster than that base case, right? So base case was 3% to 4% top line and high single digit -- mid- to high single-digit EPS growth. The acquisition of SRS is one of those accelerants that we pointed to in our investor conference, pushing us towards the accelerated case. The objective of SRS is to grow our share with the Pro, to accelerate sales growth, to accelerate operating profit growth and to accelerate EPS growth. So, from a sales and operating profit perspective, as you can see, it's already contributing to our company immediately. From an EPS perspective, the acquisition of SRS will be cash EPS accretive in the first 12 months of ownership as we said in March. It will be cash EPS accretive in the first 12 months of ownership adjusting for the associated noncash intangible amortization. So, let's talk about how SRS is reflected in our in our financials. Again, just as a reminder, we include six weeks of results in Q2 from SRS, and we will include about seven months of SRS in our full year. So just thinking about SRS, look, they have a different product mix than Home Depot, right? About 2/3 of their product is roofing and then the remaining 1/3 is in pool and landscape. SRS carries similar margins on similar products as The Home Depot. Those products carry a lower gross margin rate than The Home Depot company's average. But their margin simply reflects a different mix than The Home Depot. And so, when we think about gross margin, SRS impacted the second quarter gross margin by about 35 basis points. And if you think about what that means for kind of an annualized figure, you're talking a kind of a reset of our margin profile of about |
2,902 | HD | 2 | 2,024 | 2024-08-13 09:00:00 | The Home Depot, Inc. | 278,679 | think about what that means for kind of an annualized figure, you're talking a kind of a reset of our margin profile of about 45 basis points in gross margin. So again, that will be about 35 basis points for 2024. And then if you look at sort of an annualized figure, it's somewhere around 45 basis points. That's kind of a reset to reflect what is, in effect, a new mix of products at The Home Depot. So now let's talk about operating margin and SRS' impact because it's important to look at gross margin in that context. So, if you -- when you add SRS to our mix, it adjusts our base operating margin profile, lowering it by about 30 basis points in Q2 and it lowers our base operating margin profile by just about 40 basis points for the full year of 2024. So that's 40 for the full year of 2024. Again, if you annualize that number, then the adjustment to our base margin from SRS is about 60 basis points for an annual period. And those are GAAP numbers, and we can get into adjusted numbers, if you'd like. When we think about gross margin again for the quarter, we want to point out several exceptional performances across our operators. First of all, significant transportation benefit brought to us by our supply chain partners and our merchant partners and significant benefit from a decrease in shrink year-over-year. We have now put several quarters of shrink benefit versus last year together in a row. And we can point directly at what drives that performance. It's a fantastic team that we continue to invest in. And the returns on those investments are exceptional. That's a long way of saying, if you look at our gross margin performance year-over-year and you back out the SRS mix shift of 35 basis points, we were actually 75 basis points versus last year, an exceptional performance in gross margin across the board by our entire team. |
2,903 | HD | 2 | 2,024 | 2024-08-13 09:00:00 | The Home Depot, Inc. | 278,679 | Operator: Our next question comes from the line of Simeon Gutman with Morgan Stanley. Please proceed with your question.
Simeon Gutman: I have a question related to reversion. One way to look at it in 2019, if we look at transactions, they look like they're flat to down a little bit. So to Ted's point earlier, most of that looks like it's given back on transactions. Ticket though, is still up about 30-ish percent, 34%. So -- and I think that's a function of the number of items, consumers reporting in the basket and because there was inflation. My question is, if we look at just the inflation piece, are there any signs of product prices, either deflating, disinflating, the non-commodity stuff, non-lumber. Any signs of pricing changing in the channel? |
2,904 | HD | 2 | 2,024 | 2024-08-13 09:00:00 | The Home Depot, Inc. | 278,679 | Ted Decker: No, Simeon, thanks for the question. Your math is sort of spot on there. The good news is no. We're not seeing any broad step down in cost or retails. If you look at what we've laid out for AUR this year, we said that we'd have pressure of about 150 basis points of AUR in the first half, that would moderate to 50 basis points in the second half. That is all a function of lapping the cost and associated retail moves from last year. There really isn't a lot of net new activity on the cost or the retail front. In fact, sort of cost out and cost in activity. We have a very robust team that works with our merchants on this. It's all pretty neutral right now, we're not a ton of activity. So, as Billy said, we're not going to be promotional. We're an EDLP retailer that has to give value to our -- particularly our Pros every day. The cost environment is neutral. The price environment is neutral. We're not seeing a lot of trade down in particular. We're not seeing an increase in OPP penetration. Things are pretty neutral to several last periods of activity. And what we're seeing on the AUR is a matter of lapping. So, we're not seeing that, and we would expect the cost levels from where we are today to largely hold as well as the retail levels. Remember, there's -- in the cost levels from our supplier base, it's not just a matter of input costs in terms of materials, which you understand with our cost finance team, we have a very, very good view into that. But everyone over the last four years has seen significant increase in labor costs, and we're still working through transportation costs. So that 30, you can say, wow, that's highly inflationary, and that has to come back. Well, in fact, the cost structure, labor being a big component has increased similarly. And that's why we don't see the marketplace irrationally eroding those price levels. |
2,905 | HD | 2 | 2,024 | 2024-08-13 09:00:00 | The Home Depot, Inc. | 278,679 | Simeon Gutman: Okay. Follow-up, trying to think about what the core business is doing in terms of decremental margins in the second half? I think some of Richard's comments before gave us some more clues. But it looks like the EBIT dollar guidance of the whole business, dollars are roughly the same. We have a midpoint now. We had a one single point before. So. whatever we're losing from the core, it seems like we're picking back up in SRS. And it looks like the decrementals are somewhere around 20% to 25%. Is that right? Is that the right run rate if this sort of negative comp or low negative comp environment persists? |
2,906 | HD | 2 | 2,024 | 2024-08-13 09:00:00 | The Home Depot, Inc. | 278,679 | Richard McPhail: So, what I would do is -- let's -- why don't we talk about performance to date and how our guidance reflects the performance to date because we actually have, as I said, outperformed certain expectations in cost of goods sold. And the team has managed expenses in an exceptional manner. And so let me walk through what that means for the guide. So, you can recall, we began the year with a guide of a negative 1% comp with a 14.1% operating margin. In isolation, if we were to take -- well, as we take comp from a negative 1% to a negative 3%, that is, call it, 25 to 30 basis points of natural deleverage that we would see in that reduction in top line expectation. However, we've had favorability year-to-date. We know where it comes from, and that favorability enhances our earnings. And so instead of taking our 14.1% operating margin, and by the way I'm excluding SRS in this discussion, so for simplification, if we were to set SRS to the side for a moment. Naturally, our 14.1% operating margin would drop to something like a 13.9% to a 13.8% at a negative 3%. Instead, at a negative 3%, again, with SRS to the side, we are now guiding operating margin of 14%. So, we have held in essence, that core 14% operating margin at a negative 3% comp. That's because we are flowing through benefits that we have created through investments that we've made. Now, if we include SRS in this, obviously, as I said, there's about a 40-basis point mix shift in our operating margin base. So that 14% becomes the 13.6% that we've guided alongside the negative 3% top end of the range today.
Simeon Gutman: Got it.
Richard McPhail: And just to tie it all up together, that 13.6% corresponds with our adjusted operating margin of 13.9%. So, for the year, when we eliminate non-cash amortization expense on intangible assets, we expect to report operating margin of 13.9% on a comp of negative 3%.
Operator: Our next question comes from the line of Chuck Grom with Gordon Haskett. Please proceed with your question. |
2,907 | HD | 2 | 2,024 | 2024-08-13 09:00:00 | The Home Depot, Inc. | 278,679 | Operator: Our next question comes from the line of Chuck Grom with Gordon Haskett. Please proceed with your question.
Charles Grom: You guys talked about SRS revenue growth in the high single-digit range year-to-date, which is really strong in this environment. I'm curious what's driving that success? Were there some acquisitions made by SRS? Has it been all organic? And I guess, how do we think about that growth rate as we move into '25?
Ted Decker: Thanks, Chuck. Yes, they remain a robust share-taking grower, and that high single digit is split between -- roughly equally split between organic growth and lapping of acquisitions.
Charles Grom: Okay. Great. And any thoughts on how the pace of that will go into '25?
Ted Decker: Yes. We wouldn't give any guidance in the '25. But remember, their mode of growth, which they have demonstrated this since inception in the mid-2000s, is there a balanced grower between comping their existing branches, their open base of branches, opening greenfield branches and then some roll up M&A, geographical customer list add-on. So, that's the profile that they've grown for years, and that is exactly the profile that we will support going forward.
Richard McPhail: And just for clarity's sake, SRS is not in our comp base. And so, they are not reflected in our comp sales guidance. They will become comp once we've owned them for 12 months.
Charles Grom: Okay. That's helpful. And then, Richard, you've talked about the consumer deferring projects over the past few quarters. But as the prospects for lower rates begin to materialize, I mean we can start to see the line of sight for maybe a 6% mortgage rate. Is it possible that the pace of deferrals begins to ramp higher over the next couple of quarters? And if that's the case, what parts of your business do you think could be most exposed? |
2,908 | HD | 2 | 2,024 | 2024-08-13 09:00:00 | The Home Depot, Inc. | 278,679 | Richard McPhail: Well, intuitively, it's probably the converse of what we've seen. You think about the categories and Billy, please chime in, but those things that are components of the large project, kitchen, bath, flooring, lighting are all under pressure. And our customers tell us it's because that large project is being deferred. We're certainly not going to try to call timing. But just to echo what Ted said, there is certainly a direct relationship between decreases in mortgage rates and the amount of activity that you at least see picking up in turnover. And so, I think the important point here is, as we've said for years, the long-term fundamentals of home improvement demand are strong. We have continued to invest through this period of moderation. We -- 2024 marks the highest amount of CapEx that we've invested back in the business really in the last 15 years because we are bullish on the future. And timing is uncertain, but we're going to be ready for it.
Operator: Next question comes from the line of Brian Nagel with Oppenheimer. Please proceed with your question.
Brian Nagel: So, my first question, just with respect to the pace of comps, so the numbers you gave at your prepared remarks, there was a mark slowdown from June to July. Is there anything that's notable there? Or was it just that growing delays we talked about?
Billy Bastek: Yes, Brian, thanks for the question. And to reiterate in our comps, we were minus 3.7%, minus 0.9% and then a minus 4.9%. While we did see some softness in July, as we alluded to in Ted's comments, there's no question that the extreme heat took some sales in weather-related categories, think ACs and fans, think air circulation, think watering, those typically come for us in the July timeframe, and we saw, as I think everyone on the call is where we saw, a pull forward of that significantly back into June. So, it was really just a shift as we saw some of those categories move into the back half of June, and I'll let Richard expand a little bit further. |
2,909 | HD | 2 | 2,024 | 2024-08-13 09:00:00 | The Home Depot, Inc. | 278,679 | Richard McPhail: Yes. And Brian, Billy's comments were spot on. There were signs of maybe a little more general weakness. The major driver were those heat-related categories. There were some signs of more general weakness. That had an influence on our guidance range. But let's just -- let's talk about that range and kind of how we've started off the quarter. August has started off at a level consistent with what we would expect in a negative 3% comp result for the year. And August comps are better than July, right? And so, we -- there are a lot of factors that went into our guidance. But again, August has started off at a level consistent with what we'd expect in the negative 3% comp case.
Brian Nagel: That's very helpful. I appreciate that. And the second question I have, I guess, the bigger picture. But when we're talking a lot about SRS, the acquisition now is closed. You're working on the integration. Because we're watching Home Depot, this continued push into the professional market, I mean should we be expecting you to be exploring other acquisition opportunities there?
Ted Decker: Well, Brian, as I said, SRS will continue their activity to fill in geographies and segments, et cetera. Look, we just made a very large acquisition that we feel great about in early, early days of joint business planning and value creation. We've always talked about utilizing M&A for growth opportunities, whether it's segments or geographies or customer bases. And expect us to continue to do that, but do not expect us to do anything large having just done this very significant transaction with SRS.
Operator: Our next question comes from the line of Zach Fadem with Wells Fargo. Please proceed with your question. |
2,910 | HD | 2 | 2,024 | 2024-08-13 09:00:00 | The Home Depot, Inc. | 278,679 | Operator: Our next question comes from the line of Zach Fadem with Wells Fargo. Please proceed with your question.
Zach Fadem: It sounds like the Pro spread widened versus DIY relative to Q1. Curious, if there's any call out there? And then you mentioned positive comps for Pro's engaging in your new ecosystem. I'm curious what percent of Pro's this now represents and how you'd expect this trajectory to trend now that SRS is under your belt?
Ann-Marie Campbell: Yes, Zach it's Ann-Marie. Pro certainly outperformed due to selfers in the quarter. And as we have mentioned, we continue to invest in the Pro ecosystem to accelerate growth and really drive and grow the share of wallet. I'll go it over to Chip and just speak a little bit about the investments and what we're seeing there.
Chip Devine: Yes. Thanks, Zach. As we've mentioned in the past, we're investing in markets. In last year, we had 14 markets we invested in. We'll be fully invested in 17 markets this year. And when we talk about investing in markets, it's a distribution supply chain capability play, foundational capabilities that help us better serve the Pro and then most importantly, our expansion of our outside sales team. We've seen positive growth in all of those markets since we've been investing. And we see that quarter after quarter. So, we're very, very pleased with our progress over the last 1.5 years as we've marched and we continue to march in '25 with the same progress and expectation of expansion.
Zach Fadem: Got you. And then, Richard, two quick ones. First on buybacks and how we should think about the time line around the return? And then second, on the long-term structural margins. You gave some good detail around the impact of SRS. Curious how we should think about the new high watermark in recovery over time? |
2,911 | HD | 2 | 2,024 | 2024-08-13 09:00:00 | The Home Depot, Inc. | 278,679 | Richard McPhail: Well, let's talk about share repurchases. So, as we announced, as part of the SRS acquisition, we financed the acquisition with $10 billion in bond issuances and then some short-term commercial paper raising. We are currently at a 2.6x debt-to-EBITDA ratio. We like to see that ratio around 2.0x. It's our intent to delever over time before we restart repurchases. That's going to take us likely into the year 2026, and we will obviously update our investors on how that looks over time. But that would be the kind of the current calculation, sometime in 2026, we have returned. And then from a long-term structural perspective, when we laid out our basin in an accelerated case, we said to the base case. Look, we anticipate, in the base case, that we will always generate some degree of operating leverage. And that will always remain true. We're not going to talk about a high watermark. And we will continue to update you on our views. But for now, we're executing with exceptional expense management, exceptional measurement and cost of goods sold. And we are delivering -- over delivering really on the profitability we would have expected at this top line rate. So, we are happy that we're running the business as it should be run. And we believe that in those base case and accelerated cases that we laid out in June.
Operator: Our final question comes from the line of Steven Forbes with Guggenheim. Please proceed with your question.
Steven Forbes: Maybe just a quick follow-up on SRS. Ted, you mentioned the growth right and broke it down 50-50 between comp. And I think you said lapping acquisitions. So maybe just give us an update on where the branch count is today? And then, how would you sort of summarize the capital spending needs of that business to fund both greenfield and acquisition-related expansion as it included in the CapEx guidance? |
2,912 | HD | 2 | 2,024 | 2024-08-13 09:00:00 | The Home Depot, Inc. | 278,679 | Ted Decker: Sure. The good news is on their greenfield operations, it's reasonably capital light, at least a more modest-sized facility than a Home Depot DC would be, think of this as a branch operation. And high turning inventory and variable pay for the sales force. So, they tend to be breakeven in year one of operation. Similarly, when they make infill acquisitions, they have a great process to get that acquisition up on their ERP system. They literally do it over the weekend. They acquire a company on a Friday, and when that company opens up on a Monday, they are on the core ERP system of SRS. And that lets them get the operating process and technology synergies very quickly. And they have a track record of doubling EBITDA of acquired companies in the first three years of ownership. So, it's reasonably asset-light. It's quickly profitable on a greenfield basis, and it's multiples of earnings expansion on an acquired company. Since owned them, they've made -- in fact, I think last Friday, they closed on a small pool deal. They have a couple more under LOIs. So, these are modest infill acquisitions that they do in the normal course of business. So, we're really excited to watch them grow. And again, it's reasonably asset light on greenfield in the multiples, they're paying, as you can imagine, on smaller regional companies that are generally in single-digit EBITDA multiple. So nice earnings profile on their acquisition case.
Steven Forbes: And Richard, maybe just a very quick follow-up as we think about sort of restating last year's numbers for intangible amortization. The full year amount for last year, we're looking at 15 basis points as a percentage of sales? Or maybe correct me if I'm off there.
Richard McPhail: Yes. The total amortization expense last year was $186 million for Home Depot for the full year of 2023. |
2,913 | HD | 2 | 2,024 | 2024-08-13 09:00:00 | The Home Depot, Inc. | 278,679 | Richard McPhail: Yes. The total amortization expense last year was $186 million for Home Depot for the full year of 2023.
Ted Decker: And Steve, on branches, they're about 775. So, when we announced in March, it was 760, you can see their growth profile. They've opened 20-plus branches just in the last few months. So, these folks are super growth oriented.
Operator: Thank you. Ms. Janci, I will now turn the floor back over to you for closing comments.
Isabel Janci: Thank you, Christine, and thank you, everybody, for joining us today. We look forward to speaking with you on our third quarter earnings call in November.
Operator: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day. |
2,914 | HD | 1 | 2,024 | 2024-05-14 09:00:00 | The Home Depot, Inc. | 278,679 | Operator: Greetings, and welcome to the Home Depot First Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Isabel Janci. Please go ahead.
Isabel Janci: Thank you, Christine, and good morning, everyone. Welcome to Home Depot's first quarter 2024 earnings call. Joining us on our call today are Ted Decker, Chair, President and CEO; Ann-Marie Campbell, Senior Executive Vice President; Billy Bastek, Executive Vice President of Merchandising; and Richard McPhail, Executive Vice President and Chief Financial Officer. Following our prepared remarks, the call will be open for questions. Questions will be limited to analysts and investors and as a reminder please limit yourself to one question with one follow up. If we are unable to get to your question during the call, please call our Investor Relations department at 770-384-2387. Before I turn the call over to Ted, let me remind you that today's press release and the presentations made by our executives include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. These risks and uncertainties include but are not limited to the factors identified in the release and in our filings with the Securities and Exchange Commission. Today's presentation will also include certain non-GAAP measures. Reconciliation of these measures is provided on our website. Now, let me turn the call over to Ted. |
2,915 | HD | 1 | 2,024 | 2024-05-14 09:00:00 | The Home Depot, Inc. | 278,679 | Ted Decker: Thank you, Isabel, and good morning everyone. Sales for the first quarter were $36.4 billion, down 2.3% from the same period last year. Comp sales declined 2.8% from the same period last year and our U.S. stores had negative comps of 3.2%. Diluted earnings per share were $3.63 in the first quarter compared to $3.82 in the first quarter last year. The team executed a high level in the quarter, continued to grow market share. While the quarter was impacted by a delayed start to spring and continued softness in certain larger discretionary projects, we feel great about our store readiness, product assortment and associate engagement. Our associates are energized and ready to serve our customers as spring breaks across the country. As you will hear from Billy, where weather was favorable, we saw good customer engagement and strength in outdoor projects. In addition, our focus remains on creating the best interconnected experience growing Pro wallet share with a differentiated set of capabilities in building new stores, driving sales growth with our Pro customers remains one of our top focus areas. Remember, we operate in a $45 trillion asset class, which represents the installed base of homes in the United States and we serve a highly fragmented addressable market of approximately $1 trillion. Within that TAM, the greatest opportunity is with the residential Pro contractor, who shops across many categories of home improvement products while working on complex projects. We've defined that specific opportunity as an approximately $250 billion TAM, of which we have relatively little share today. We also know that to effectively serve this TAM, we need an expanded set of capabilities and services that we refer to as our Pro ecosystem. And while the store remains the center of that ecosystem, we are developing more fulfillment options, a dedicated sales force, specific digital assets, trade credit and order management capabilities geared at the residential Pro who shops across categories. As we've shared with |
2,916 | HD | 1 | 2,024 | 2024-05-14 09:00:00 | The Home Depot, Inc. | 278,679 | trade credit and order management capabilities geared at the residential Pro who shops across categories. As we've shared with you before, our more mature markets with this Pro ecosystem have seen great success, so we're expanding to other markets. As you heard last quarter, we'll have the foundational elements of our ecosystem in 17 markets by the end of the fiscal year. And while these 17 markets are currently at different maturity levels, they are outperforming our other large Pro markets in aggregate. Earlier this quarter, we announced our intent to acquire SRS, a residential, specialty trade distributor with a leading position in three large, highly fragmented specialty trade verticals serving the roofer, the pool contractor and the landscape professional. SRS is complementary to the ecosystem we've been building, giving us another avenue to more effectively serve the complex project occasion. They also give us the right to win with a specialty trade Pro customer. SRS does an exceptional job serving the specialty trade Pro who typically only shops one category and needs specialized capabilities to complete their project. In addition, SRS is an exceptionally well run business with a world-class management team. As we build out our own ecosystem, we can leverage their expertise in deep product catalog in the verticals in which they operate. We have significant growth opportunities in front of us and we are very happy with the operational execution in our core business. And despite pressure in the market, we continue to invest in our business. We are gaining share of wallet with our customers whether they are shopping in our stores, on our digital assets, or through our Pro ecosystem. Our merchants, store and MET teams, supplier partners and supply chain teams are always ready to serve in any environment. They did an outstanding job delivering value and service to our customers throughout the quarter and I'd like to close by thanking them for their dedication and hard work. With that, let me turn the call over |
2,917 | HD | 1 | 2,024 | 2024-05-14 09:00:00 | The Home Depot, Inc. | 278,679 | the quarter and I'd like to close by thanking them for their dedication and hard work. With that, let me turn the call over to Ann. |
2,918 | HD | 1 | 2,024 | 2024-05-14 09:00:00 | The Home Depot, Inc. | 278,679 | Ann-Marie Campbell: Thanks, Ted, and good morning everyone. As we head into a bigger selling season, our associates continue to be engaged, excited and ready to serve our customers. As Ted mentioned, growing share of wallet with the Pro and winning the Pros working on complex projects continues to be our largest growth opportunity. We know that delivering the best shopping experience for any purchase occasion is critical to our success. That is why we continue to invest in our Pro sales teams and capabilities. We have developed new capabilities within our Pro Intelligence tool which feeds our CRM platform and leverages data science to bring better insight to our sales teams. These tools are helping us to both assist in identifying the optimal Pro targets in a market as well as the highest value cross-selling opportunities to drive action and sales. Another critical component of the shopping experience is being in stock with the right products and ensuring those products are on shelf and available for sale. We've talked to you before about SideKick and Computer Vision and are thrilled with the results we've seen so far. This year, we will continue to lean in to improve our OSA and drive productivity by creating consistent, actionable and directed task for our associates. What's really exciting is how we are also now leveraging Computer Vision for other applications across the store. For example, Computer Vision helps us maintain the integrity of our base by ensuring that the products on the shelf meets all quality standards. Maintaining high-quality damage-free product is a key component of delivery on the customer experience. Additionally, we have also deployed this technology in our self-checkout corral [indiscernible] to help us mitigate shrink. Computer Vision can identify complex carts or high-value carts and signal the cashier to help the customer with their basket to ensure all products are scanned and accounted for. While we will continue to improve upon all of these technology-enabled applications, we |
2,919 | HD | 1 | 2,024 | 2024-05-14 09:00:00 | The Home Depot, Inc. | 278,679 | products are scanned and accounted for. While we will continue to improve upon all of these technology-enabled applications, we are thrilled with the early results we are seeing. Last quarter, we talked with you about one of our areas of opportunity within our post-sale experience, specifically within our returns process. I am excited to update you that over 70% of online orders are now able to be self-service returned from their MyAccount profile on our website. Now our customers can create their own return of an online order and drop it off at UPS with a scan of a barcode. Later this year, we will enable job site pickup or returns back to our FDC, which will be a game changer for Pro shopping experience. This enhancement will allow our customers primarily the residential pro to initiate a return from their job site versus having to return big and bulky items to the store. This is a massive win, not only for pros, but also for associates and/or stores and will drive better customer satisfaction and greater store productivity. These initiatives are just a few examples of the different ways we are improving the shopping experience for customers and/or associates. I am so excited about all we are doing to drive sales in our stores, and I look forward to the opportunity that's ahead of us. None of this would be possible without our amazing associates and I want to thank them for all they do to take care of our customers. With that, let me turn the call over to Billy. |
2,920 | HD | 1 | 2,024 | 2024-05-14 09:00:00 | The Home Depot, Inc. | 278,679 | Billy Bastek: Thank you, Ann. And good morning, everyone. I want to start by also thanking all of our associates and supplier partners for their ongoing commitment to serving our customers and communities. As you heard from Ted, during the first quarter, our sales were impacted by a delayed start to spring and continued softness in certain larger, discretionary projects. However, where weather was favorable, we saw good customer engagement and strength in outdoor projects. Before providing commentary on our comp performance, it's important to note that we made some merchandising department changes to more closely reflect how our customers shop our categories and better align with our merchandising growth efforts. We now have 16 departments, up from 14 previously and have separated electrical and lighting; and kitchen and bath. Additionally, we have renamed our tools department to power and included outdoor power equipment to capture synergies and maximize the strength of our battery-powered platforms. Turning to our department comp performance for the first quarter, our building materials and power departments posted positive comps, while outdoor garden, paint, lumber, plumbing and hardware were all above the company average. During the first quarter, our comp transactions decreased 1.5% and comp average ticket decreased 1.3%. However, we continue to see our customers trading up for new and innovative products. Big ticket count transactions or those over $1,000 were down 6.5% compared to the first quarter of last year. We continue to see softer engagement in larger discretionary – projects where customers typically use financing to fund the projects such as kitchen and bath remodels. Turning to total company online sales, sales leveraging our digital platforms increased 3.3% compared to the first quarter of last year. For those customers that chose to transact with us online during the first quarter nearly half of our online orders were fulfilled through our stores. We are incredibly focused on removing friction |
2,921 | HD | 1 | 2,024 | 2024-05-14 09:00:00 | The Home Depot, Inc. | 278,679 | quarter nearly half of our online orders were fulfilled through our stores. We are incredibly focused on removing friction for our customers to create an excellent, interconnected shopping experience. We continue to work on improving our online search functionality and serving the most relevant product offerings to our customers. To do this, we rolled out an intent-based search engine that combines keywords, behaviors and intent to deliver more targeted results. And we enhanced our filtering capabilities, improving the customers’ ability to find exactly what they are looking for. All of these initiatives work together to drive strong results in our online business. Pro and DIY customers’ performance was relatively in line with one another, but both were negative for the quarter. While Pro backlogs remain relatively stable, we hear from our Pros that homeowners continue to take on smaller projects. The investments we are making are resonating with our Pros as we see increased engagement. For example, we have made significant progress with the Pro Paint [ph] and continue to see share gains with this customer. Our partnerships with Bayer and PPG as well as enhanced capabilities around their in-store service and job site delivery capabilities are helping to remove friction from their experience. During the end of the first quarter, we hosted our annual Spring Black Friday and Spring Gift Center events and saw strong performance across both events. Our merchants did a fantastic job curating the best products and we saw strong engagement with our customers throughout the events. We are pleased with the results we saw, particularly in categories like riding lawnmowers and outdoor power equipment, where we had experienced some discretionary pull forward over the last couple of years. The trend away from gas to battery-powered products is continuing, and we are well positioned with our assortment. We have the brands our customers are looking for, whether it's RYOBI, Milwaukee, DEWALT, Makita or RIDGID. We estimate that |
2,922 | HD | 1 | 2,024 | 2024-05-14 09:00:00 | The Home Depot, Inc. | 278,679 | We have the brands our customers are looking for, whether it's RYOBI, Milwaukee, DEWALT, Makita or RIDGID. We estimate that there are nearly 500 million batteries in the market today, and our assortment covers the vast majority of these batteries. In fact, more than 70% of batteries with brands that are exclusive to The Home Depot in the big box channel with hundreds of products across each of these platforms, this is one of the best loyalty programs that keeps customers coming back to The Home Depot. And our live goods category looks incredible. We are ready for spring with everything from shrubs to a variety of flowers, herbs and vegetables for every type of gardener. We're excited about spring breaking across the country, and we remain ready to help our customers with all of their outdoor projects and outdoor living needs. With that, I'd like to turn the call over to Richard. |
2,923 | HD | 1 | 2,024 | 2024-05-14 09:00:00 | The Home Depot, Inc. | 278,679 | Richard McPhail: Thank you, Billy, and good morning, everyone. In the first quarter, total sales were $36.4 billion, a decrease of approximately 2.3% from last year. During the first quarter, our total company comps were negative 2.8% with comps of negative 4% in February, negative 0.8% in March, and negative 3.3% in April. Comps in the U.S. were negative 3.2% for the quarter with comps of negative 4.8% in February, negative 1.3% in March, and negative 3.6% in April. For the quarter, Mexico posted positive comps, whereas Canada was slightly below the company average. In the first quarter, our gross margin was 34.1%, an increase of approximately 45 basis points from the first quarter last year, primarily driven by benefits from lower transportation cost and shrink. During the first quarter, operating expense as a percent of sales increased approximately 140 basis points to 20.2% compared to the first quarter of 2023. The increase was primarily driven by a benefit from a legal settlement that we are overlapping from the first quarter of fiscal 2023, as well as deleverage from our top line results. Our operating expense performance was in line with our expectations. Our operating margin for the first quarter was 13.9% compared to 14.9% in the first quarter of 2023. Interest and other expense for the first quarter decreased by $13 million to $428 million. In the first quarter, our effective tax rate was 22.6% compared to 24.2% in the first quarter of fiscal 2023. Our diluted earnings per share for the first quarter were $3.63, a decrease of 5% compared to the first quarter of 2023. During the first quarter, we opened two new stores, bringing our total store count to 2,337. Retail selling square footage was approximately 242 million square feet. At the end of the quarter, merchandise inventories were $22.4 billion, down approximately $3 billion, or 12% compared to the first quarter of 2023, and inventory turns were 4.5x, up from 3.9x last year. Turning to capital allocation. During the first quarter, we invested |
2,924 | HD | 1 | 2,024 | 2024-05-14 09:00:00 | The Home Depot, Inc. | 278,679 | and inventory turns were 4.5x, up from 3.9x last year. Turning to capital allocation. During the first quarter, we invested approximately $850 million back into our business in the form of capital expenditures. And during the quarter, we paid approximately $2.2 billion in dividends to our shareholders and we returned approximately $600 million to shareholders in the form of share repurchases. As a reminder, in March we announced our intent to acquire SRS Distribution and as a result, we paused share repurchases. As you've heard us say many times, we maintain a disciplined approach to capital allocation and that is not changing. First and foremost, we will invest in the business and expect capital expenditures of approximately 2% of sales on an annual basis. After investing in the business, we plan to pay the dividend and it is our intent to return any excess cash to shareholders in the form of share repurchases. From time to time, we will also invest in the business through acquisitions to enhance our capabilities and to accelerate our strategic objectives. Computed on the average of beginning and ending long-term debt and equity for the trailing 12 months, return on invested capital was 37.1%, down from 43.6% – excuse me, down from 43.6% in the first quarter of fiscal 2023. Now, I will comment on our guidance for fiscal 2024. Today, we are reaffirming our guidance for 2024. As a reminder, our guidance does not currently reflect any impact from the announced acquisition of SRS. The acquisition is currently under regulatory review and we expect it to close by the end of fiscal 2024. We expect total sales growth to outpace sales comp with sales growth of approximately positive 1% and comp sales of approximately negative 1%. Total sales growth will benefit from a 53rd week and we expect the 53rd week will contribute approximately $2.3 billion in sales. Our gross margin is expected to be approximately 33.9%, an increase of approximately 50 basis points, compared to fiscal 2023. We expect operating margin of |
2,925 | HD | 1 | 2,024 | 2024-05-14 09:00:00 | The Home Depot, Inc. | 278,679 | to be approximately 33.9%, an increase of approximately 50 basis points, compared to fiscal 2023. We expect operating margin of approximately 14.1%. Our effective tax rate is targeted at approximately 24.5%. We expect net interest expense of approximately $1.8 billion, and our diluted earnings per share percent growth is targeted to be approximately 1% compared to fiscal 2023. It’s our intent to update guidance as appropriate once the SRS transaction closes. We believe that we have positioned ourselves to meet the needs of our customers in any environment. The investments we’ve made in our business have enabled agility in our operating model. As we look forward, we will continue to invest to strengthen our position with our customers, leverage our scale and low-cost position to drive growth faster than the market and deliver shareholder value. Thank you for your participation in today’s call. And Christine, we are now ready for questions. |
2,926 | HD | 1 | 2,024 | 2024-05-14 09:00:00 | The Home Depot, Inc. | 278,679 | Operator: Thank you. We’ll now be conducting a question-and-answer session. [Operator Instructions] Thank you. Our first question comes from the line of Chris Horvers with JPMorgan. Please proceed with your question.
Chris Horvers: Thanks. Good morning, everybody. Can you talk about how the – how you think the bathtub effect could play out? Do you have a sense of how much maybe the weather was a net headwind year-over-year, understanding that last spring was also wonky? And related to that, Billy mentioned being pleased with spring where the weather was good and some positive commentary and some early COVID-winning categories. So where there was normal weather? Did you see comps maybe get flat or even – or maybe up around the spring business? Thanks.
Ted Decker: Hey, good morning, Chris, wonky is a great word to describe this spring. We can’t really point to one geography that has had consistently good weather. But yes, certain markets, particularly in some of the Northern most markets where we’ve had some good weekends, business was just incredible. And that’s really what powered the positive comp in our power business. A lot of that is driven by outdoor power equipment. We talk a lot about the battery platforms and the brands we have and customers are really responding to that category. But we just haven’t had the consistent weather across the country. We were looking for much improved Western division this year given how bad weather was last year in the West, but that really didn’t happen. So the bathtub is in effect but we still have a long way to go. Our biggest selling weeks are ahead of us and certainly hope for some drier weather in sunnier days. But Billy, maybe you can add some commentary. |
2,927 | HD | 1 | 2,024 | 2024-05-14 09:00:00 | The Home Depot, Inc. | 278,679 | Billy Bastek: Yes. No, thanks for the question, Chris. And as Ted mentioned, I mean, if you go back and we knew that there was pull forward in a lot of discretionary categories, single item purchases, if you will. And we’re really pleased to see some of those businesses more normalize to the cyclical cycle of what you would typically see. And there’s no question that that, that was – had been an impact certainly last year and so really pleased with seeing some of that. Yes, where the weather has been great, which hasn’t been or consistent, I should say, we’ve seen great customer engagement. I mentioned our Spring Black Friday event, our spring gift center events. We’ve seen great consumer customer engagement there. And there’s still the continued pressure that we see in finance big projects as they called out in kitchen and bath, specifically in the kind of remodeling finance projects, but really pleased with some of the customer engagement, some of those pull-forward categories so far.
Chris Horvers: And just to dig in on that a little bit on the big ticket sort of two sides of the coin, is the big ticket finance project business did it get worse because rates spiked in on the other side, categories like garden equipment and grills and patio, are you seeing any emergence of replacement cycle where you could see maybe those categories start to get back to flat, if not up?
Richard McPhail: Chris, this is Richard. So just from a year-over-year perspective, we saw big ticket pressure last Q1, which was more of the item purchase as customers deferred those sort of item purchases. We saw big ticket pressure this Q1 as well and yet the dynamic has changed and the dynamic really that we began to see towards the back half of last year was this deferral of large projects like Billy called out. So the pressure in those categories has actually increased. It's a different story of Q1 2023 versus 2024. And maybe, Bill, you talked about particular categories. |
2,928 | HD | 1 | 2,024 | 2024-05-14 09:00:00 | The Home Depot, Inc. | 278,679 | Billy Bastek: Yes. Again, the kitchen and bath remodel project cabinets and so forth. I mean, anything that's financed, we continue to see even a little bit more pressure. Conversely, and you just mentioned, Chris, some of the categories more item buying. I mean, the category like riding mower is well over $1,000 purchase, and we're seeing just in a few categories like that, terrific customer engagement. Again, we had pulled forward, but we're really pleased with some of those specific item purchases even the ones that are over $1,000, as I mentioned, riding mowers and some other categories where we've seen really back to that cyclical customer engagement. We're really pleased with some of those pieces that we're seeing in the business.
Chris Horvers: Thanks very much. Have a great rest of spring.
Ted Decker: Thanks, Chris.
Operator: Our next question comes from the line of Simeon Gutman with Morgan Stanley. Please proceed with your question.
Simeon Gutman: Hi, good morning, everyone. My first is a macro, and I'm going to follow-up with a micro. I want to ask your opinion on lock-in effect versus turnover. If it's clear that we need turnover now for stronger demand? And if you can talk about demand in regions of the country where pricing is more noticeably going up than others seeing if there is a real lock-in effect that can happen. And the contingency is if we don't get rate decreases, what sort of normal could look like? |
2,929 | HD | 1 | 2,024 | 2024-05-14 09:00:00 | The Home Depot, Inc. | 278,679 | Richard McPhail: So Simeon, I think you have to think about this short-term and longer term. So if we think about lock-in effect and the impact of housing turnover. Clearly, we've seen two years of significant decrease in housing turnover to the point where we're at really sort of at historical lows. And most folks think that, that can't get much lower. When you're thinking about current performance, obviously, that puts pressure on our business. When a customer buys or sells a home, they spend more in that year than in a year when they don't. And so there's no doubt that we're missing some of that project demand, and that's what's going on our sales as we had anticipated. Then you have to ask yourself though, the lock-in effect, the interest rate environment, at this point, a lot of subject to the macro. I think the question is at what point current interest rates become sort of the new normal. This is not something that we're making a prediction on. It's just thinking about behavior. At some point, spend on housing shifts from discretionary to something that you simply must do. We know that there's pent-up demand for household formation. And so again, I'd say short-term, it is having an impact on our customers' mindset. And it's not just housing turnover related spend. It's really all large projects. As Billy said, sort of debt finance spend where we are seeing interest rates sort of weigh on the mind of customers. And look, we're not immune to this. If you look at the national figures on what's really driving the consumer right now, its services. Goods are underperforming services and durable goods are seeing the most pressure and in particular, home-related categories. So this is not a surprise and this is baked into our expectations for the year. The question will be how it evolves over time. |
2,930 | HD | 1 | 2,024 | 2024-05-14 09:00:00 | The Home Depot, Inc. | 278,679 | Simeon Gutman: Thanks. That's helpful, Richard. My follow-up, transaction is still negative, but on a stack, it looks like they're getting a little better if we're not overreading it, and that's despite the spring weather, not breaking yet. So if you look at your transactions on an improving trend line, is that industry bottoming, getting better? Or is that Home Depot taking share? |
2,931 | HD | 1 | 2,024 | 2024-05-14 09:00:00 | The Home Depot, Inc. | 278,679 | Ted Decker: Well, those are challenging to tease out. I would say our sense is we are taking share. That's from third-party reporting on 4441, but transactions, I think you have two dynamics going on, and they relate to your prior question, Simeon. We've talked about the COVID and the lap of the COVID it is sort of like the giant storm and the hurricane. And for a couple of years, after you pulled so much demand forward, you suffer from lower sales in those categories. And that's what we were talking about last year and when Billy was just reviewing this item buying, there was no doubt, grills and riders and patio sets, these big-ticket items were pulled forward. We're seeing now that sort of naturally lap sort of like that hurricane effect lapping. What is newer, and we chatted about this before, is the housing turnover, which while historically not a huge driver of demand, it's steady state demand as housing turnover is fairly steady. But in the last 18-odd months is that has dropped from over 6 million units a year, I think at some run rates in certain months, it was even under 4 million, that dramatic decrease in housing activity is sort of the newer hurricane, if you will. And we don’t see that going much lower. It’s hard to predict, but as Richard said, tough to call the macro. But at some point, people will start to lap the interest rates and the lock-in effect. We’ve already seen percentages of houses with mortgages and all the various interest rate strata the percentage that we’re in that under 3.5% is past peak. So you’re already starting to see a bit of an unlock there. But all of that then leads to your transaction question. So we are starting to see some increase in transaction as we’re lapping more of the COVID pull forward, some newer pressure with the housing turnover dynamic. But net-net, we like the trend of transactions in units per basket were also up and we like seeing that trend as well. So not unexpected, as Richard said, and all baked into our guidance for 2024. |
2,932 | HD | 1 | 2,024 | 2024-05-14 09:00:00 | The Home Depot, Inc. | 278,679 | Richard McPhail: And just to add to that, you think about how we’re performing in spite of large projects, having seen the pressure, if you just look at debt financing and you look at some of the statistics around where we’re sitting, HELOC withdrawals or HELOC borrowings down 23% year-over-year that’s a Q4 statistic, but I think we’re in the same territory in Q1. In dollars, that’s dropping somewhere from $70 billion-ish a quarter to $50 billion-ish a quarter. And you look at cash out refinancing down 14% year-over-year, in dollars this peaked around $80 billion and they were $17 billion last quarter. And so you’ve got a significant drop, more than 75% from peak to where we are today. And so that’s to us interesting context for the fact that transactions have actually begun to recover on a sequential basis. So we’re punching through the environment. But in some respects, as Ted said, the macro has been against us for a little while now. And you could almost say those statistics are stabilizing at least on the bottom.
Simeon Gutman: Thanks. Good luck.
Operator: Our next question comes from the line of Zach Fadem with Wells Fargo. Please proceed with your question.
Zach Fadem: Hey good morning and thank you. I want to start with a clarification on the outlook. You’ve got 1% EPS growth. I just want to confirm that this incorporates the buyback pause post Q1. And then second, transaction growth stepping in the right direction. Curious if this was more Pro or DIY driven or both? And any color on the health of small and midsized Pros versus larger Pros? |
2,933 | HD | 1 | 2,024 | 2024-05-14 09:00:00 | The Home Depot, Inc. | 278,679 | Richard McPhail: Great. So Zach, I’ll take the first part. It’s Richard. So look, as we have reiterated guidance and see no reason to do anything about that. And when you think about the pause in share repurchases, think about the fact that we’re also accumulating cash. As we accumulate cash, we earn interest on that cash. You’ll see on our balance sheet, we have over $4 billion in cash right now, which is around $3 billion higher than last year. So given where short-term interest rates are, that interest income is a really strong offset to the impact from pause share repurchases and therefore, the net of it wouldn’t change our guidance.
Ted Decker: And on the Pro/DIY, each were negative for the quarter, more or less the same rate. And within Pro, the larger Pro continues to outperform particularly those engaging in the ecosystem. I’ll let Chip comment more about our performance there.
Chip Devine: Yes. Thanks, Zach, where we’ve expanded our capabilities around our supply chain capabilities and the expansion of our outside sales teams, we’ve seen noticeable outperformance in those markets and positive comps, so very pleased with that march of expansion. And as we move into this next nine months, we’ll expand in another three FTC markets that we’ve mentioned, one in LA, one in Detroit and one in San Antonio. So we’re very pleased with our progress.
Zach Fadem: Got it. Appreciate the color. And then, Richard, quickly, it looks like your SG&A on a per store basis was about flat year-over-year when you exclude the legal impact. And I’m curious if this is the right way to think about productivity this year or if you have any other levers at your disposal through the year. |
2,934 | HD | 1 | 2,024 | 2024-05-14 09:00:00 | The Home Depot, Inc. | 278,679 | Richard McPhail: Well, look, again, I would encourage you to look at our full year guidance because operating expense management can vary quarter-to-quarter. Obviously, we wanted to make sure that we were fully staffed in our stores. And as we said, we had a little bit later start to spring than we would have liked. And so – but we wanted to make sure that we were right there in front of our customer. We had other favorability. I mean, hats off to all our teams driving productivity throughout the portfolio, but in that particular point, operating expense is controlled by our operations team, just did a fantastic job landing [ph] quarter. And that's all baked into the reaffirmation of guidance.
Zach Fadem: Thanks so much for the time.
Operator: Our next question comes from the line of Scot Ciccarelli with Truist. Please proceed with your question.
Scot Ciccarelli: Good morning guys. The scope of the answer here might be a little beyond this conversation. But in general, can you talk about how you plan to utilize SRS and their discrete set of Pro relationships to potentially leverage your broader complex Pro initiatives? |
2,935 | HD | 1 | 2,024 | 2024-05-14 09:00:00 | The Home Depot, Inc. | 278,679 | Ted Decker: Sure, Scott. First and foremost, SRS is just a great company operating in three large, highly fragmented markets. So we talked about our TAM being $950 billion at the investor conference. With SRS in their market of roofing, specialty trade, pool and landscape that opens up $50 billion increased TAM were they are a strong number two in each of those segments. So just a well-run company in three great growth markets where they have strong share positions. So first and foremost, you get capability that lets you engage and win in a completely new TAM. How it's complementary to what we're doing, all the things that we are building, they have as a distributor. We've been a retailer for 45 years and we're building wholesale capability, things like trade credit, things like much more robust on time and complete delivery to job sites, things like order management, things like incentivized field sales forces. So these are all things that they've done for years, and we look forward to being able to engage with them and learn from them. But then they can also serve our customers. I mean our customers will benefit from their deep broad catalogs in those verticals, and we can cross-sell their product into our residential focused pro customer. So we look at this as just a great opportunity to expand market, to expand capabilities and to better service our customers.
Scot Ciccarelli: Very helpful. And then just, hopefully, a quickie. You talked about being in 17 markets by end of the year for the complex Pro capabilities. How many markets do you ultimately see that capability rolled out to its 17 going to x.
Ted Decker: I mean, we would expect to over time to be in we often talk about the top 40, kind of 80-20 rule of demand in our space, and that would be the expectation.
Scot Ciccarelli: Awesome. Thanks a lot guys.
Operator: Our next question comes from the line of Michael Lasser with UBS. Please proceed with your question. |
2,936 | HD | 1 | 2,024 | 2024-05-14 09:00:00 | The Home Depot, Inc. | 278,679 | Operator: Our next question comes from the line of Michael Lasser with UBS. Please proceed with your question.
Michael Lasser: Good morning. Thank you so much for taking my question. In light of the start to the year, have you – did you give any internal discussions to moderating your expectation around the way the rest of the year could unfold especially in light of what's likely to be now fewer rate cuts than was expected 90 days ago, which may mean that the overall rate of home improvement, the market may see less of an acceleration from here? |
2,937 | HD | 1 | 2,024 | 2024-05-14 09:00:00 | The Home Depot, Inc. | 278,679 | Ted Decker: Yes, Michael, we're not fed watchers here necessarily. And we said at the beginning of this year that we had a neutral stance on housing. We weren't going to take a bet on cuts or how many cuts. And that hasn't changed. What we are focused on and what our internal discussions do evolve around is our level of execution in the core business. And as I said, we couldn't be happier with how engaged this team is and how well we executed during the quarter. And if I can just take a minute to rattle off a few of these telltales, when you think what Hector has done in the stores, in terms of shrink, in leveraging our wage investments to getting attrition way down, which is helping with safety instances, what we're doing with technology and process in the store that Ann mentioned in her remarks about not just the better in-stock, but the supply chain is delivering, but the actual on-shelf availability that all our tools are delivering, our supply chain and merchant teams. What an incredible job in the face of negative comps, they took out $3 billion of inventory at cost, increased our turnover 60 basis points to 4.5 times and increased in-stock and on-shelf availability levels. I mean that is just incredible performance. And then add our price position. We talked about prices having settled in the marketplace. We're not any more promotional this year, but our overall price position with that roller coaster that we experienced during the COVID years, we're as well positioned on price and value and innovative products as we've been in some time. And then productivity in general remains a flywheel to Home Depot. And a lot of that SG&A leverage that you noticed, and we delivered was the efficiency in the model in having executed that $500 million in cost out that we signaled at the end of last year. So Michael, that’s what we focus on internally is controlling what we can control, and that’s why I’m just so pleased with this team and their high level of execution in the quarter. |
2,938 | HD | 1 | 2,024 | 2024-05-14 09:00:00 | The Home Depot, Inc. | 278,679 | Michael Lasser: Thank you for that, Ted. My follow-up is, there is a school of thought out there that the SRS acquisition could be assigned to Home Depot’s efforts to address the complex Pro segment of the market has just proved to be a little bit more difficult than what was originally expected. How would you respond to that?
Ted Decker: Well, I’d respond to say what we are doing to capture pro share of wallet with wholesale distribution capabilities is challenging, which is why no one's done it before. But we are doing it, and we are succeeding in it and we like what we see, and that’s why we continue to roll out to additional markets. We also know it’s a journey. This isn’t open up a DC, building a physical DC is about the simplest thing for us to do in our whole ecosystem that we’re building. But it is putting together all the pieces of the ecosystem and introducing our customers to those capabilities. And as we’ve said before, as we introduce customers to the capabilities, it is a linear relationship between increased comp and increased engagement with those capabilities. So we’re still optimistic in green and progressing on our organic efforts. SRS really is a completely different discussion in that a terrific asset and management team was brought to our attention that opened up a specialty distribution TAM that they have just a terrific position in. So at the end of the day, we keep reminding ourselves that we service a $45 trillion asset class with a $1 trillion TAM with the Home Depot at only about $150 billion in sales. We have so much share to gain with our consumers, in-store, online shopping with our existing Pros who largely shop our stores with this complex purchase occasion with larger Pros that we’re building out the ecosystem. And now SRS gives us a whole new white space to go play in three other verticals to take even more share. So very, very different propositions.
Michael Lasser: Thank you very much and good luck. |
2,939 | HD | 1 | 2,024 | 2024-05-14 09:00:00 | The Home Depot, Inc. | 278,679 | Michael Lasser: Thank you very much and good luck.
Operator: Our next question comes from the line of Chuck Grom with Gordon Haskett. Please proceed with your question.
Chuck Grom: Hey, good morning. Thanks a lot. Curious on the DIY side. Have you seen any changes in spending between income cohorts? And as a follow-up, you spoke to the delayed start to spring. Curious, a few weeks here into the month of May. Maybe you could frame out how business is tracking relative to the first quarter or April?
Richard McPhail: So on the income cohorts, it’s actually really more about project size than it is about income cohort right now. And as I said, the – as we said, the majority of the demand pressure is in those larger projects. And that really sort of spreads itself across cohorts, you could even say that, that almost tends to show as pressure in higher income cohorts. As we said before, though, this seems to be is it’s not the inability to fund projects, it’s a deferral mindset. You have this odd irony of every sound bite you read. Well, interest rates are going – they’re coming down soon. Our customers tell us, hey, with that in mind, with that on the horizon, we’re just going to wait and so that’s really the most important dynamic from an income perspective.
Billy Bastek: Yes. And then, Chuck, just on the first couple of weeks of May. I mean, it really has been the same story where weather has been favorable. We’ve seen great customer engagement strengthen outdoor projects, really pleased with what we’ve seen for the weather has been favorable, which is my prepared remarks, the same kind of dynamic we saw through, especially later in the quarter as the weather got a little bit better in certain parts of the country. |
2,940 | HD | 1 | 2,024 | 2024-05-14 09:00:00 | The Home Depot, Inc. | 278,679 | Chuck Grom: Okay. Thanks very much. And then, Richard, one for you. Just you spoke to confirming the 33.9% gross margin rate for the year. Is there anything today that makes you feel better or maybe worse about the underlying assumptions that got you there 90 days ago in terms of shrink, transportation mix? |
2,941 | HD | 1 | 2,024 | 2024-05-14 09:00:00 | The Home Depot, Inc. | 278,679 | Richard McPhail: I think, we’re – so we’re executing on all cylinders. And from a transportation perspective, from the merchants managing retail and costs through one of the most volatile periods last year in our history, fantastic results. And then just to add to it, look, with respect to shrink, shrink is a problem for retail, organized retail crime is not going away it’s a problem for all of us. The external environment is only getting tougher. As a result, we've done a tremendous amount of work. It is amazing, the effort put forth by our teams in making investments that pay off with significant return on investment and so when we look at our shrink performance, I hate to say this, but the external environment is not helping. Our teams are succeeding in blunting the impact. It's still a problem, it's still a pressure in our P&L. We want to keep attacking it, but we know that we've got the best in the business facing it. And it's not only a return on investment in terms of financial performance, it's a return on investment from a customer and associate safety perspective and so we're really happy about that. I think that there's one dynamic, you asked about margin. There's a dynamic here that I think it's worth calling out when you think about the shape of the year, and so I'll just go there. It is not insignificant when you think about the price dynamic last year, and how we saw retail settle in the market during the first half of 2023 and then essentially become what we would call settled during the second half of 2023, which has continued into Q1 and Q2 of this year. So when you think about the AUR pressure within ticket, we reported ticket in spite of AUR pressure that is in essence about 2 percentage points this quarter year-over-year. And what I want to remind you of is that's a year-over-year comparison. So we had kind of the height of well, let's put it in a different way. We had a lot of retail and cost settling during the first half of the year. So that 2% pressure is an artifact of a year-over-year |
2,942 | HD | 1 | 2,024 | 2024-05-14 09:00:00 | The Home Depot, Inc. | 278,679 | had a lot of retail and cost settling during the first half of the year. So that 2% pressure is an artifact of a year-over-year measurement. It is not an observation on where – what prices are doing today, and they're relatively steady. As we move through the year, that pressure have from Q1 to Q2, so you'll have about 1 percentage point of pressure in Q2, it'll have again in Q3 and then in essence, be going in Q4. So you asked the question about margin. I think that is a point with respect to shape of the year that is important to put out there. |
2,943 | HD | 1 | 2,024 | 2024-05-14 09:00:00 | The Home Depot, Inc. | 278,679 | Chuck Grom: Great. Thanks very much Richard.
Richard McPhail: Thanks.
Operator: Our next question comes from the line of Steven Zaccone with Citi. Please proceed with your question.
Steven Zaccone: Hey. Good morning. Thanks very much for taking my question. I want to follow-up on Michael Lasser's question. Can you just help us understand what drives the second half improvement in same-store sales, just given the fact that the first half has been a little bit softer here with this delayed start to spring?
Richard McPhail: Well, the primary factor is actually AUR, which we just outlined. So if you think about pressure going from the beginning of the year in Q1 of 2 percentage points to sort of falling to zero by the end of the year. That's really the majority of the arithmetic with respect to the year.
Steven Zaccone: Okay. And then to follow-up on gross margin, maybe it's a question for Billy. Spring Black Friday did well. We did notice there was a new spring sale from an online-only competitor. Do you think the promotional environment is changing at all, I guess, especially on the DIY side of the business as you try to compete for that customer?
Billy Bastek: Yes. So I'll speak to the promotional piece and thanks for the question. Listen, it's – we're in a very rational market and it's important to note that when we do events, we do events to drive excitement, to drive foot traffic in certain times of the year, no different than most folks do a Black Friday event, but we're doing that to drive excitement, bring value to the marketplace. We're not putting stuff, pulsing stuff on sale. The promotional business as it stands today in 2024 looks exactly like it did pre-COVID and before. It's no different. In fact, we've talked about appliances a little bit, but the environment really is normalized to what it was pre-COVID and I think it's, again important to note that we do that to drive excitement footsteps and absolutely try to bring value to our customers at these key times of the selling year. |
2,944 | HD | 1 | 2,024 | 2024-05-14 09:00:00 | The Home Depot, Inc. | 278,679 | Steven Zaccone: Okay. Thanks Billy.
Operator: Our next question comes from the line of Brian Nagel with Oppenheimer. Please proceed with your question.
Brian Nagel: Hi. Good morning. Thanks for taking my question. So my first question, and I apologize. I know this is going to be a bit repetitive to at least a couple of the prior questions. But so I maybe ask it a little bit different way. As you look at – today, you reiterated guidance for 2024. As you think about what we see would transpire, so to say in Q1. We talked a lot through the call about the macro pressures. The macro disruption is still impacting Home Depot. So the question I have is to get to that guidance, the guidance you've reiterated today, do you need some type of change, some type of solidification in the macro environment from what you're seeing today?
Richard McPhail: This no, Brian. Really, the only impact here was a delayed spring and we manage this business in halves and no matter when spring comes it always comes and it never impacts our annual results or guidance. So that's why we reaffirm today.
Brian Nagel: Got it. That's helpful. Then my second question, look, this with some of the macro data and there's more chatter out there about a potential reemergence, if you will, of inflationary pressures. So, I guess the question for you is, I mean, within your business, particularly maybe more the commodity side of this, are you starting to see this, a? And then, b, as you think about to the extent that we are seeing some type – potentially some type of reemergence of inflation. How do you view at this juncture, the ability of Home Depot to pass those type of costs along to consumers as it has in the past.
Richard McPhail: If you look at the national statistics, and you actually parse inflation, inflation is being driven in the good space – sorry, the services space, not in the good space and particularly not in home-related categories, Billy, maybe just talk about observations. |
2,945 | HD | 1 | 2,024 | 2024-05-14 09:00:00 | The Home Depot, Inc. | 278,679 | Billy Bastek: Yes. And from a commodity standpoint, Brian, we've seen no impact. Obviously, we talked a lot in the last year about not only lumber, but copper, and we're pleased with the fact that there's no impact on commodities at this point and see a very stable environment.
Brian Nagel: Good. Very helpful. I appreciate it. Thank you.
Isabel Janci: Christine, we have time for one more question.
Operator: Thank you. Our final question will come from the line of Steven Forbes with Guggenheim. Please proceed with your question.
Steven Forbes: Good morning everyone. I was hoping maybe to just expand on the weakness in certain discretionary projects such as kitchen and bath, any way to help us better understand if there's line of sight to stabilization in the project size headwind this year and/or pressure rolling off, meaning is it cycling compares still? Or are you still seeing project size moderate, right, relative to some baseline, whether it's a year ago or sort of from peak levels? |
2,946 | HD | 1 | 2,024 | 2024-05-14 09:00:00 | The Home Depot, Inc. | 278,679 | Ted Decker: Yes. It's – I mean, for sure, the single biggest pressure outside of the AUR that Richard went through was from discretionary larger decor-oriented projects. And as we've said last year, it was more of an item story. This year, it's more of a discretionary generally finance story. If you take something like kitchen cabinets in countertops, I mean those are probably the only categories where we've seen not just some falloff in projects and size of projects, but actually a little bit of trading down. So it's focused on those categories. That's the only place we've seen it and are seeing it. That too will pass. I mean I think that is now going through. There's – we've always had the idea that if turnover would drop, people would improve in place. I think we're still seeing the fallout from the turnover being down so dramatically. I mean it was just six months ago that interest rates hit their peak in October of 2023 mortgage rates. So those are the type of projects when you move into a new house, you update your kitchen; you update a master bathroom, et cetera. And then if you are going to stay in place, and take on those type of projects outside of a move, you're generally going to finance. And as we've seen the rates tick up and the impact of rates ticking up, that's impacting that demand. So right now, you would see a lap of that dynamic. We don't see housing turnover going lower. And then the question is interest rates, what does happen to interest rates in higher for longer, what does that mean you guys know as much as we do on that score? |
2,947 | HD | 1 | 2,024 | 2024-05-14 09:00:00 | The Home Depot, Inc. | 278,679 | Steven Forbes: And then maybe just a quick follow-up. I think it was Chip's comments earlier about the Pro comp, right, being positive. I believe you said within those markets that are servicing the Complex Pro, so maybe just clarifying if that's what he said. And does that imply that you've seen a widening in the performance gap between those markets where you're servicing the complex Pro versus the company average? Maybe relative to what you guys stated at the Analyst Day last year?
Billy Bastek: Yes. Just reaffirming what I said, we have seen positive comps in those markets where we've invested in sales professionals and our FTC markets.
Steven Forbes: Great. Thank you.
Billy Bastek: Thanks.
Operator: Thank you. Ms. Janci, I would now like to hand the floor back over to you for closing comments.
Isabel Janci: Thank you for joining us today. We look forward to speaking with you on our second quarter earnings call in August.
Operator: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day. |
2,948 | HON | 4 | 2,024 | 2025-02-06 08:30:00 | Honeywell International Inc. | 1,340,740 | Operator: Thank you for standing by, and welcome to the Honeywell Fourth Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's call is being recorded. I would now like to hand the call over to Sean Meakim, Vice President of Investor Relations. Please go ahead.
Sean Meakim: Thank you. Good morning, and welcome to Honeywell's fourth quarter 2024 earnings and 2025 outlook conference call. On the call with me today are Chairman and Chief Executive Officer, Vimal Kapur; Senior Vice President and Chief Financial Officer, Greg Lewis; and incoming CFO, Mike Stepniak. This webcast and the presentation materials, including non-GAAP reconciliations are available on our Investor Relations website. From time-to-time, we post new information that may be of interest or material to our investors on this website. Our discussion today includes forward-looking statements that are based on our best view of the world and of our businesses as we see them today and are subject to risks and uncertainties, including the ones described in our SEC filings. This morning, we will review our financial results for the fourth quarter and full year 2024 discuss our outlook for the year, share our guidance for the first quarter and full year 2025 and provide an update on the comprehensive portfolio evaluation. As always, we'll leave time for your questions at the end. With that, I'll turn the call over to Chairman and CEO, Vimal Kapur. |
2,949 | HON | 4 | 2,024 | 2025-02-06 08:30:00 | Honeywell International Inc. | 1,340,740 | Vimal Kapur: Thank you, Sean, and good morning to everyone joining us today. We finished 2024 on a positive note, exceeding or meeting the high end of our guidance for organic sales growth and adjusted earnings growth in the fourth quarter while navigating an uneven operating environment. During 2024, we deployed over $14 billion of capital, including foreclosed acquisitions for approximately $9 billion remaining on track to surpass our commitment to deploy at least $25 billion of capital through 2025. We also delivered on our promise to exit non-core lines of business with the planned spin of advanced materials and the sale of our personal protective equipment business in the quarter. Turning to 2025, we're excited by our progress from our future shaping innovations to growing our global installed base. That said, we are aware that the evolving geopolitical situation, challenging global macroeconomic conditions and tempered demand expectation in some end markets may pressure our near-term momentum. As a result, we are offering a realistic baseline for 2025 performance based on current end market conditions and without assuming a recovery in short cycle demand. While the current operating environment presents some near-term challenges, we continue to believe in the strong through-cycle growth potential of our best-in-class businesses Now let’s zoom out from the near-term dynamics to discuss an important step in our journey to transform Honeywell. Following our year-long comprehensive business portfolio evaluation, we have decided to pursue a full separation of automation and aerospace technologies. We believe the results of our strategic assessment provide clear direction for the future of Honeywell. Let's turn to Slide 3 to discuss today's portfolio announcement in more detail. As many of you know, Honeywell has performed portfolio valuation systematically for many years, evaluating various ways to potentially unlock value as conditions evolve. About a year ago, I initiated a process to look even deeper at |
2,950 | HON | 4 | 2,024 | 2025-02-06 08:30:00 | Honeywell International Inc. | 1,340,740 | various ways to potentially unlock value as conditions evolve. About a year ago, I initiated a process to look even deeper at different structures, including full separation of our largest businesses. Following the completion of this in-depth internal portfolio review, I'm prepared to share with you today that the Honeywell Board of Directors has concluded that the separation of automation and aerospace is the best interest of Honeywell shareholders. This step, coupled with the previously announced plan to spin advanced materials will result in three industry-leading public companies with tailored strategies and growth drivers. The formation of these three existing companies will enable greater strategic focus, operational independence and financial flexibility to pursue growth opportunities unlocking significant value for our stakeholders, including shareholders, customers and employees. From a time line perspective, we expect to complete the separation in the second half of 2026 and in a manner that is tax-free to Honeywell shareholders. In between, we remain very focused on delivering on our commitment, and we'll continue to identify ways to further shape our portfolio and create shareholder value. Now let's turn to the next slide to discuss why we think this is the right time to separate into three publicly traded companies. The decisions based on the operational and digital foundation we have created over the past two decades, and the series of strategic actions we have taken over the past year to dramatically simplify Honeywell. Our excellent operating system is mature and will be a source of strength for each company. Looking ahead, we see increasing divergent strategic pathway for automation and aerospace. This is a logical except to bring the portfolio to the next phase transformation and lock incremental value. With that, let's turn to Slide 5 to talk about strategic rationale behind today's announcement. We believe the planned separation of automation, aerospace and advanced material will benefit all |
2,951 | HON | 4 | 2,024 | 2025-02-06 08:30:00 | Honeywell International Inc. | 1,340,740 | behind today's announcement. We believe the planned separation of automation, aerospace and advanced material will benefit all stakeholders and position all three stand-alone companies for long-term profitable growth. The part will enable three pure-play companies to pursue simplified go-forward strategies that are clearly aligned to the unique purpose of each business and to address the specific needs of their end markets. With this clarity of strategy and incentives and enhanced financial flexibility that comes with being an independent by company, Honeywell Automation, Honeywell Aerospace and Advanced Material will be able to meaningfully drive innovation throughout investment cycles. The distinct investment profile of each company and an improved ability to customize capital allocation strategy will unleash the full potential of each company's strong balance sheet, creating the best path forward for an enhanced commercial success, faster based clinical innovation and increased customer intimacy. Each business will be able to build on their existing powerful foundation with the guidance of focused board of directors and management team that have deep domain expertise and clear vision for their future. We are committed to strong investment grade credit rating for both automation and aerospace and a strong non-investment grade credit rating for advanced materials, positioning all three to successfully compete for capital among their respective peer sets. Now let's turn to page 6 to talk about what it means for each of these three standalone companies. We are creating three scale pure play public companies that have leading position in their specific categories with a distinct competitive advantage and compelling long-term and market growth drivers. Each has a strong set of competitive advantages built and sustained over decades coupled with cohesive strategic direction and compelling secular growth drivers to support attractive top and bottom line growth. Honeywell Automation will be a pure play automation |
2,952 | HON | 4 | 2,024 | 2025-02-06 08:30:00 | Honeywell International Inc. | 1,340,740 | secular growth drivers to support attractive top and bottom line growth. Honeywell Automation will be a pure play automation leader driving digital transformation, energy security and increase industrial autonomy globally. Honeywell Aerospace will be a diversified premier aerospace technology and system provided all forms of aircraft with some of the most compelling financial metrics in all of the aerospace. Advanced Material will be sustainability focused specialty chemicals and materials, pure play with a strong IP portfolio and set up unique growth investment opportunities. Let's turn to the next page to talk through the value proposition of Honeywell Automation. Cutting edge controls and automation technology have been the foundation for Honeywell for a century. We have been leading market position across process industrial energy and building end markets that go back decades creating a vast install base globally. Honeywell Technology is used in over 10 million buildings, 17,000 process plants providing a powerful platform to enable growth through our services and software. Honeywell Automation brands are highly valued and well recognized across the globe and we have numerous long lasting customer relationships. As a standalone $18 billion business, Honeywell Automation global scale, deep domain expertise and long lasting technology leadership positions can tackle the world's most complex problem and power digital transformation on a global level. Honeywell Automation's current segment margin of 23% is supported by a track record of driving continuous improvement in operating efficiency through our accelerator operating system. We anticipate that the secular growth such as chronic labor scarcity, increased funding for capital projects both public and private energy security and supply chain resiliency will all stimulate further growth. The rapid advancement in automation technologies is enabling the manufacturing sector to unlock valuable new sources of efficiency through cloud connectivity and advanced |
2,953 | HON | 4 | 2,024 | 2025-02-06 08:30:00 | Honeywell International Inc. | 1,340,740 | is enabling the manufacturing sector to unlock valuable new sources of efficiency through cloud connectivity and advanced analytics. These trends are compounding as we speak with the progression of industrial AI evolving from theory into reality, transforming Automated Facilities into Autonomous facilities. In an automated facility, machine with pre-programmed instructions and deterministic outcomes govern the industrial process, but in an autonomous facility systems or machines can analyze years of historical data and make recommendations and decisions that adapt to new conditions, changing environments or unanticipated problems. We believe this momentum will only accelerate in coming years and continue to drive increased demand for high quality sensors, controls, process and software technology, all of which are right in Honeywell's wheelhouse. In fact, our leading software-based Honeywell Forge IoT platform is already improving asset performance, enhancing labor productivity and increasing cybersecurity for our customers as well as driving valuable recurring revenue streams for Honeywell. Increasing energy demand requirement to reduce emissions and heightened energy security concerns are driving the need for significant investment in emerging energy verticals infrastructure as well as for fortifying traditional energy sources. Honeywell Automation is uniquely positioned to help meet world's need on both fronts with leading innovation from renewable fuel technology to LNG building on largest installed base of process technology for the energy sector. As an independent automation pure play, Honeywell Automation will be able to anchor the direction of the company to build on a powerful foundation and focus capital allocation strategies on deepening presence in high growth verticals. We believe this will drive differentiated performance for both customers and shareholders. On the next page, we'll talk about Honeywell Aerospace in more detail. Moving to Aerospace, Honeywell has a 100-plus year heritage as a |
2,954 | HON | 4 | 2,024 | 2025-02-06 08:30:00 | Honeywell International Inc. | 1,340,740 | page, we'll talk about Honeywell Aerospace in more detail. Moving to Aerospace, Honeywell has a 100-plus year heritage as a crucial innovator in aerospace and defense with a diverse portfolio of technology and system that spans nearly every major commercial, defense and space platform worldwide. As a stand-alone business, Honeywell Aerospace will be one of the largest publicly traded pure-play aerospace supplier with a global scale in the highest value and most critical areas across the value chain. For example, Aerospace has delivered over 100,000 auxiliary power units, a technology we invented, and 72,000 engines since 1969, and is staggering 90% of global aircraft use Honeywell Avionics On its own, Aero will pursue tailored capital deployment priorities to position the business to continue driving growth, delivering reliability to customers and positioning the business for the future of aviation through increasing electrification and autonomy of flight. With an annual sale of $15 billion and a streamlined cost structure yielding best-in-class segment margin of 26%, Honeywell Aerospace has a solid financial profile, which can support continued growth in investment in new innovations while maintaining industry-leading profitability. Aerospace also has significant expanding high-margin revenue stream from retrofits, modifications and upgrades, or RMUs. These new value propositions are purpose driven to serve customer needs within our installed base and offer a source of growth that is decoupled from OEM build rates or flight hours and other key service of differentiated financial performance. Aerospace Technology has deep end market penetration and global scale in aircraft propulsion cockpit and navigation system and auxillary power units with a robust Honeywell-funded R&D investment profile of approximately 4% of sales and a customer-funded R&D of approximately 7% of the sale, our business is well positioned to benefit from multiple years ahead of unprecedented demand within traditional aerospace and defense, |
2,955 | HON | 4 | 2,024 | 2025-02-06 08:30:00 | Honeywell International Inc. | 1,340,740 | is well positioned to benefit from multiple years ahead of unprecedented demand within traditional aerospace and defense, aging fleets with a lengthy backlog for replacement increasing defense budget given geopolitical uncertainty and higher flight activity in high-growth regions provide support for healthy commercial and defense OE investment up cycle alongside aftermarket strength. At the same time, the industry is in a dire need for new electrification and sustainability offering to meet steep global carbon reduction initiatives, already now integrated electric propulsion system combined motor, controller, power and cooling system with Honeywell's unrivaled expertise in fly by wire avionics, including the next-generation Anthem flight deck, making the future of aviation safe, quiet and efficient. Honeywell aerospace electrification and autonomous driven technologies also leading innovation that will transform travel and delivery services as well as how country defend themselves. This is creating a significant new source of revenue for Aero in the decades ahead as evidenced by over $10 billion in Advanced Air Mobility wins and independent aerospace company of this scale and global presence will benefit from a focused strategy, a well-capitalized public company structure a dedicated board with a deep domain expertise and targeted high-return investment, both organic and inorganic to deliver the future of aviation. Let's turn to Slide 9 to talk about Advanced Materials. And finally, for Advanced Materials, as we discussed last October, we announced the spin. We are very excited about the opportunity to create a leading sustainability focused specialty chemicals and materials pure play. We believe that as a stand-alone specialty chemicals and materials business, the company will benefit from greater financial flexibility to pursue its own growth agenda and associated investment choices. This include distinct opportunities in next-gen sustainable refrigerants, specialty electronic materials and highly engineered |
2,956 | HON | 4 | 2,024 | 2025-02-06 08:30:00 | Honeywell International Inc. | 1,340,740 | This include distinct opportunities in next-gen sustainable refrigerants, specialty electronic materials and highly engineered solution for health care applications. The business generated approximately $4 billion of sales in 2024, with sector-leading EBITDA margins of about 25% on an estimated stand-alone cost basis. With over $1 billion invested over the past 8 years, AM has built a robust economic mode with an efficient supply chain and a global customer base in a highly regulated vertical. AM's solid competitive positioning stems from a differentiated IP portfolio made up of over 5,000 active patents and applications created by a deep bench of more than 400 highly specialized technologies and engineers. Stand-alone AM will be able to continue to focus on developing new, more sustainable solutions through next-gen chemistry and this pure play business with a compelling investment profile is uniquely positioned to benefit from strong macro trends. Now let's turn to Slide 10 to talk about progress on transforming our portfolio. In a little over a year, we have made tremendous progress on optimizing and simplifying the portfolio. In the fall of 2023, we announced plan to reorganize our business around three mega trends. During 2024, we announced a total of four strategic bolt-on acquisition plus a handful of smaller but strategically important technology tuck-ins, committing $10 billion of capital and adding about $2 billion of run rate revenue growing at accretive rates. In addition to these apps, we also are executing on simplification of portfolio with the pending sale of PPE business. Today's announcement to separate automation and aerospace, coupled with the planned spin of AM marks the beginning of the next phase of our transformation. We remain committed to and excited about the prospect of Quantinuum. Lastly, SoftBank announced a partnership with Quantinuum to explore ways to unlock innovative quantum computing solution that will overcome the limitation of classical KI and explore Quantum data center |
2,957 | HON | 4 | 2,024 | 2025-02-06 08:30:00 | Honeywell International Inc. | 1,340,740 | unlock innovative quantum computing solution that will overcome the limitation of classical KI and explore Quantum data center business model just the latest validation of our technical progress. Quantinuum continues to make great strides in both technical and commercial progression, and we look forward to an eventual IPO for this business. We will continue to make M&A a consistent part of our operational rhythm seeking to acquire accretive bolt-on that further shape the portfolio and enhance the value proposition of each business during the dependency of the separation process. We are confident that our dynamic capital deployment strategy, including acquisitions, further share repurchases and optimizing our operations will lead to an enhanced financial profile for Honeywell that is more attractive to investors. And finally, we are committed to reducing our share count by at least 1% this year, net of dilution, which equates to more than $3 billion of capital deployed over the next 12 months. This reflects our conviction in the future value creation of our strategic plan, near the momentum in the business performance and what we believe to be a stock at an attractive valuation. Let's turn to Slide 11 to talk about the next steps. In terms of path forward, we remain on track to complete the spin of advanced materials by end of '25 and or in early 2026. The planned separation of automation and aerospace we announced today is expected to be achieved in a manner that is tax-free to Honeywell shareholders and targeted for completion in the second half of 2026. We will leverage the rigorous operating principles underpinning our accelerating operating system to prevent business disruption and manage the onetime cost of $1.5 billion to $2 billion associated with the separation of both automation and aerospace as well as advanced material spins. This operating playbook is a deeply ingrained part of Honeywell's culture and will carry on inside each of these powerful franchises. We will provide you with updates on process |
2,958 | HON | 4 | 2,024 | 2025-02-06 08:30:00 | Honeywell International Inc. | 1,340,740 | of Honeywell's culture and will carry on inside each of these powerful franchises. We will provide you with updates on process towards completing these separations. Importantly, we'll maintain a steadfast approach to executing on our commitment to our customers, shareholders and employees as we enter this next phase of portfolio transformation. Now before I turn it over to Greg on Slide 8 to discuss our fourth quarter and full year 2024 results in more detail, I want to thank him personally for his leadership and partnership in my first two years as CEO. Greg’s tireless effort as CFO over the past seven years have an instrumental in transforming Honeywell. Greg, I wish you all the best in your next chapter. |
2,959 | HON | 4 | 2,024 | 2025-02-06 08:30:00 | Honeywell International Inc. | 1,340,740 | Greg Lewis: Thanks for those kind words Vimal, it's been a privilege to lead this iconic company alongside you and Darius. And good morning everyone. Honeywell finished 2024 on a strong note, meeting the high end of our organic growth and adjusted EPS guidance in the fourth quarter despite a still challenging macroeconomic environment. Cash flow is also a positive coming in at the high end of guidance in the fourth quarter. Importantly, during the quarter we announced the landmark agreement with Bombardier, one of the largest business Jet OEMs globally, to provide the next generation of technology for current and future aircraft in avionics, propulsion and satellite communications. This includes the first deployment of our next gen Anthem avionics at scale and comes with a lifetime value of the partnership of $17 billion. While the related investments lowered our reported performance in the fourth quarter, the long-term economics are compelling and there is no impact on 2025 performance. We're proud of the enhanced partnership we're building with Bombardier and excited for the opportunity to lead the industry into the future of aviation. Turning to the fourth quarter, we ended the year positively with sales and earnings per share exceeding our prior guidance range. Overall sales increased 2% organically or 6% excluding Bombardier, with year-over-year organic growth improving 5 points sequentially in both IA and BA from the third quarter. Segment margins declined 70 basis points from the previous year when excluding the Bombardier impact of 280 basis points. Adjusted earnings per share improved 9% excluding Bombardier with segment profit growth more than offsetting higher below the line costs. Fourth quarter free cash flow declined 27%, mostly due to the cash contributions related to the Bombardier agreement. Honeywell's backlog reached a record level of $35.3 billion in the quarter, growing 11% year-over-year. Excluding acquisitions, backlog was up 6% year-over-year and 1% sequentially, with particular strength |
2,960 | HON | 4 | 2,024 | 2025-02-06 08:30:00 | Honeywell International Inc. | 1,340,740 | 11% year-over-year. Excluding acquisitions, backlog was up 6% year-over-year and 1% sequentially, with particular strength in ESS. Fourth quarter orders increased 11% organically from the prior year, growing in all four segments. For more details on the drivers of our fourth quarter and 2024 results, including year-over-year bridges, please look in the appendix of today's presentation. To wrap 2024, Honeywell's full year organic sales increased 3% or 4% excluding the impact of the Bombardier agreement as double-digit organic growth in our longer-cycle Aerospace and Building Solutions businesses more than offset softness in the products businesses in Industrial and Building automation. 2024 acquisitions contribute over $800 million to sales at accretive growth rates, while integration efforts are proceeding well. Full year segment profit grew 1% with margin contraction of 90 basis points in 2024. Excluding Bombardier, segment profit grew 6% with 20 basis points of margin contraction. Margin pressure in the year was driven by contraction in industrial automation with Aero roughly flat, excluding Bombardier, ESS roughly flat and BA up. We believe our accelerator operating system will continue to enable us to expand margins over time, but the pace of expansion can be uneven, especially when coming off 150 basis points of combined improvement in 2022 and 2023. 2024 adjusted earnings per share grew 4% or 9% excluding Bombardier. We also generated $4.9 billion of free cash flow $5.5 billion, excluding Bombardier at the high end of our most recent guidance range. We deployed $8.9 billion towards M&A closing 4 acquisitions this year. In total, we allocated $14.6 billion of total capital, including $1.7 billion to repurchase 8 million shares; $1.2 billion to capital expenditures; and $2.9 billion to dividends, which we raised, again, for the 15th time in 14 years. So before I hand it off to Mike to discuss our outlook for the year, I want to thank Vimal, all of my fellow Honeywell Future Shapers and my family for |
2,961 | HON | 4 | 2,024 | 2025-02-06 08:30:00 | Honeywell International Inc. | 1,340,740 | to Mike to discuss our outlook for the year, I want to thank Vimal, all of my fellow Honeywell Future Shapers and my family for supporting me during the past seven years as CFO. I'm proud of the transformation Honeywell has undergone optimizing our portfolio and greatly increasing our digital capabilities. I also want to reaffirm my confidence in Mike as the next CFO of Honeywell. Working with him on this transition over the past five months has only confirmed the decision we made was a great one. He has all the skills and commitment needed to bring Honeywell into the next phase of growth, and I'm excited for the future. So Mike, over to you. |
2,962 | HON | 4 | 2,024 | 2025-02-06 08:30:00 | Honeywell International Inc. | 1,340,740 | Mike Stepniak: Thank you for the support Greg and all your contributions to Honeywell. Let's turn to the next slide. Looking at our major end market exposures entering 2025, we see underlying long-term secular strength being met with near-term challenges in the macroeconomic backdrop and heightened potentials. In aerospace, commercial fleet growth and replenishment continue and defense investments remained elevated with some natural moderation from the double-digit growth rate seen for the past three years. We benefit from public and private spending on infrastructure projects and ongoing push for more automation investment addressing chronic labor shortages and inflation but demand for short-cycle products remain muted in the near term. Energy investments in a number of verticals will continue to support our sustained backlog while growing demand for digitalization of processes across many end markets enables the potential for increasingly AI-enabled offerings to boost our customers' productivity. Breaking down our 2025 market view geographically high-growth regions in the U.S. will be drivers for organic growth, partially offset by weaker demand for automation products in Europe and China. The end market and regional views, combined with the headwind from the strengthening U.S. dollar, temper our outlook for 2025. We are working to determine the magnitude of the pending impact on our business from new tariffs, which are not probably included in our guidance. Overall, Honeywell is well positioned to navigate the near-term challenges and our accelerated operating system will help alleviate margin pressures from business mix and integration costs. Now let's turn to the next slide to discuss specifics of the first quarter and full year. 2025 guidance. For 2025, we anticipate sales of $39.6 billion to $40.6 billion which represents organic growth of 2% to 5% or 1% to 4% when excluding the prior year impact of the Bombardier agreement. Our sales guide assumes a midyear exit of our PPE business but does not include |
2,963 | HON | 4 | 2,024 | 2025-02-06 08:30:00 | Honeywell International Inc. | 1,340,740 | prior year impact of the Bombardier agreement. Our sales guide assumes a midyear exit of our PPE business but does not include the spin of advanced materials which we remain on track to complete by the end of 2025 or in early 2026. Our baseline outlook for 2025 assumes a continuation of current industrial demand environment throughout the year and does not assume a recovery in our end markets. Aerospace will once again lead growth for the company followed by BA and ESS. Our acquisitions from 2024 will contribute approximately $2 billion in sales this year, growing accretive rates and becoming part of the organic growth towards the end of the year. For the first quarter, we expect sales of $9.5 billion to $9.7 billion flat to up 2% organically. In addition to the normal seasonal step down in revenue from 4Q to 1Q, we will see some headwind in product businesses from fewer comparable selling days. Segment margin for the year is expected to be up 60 to 100 basis points or down 10 basis points to up 30 basis points excluding Bombardier as productivity actions and commercial excellence are partially offset by cost inflation business mix. The automation businesses will lead margin expansion for the year as BA sees volume leverage from recovery in building product sales and IA benefits from midyear sale of PPE. Aerospace margin declines primarily driven by the impact of the lower margin CAES acquisition and its integration will mostly offset improvements in other three segments. Excluding Aero, the remaining portfolio will experience margin expansion in products, projects and aftermarket services and software, but materially faster growth in projects will create a mixed headwind. We expect this dynamic to hold until we see a broader acceleration in higher margin short cycle product end markets. For the first quarter, segment margin is anticipated to be in the range of 22.5% to 22.9% down 10 to 50 basis points year-over-year. We assume a modest acceleration in organic sales growth through the year as 2024 acquisitions |
2,964 | HON | 4 | 2,024 | 2025-02-06 08:30:00 | Honeywell International Inc. | 1,340,740 | 50 basis points year-over-year. We assume a modest acceleration in organic sales growth through the year as 2024 acquisitions reach their anniversary. Aerospace supply improves to unlock additional sales and the selling days pressure reverses in products. However, the quarterly progression will look similar to historical patterns and growth rates are not expected to deviate materially from the full year range. Let's turn to the next slide to walk through our 2025 outlook by business. I walk through our expectations by segment at high level. However, additional details by SBU are covered in the commentary section of our slide. Aerospace technologies remain the predominant top line driver for Honeywell in 2025 as supply chain outlook continues and we work through our robust backlog. We expect organic sales growth in the mid-single digit to high single digit range for 2025 when excluding Bombardier. Our acquisition of CAES will drive accretive sales and segment profit growth but generate margin headwind due to integration in the full year of ownership. We expect core Aero margins to remain in their recent neighborhood around 27%, but a roughly 100 basis point decline in 2025, when excluding Bombardier, to around 26% due to the impact of the CAES acquisition. In the first quarter, we expect to see mid-single-digit growth in sales year-over-year as we continue to improve our output with particular strength in commercial aftermarket. In Industrial Automation, the 2025 sales outlook remains largely dependent on the timing of recovery in products and customer CapEx decisions, but we are seeing green shoots in some end markets. We expect IA sales to be down low single digits compared to 2024. Margins should expand as we benefit from commercial excellence and favorable mix impacts, including from our expected sale of PPE. First quarter sales will be down low single digits year-over-year, as growth in our core process and sensing business is offset by demand softness in safety, smart energy and thermal solutions. For |
2,965 | HON | 4 | 2,024 | 2025-02-06 08:30:00 | Honeywell International Inc. | 1,340,740 | growth in our core process and sensing business is offset by demand softness in safety, smart energy and thermal solutions. For Building Automation, we expect to see growth led by our solutions business as we capitalize on strong project order rates in 2025, with particular strength in data center, airports and hospitality. We expect overall BA sales growth in low mid-single digits on a year-over-year organic basis. We anticipate BA margins to continue to grow in 2025, driven by productivity actions and the benefit from our Access Solutions acquisition. In the first quarter, we expect sales growth to be up low single digits with Building Solutions outpacing Building Products. In 2025, Energy and Sustainability Solutions will be supported by a robust pipeline and strong global demand for energy projects. We expect ESS organic sales growth in the low single-digit range for the year. Margin will expand as improved volume leverage and meaningful accretion from the LNG acquisition offsets inflation. In the first quarter, we expect sales to be down low single digits as we work through challenging comps in Fluorine Products. However, we expect solid growth in UOP supported by strength in equipment projects as well as conversion of our robust backlog in SPS. For the year, we expect earnings per share of $10.10 to $10.50, up 2% to 6% or down 2% to up 2%, excluding Bombardier. We'll walk through the puts and takes for EPS in greater detail in a few minutes. Moving to free cash flow. We expect growth at least in line with earnings when excluding the impact of Bombardier. Capital expenditures are anticipated to increase by roughly $100 million as we seek to invest in high-return projects, notably in Advanced Materials, as it prepares to operate as a stand-alone company. This increase in spending will be funded by improvements in working capital efficiency with a strong focus on Aerospace inventory. Putting all this together, free cash flow is expected to be between $5.4 billion and $5.8 billion, down 2% to up 5% ex |
2,966 | HON | 4 | 2,024 | 2025-02-06 08:30:00 | Honeywell International Inc. | 1,340,740 | Putting all this together, free cash flow is expected to be between $5.4 billion and $5.8 billion, down 2% to up 5% ex Bombardier. You can find a 2025 free cash flow bridge in the appendix of this presentation. In addition to CapEx and dividends, we will continue to deploy additional capital in a manner that is both disciplined and dynamic in 2025, balancing a promising acquisition pipeline with our desire to repurchase our shares at attractive levels with more than $3 billion planned to reduce our share count by at least 1%. In summary, we're setting a realistic outlook, taking under consideration macroeconomic and geopolitical factors. Now let's turn to the next slide to walk through our EPS bridge to 2025. Starting from our adjusted EPS, excluding Bombardier, 2025 has a number of puts and takes, leading to EPS down slightly year-over-year at the midpoint of our guidance. Organic segment profit growth is expected to add $0.22 per share at the midpoint of guidance, driven by higher volumes and productivity net of inflation. We expect the segment profit from 2024 acquisitions to contribute roughly $0.33 per share in 2025. This benefit includes some integration expenses as we utilize our accelerator playbook to set the stage for future growth and margin expansion in these businesses, and we are pleased with their performance thus far. Our exit from PPE business will reduce 2025 earnings by $0.05, assuming a June 30 closing date, while the divestiture will be accretive to growth and margins. The rise in the value of the U.S. dollar versus global currencies in recent months is forecasted to reduce reported sales and adjusted earnings per share by approximately $400 million and $0.12, respectively, utilizing year-end 2024 exchange rates. We anticipate below-the-line items, which are the differences between segment profit and income before tax to create $0.52 of negative pressure on earnings versus the previous year at the midpoint of guidance. First, we expect pension income to be approximately $550 million in 2025, |
2,967 | HON | 4 | 2,024 | 2025-02-06 08:30:00 | Honeywell International Inc. | 1,340,740 | versus the previous year at the midpoint of guidance. First, we expect pension income to be approximately $550 million in 2025, down approximately $50 million year-over-year because of a previously communicated onetime item in Europe. Next, we see repositioning expenses increasing to a range of $150 million to $250 million as we return closer to our long-term target repositioning range after a light 2024. Finally, other below-the-line expenses are expected to be between $1.325 billion to $1.375 billion, up $275 million to $325 million year-over-year, primarily because of higher net interest expense. We expect our 2025 effective tax rate to be 20%, in line with 2024, and our first quarter rate to be 22%. Average shares outstanding are anticipated to decline from $655 million to around $649 million, adding $0.10 to 2025 EPS. In the first quarter, we expect shares outstanding of approximately 654 million. Combining all the puts and takes, we anticipate the full year adjusted earnings per share to be between $10.10 and $10.50, up 2% to 6% year-over-year or down 2% to up 2%, excluding Bombardier. Now I will return the call back over to Vimal for closing thoughts. |
2,968 | HON | 4 | 2,024 | 2025-02-06 08:30:00 | Honeywell International Inc. | 1,340,740 | Vimal Kapur: 2024 was a productive year for Honeywell as our portfolio optimization efforts kicked into high gear, and we kept our focus on executing on our commitment and delivering for our customers. While we may have come into last year with too much optimism for a recovery in our short-cycle businesses, we have adapted, demonstrated resilience and ended the year by delivering organic growth and adjusted EPS results above our targets. We'll continue to do so in 2025. Recognizing the uncertain macroeconomic and geopolitical backdrop in front of us, we will spur growth with innovation and relentless dedication to productivity, and we are focused on delivering on our commitments. While we face an uncertain operating environment, we have incorporated that into our outlook for 2025. Our guidance will serve as a prudent baseline for performance that we have a strong conviction we can achieve with potential upside if underlying demand improves. Further, with today's portfolio announcement, we believe the planned separation of Automation, Aerospace and Advanced Materials will position all three stand-alone pure-play companies for long-term profitable growth and generate significant value for all stakeholders, including shareholders, customers and employees. With that, Sean, let's move to Q&A.
Sean Meakim: Thank you, Vimal. Vimal, Greg and Mike are now available to answer your questions.
Operator: [Operator Instructions] Our first question comes from the line of Julian Mitchell with Barclays. Please proceed with your question.
Julian Mitchell: Hi, good morning and congrats on getting the strategic review completed, and thanks, Greg, for all the help and wish you well.
Greg Lewis: Thanks, Julian. |
2,969 | HON | 4 | 2,024 | 2025-02-06 08:30:00 | Honeywell International Inc. | 1,340,740 | Greg Lewis: Thanks, Julian.
Julian Mitchell: Maybe just a first question around the separation news. If you could give us any help around the stranded and stand up costs that might be needed for aerospace and automation initially out of the gate. And also if you could give us any help on the free cash flow conversion or margin profile of the pieces. We can see that the segment margin color, but wondered if there was anything on the free cash flow differences?
Mike Stepniak: Sure. So maybe I'll start with the free cash flow. So Aerospace should be around 100% free cash flow conversion that the business should be operating at that level. And for our automation businesses, that free cash flow is also expected to be at around 100% free cash flow conversion. So that's what we're aiming for as far as going to this year and then next year.
Vimal Kapur: And on the -- on your question, Julian on the stranded costs and onetime costs, you've indicated onetime cost, $1.5 billion to $2 billion. Obviously, that's depended upon the structuring we do, so it's our initial estimate as we do work as it gets more refined, we'll update you. The stranded costs, we now want to offer a precise number at this point of time. We have to do more work. And that's why we have offered a second half 2026 because we won't have ample time to understand it and execute it.
Greg Lewis: Yes. The only thing I would just add to that, Julian, is we expect to grow into that between the growth of the company and taking those stranded costs over time inside of probably two years, that should certainly normalize itself.
Mike Stepniak: That's right then just based on our prior experience and everything that we see with advanced materials that is quite doable, and we see those costs leaving us within 18 to 24 months post spin. |
2,970 | HON | 4 | 2,024 | 2025-02-06 08:30:00 | Honeywell International Inc. | 1,340,740 | Julian Mitchell: Thanks a lot. And then just a second question would be around the operating segment margin guidance. It's flattish this year. I think it was down slightly, 20 bps underlying in 2024 I wondered if that had made you think about maybe doing a more aggressive repositioning cost out program in 2025? And if not, kind of why?
Mike Stepniak: Right, Julian. So I would say a couple of things. First of all, I think what we saw in the fourth quarter and the second half, we're quite encouraged by the margin projections and what we expect to see over the next 24 months, if I look at repositioning costs, we're expecting to add about $100 million of repositioning costs this year, year-over-year, which will help fund margin expansion. But the bigger point here is really, if you look at our segments, three segments with exceptional Aerospace will expand segment margins this year, which is quite encouraging and acquisitions are helping with that, especially in the second half. With respect to aerospace, we are getting a lot of leverage from volume and that's helping us to expand margins. But in the short term, meaning 2025 the thing that puts Arrow on the back foot as far as margin expansion is really the case acquisition. In the case acquisition from a margin standpoint is dilutive. And this is the first year of acquisition, and we had a lot of integration costs that we have to absorb and move out. So really, it's a story of aero not expanding margins, but really staying flat on core and then case pressuring and that all other three segments will expand margins.
Sean Meakim: And Julian, this is Sean. Just to remind you, we've said many times that the case acquisition, while diluted the margin profile in 2025 is going to grow very nicely at accretive rates to aerospace and therefore, will be accretive to segment profit growth in 2025 and beyond.
Julian Mitchell: Thank you.
Operator: Thank you. Our next question comes from the line of Scott Davis with Melius Research. Please proceed with your question. |
2,971 | HON | 4 | 2,024 | 2025-02-06 08:30:00 | Honeywell International Inc. | 1,340,740 | Vimal Kapur: Good morning.
Scott Davis: Hey good morning guys. There's a lot of puts and takes here. But the first question just to clean up. What are you thinking timing to name the management teams of the pieces? And will there be an external search for aerospace? Or will you build that internally?
Vimal Kapur: So Scott, I would say that we will announce the management teams as the time progresses, but we expect the concern Honeywell leadership team to continue. We'll let the Board side the leadership of RemainCo Honeywell and Honeywell Aerospace. So more to come as we do more work here over the next 12 months to 18 months.
Scott Davis: Okay. All right. I'm just looking at Slide 16. So you've got $0.52 of below-the-line items and you've got $0.33 of profit contribution from M&A that is -- and I think your comment was most of that $0.52 is actually higher interest expense. Am I -- a, did I hear that right?
Mike Stepniak: I can break it down for you. So if you look at $0.52, $0.33 of it is interest expense, which is predominantly driven by the M&A interest expense. We have $0.10 of incremental repositioning and then we have a couple of other items. One item which is really weighing on us in the first quarter is the reduced pension income, which relates to a curtailment of a pension plan in Europe that we communicated last year. And then we have a couple -- about $0.04 of corporate costs that we're working our way through. So that's the $0.52.
Scott Davis: Okay. So the M&A is a net neutral in 2025 then?
Mike Stepniak: Correct.
Sean Meakim: We are you talking about 1% to 2% accretion for the business is in 25%, and that still holds in this guidance.
Scott Davis: Okay, fair enough. Thank you guys, good luck. Pass it on. Thank you.
Operator: Thank you. Our next question comes from the line of Steve Tusa with JPMorgan. Please proceed with your question.
Stephen Tusa: Hi good morning and congrats, echoing Julian's congrats to you all.
Vimal Kapur: Thank you. Appreciate it. |
2,972 | HON | 4 | 2,024 | 2025-02-06 08:30:00 | Honeywell International Inc. | 1,340,740 | Stephen Tusa: Hi good morning and congrats, echoing Julian's congrats to you all.
Vimal Kapur: Thank you. Appreciate it.
Stephen Tusa: So I'm just doing the math on cash. I mean, this year, I think you have like $8.50 a share in free cash as per your guidance, I believe. And that's 83% conversion. Can you just help me bridge to the 100% you just talked about for automation and aerospace? And then I'm just curious, which one of those is going to be the RemainCo?
Vimal Kapur: So I'll answer the RemainCo question. Look, at this point, the specific legal structuring, we have utterly determined. There are both options exist legally. So we'll have to do more work to be more precise. Between the two, we are going to spin aerospace or automation. But they will be separate companies, that's a firm decision. Mike, do you want to answer.
Mike Stepniak: Sure. So on cash, Steve, we're guiding 5.4 to 5.8, which is not going to be 100%. We're going to work ourselves to the 100% over the next 24 months. And the big unlock in our cash is really working capital, and that's predominantly driven by us being able to reduce and move our whip [ph] and finished goods inventory in aerospace. That's the biggest one unlock for our cash as far as getting to 100% over the next 24 months.
Stephen Tusa: Got it. And then what happens to these like below-the-line items like pension income? Does that kind of stay with whatever the RemainCo is and any of those other like environmental liability costs, etcetera, etcetera? Like what happens particularly to pension income?
Mike Stepniak: So we were working our way through it. It's really too early to comment through it, but we obviously have advisers and working for those particularities and we'll communicate that as we go through the process and ready to share this news with you.
Stephen Tusa: Alright. Thanks for the color.
Mike Stepniak: Thank you.
Operator: Our next question comes from the line of Sheila Kahyaoglu with Jefferies. Please proceed with your question. |
2,973 | HON | 4 | 2,024 | 2025-02-06 08:30:00 | Honeywell International Inc. | 1,340,740 | Operator: Our next question comes from the line of Sheila Kahyaoglu with Jefferies. Please proceed with your question.
Sheila Kahyaoglu: Good morning everyone and congrats, Greg. Vimal, Mike, whoever wants to take this, but two questions on Aero. First, I guess, if you could provide some end market color, particularly on the aftermarket mid-teens aftermarket growth in 2024. Some of your peers have called out a deceleration to high single digits to low double digits in 2025. How are you thinking about your OE versus aftermarket assumptions for commercial aero in 2025?
Mike Stepniak: Sure. So Sheila, I would say, as you know, the hours have stabilized. And from an aftermarket standpoint, just expect similar profile as last year. I believe that it's going to be decelerating just because the hours stabilizing the supply chain is catching up. As far as OE mix to aftermarket mix, we have -- if we look at our backlog and especially if you look at our positive backlog, we have a much higher positive backlog in OE. So we expect -- continue to essentially expand on our OE and installed base growth. So I would expect on a year basis, the OE to grow aftermarket. So I think not very different in our view.
Sheila Kahyaoglu: And then maybe going back to the margin profile of aerospace. You mentioned better investment decisions post spin or more refined once, I guess, Lots of questions around Bombardier and the payment there was $385 million in Q4. So how do we think about that the return on that investment? And any other margin moves we should be thinking about in terms of long-term investments within Aerospace? |
2,974 | HON | 4 | 2,024 | 2025-02-06 08:30:00 | Honeywell International Inc. | 1,340,740 | Vimal Kapur: So look, the Bombardier agreement is a long-term agreement. It will show into our revenue streams 4 years, 5 years from now, like any other these long-term contracts. So we are super excited about this path-breaking win, both for avionics as well as for the engine. And investments on Aero are going to continue. We are ramping up our investments in R&D because we see more opportunities and we'll remain active in the M&A market if opportunities are available. So you will not see any lack of momentum what we have demonstrated in 2024 in aerospace investments in the next 18 months ahead.
Sheila Kahyaoglu: Got it. Thank you.
Vimal Kapur: Thank you.
Operator: Thank you. Our next question comes from the line of Nigel Coe with Wolfe Research. Please proceed with your question.
Nigel Coe: Thanks, good morning everyone. Just wanted to have another crack at the margin question. So the 10 basis points at the midpoint expansion, so it looks like 100 basis points of M&A dilution at aerospace and then maybe, I think, 80, 90 basis points of expansion elsewhere in automation. I just want to make sure that math is correct. And maybe just provide some just overall kind of quality kind of discussion on which segments do you see above and below that bar?
Mike Stepniak: So I would say this, your math is directionally correct. And a lot of it will depend on just how our products -- short-cycle products grow this year. Right now, we have a lot of project mix, but we also have the acquisitions coming in and helping expand margins in the second half. So we can follow up on that with you and give you more particularly on that. But I would say your math is directionally correct. |
2,975 | HON | 4 | 2,024 | 2025-02-06 08:30:00 | Honeywell International Inc. | 1,340,740 | Nigel Coe: Okay. And then I know you -- sorry, I know you addressed the question on R&D investment in aerospace. But I think you've been talking about rising investment spending in R&D across the whole portfolio. So I'm just wondering, are we seeing that coming through in 2025? And just maybe just talk about the capital allocation during this process through second half of 2026. You talked about the share buybacks in 2025, but what's the appetite to really scale up capital allocation while we're going through this process? Thanks.
Vimal Kapur: So R&D investment we mentioned in some of our conversations that we expect that to go up perhaps to dollars but directionally maintain the percentages. But you will see that increase coming up as we publish the results of 2025. And it's a material increase. If it was a few million dollars, I wouldn't have mentioned it. And our goal is to prepare each business for growth in the future, while maintaining our margins. And we are maintaining that careful balance. On capital allocation, as Mike mentioned in his comments, we do expect to do $3 billion of share buyback to maintain our share count down by 1%, and we'll remain active in an M&A market across all segments. We have active deals in motion in automation in aerospace and energy. And like any other M&A deal, I can't commit to you when they will happen and if they will happen, but we are going to do hard work to do our best to get some deals done. So that our portfolio is well positioned for growth in the times ahead. And the progress we have shown that the deals we have done in 2024, all those, these are working extremely well. We are on or above our goals there. And that gives us more and more conviction that our strategy of portfolio transformation is working, and we should continue on that while we execute on separation of aerospace and automation.
Nigel Coe: Thank you. |
2,976 | HON | 4 | 2,024 | 2025-02-06 08:30:00 | Honeywell International Inc. | 1,340,740 | Nigel Coe: Thank you.
Mike Stepniak: I would just add that we still have a lot of capacity in our balance sheet on M&A, which we'll continue to be doing and an issuance. So we feel really good where we are at this point and obviously are not stopping everything that we've been doing thus far.
Operator: Thank you. Our next question comes from the line of Chris Snyder with Morgan Stanley. Please proceed with your question.
Christopher Snyder: Thank you. Maybe Vimal, just kind of stepping back on the separation. Clearly, this is something that you've spent a lot of time thinking about over the last year. Is the primary driver of the decision to view that a separation will unlock some of the parks value? Or do you believe the businesses will perform better as stand-alone entities rather than within the Honeywell conglomerate? |
2,977 | HON | 4 | 2,024 | 2025-02-06 08:30:00 | Honeywell International Inc. | 1,340,740 | Vimal Kapur: Yes. So I would -- Chris, I'm just going to go back a little bit to answer your question. I started October of 2023 to say Honeywell should be operated into three mega trends, future of aviation, automation and energy transition. And we started doing the work to build strategy of each of the three pillars. Part of it was organic growth, but big part it was inorganic actions. As you saw four acquisitions last year, spin-off PPE business. But it was also clear to me that as we did work that the strategy or Aerospace and rest of Honeywell in automation were diverging. Aerospace required far more attention on capacity expansion, supply chain transformation, electrification an automation business wants to focus really on AI, digital transformation, energy security. And that made us think and working with the Board that we are better off to be a separate company so that we can drive growth in each portfolio in a purposeful manner, invest the capital, have the focused strategies. So it's primarily driven by our conviction that there's a more growth momentum and more value to create as a separate company. Now some of the part is a math, I'm not going to debate it, it's right or wrong. I mean we are aiming here for higher value by earnings growth and by delivering more compelling proposition.
Christopher Snyder: Thank you. And then maybe just kind of following up on that better growth. We saw a pretty nice positive rate of change on some of the short cycle end markets. That have weighed on the company the last couple of years, specifically industrial automation and building automation turning nicely positive in Q4. I guess is there anything specific to kind of call out on that pickup in growth that you guys are seeing? I don't know if there's any maybe tariff pre-buy in those numbers because the guy does call for both of those – both building automation and industrial automation to have worse growth in 2025 than what we just saw in the Q4 exit rate. Thank you. |
2,978 | HON | 4 | 2,024 | 2025-02-06 08:30:00 | Honeywell International Inc. | 1,340,740 | Mike Stepniak: That's right. So we are quite encouraged by the fourth quarter, both on the order side and on revenue. The team delivered really outstanding results. Now going into the guide for this year. As I come in, I really want to give the guide that that is, I would say, aligned with what we see and not really betting on end markets in the industrial products improving. And I think that's prudent to do given with everything that's going on just like you said yourself, we don't know exactly whether it's pre-buy or is the trend, etcetera. So that's the one point of the guide and deceleration in the first quarter specifically. Also in the first quarter, we are dealing with fewer days versus the fourth quarter, which it has impact for us in our short cycle product sales. And then there's a little bit of lumpiness in aerospace, especially in defense and space as we exit fourth quarter and go into the first quarter. So I think the guide is prudent, and we obviously are encouraged by what we're seeing. But I think for the first quarter, we need to be careful.
Christopher Snyder: Appreciate that. Thank you.
Operator: Thank you. Our next question comes from the line of Joe Ritchie with Goldman Sachs. Please proceed with your question
Joe Ritchie: Hey guys, good morning. Greg, thanks for all the help. I try not to miss us too much. The first question, and look, I know you guys have a lot going on. So, when you thought about breaking up the company into these three entities, how much thought did you give to potentially maybe even breaking things down further because you can make an argument that the automation business could be separate businesses as well? I'm just curious like the thought process behind that. |
2,979 | HON | 4 | 2,024 | 2025-02-06 08:30:00 | Honeywell International Inc. | 1,340,740 | Vimal Kapur: Thanks, Joe. I mean if you look at I've been quite focused on what doesn't fit into Honeywell portfolio. And the portfolio work which we have done now by splitting into three companies, Aerospace, Automation and specialty chemicals. On automation, we believe there are multiple common threats. I'm going to give you a one minute answer, and then we meet next time, I'll give you a 15-minute answer. The one minute answer is business model, all automation follows the business model of creating installed base, and mining that installed base through services and software. Number two, the strategic priorities are very similar. We need to focus upon digitalization, leverage of and that made common thread between the businesses. And technology and offerings are highly shared between these businesses. The amount of common products code we have, as an example, our core product in building automation, we call it as EBI platform and in process automation called it experience platform. This year, the core of tens of millions of lines. We don't publicly share that earlier, but that's a fact because of high interdependency of technology. And more recently, IoT platform, a Forge is a common across all businesses. So where we sit today, these common elements bind us together. And I'm not going to that territory of people and all that because that could be a bit debatable. But I have worked in all businesses another point just because it's natural given the similarity of these businesses, we do share a lot of talent across that. So there's the conviction that RemainCo Honeywell has a strong binding force is extremely strong. And we are going to demonstrate of that value creation as we go ahead because of this conviction here. |
2,980 | HON | 4 | 2,024 | 2025-02-06 08:30:00 | Honeywell International Inc. | 1,340,740 | Joe Ritchie: Got it. Well, that's helpful. Yes, I look forward to the longer version as well. But my quick question on the fundamentals Look, I know that you guys had a tough comp in ESS from a margin standpoint this past quarter. But I'm trying to just maybe get a little bit more understanding on what drove the margins down this quarter? And fully recognize that there is the refrigerant transition. And so I'm guessing it had something to do with that. But just any color on what happened this quarter on ESS margins.
Mike Stepniak: You mean that sequentially year-over-year or...
JoeRitchie: Yes, just year-over-year was down and it was a little bit below the performance was a little bit below what we were expecting for the quarter. So I'm just trying to understand like what the delta was?
Mike Stepniak: Yes. So the first one is really the catalyst sales in our ESS business. That's a big driver. And that will actually reverse itself in the second half. Just this project, as you know, tend to be lumpy and when they happen, they're quite, I would say, material. So that's the biggest driver. And then other than that, like we talked about, there's a little bit of deceleration going on. And we just still don't have the confidence in our industrial products recovery business, which is short cycle, and we'll continue to monitor it. And when it happens, it's going to be will be just massively accretive, I would say, to the performance. And then from the below the line standpoint, there are a couple of things happening. Tax rate, even though for the year is 20% in the first quarter is a pressure of us about $0.13. And then like I talked about, we have a little bit of pressure from pension and curtailment, that's about $0.09. And those are the big drivers for the reason why you see the EPS the way you do in the first quarter? |
2,981 | HON | 4 | 2,024 | 2025-02-06 08:30:00 | Honeywell International Inc. | 1,340,740 | Greg Lewis: Yes, Joe, Mike is spot out of that. And remember, we've talked about this over the years with -- even when it was PMT not to really get too excited in any one quarter about the margins, just given the magnitude that individual catalyst shipments can have in a given quarter. And so I would say now ESF smaller than PMT, right? That was true for $10 billion PMT, now for $6 billion ESS. That amplitude is even larger. So to Mike's point, I wouldn't get too anchored on any one quarter.
Joe Ritchie: Okay, thanks guys.
Operator: Thank you. Our next question comes from the line of Andy Kaplowitz with Citigroup. Please proceed with your question.
Andrew Kaplowitz: Good morning everyone. Greg, thanks for all your help. So just focusing on price versus cost. You mentioned prices normalizing in 2025. And it seems like you mentioned cost inflation a lot really at all of your segments when describing the margin impact in Q4, maybe except for building automation. So could you give us a little more color to what exactly happened is I don't I don't think material costs spike in Q4. How are you thinking about price versus cost in 2025, especially considering tariffs may impact the business?
Mike Stepniak: Sure. So I would say from a -- we had a good year on price last year. Let's just start with that. And what I see for this year and what we're guiding on the enterprise level will be above 2% on price. Now the price strategy for us will differ depending on what's going on in each of the businesses. What I see this year and what we've been working for the last 12 months is really on having more optionality and more levers on our cost side. And that's we'll be in bulking in additional price. So I think price cost will be positive overall. But unlike maybe last few years, this year, we just have much more opportunity to work on material productivity, direct material productivity and the cost side as well. So we'll be balanced on price, but it will be will be above 2% for the year. |
2,982 | HON | 4 | 2,024 | 2025-02-06 08:30:00 | Honeywell International Inc. | 1,340,740 | Vimal Kapur: So Andy, the goal here is for us to do margin expansion, doing the balance between price cost and productivity. And unlike in -- when there was a high inflation in 2021, 2022, we had a single lever price. Now we have equally big lever our productivity. We have done extremely well on productivity in 2024. And therefore, to Mike's point, we are very conscious on how to dial the two levers because we want to get price at the same time, I want to get volume. And it will vary by business because some business, we have more opportunity, we could dive A versus B, etcetera. So overall, my summary will be 25% looks more like 24%, very similar pricing maybe productivity slightly higher, and that's the basis of our guide at this point.
Andrew Kaplowitz: Helpful guys. And then Vimal, maybe just a little more color how you're thinking about revenue growth by geography in 2025. I know you mentioned some headwinds in Europe and China. Should China still be a growth market for you in 2025? And you've talked in the past about during growth tailwinds in regions such as Middle East, India. So what are you seeing overall? |
2,983 | HON | 4 | 2,024 | 2025-02-06 08:30:00 | Honeywell International Inc. | 1,340,740 | Vimal Kapur: Overall, I would say the dynamics have been very stable over the last 18 months. If I look at aerospace business, it's growing globally given how much of past dues we have and the drivers of flight towers. So as to be the energy business because the growth is less driven by region and more driven by the timing of the demand of catalyst and new projects. I think in automation business, we see growth in U.S. growth in India, growth in Middle East, those are the regions which have tailwinds. And we continue to see more pressure both in Europe and China. That's one of the reasons in industrial emission business, we have guided low single-digit downward progression because that has most exposure to China and Europe in Honeywell portfolio. So it just -- I would say our current guide is assuming more of the same. We are not counting on any European recovery. We are not counting on any China recovery in context of automated businesses. So that's how I'll summarize.
Andrew Kaplowitz: Appreciate all the color.
Operator: Thank you. Our next question comes from the line of Deane Dray with RBC Capital Markets. Please proceed with your question.
Deane Dray: Thank you, good morning everyone and Mike, congratulations.
Mike Stepniak: Good morning.
Deane Dray: I wanted to just revisit the credit ratings and leverage targets for automation you're saying look for strong investment-grade rate and just kind of tack on a leverage range you'd expect? And then just clarify on the below investment grade for Advanced Materials. That's not surprising, but just kind of frame for us what you're expecting there. |
2,984 | HON | 4 | 2,024 | 2025-02-06 08:30:00 | Honeywell International Inc. | 1,340,740 | Mike Stepniak: Sure. So let me first answer investment area. It will be very high below the investment grade level. So that's kind of towards where we're going towards. And honest, I cannot comment more right now as far as the remaining two entities, we're going through it. But given where the business is today, they will be investment grade and we'll have a competitive and compelling equity story. So I can leave it at this, at this stage.
Deane Dray: Yes, thank you. And just no tariffs got mentioned earlier, but is there anything specific that you have baked in or specifically not baking in for the 2025 guide?
Mike Stepniak: Yes. So there are no tariffs impact in the guide. Now looking at tariffs, if we look at China and Canada, they're not material for us, give this local for local and how we are -- how our businesses are positioned. And we're working from Mexico, trying to understand what the tariffs mean and like everybody else just thinking fillet, but it's something that's definitely manageable.
Deane Dray: Thank you.
Mike Stepniak: Thank you.
Operator: Thank you. Ladies and gentlemen, that concludes our time allowed for questions. I'll turn the floor back to Vimal Kapur for any final comments.
Vimal Kapur: I want to thank our shareholders for your ongoing support, and our Honeywell colleagues who continue to enable us to outperform in any environment and our many customers that work with us to help shape a better world. Our future is bright, and we look forward to updating you on our progress as we execute through our commitment. Thank you for listening, and please stay safe and healthy.
Operator: Thank you. This concludes the conference call. You may disconnect your lines at this time. Thank you for your participation. |
2,985 | HON | 3 | 2,024 | 2024-10-24 08:30:00 | Honeywell International Inc. | 1,340,740 | Operator: Thank you for standing by, and welcome to the Honeywell Third Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's call is being recorded. I would now like to hand the call over to Sean Meakim, Vice President of Investor Relations. Please go ahead.
Sean Meakim: Thank you. Good morning, and welcome to Honeywell's third quarter 2024 earnings conference call. On the call with me today are Chairman and Chief Executive Officer, Vimal Kapur; Senior Vice President and Chief Financial Officer, Greg Lewis; and Vice President of Corporate Finance, Mike Stepniak. This webcast and the presentation materials, including non-GAAP reconciliations are available on our Investor Relations website. From time-to-time, we post new information that may be of interest or material to our investors on this website. Our discussion today includes forward-looking statements that are based on our best view of the world and of our businesses as we see them today and are subject to risks and uncertainties, including the ones described in our SEC filings. This morning, we will review our financial results for the third quarter, share our guidance for the fourth quarter and provide an update on full-year 2024. As always, we'll leave time for your questions at the end. With that, I'll turn the call over to Chairman and CEO, Vimal Kapur. |
2,986 | HON | 3 | 2,024 | 2024-10-24 08:30:00 | Honeywell International Inc. | 1,340,740 | Vimal Kapur: Thank you, Sean, and good morning, everyone. To start, I would like to highlight the significant leadership change announced earlier in the third quarter. After we report our 2024 financial results at the beginning of next year, Greg Lewis will step down as Chief Financial Officer of Honeywell, and Greg will enter a new role as Senior Vice President of Honeywell Accelerator and serve as a special advisor to me. I would like to express my sincere thanks to Greg for his partnership with me through my first year as CEO and his successful performance as CFO since 2018. He guided the company through multiple reorganizations and significant M&A activity and his leadership was critical to transforming Honeywell into the digital operator it is today. Mike Stepniak, former Vice President and Chief Financial Officer of Aerospace Technologies will succeed Greg in February. Mike will serve as Vice President of Corporate Finance and work closely with Greg and me during this transition. I would like to congratulate Mike and express my deeply rooted confidence in his readiness to lead Honeywell with me into our next stage of growth and innovation as we continue to deliver value for our shareholders. With that, let's turn to slide three. Honeywell demonstrated a commitment to operational excellence in the third quarter, exceeding the high-end of our adjusted earnings per share and segment margin guidance ranges despite sales coming in below our guided range. Near-term delays in couple of the project-led businesses, lack of short cycle improvement and some discrete supply chain disruption in September in aerospace have caused us to rebase our expectations for the year. Although the organic growth of 3% in the quarter was below our guidance, we continue to be encouraged by sustained strength in aerospace technologies output. Further sequential progress in-building automation and ongoing positive order trends. Before we dive down into more detailed discussion on the results and updated outlook for 2024, I would like |
2,987 | HON | 3 | 2,024 | 2024-10-24 08:30:00 | Honeywell International Inc. | 1,340,740 | order trends. Before we dive down into more detailed discussion on the results and updated outlook for 2024, I would like to reiterate the strategic priorities that are cornerstone of my tenure as CEO and our latest progress against them. First priority is the acceleration of profitable organic growth towards the upper-end of our long-term target range of 4% to 7%. While our recent performance has been below this target, we are accelerating driving new product innovation and commercial excellence to support higher-growth rates in future and we are already seeing returns of this strategy. We booked a record $1 billion of orders in UOP, showing the strength of our technology and the promise of our sustainability offerings. This quarter, Electra selected Honeywell's flight control computers and electromechanical actuation system for its hybrid electric shot takeoff and landing aircraft. Earlier this week, we announced a new partnership with Google Cloud, leveraging Google's Vertex AI and Honeywell Forge to accelerate our customer transition from automation to autonomous operations. By continuing to focus our effort on these key strategies, we are confident that we will be able to deliver organic growth at upper end of our long-range in the future. Second, we are making headway on the evolution of our accelerator operating system, transforming the way we run the company to extract incremental value from our operations and drive growth. Accelerator is unlocking new ways for us to leverage our well-established digital backbone to enhance topline growth and expand margins in addition to successfully integrating our recent portfolio additions. We are leveraging our digital domain through our Honeywell Forge IoT platform, creating recurring revenue streams that are delivering increased value for our customers and shareholders alike. And third, we are accelerating value-creation through the simplification of Honeywell and optimization of our portfolio, pursuing accretive, bolt-on and tuck-in acquisition, as well as |
2,988 | HON | 3 | 2,024 | 2024-10-24 08:30:00 | Honeywell International Inc. | 1,340,740 | simplification of Honeywell and optimization of our portfolio, pursuing accretive, bolt-on and tuck-in acquisition, as well as targeted non-core divestitures that will lead to improved financial performance, strong cash generation, and an increasingly attractive outlook for investors. Before we discuss our results for the third quarter in more detail, let me take a moment to talk about in more depth about our progress on portfolio shaping on slide four. The end of the third quarter marks one full-year since we announced the reorganization of our businesses around the three powerful megatrends of automation; the future of aviation; and energy transition. I'm proud of the progress we have demonstrated on our portfolio strategy in 2024, particularly as our efforts have borne fruit over the past few months. We have remained disciplined in our commitment to executing strategic bolt-on M&A that aligns with our three key megatrends and are accretive to our financial profile. We have successfully closed four acquisitions this year, representing over $9 billion in deployed capital to M&A. All four deals fit seamlessly into our portfolio, bolstering our capability across automation, aerospace and energy transition and enhancing our growth trajectory. We are happy to welcome our new future shapers to Honeywell, and we are excited by the substantial possibilities in front of us as we work to ensure seamless integration across all three business segments. In addition, earlier this month, we took another important step in our simplification journey, announcing our plans to spin-off advanced materials into an independent, publicly-traded company. As a global leader in sustainability-focused specialty chemicals and materials, advanced materials will be positioned to benefit from financial flexibility to pursue the next generation of sustainable refrigerants and other valuable solution for customers in electronic materials that support the semiconductor industry, industrial grade fibers and highly engineered healthcare |
2,989 | HON | 3 | 2,024 | 2024-10-24 08:30:00 | Honeywell International Inc. | 1,340,740 | in electronic materials that support the semiconductor industry, industrial grade fibers and highly engineered healthcare application. This quarter, we also made the decision to reclassify the personal protective equipment or PPE business as asset held for sale. This move will help us further strengthen our core business and will be creative to Honeywell's organic growth and margin rate. We will provide more details once a sale has been announced. The acquisitions we have made this year, along with the share buybacks, dividend and high-return CapEx will add up to a record $14 billion in capital deployed in 2024. We believe this demonstrates meaningful progress towards strengthening and simplifying our portfolio. However, our work is not yet done, and we'll continue to leverage portfolio optimization as a fundamental pillar of growth and margin enhancement into 2025 and beyond. With that, now let me turn it to Greg on slide five to discuss our third quarter results in more detail, as well as provide an update on the fourth quarter and full-year guidance. |
2,990 | HON | 3 | 2,024 | 2024-10-24 08:30:00 | Honeywell International Inc. | 1,340,740 | Greg Lewis: Thank you, Vimal, and good morning, everyone. I'll begin on slide five. We navigated through a challenging operational environment in the third quarter, delivering segment margin and adjusted earnings per share above the high-end of our guidance range and 10% increased cash flow, despite coming in below our sales guidance. The main driver of the sales miss was performance below our prior expectations in Industrial Automation as our revenues were sequentially flat across the portfolio. We were also impacted by some discrete manufacturing disruptions in September, including Hurricane Helene, and a separate fire at one of our aerospace technology plants. All-in, this led to third quarter organic sales growth of 3% year-over-year with three segments remaining in positive territory and double-digit growth in defense and space and commercial aviation original equipment in aerospace. This was the first full quarter of impact from the acquisition of Access Solutions, and we're pleased with the performance of that business in the early days of integration. We also saw approximately one month of impact in aerospace from the CAES and Civitanavi acquisitions. On orders, we grew 2% organically year-over-year with a book-to-bill of 1.1, led by double-digit growth in Energy and Sustainability solutions and Building Automation. This order strength drove a 10% year-over-year improvement in backlog to a record $34 billion. Excluding the impact of M&A, backlog grew 6% year-over-year and 4% sequentially. Although sales came in below our expectations, profit remained resilient as we leveraged our Honeywell Accelerator operating system and cost management capabilities to protect our bottom line. Segment profit grew 6% year-over-year, led by double-digit growth in Aerospace. Segment margin remained flat at 23.6%, 30 basis points above the high-end of our guidance as expansion in Industrial Automation, Building Automation and Energy and Sustainability solutions was offset by higher corporate costs year-over-year, mainly due |
2,991 | HON | 3 | 2,024 | 2024-10-24 08:30:00 | Honeywell International Inc. | 1,340,740 | Building Automation and Energy and Sustainability solutions was offset by higher corporate costs year-over-year, mainly due to our investment in our digital infrastructure. Earnings per share for the third quarter was $2.16, down 5% year-over-year, and adjusted earnings per share was $2.58, up 8% year-over-year, and above the high-end of our guidance range, driven primarily by segment profit growth and lower interest expense due to timing of M&A deal closures. We took a charge in the quarter as a result of our decision to exit the PPE business in Industrial Automation. A bridge for adjusted EPS from 3Q ‘23 to 3Q ‘24 can be found in the appendix of this presentation. Free cash flow in the quarter was $1.7 billion, up 10% year-over-year due to stronger operational income and higher collections. On capital deployment, we put $3.1 billion to work in the third quarter with $2.1 billion in M&A, $700 million in dividends and $300 million in high return capital expenditures. As Vimal highlighted, we made significant progress this quarter and are on track to deploy over $14 billion in capital this year, and our work is not yet done as we continue to leverage our balance sheet into 2025 reshaping the portfolio. Now, let's spend a few minutes on the third quarter performance by business. In Aerospace Technologies, sales were up 10% organically year-over-year, the ninth consecutive quarter of double-digit growth. Sales were led by double-digit growth in Defense & Space, where we continue to unlock volume from our robust backlog through sustained global demand. In Commercial Aviation, we saw another quarter of double-digit growth in original equipment sales as shipset deliveries increased with particular strength in business and general aviation. Commercial aftermarket saw continued growth as global flight activity continues to rise. Despite some discrete supply chain disruptions in September that impacted our Air Transport OE business, output improved 13% in the quarter, as we made sequential progress in supply chain, the |
2,992 | HON | 3 | 2,024 | 2024-10-24 08:30:00 | Honeywell International Inc. | 1,340,740 | impacted our Air Transport OE business, output improved 13% in the quarter, as we made sequential progress in supply chain, the ninth consecutive quarter of double-digit output growth. Segment margin remained flat year-over-year at 27.7% in the third quarter as commercial excellence and productivity actions were offset by cost inflation and mix pressure within original equipment. Industrial automation sales were flat sequentially, but decreased 5% organically in the quarter, primarily due to lower volumes in warehouse and workflow solutions and short cycle safety and sensing technologies. Process solutions sales grew 2% year-over-year and 1% sequentially in the quarter, driven by strength in our aftermarket services and compressor controls businesses, partially offset by demand softness in smart energy and thermal solutions, as well as some delays in our projects businesses. Sensing and Safety Technologies sales declined year-over-year and sequentially, but the Sensing business delivered modest sequential growth for the second consecutive quarter. In Productivity solutions and services, orders and organic sales grew double-digits year-over-year when excluding the impact of the Zebra license and settlement payments that ended in the first quarter of this year. Industrial Automation segment margin expanded 60 basis points to 20.3% due to productivity actions and commercial excellence, partially offset by cost inflation and volume leverage. In Building Automation, sales grew 14% year-over-year and a 11% sequentially, thanks to a full quarter of the Access Solutions acquisition and acceleration in the fire business. Organically, BA sales were up 3%, supported by another quarter of solid performance in Building Solutions. Solutions grew 8% in the quarter, driven by another double-digit growth performance in projects and sequential growth in services. Product sales declined slightly year-over-year, but saw sequential improvement organically for the second straight quarter, thanks to strength in fire. Building |
2,993 | HON | 3 | 2,024 | 2024-10-24 08:30:00 | Honeywell International Inc. | 1,340,740 | but saw sequential improvement organically for the second straight quarter, thanks to strength in fire. Building Automation orders continue to be a bright spot, led by 25% year-over-year growth in Building Solutions on continued strong demand in data centers, healthcare and energy. Segment margin expanded 30 basis points to 25.9%, due to the impact of a full-quarter from Access Solutions and commercial excellence, partially offset by cost inflation. Energy and Sustainability solutions sales grew 1% organically in the third quarter. Advanced Materials grew 3% year-on-year, due to further improvement in specialty chemicals and materials, particularly in Spectra and continued growth in flooring products. UOP sales declined 2% as growth in aftermarket services and catalyst was offset by softness due to project timing. Orders in UOP were up over 50% in the quarter to a record $1 billion with strength in core process technologies and a record of more than $200 million in sustainable technology solutions. This marks the third consecutive quarter with ESS book-to-bill at 1.2. Segment margin expanded 10 basis points to 24.5% due to commercial excellence net of inflation. Overall, our accelerated playbook continues to serve us well as we once again demonstrated our ability to protect margins even in a lower-growth environment. Healthy orders, record backlog, and accretive growth rates across the M&A deals we have closed this year give us confidence in our ability to drive improved organic growth in the future. With that, let's turn to slide six, and we can talk about our fourth quarter and updated full-year outlook. Due to the incrementally more challenging end market backdrop, we are revising our full-year sales guidance range, while increasing the midpoint of our segment margin guidance. We are narrowing our adjusted EPS guidance to the high-end of the prior range due to that margin outlook combined with favorable adjustment to our effective tax rate. While our pace of sales has not degraded, we have not seen the |
2,994 | HON | 3 | 2,024 | 2024-10-24 08:30:00 | Honeywell International Inc. | 1,340,740 | combined with favorable adjustment to our effective tax rate. While our pace of sales has not degraded, we have not seen the short-cycle acceleration, which we anticipated by this point in the year, and it's appropriate to reflect that, as well as the energy related and aero output pushouts in our outlook. Our demand profile remains healthy with book-to-bill of 1.1 and record backlog, and we're confident in our ability to accelerate growth within our long-term framework in the coming quarters. We now expect full-year sales to be in the range of $38.6 billion to $38.8 billion, representing organic growth of 3% to 4%, down from 5% to 6% previously. The lower guide reflects the lower third quarter results, a slower recovery in industrial automation and more tempered expectations in pockets of Aerospace and Energy markets in the fourth quarter. As a reminder, our guidance includes the impact of all four acquisitions: Access Solutions, Civitanavi, CAES, and LNG now all closed. Collectively, they will add approximately $800 million in sales in 2024, consistent with prior communications. For the fourth quarter, we anticipate sales in the range of $10.2 billion to $10.4 billion, up 2% to 4% organically. Sales should increase sequentially across the portfolio, led by Aerospace as we experienced additional supply chain unlock, as well as continued growth in flight hours and shipset deliveries. Turning to segment margins, our strong result in the third quarter and our commercial excellence and productivity playbook are supporting our bottom-line. As a result, we're narrowing our overall segment margin guidance towards the high-end, now expecting to end the year between 23.4% and 23.5%, flat to 10 basis points from 2023. That said, the dynamics we highlighted last quarter still hold. Delays in short cycle improvement are leading our long cycle project and original equipment businesses to a larger percentage of our mix, driving margin headwinds. In the long-term, this provides us an expanded installed base to leverage for |
2,995 | HON | 3 | 2,024 | 2024-10-24 08:30:00 | Honeywell International Inc. | 1,340,740 | percentage of our mix, driving margin headwinds. In the long-term, this provides us an expanded installed base to leverage for high margin aftermarket projects. We now expect overall segment profit dollars to grow between 5% and 6% for the year. At a segment level, Building Automation and Energy and Sustainability Solutions will lead the group in margin expansion. For the fourth quarter, we anticipate overall segment margin in the range of 23.8% to 24.2%, up sequentially, but down 20 basis points to 60 basis points year-over-year as a result of mix within original equipment in aerospace and volume de-leverage in industrial automation. Now let's spend a moment on our outlook by business. Looking ahead for Aerospace Technologies, we still expect low-double-digit growth in 2024 organic sales with double-digit growth in both commercial aviation and defense and space. In the fourth quarter, we expect sales growth of mid to high-single-digits, with particular strength in commercial aftermarket. As previously noted, segment margin in the third quarter outperformed our expectations on better-than-anticipated mix, but we still see modest year-over-year segment margin contraction as discrete supply chain disruptions from the third quarter are resolved and we see a corresponding recovery and commercial original equipment volumes. Moving to Industrial Automation, we're lowering our 2024 outlook for year-over-year organic sales to a decline in the high-single-digit range, as slower-than-expected short-cycle demand recovery alongside project pushouts and process solutions dampen our outlook for full-year organic growth. For the fourth quarter, we expect sales down low-single-digits with modest growth in projects and aftermarket services offset primarily by softness and sensing and safety technologies and smart energy. Margins will be down overall this year for industrial automation, but up when excluding the impact of the license and settlement payments that ended in the first quarter. In Building Automation, we still expect |
2,996 | HON | 3 | 2,024 | 2024-10-24 08:30:00 | Honeywell International Inc. | 1,340,740 | the impact of the license and settlement payments that ended in the first quarter. In Building Automation, we still expect full-year organic growth in the low-single-digit range, led by continued strength in Building Solutions and high growth regions, particularly in India and Saudi Arabia. Fourth quarter sales will be up year-over-year and flat to up sequentially as we see volume improvement led by fire products. Margins should hit their high point for the year in the fourth quarter as improvement in fire and the impact of access solutions support positive mix. For energy and sustainability solutions, the organic growth outlook for the year is still low-single-digits with typical strong sequential improvement in the fourth quarter, driven by catalyst shipment seasonality. We're still expecting full-year margin expansion with the fourth quarter at the highest margin rate due to favorable business mix associated with catalyst reloads. We will also see a lift from the first quarter of sales and our newly acquired LNG business. Moving to other key guided metrics, net below the line is now expected to be between negative $650 million and negative $700 million for the full-year. For the fourth quarter, net below the line is expected to be between negative $250 million and negative $300 million. We now expect pension income to be approximately $600 million for 2024, up $50 million from our prior guide due to a one-time item that was pushed out from the fourth quarter into 2025. This guidance includes repositioning spend between $150 million and $190 million for the year and between $60 million and $100 million for the fourth quarter as we invest in high return projects to support future growth and productivity. We expect the adjusted effective tax rate to be around 20% for the full-year and 17% for the fourth quarter. The reduction in expected tax rate is a result of favorable adjustments to income tax contingencies and taxable income mix. We anticipate average share count to be around 655 million shares for the |
2,997 | HON | 3 | 2,024 | 2024-10-24 08:30:00 | Honeywell International Inc. | 1,340,740 | to income tax contingencies and taxable income mix. We anticipate average share count to be around 655 million shares for the full-year and around 653 million shares for the fourth quarter. And we maintain balance sheet capacity to deploy additional capital to achieve the highest shareholder returns. We now expect that the year-over-year impact to 2024 adjusted EPS from the four acquisitions closed this year will be approximately neutral. A bit better than we communicated last quarter. Slight delays to the closing of the case in LNG deals, reduced some of the interest expense, and planned integration costs in 2024. And as we get our arms around the business, we're refining our near-term expectations. We continue to expect 1% to 2% EPS accretion in 2025 from these deals. A summary of the 2024 M&A impact on our financials is included in the appendix of this presentation. As a result of all these inputs, we expect full-year adjusted earnings per share to be in the upper half of our prior range, now between $10.15 to $10.25, up 7% to 8% year-on-year. We expect fourth quarter adjusted earnings per share between $2.73 and $2.83 up 1% to 5% year-on-year. On cash, we're reducing our guidance and now expect free cash flow in the range of $5.1 billion to $5.4 billion, down 4% to up 2%, excluding the impact of prior year settlements. Lower progress in inventory, mainly in aerospace, and slowing payment cycles in certain high-growth regions has impacted our performance and our expectations. We continue to work on the multi-year unwind of working capital, and we will fund high-return CapEx projects focused on creating uniquely innovative technologies for the company. Overall, while we remain cautious on the macroeconomic environment in the short-term, our acquisitions are progressing in line with our expectations, our backlog remains at record highs, and we are driving expansion of our installed base. Our rigorous operating principles give us confidence in our ability to execute on our long-term growth algorithm. Now let me |
2,998 | HON | 3 | 2,024 | 2024-10-24 08:30:00 | Honeywell International Inc. | 1,340,740 | Our rigorous operating principles give us confidence in our ability to execute on our long-term growth algorithm. Now let me turn it back to Vimal on slide seven for some closing thoughts. |
2,999 | HON | 3 | 2,024 | 2024-10-24 08:30:00 | Honeywell International Inc. | 1,340,740 | Vimal Kapur: Thank you, Greg. While we experienced some headwinds in the quarter, we are confident in our ability to weather that macroeconomic backdrop with the operational rigor you expect from Honeywell. We deliver segment margins and adjusted earnings per share above our guidance range in 3Q. We have adjusted our outlook to reflect the realities as we now see them in this macro. We continue to make steady progress towards our portfolio optimization as we close out the year. As we look ahead towards 2025, our robust backlog further benefit from accretive growth rates to come from our acquisition and our leading position and attractive end market provide us with a constructive outlook, despite the ongoing economic and geopolitical uncertainty. While we think volume growth could remain subdued by muted short-cycle growth early in the year, we expect to see organic growth across all four businesses next year. We plan to return to margin expansion again in 2025 as a combination of volume leverage and productivity actions across the portfolio should offset modest mixed headwind in aerospace from OEM activity and integration of case. We look forward to providing more detailed guidance of 2025 during next quarter's earning call as the backdrop becomes clearer and our portfolio shaping impacts solidify. I remain excited about the future of Honeywell and believe our portfolio shaping efforts are enabling us to drive innovation and solve some of the world's most challenging problems. With that, Sean, let's open up for questions.
Sean Meakim: Thank you, Vimal. Vimal and Greg are now available to answer your questions. We ask that you please be mindful of others in the queue by only asking one question and one related follow-up. Operator, please open the line for Q&A.
Operator: Thank you. [Operator Instructions] Our first question comes from the line of Julian Mitchell with Barclays. Please proceed with your question. |
Subsets and Splits
No community queries yet
The top public SQL queries from the community will appear here once available.