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3,000 | HON | 3 | 2,024 | 2024-10-24 08:30:00 | Honeywell International Inc. | 1,340,740 | Julian Mitchell: Hi, good morning. Maybe I just wanted to start off with a sense, maybe flesh out a little bit more any thoughts around sort of next year. I realize we'll get more color in Q4 results, but in the past, you've often given sort of more detailed preliminary thoughts for the out year in October. So just wondered, for example, on the cost side of things, the topline is running light of expectations, but you took down your repositioning expectations for the year? I wondered if there might be a case given the macro backdrop to sort of accelerate things like cost-cutting measures, maybe do more repositioning to make sure you can get margins up in 2025. So, maybe flesh out some thoughts around the margin expansion from here. |
3,001 | HON | 3 | 2,024 | 2024-10-24 08:30:00 | Honeywell International Inc. | 1,340,740 | Vimal Kapur: Thanks. Thanks, Julian. Let me start and then hand over to Greg there. Look, I know my predecessors provided guidance on 2025, but given the current uncertainty in the environment across what we experienced, the wars, the upcoming election in the U.S. and multiple factor, we only found thought prudent that we do it in January when more facts are known. But I think it's -- there are few comments I'll make. First, there are three important backdrops, which we all should consider for 2025. Number one, our backlog is up 6%, 10% with all the acquisitions. I do believe we have a better quality portfolio. And number three, our cost position is very robust. We have seen that in our margin expansion across all four segments, and that's driven by both productivity and our cost control actions. So those are carrying forward for 2025. What we're also executing is our -- what's in our control, which is driving growth actions through new products, but also continuing to drive productivity actions to maintain the higher quality P&L. Now, with that backdrop, what -- as we mentioned in our comments is, we do expect all four segments to have organic growth in 2025. Now the specific ranges, we'll share that in January when we have the earnings call, but at this point, we feel confident on that fact. We also feel that -- we also believe we will be back to margin expansion in 2025 based upon the actions we really have taken. So, I would say the setup is positive. There are uncertainty. On the cost position, you're absolutely right, we are very watchful on that, and we have demonstrated that in Q3. I'm going to pass on to Greg to explain some of the repositioning numbers, what we have reflected on and provide specific commentary on that. |
3,002 | HON | 3 | 2,024 | 2024-10-24 08:30:00 | Honeywell International Inc. | 1,340,740 | Greg Lewis: Yes. Yes. So Julian, the takedown in the repo guidance is really just the Q3 number being lower on the low-end of the range. So, if you look at our guidance for the fourth quarter at $60 million to $100 million, that's roughly the same as what we had implied, and so the take down from $150 million to $225 million to now $150 million to $190 million is really just the third quarter being on the low-end. We have a very robust productivity and repositioning pipeline, that process, as you know, we've owned for years. And to Vimal's point, we're not sitting here in October thinking the world is coming crashing down in 2025. So, it's not like we need to ramp up dramatically a major reduction in census to address that in which case then maybe you would see a much bigger near-term repo change, but we're going to always be watchful. So that's really -- I wouldn't read too much into the repo guidance coming down other than just having been on the low end, we've given ourselves plenty of flexibility in the fourth quarter to take appropriate productivity actions and we'll do so.
Julian Mitchell: That's very helpful. Thank you. And then just a very quick follow-up around, as we're thinking about sort of portfolio movements and so forth, you announced Advanced Materials spin, you've got PPE and assets held for sale. Just wondered, sort of, to what extent Vimal, the changes in the sort of organic backdrop on topline and what's happening with margins, do they have an effect on increasing the urgency of portfolio measures or you think about them as sort of somewhat two independent tracks? |
3,003 | HON | 3 | 2,024 | 2024-10-24 08:30:00 | Honeywell International Inc. | 1,340,740 | Vimal Kapur: I would say the portfolio actions are driven by two factors. First is, the fit in the Honeywell portfolio, building Honeywell into a three simplified megatrends, which I committed exactly a year back. So, see -- if you see our actions on both Advanced Materials and PPE, they reflect that -- that reflect that commitment. I would say the PPE business in particular is going to have Honeywell accelerate organic growth and more advanced margin expansion. Advanced Material business is more of a neutral on an fixed basis. Going ahead, the portfolio actions are never completed. I would say that we're going to constantly look at now, given we have completed this phase, what else we could add or subtract to improve the quality of portfolio of Honeywell. So, what I'm really proud of, Julian is, all the four acquisitions we have made, they are in the high growth end verticals, they are in defense, they are in LNG, they are in Access Solution, which are high demand markets. And that certainly is improving the growth profile of Honeywell apart from the fact the actions we are taking on the core portfolio.
Julian Mitchell: Great. Thank you.
Operator: Thank you. Our next question comes from the line of Steve Tusa with JPMorgan. Please proceed with your question.
Steve Tusa: Hello? Can you hear me?
Vimal Kapur: Good morning, Steve.
Greg Lewis: Hey, Steve.
Steve Tusa: Yes. So sorry, just missed the first part of the call. Can you just talk about any kind of trajectory on into kind of '25 and some of the puts and takes? I know you guys had talked to being within the range on organic a few weeks ago, but also just whether the margins can be a kind of a trend-line year, any updated thoughts on kind of the '25 outlook? |
3,004 | HON | 3 | 2,024 | 2024-10-24 08:30:00 | Honeywell International Inc. | 1,340,740 | Greg Lewis: Sure, Steve. Maybe I'll start. You know, as we talked about even when we saw each other in Europe, we still expect all four businesses are going to grow next year, and we're going to be coming out of the year with while a lower exit-rate than we had planned, it's still going to be a positive exit rate. And so, when we think about the setup for next year, again, way too early for guidance, we'll do that in January. We do expect all four businesses to grow and we expect margin expansion broadly across the portfolio with Aero probably being the one that's going to remain, I would say, you know, around its current levels organically with -- that's the one area where it will get headline pressure from the acquisitions, though all those acquisitions and particularly in the Aero, you know, and sensors are going to be very strong growth rates, so very healthy segment profit growth overall.
Steve Tusa: Okay, great. And then just on the free cash flow cut. What's the -- is that just an earnings cut or is there something else going on in working capital and like that? |
3,005 | HON | 3 | 2,024 | 2024-10-24 08:30:00 | Honeywell International Inc. | 1,340,740 | Greg Lewis: Yes. The two big items there is, as you know, the biggest pile of inventory we have is in Aerospace, and that's been the hardest nut for us to crack so far and particularly given all the dynamics that you're seeing in the industry over even the last 90-days, we just don't see the ramp down that we had been trying to drive there specifically. We've made nice progress in both IA and BA on inventory reduction, but not in Aero. And then the other part of that, I would just say is in our high-growth regions, we're seeing payment cycles slow. And I think, again, that's a little bit of a reaction to oil prices and a little bit of the disruption happening around the Middle East. And so those really -- those two things are really what we're reflecting in the guide on cash. We do expect, again, as we go into next year, we're going to still work the acceleration on working capital reduction effort and hopefully the environment will participate in a way that's going to be more conducive to that. We're going to continue to do our work as we've done on the digitization of our working capital, particularly inventory and planning side to try to unlock that balance.
Steve Tusa: Great. Okay. Thanks a lot.
Vimal Kapur: Thanks, Steve.
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, and hope all is well. Just on…
Vimal Kapur: Hey, Nigel.
Nigel Coe: Hi, guys. Just on the Aero performance, maybe just touch on the Boeing strike and how you dial that into your sort of 4Q outlook? And then, within the performance in commercial aftermarket, the plus 8%, can you dissect that between ATR and Bizjet? I'm assuming Bizjets is going to be a bit more challenged there. Just any help there would be helpful. |
3,006 | HON | 3 | 2,024 | 2024-10-24 08:30:00 | Honeywell International Inc. | 1,340,740 | Vimal Kapur: Yes. Let me start here and I'll pass on to Greg. I would say the Boeing circumstances are obviously very challenging. We all saw the results of the strike vote yesterday night, which is unfortunate. I would say from a Honeywell perspective, we have been working very closely with Boeing to make sure that we have a coordinated way of dealing with our shipments with the Boeing. The net punchline of that is, thankfully, there is no impact of that into our revenue in Q4. We are adjusting some shipments into aftermarket of Boeing's customers and so on. And we really have to already start thinking about 2025 based upon how things are shaping up. But for Q4, there's no specific impact into our numbers. Maybe, Greg, do you want to answer the second part?
Greg Lewis: Yes. So on the commercial aftermarket side, as you saw us report high-single-digit growth overall. And as your spidey senses are telling you, it's double-digits in APR and it's single-digits in BGA. And again, I don't think that should be a surprise to anyone as the international market continues to expand on flight hours as it has throughout the course of the year. We're still outgrowing in DGA, the flight hours growth given all of the nice work the team has done on their RMU portfolio. So that continues to be a positive for us in terms of trying to do the decoupled growth approach that we've been so successful at over the years.
Nigel Coe: Great. That's helpful. And just a quick one on the portfolio. the PPE, no surprise there, but mixed size -- the revs and margin for PV this year. And then I guess the only other thing on the agenda right now is Quantinium. Are we still hoping to monetize that next year?
Greg Lewis: Yes. So the PPE revs are about $1.1 billion. We're not going to get into the margin profile, you can probably get close with some of the information you learned over time. And then on Quantinium... |
3,007 | HON | 3 | 2,024 | 2024-10-24 08:30:00 | Honeywell International Inc. | 1,340,740 | Vimal Kapur: Yes. Nigel, as we have said, we absolutely want to monetize Honeywell investment at the right time. The key focus area for us is continue to make progress on the technical milestone, because that will feed into a commercial customer acquisition, which will feed into IPO in that order. And we are making nice progress on the technical front. We -- earlier in the year, we worked with Microsoft to prove the added rates in quantum computing, which is a big milestone, and we did prove one of the highest fidelity computing platform. They also made some announcement on the capability relative to logical qubits in Q3. So we are making progress on expected lines on the technical front, which is very, very positive factor to know. That will now feed into the next step to acquire customers. The strategy of monetizing Quantinium hasn't changed. The timing will be dependent upon as we make progress in the actions we have highlighted earlier.
Nigel Coe: Great. Thanks, Vimal.
Vimal Kapur: Thank you.
Operator: Thank you. Our next question comes from the line of Scott Davis with Melius Research. Please proceed with your question.
Scott Davis: Hey, good morning, guys. [Multiple Speakers] to the call. Guys, you made this announcement with Forge and Gemini AI. I mean what's the deliverable here? I can kind of see the -- conceptually see what you're doing, but what do you kind of envision as the out the other side, the real kind of killer app for customers? |
3,008 | HON | 3 | 2,024 | 2024-10-24 08:30:00 | Honeywell International Inc. | 1,340,740 | Vimal Kapur: Yes. I can give you two minutes version, while I also have a two-hour version of this. The short answer is that as we are connecting more and more of our customer assets into our Forge platform for the last, I would say, about two to three years. The obvious next question for us is what are we going to do with that data as we keep expanding our customer base through connectivity. So we're looking ahead and looking to look at the AI model, the Vertex AI capability, which Google has provide us some unique capabilities, which will create a new applications on top of that data. So it's a -- it's consistent with the strategy Scott I have always highlighted, monetized installed base. So monetize installed base by connecting the installed base and then having more capability through partnerships like this. At the same time, we do expect some of our edge devices our products, which connected with the building or the process unit or with the warehouse, things like scanner, think of gas detection devices, embed AI at the chip level and have the Google Nano AI program embedded into that. It makes those products more capable. We expect to launch first-half one of them in early 2025. So this is not a long-term dream. This is imminently happening shortly. So all in all, this is continue to build upon our commitment of organic growth focus through new innovation, and we are partnering with companies like Google to expand our horizons here. And I'm very excited about it. I do expect this is going to help us support our organic growth profile in the years ahead. |
3,009 | HON | 3 | 2,024 | 2024-10-24 08:30:00 | Honeywell International Inc. | 1,340,740 | Scott Davis: That makes sense. And just Intelligrated, obviously, has been the kind of the gift that keeps on giving. It was great for a while, and then it's been not so great here for a few years. But how do you fix that business? It doesn't seem to be as much value at the customer level, perhaps as we all once thought? And is it a product innovation issue them? Is it just that the market itself is just too cyclical or perhaps too concentrated with a couple of big customers and maybe they have too much power in the channel. But how do you fix this thing I'll just leave it at that and thank you. |
3,010 | HON | 3 | 2,024 | 2024-10-24 08:30:00 | Honeywell International Inc. | 1,340,740 | Vimal Kapur: Yes, I understand the frustration around Intelligrated, and so are we given the performance. Look, the good news is we saw slight sequential growth in that business in Q3, and we expect that trend to continue in Q4. Speaking differently, the business is definitely at its spot on with a slight turnaround. As I look ahead, I do see business are becoming very concentrated actually on aftermarket. 2025, our aftermarket, maybe actually 60% of the revenue. It used to be 30% when we acquired it, so it's almost become double. We have re-baseline our cost base, Scott, to nearly $1 billion run rate revenue, which we have today. I think the real constraint here is customer adoption rates. We have talked before, the value proposition is extremely compelling. However, the capital investment required for fixed sortation system is high. And making that commitment on a long-term basis, you can't decide to automate one warehouse. You have to basically commit to all of them. And that commitment, therefore, tends to be several hundred million or sometimes even in $1 billion. And that really have observed in my two-year watch of this business as a constraint. So I would say we are -- we'll continue to run this business as efficiently as we can. The 2025, the business has baseline to a point. It won't be a drag to the Honeywell's numbers anymore. And we will continue to put our actions in place to make it a better business in the years ahead.
Scott Davis: Thank you. Best of luck guys.
Vimal Kapur: Thank you.
Operator: Thank you. Our next question comes from the line of Chris Snyder with Morgan Stanley. Please proceed with your question.
Chris Snyder: Thank you. I wanted to ask on the ARO organic growth into Q4, slowing to mid to high-singles. And I think you said earlier that there's no impact from the Boeing strike in that. So I guess, is there any spillover impact from the fire at the facility you saw in Q3? Or does this kind of where you see aero market growing here in Q4. |
3,011 | HON | 3 | 2,024 | 2024-10-24 08:30:00 | Honeywell International Inc. | 1,340,740 | Vimal Kapur: Look, Chris, Aero has been -- it's nine quarters, we have been growing double digits. So it just -- one is the elevated level of comps that certainly makes it challenging. But two important facts here to share. In Q3, we had two discrete events, which are transitional in nature. We unfortunately had a fire in one of our plants. The plant is back up and running, so we lost that revenue. And we also saw last week impact of a Helene, because we do have large aero facility in Florida, and we could not ship for last couple of days of the quarter. Moving ahead in Q4, our acceleration is good. I mean, if you see in Q3, our volume growth is 13%. Now it used to be in high-teens, it has come to the low-teens. And that's where the volume extension through supply base with elevated levels is really the problem we are revolving for. By no dimension, our outlook has changed. Our outlook for Aero for the year is still low-double-digit, what it was earlier, too, so it's not really changed. We have possibly missed an upside opportunity there. That's how we'll put it. There was a case here, we would have beaten that low-double-digit to a better number, but some of the supply chain pushouts have really made it more of a not 2025 event. Our backlog -- our past dues are now continues to be greater than $2 billion. They have grown further, not a good news from a customer perspective. But at the same time, we're carrying forward that backlog next year, which will help us to have very similar profile of growth in 2025 as we are experiencing in Q4 this year. So remain very positive and optimistic. I'm also very excited about the case acquisition, which is going to further expand the profile. It's a meaningful business size, $750 million we do expect a high growth rate in defense segment, which is also going to help and shape 2025 number for ARO on the top line growth. |
3,012 | HON | 3 | 2,024 | 2024-10-24 08:30:00 | Honeywell International Inc. | 1,340,740 | Chris Snyder: I appreciate that. And then maybe kind of turning over to Industrial Automation. It's been a couple of years now of pretty steady, meaningful declines. And I understand that a lot of these end markets are challenged, whether it's warehouse or scanners or even safety and sensing. But when you look at your -- the Honeywell's performance in industrial automation compared to the end markets you serve, do you feel like the company is holding share? Or do you think that the company might be losing share or even maybe even gaining share across these end markets? Thank you. |
3,013 | HON | 3 | 2,024 | 2024-10-24 08:30:00 | Honeywell International Inc. | 1,340,740 | Vimal Kapur: Yes, Chris, we serve multiple end markets there. So I can't give you a very brief and short answer on that. I would say, on the whole, the market drivers are the contributing factors on the performance of the Industrial Automation business. I mean there'll be always exceptions there, but that really drives it. Also bear in mind that this business is extremely global. And we look at the end market or the lens of U.S., which we offset here and that's what we observe. But this business has a strong presence in Germany. This business has a strong presence in China. And we cannot ignore some of the economic dynamics going in those parts of the world. And when you have material revenue there, it's certainly having its own impact. So I would say that the one liner for that is we are just shaping up with the market. Looking ahead, I would say, 2025, there are two headwinds we have or ‘24 are behind us, which makes me believe very, very strongly that Industrial Automation will grow in 2025. The first headwind will be gone is the rebase signing of Intelligrated volumes, business volume -- it's -- we had mentioned in one of the earlier calls, it will be around $1 billion. That's where it is shaping up. So we don't have that headwind. We do believe we can sustain that volume looking ahead in 2025. And we had three quarters of the royalty from Zebra in our numbers in 2024, which won't appear in 2025. So from a comp perspective, it let me correct that. We have only one quarter of this year. So from a comp perspective, it's a small number. So in 2025, we don't have to deal with that too. So those going away and markets normalizing to a certain degree, even they remain constant, we are still going to grow at a very normalized market today, we do expect a positive performance in that business in 2025.
Chris Snyder: Thank you.
Operator: Thank you. Our next question comes from the line of Sheila Kahyaoglu with Jefferies. Please proceed with your question. |
3,014 | HON | 3 | 2,024 | 2024-10-24 08:30:00 | Honeywell International Inc. | 1,340,740 | Sheila Kahyaoglu: Thank you so much, guys, and good morning. Going back to Aerospace and Greg, if we -- or if we could talk about -- can you tell us what the rate was in Q3? How you think about it in Q4 and deceleration Q3 to Q4? Is that -- that's not a change in the MAX? Is it just the supplier that just popped up?
Sean Meakim: Sorry, Sheila. I think you broke up for a second. Would you mind restating the question?
Sheila Kahyaoglu: Sorry about that. So just on the MAX, can you give us an idea where you are on MAX in Q3 versus Q4? And if it is unchanged, what results in the Q3 to Q4 margin deceleration of about 250 bps going to around 25%.
Vimal Kapur: Yes. So on the -- I will answer the second portion. The margins, Q3 to Q4 is just the drivers of the OE shipments. So some of the discrete manufacturing disruption in what we had in Q3 ended up having directly lower OE volume, which helped us in terms of the mix and that drove the margin in Q3. So as those supply chain disruptions are getting released in Q4, those shipments are going to occur, which again pushes the margins to a different trajectory. So I think that's a fundamental shift there.
Greg Lewis: I think our comments on the Boeing situation is just that their demand on us has not gone down demonstrably from what it had been previously. There doesn't mean there's not some disruption in our ability to ship in Q3 versus Q4. We definitely had that challenge, but the demand on us has not changed meaningfully from Boeing.
Sean Meakim: The last point I would add is just to say that 3Q is better than we would have thought on the margin given that mix -- and then there's some reversion in fourth quarter. So overall, the full year is really unchanged when we communicated previously. It's just what goes in which quarter. |
3,015 | HON | 3 | 2,024 | 2024-10-24 08:30:00 | Honeywell International Inc. | 1,340,740 | Sheila Kahyaoglu: Got it. And then hopefully, you could hear me on the commercial aftermarket in Q3, it was -- it lagged at 8%. Maybe we just modeled it wrong. But it seems like it was mostly BGA. So when you think about aftermarket being the growth leader in Q4, is that in double digit in ATR, any color there? Or is it BGI picking up again?
Greg Lewis: In aftermarket. Yes. The aftermarket will be stronger in ATR than BGA. That's just -- that's going to continue to be that way for some period of time.
Sheila Kahyaoglu: Got it. Thank you.
Vimal Kapur: Thanks, Sheila.
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.
Greg Lewis: Hey, Dean.
Deane Dray: Hey, I think it was just about a year ago that you did the re-segmentation. And one of the outcomes was you identified that there was roughly 10% of revenues that would be divested, maybe half of them chunky, others kind of very small below the radar screen. So does PPE -- would that be part of it? And I would trust Advanced Materials is not part of that 10%. So just what's that pipeline look like? |
3,016 | HON | 3 | 2,024 | 2024-10-24 08:30:00 | Honeywell International Inc. | 1,340,740 | Vimal Kapur: Yes. So Dean -- when we -- when I announced it last year this time, it was an initial view of the portfolio, which had less fit relative to the three megatrends. They were portions of advanced materials, which were part of it. But when we did the work, the shareholder value much higher for the whole spin versus the smaller part, which make us this decision of announcing the spin a few weeks back. So that was definitely part of the parameter and a smaller scope but ended up being big. PPE was part of that scope. So I would say on a broader strategy basis, we are directionally done for the near-term, but portfolio work is never complete. There are -- we are constantly want to look at what else is a less fit in Honeywell now, even though everything fits into either future of aviation, energy transition or automation. Another question I'm asking is relative to the growth rates and margin expansion runway and vertical fit and things of that nature and will constantly make our portfolio active portfolio management as part of our operating system. We have a lot of balance sheet capacity. So we certainly want to use that and embrace that to the benefit of building a better business. So those are some of the comments I will offer you.
Deane Dray: What would be the time frame for other divestitures?
Vimal Kapur: I want -- I mean I wouldn't say I won't put a specific time line here. I would say that we want to be a prudent utilization of our balance sheet capability and the events will be more determined by the opportunity set. -- the opportunity set of acquisitions. And similarly, the fit is less. We need to get convicted. We have to do that work and then really start working on some of the possible portfolio actions there. So there's nothing new definitive which we are working on, but you'll never say never because this is a constant activity.
Deane Dray: Thank you.
Operator: Thank you. Our next question comes from the line of Joe Ritchie with Goldman Sachs. Please proceed with your question. |
3,017 | HON | 3 | 2,024 | 2024-10-24 08:30:00 | Honeywell International Inc. | 1,340,740 | Joe Ritchie: Hey, good morning, guys.
Vimal Kapur: Hi, Joe.
Joe Ritchie: So can you -- I may have missed it, but can you please elaborate on the project delays that you're experiencing in both Process Solutions and -- so what are the root causes? And then how do you see that rectifying going forward?
Vimal Kapur: So Joe, I would say the conversion rates typically we see we end up doing approximately 50% of our revenue in month three of every quarter. And we have a well-proven run rate of conversion of smaller projects, both in Process Solutions and smaller catalyst shipments. And that's what really didn't occur on the normal run rate in Q3. So that's what we observed for the first time that push outs are happening at this point of time. At the same time, I will also give you another data point, UOP had a historic high in its history order booking in the same quarter, $1 billion, which are large new projects, people are committed investments for new process technology on new equipment. So those are the dynamics going on. The long-cycle commitment continue to hold. The short cycle pushouts are also occurring at the same time, and we have factored that into our Q4 earnings forecast now that we expect that some of those project pushouts will continue to occur did we say stability? And probably the root cause of that would ascertain that to two factors. I would say there's a lot of uncertainty in Middle East due to war situation and oil price fluctuations. We all observe there and we all are equally awaiting on outcome of U.S. elections. So I think that uncertainty causes making any moderate investment also a bit of a consideration for our customers. And that's driving the push out. And we do expect as things settle, some of these should come back to the normal case ahead. |
3,018 | HON | 3 | 2,024 | 2024-10-24 08:30:00 | Honeywell International Inc. | 1,340,740 | Joe Ritchie: Got it. That's helpful. So mostly, this is basically exogenous factors, not anything internal that's impacting. Okay, and then I guess maybe. Yes, and then the second question is just, look, the defense business has been I think double-digits now for four out of the last five quarters and recognize that you're benefiting from the fact that supply chain is normalizing. I guess, how do we think about that into 2025? Is this a business just based on the normalization of the supply chain, it should continue to see this level of growth, call it, high single digits to double-digit type growth into next year?
Vimal Kapur: I do believe that. I think our order books there are strong in defense, and in fact, demand remains very strong. We have demonstrated now for two quarters in a row, our ability to take supply chain actions, specifically to the defense supply chain and we do expect to maintain this momentum in 2025. It will remain the headline for aerospace growth, specifically not only the core business and even always own but with the acquisition of Kate, which is the entirely service Defense segment. Our near-term mix of defense is going to go up and growth rates are going to be at I would say, relatively elevated rate compared to the core aerospace business.
Joe Ritchie: Okay, great. Thank you very much.
Vimal Kapur: Thank you.
Operator: Thank you. Our final question this morning comes from the line of Andy Kaplowitz with Citigroup. Please proceed with your question.
Andy Kaplowitz: Good morning, everyone.
Vimal Kapur: Hey, Andy.
Greg Lewis: Hey, Andy.
Andy Kaplowitz: Vim, I know you've talked about accelerating new products now and evolving the accelerated operating system. How much could that accelerating or maybe the focus on what good looks like across your portfolio help in '25 versus '24? Would you anticipate a material step-up in core growth from your initiatives, even if markets maybe stay a little muted, more muted than expected outside of Aero? |
3,019 | HON | 3 | 2,024 | 2024-10-24 08:30:00 | Honeywell International Inc. | 1,340,740 | Vimal Kapur: Yes. I think short answer is yes, Andy. We have done work, and we really track what I call new product category. So fundamentally, what we have bought our operating system is Think about the product as core products, which we always have and refreshing them because we have to keep share, you can't keep them stale and then adding new product categories, which we don't have today, those SKU numbers don't exist in our ERP system. And that -- those products which are being lodged in '24 or early '25 are going to be a larger number compared to what we had in '24 run rate. So that does give me a confidence that that's going to act as an enabler for us to deliver our growth in 2025. specifics will share when we do the earnings call. But fundamentals do look attractive on that space.
Andy Kaplowitz: Got it. And then maybe just a little more color on what you're seeing in terms of the landscape by geography. It's interesting to see that buildings products has started to improve. Is that a function of European building products getting any better? And I know you mentioned some macro headwinds in China, obviously. So what are you seeing out there? |
3,020 | HON | 3 | 2,024 | 2024-10-24 08:30:00 | Honeywell International Inc. | 1,340,740 | Vimal Kapur: I would say in pockets, we -- I mean, if you call specifically on the Buildings business, we did observe a good recovery in Europe in our short cycle businesses in building automation. I would say we have crossed the trough in Europe, and we are on a moderate recovery there. We certainly see that. In China, I would say that's not true. Honeywell continues to be in mid- to high-single. We have said that before, we will perform well in China, thanks to our Aerospace and Energy segment. But our automation businesses are flat to slight contraction. We are not observing any change in trajectory which then get reflected on the performance there. So some pockets of recovery in Europe, not so much in China and headline of our growth, which we mentioned in our prepared remarks also, we do see strong growth in India and Saudi Arabia. Those two countries are become capless of our growth. We have a moderate number of -- amount of revenue there. So certainly double-digit revenue growth certainly helps on our top line.
Andy Kaplowitz: Appreciate all the color.
Vimal Kapur: Thank you.
Operator: Thank you. This concludes our question-and-answer session. Mr. Kapur, I'll turn the floor back to you for any final comments.
Vimal Kapur: I want to express my thanks to our shareholders for your support and to the Honeywell future shaper, who will help us to achieve our accelerated growth goals. I believe, our future is bright, and we look forward to updating you on the progress. Thank you for listening, and please stay safe and healthy.
Operator: Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation. |
3,021 | HON | 2 | 2,024 | 2024-07-25 08:30:00 | Honeywell International Inc. | 1,340,740 | Operator: Thank you for standing by and welcome to the Honeywell Second Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's 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, sir.
Sean Meakim: Thank you. Good morning and welcome to Honeywell's second quarter 2024 earnings conference call. On the call with me today are Chairman and Chief Executive Officer, Vimal Kapur; and Senior Vice President and Chief Financial Officer, Greg Lewis. 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 business 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 second quarter share our guidance for the third 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. |
3,022 | HON | 2 | 2,024 | 2024-07-25 08:30:00 | Honeywell International Inc. | 1,340,740 | Vimal Kapur: Thank you, Sean, and good morning, everyone. Second quarter was another strong one for Honeywell. We exceeded the high end of our adjusted earnings per share guidance and achieved the high end of our organic sales guidance ranges. While aerospace continues to lead our growth, we are seeing broader participation across our portfolio. Three of our four strategic business groups contributed positive growth for the quarter, and we saw sequential improvement in growth rate from all four. Order rates were healthy across Honeywell, supporting our expectation of further organic growth acceleration into back half of the year. We are adding attractive new assets to our already compelling technology portfolio, which will enable us to create further value for our customers and shareholders alike. Let me take a few minutes to restate my priority as Chairman and CEO of Honeywell before we get into more detailed discussion on the second quarter 2024 results and update on our full 2024 year expectations. First, our key priority remains accelerating organic sales growth to deliver upper end of our long-term target range of 4% to 7%. In order to achieve this, we are enhancing how we think about our new product innovation, monetizing our vast installed base, accelerating software offerings and improving our leadership position in high-growth regions. As an early read on these efforts, our self help actions and aftermarket services are demonstrating favorable proof points, double-digit growth in the second quarter and accretive growth even when excluding aerospace. In fact, I'm pleased to highlight that our total Honeywell grew volume in the second quarter, and we expect further volume acceleration in the second half. Second, of the strength of our contemporary digital foundation, we are transforming how we run Honeywell through the latest version of our Honeywell Accelerator operating system. We are standardizing our business model to drive incremental value, enhancing our growth capabilities. Our integrated operating |
3,023 | HON | 2 | 2,024 | 2024-07-25 08:30:00 | Honeywell International Inc. | 1,340,740 | We are standardizing our business model to drive incremental value, enhancing our growth capabilities. Our integrated operating system principles enable us to deploy world-class digital supply chain and technology development capabilities at scale, along with multiple growth drivers that benefit the entire enterprise. For example, we are leveraging our digital capabilities and demand planning to more closely match production and material management, enabling us to capture incremental inventory improvement and reduce working capital intensity. We are also leveraging generative AI to maximize the potential benefit of our operating system, both for our customers and ourselves. As anticipated, Accelerator is proving to be a powerful source of profitable growth across all our businesses as an important tool to successfully integrate the recent addition to our portfolio. Third, we are excited about our progress on our portfolio optimization goals. We are demonstrating a commitment to accelerate deal flow through multiple strategic bolt-on acquisition in the $1 billion to $7 billion range in order to upgrade the quality of our business and financial profile. These acquisitions are aligned to three compelling megatrends around which we are focusing Honeywell, automation, the future of aviation and energy transition. The additions combined with a modest abstraction of non-core lines of business that are not aligned to these trends will enable us to accelerate value creation for our shareholders. Last, as we aim for ways to simplify and accelerate growth at Honeywell, we are taking our Honeywell Connected Enterprise strategy to the next stage by seamlessly integrating SCE [ph] into our strategic business groups. In 2018, we formed SCE to enable the creation of one unified industry-leading IoT forge platform to support the digital transformation for our customers. Over the last few years, we have been increasingly focused on scaling our commercial offering to deliver outcome-based solution in performance, sustainability |
3,024 | HON | 2 | 2,024 | 2024-07-25 08:30:00 | Honeywell International Inc. | 1,340,740 | been increasingly focused on scaling our commercial offering to deliver outcome-based solution in performance, sustainability and security. We are maintaining our robust software development expertise at the center and SCE Version 3.0 will more deeply integrate those centralized capabilities within our segment level commercial teams. This will deliver even better outcomes to our customers and drive sustained accretive software growth across the portfolio. As we demonstrate further progress against these priorities, we expect to deliver on our long-term financial algorithm and generate superior value for our shareholders. In the spirit of that progress, let's turn to Slide 3 to discuss our recent acquisition announcements. Our top M&A priority remains targeting bolt-on acquisition, as evidenced by our recent announcement. We are creating a flywheel of teams that strategically add to our technological capabilities, enhance our alignment to our three compelling megatrends and provide accretive growth that supports Honeywell's overall long-term financial framework. Let's discuss our recent deals in a bit more detail. Earlier this month, we announced our intention to acquire Air Products liquefied natural gas processing technology and equipment business for approximately $1.8 billion in all cash transactions. With this addition, Honeywell will be able to offer customers end-to-end solutions that optimize the management of natural gas assets. Currently, Honeywell provides a pre-treatment solution serving LNG customers globally and automation technology unified under the Honeywell Forge and Experion platforms. Air Products' complementary LNG business consists of comprehensive portfolio, including in-house design and manufacturing of coil-bound heat exchangers and related equipment. This acquisition will bolster our energy transition portfolio within energy and sustainability solutions. The LNG technology will immediately expand our installed base, creating new opportunities to compound growth in aftermarket services |
3,025 | HON | 2 | 2,024 | 2024-07-25 08:30:00 | Honeywell International Inc. | 1,340,740 | technology will immediately expand our installed base, creating new opportunities to compound growth in aftermarket services and digitalization through Honeywell Forge. Notably, this is the fourth acquisition Honeywell has announced this year as part of our disciplined capital deployment strategy, adding a business with accretive economics at an attractive valuation. In June, we announced the acquisition of CAES Systems or CAES for short from private equity firm, Advent International for $1.9 billion enhancing Honeywell's defense technology solution across land, sea, air and space. This business will enable us to provide new electromagnetic defense solutions for end-to-end radio frequency signal management for critical existing and emerging U.S. DoD platforms, which are forecasted to grow significantly at accretive rates in years to come. We are excited that this is the second aerospace-focused transaction we have announced this year, underscoring our alignment to the future of Aviation. The business adds state-of-the-art advanced manufacturing capabilities, impressive engineering talent and potential for significant commercial opportunities in international defense. Also in June, we completed the acquisition of Carrier's Global Access Solutions business, which positions the Honeywell as a leading provider of security solution for the digital age with opportunities for accelerating innovation and fast-growing cloud-enabled services. Honeywell will also benefit from businesses attractive growth and margin profile, valuable software content and accretive mix of recurring revenue with forecasted annual sales in excess of $1 billion when combined with our existing security portfolio. We are happy to welcome the Access Solutions team to Honeywell's Building Automation business. Together, the combination will build our long track record of delivering high-value critical building automation products, solutions and services to our customers globally. As we turn our attention to ensuring a steeples [ph] integration of |
3,026 | HON | 2 | 2,024 | 2024-07-25 08:30:00 | Honeywell International Inc. | 1,340,740 | products, solutions and services to our customers globally. As we turn our attention to ensuring a steeples [ph] integration of the business into our portfolio, we'll utilize our multi facet tools of our accelerated operating system to streamline processes, digitalize operation and manifest the anticipated synergies that help make the deal compelling from a top and bottom line perspective. Cumulatively, the bolt-on acquisition of the past year represents over $2 billion of incremental annualized revenue with growth profiles well in excess of Honeywell's growth algorithm of 4% to 7%. Collectively, these deal represents an accretive margin profile to our current portfolio at valuation below of our own before factoring any expected sales synergies. Before I hand it off to Greg, I'll turn to Slide 4 to review our progress on overall capital deployment commitments. We are very excited to demonstrate significant progress on the commitment I made to you during the last May at Investor Day when we re-upped our intention to deploy at least $25 billion of capital in 2023 through 2025. With accelerated M&A deal activity this year, we have already deployed and committed approximately $10 billion acquisitions and approximately $5 billion of share buyback, exceeding our minimum pledge of $13 billion over a year early. However, this does not mean our work is done. Our robust balance sheet capacity provides us with the flexibility to allocate capital to accretive M&A, opportunistic share purchases and high-return growth capital. As the deal environment remains favorable, we will continue to reshape the portfolio by building on our already strong pipeline of high-value M&A opportunities as well as strategically proven [ph] select non-core assets. Into Honeywell fashion, you can expect us to maintain disciplined approach to generate highest return combination of capital deployment. Now let me turn over to Greg on Slide 5 to discuss the second quarter results in more detail as we provide our views on third quarter and full year |
3,027 | HON | 2 | 2,024 | 2024-07-25 08:30:00 | Honeywell International Inc. | 1,340,740 | to Greg on Slide 5 to discuss the second quarter results in more detail as we provide our views on third quarter and full year 2024 guidance. |
3,028 | HON | 2 | 2,024 | 2024-07-25 08:30:00 | Honeywell International Inc. | 1,340,740 | Greg Lewis: Thank you, Vimal, and good morning, everyone. Let me begin on Slide 5. As a reminder, starting in the second quarter, we began excluding the impact of amortization expense for acquisition-related intangible assets and certain acquisition-related costs, including the related tax effects from segment profit and adjusted earnings per share. We believe this change provides investors with a more meaningful measure of our performance period to period, aligns the measure to how we evaluate performance internally and makes it easier to compare our performance to peers. In addition, our second quarter building automation results incorporate approximately 1 month of impact from the acquisition of Access Solution. With that, let's discuss our results. We delivered another strong quarter in a dynamic macro environment, meeting the high end of our organic sales range, landing above the midpoint of our segment margin guidance and exceeding the high end of our adjusted earnings per share guidance. Second quarter organic sales were up 4% year-over-year, supported by 16% organic growth in Aerospace Technologies, driven by another quarter of double-digit growth in both commercial aerospace and defense and space in addition to double-digit growth in our Building Solutions business Honeywell grew volumes by 1% for the second time in the past 10 quarters, and we expect further volume acceleration in the second half. Segment profit grew 4% year-over-year and segment margin contracted by 10 basis points to 23% as expansion in energy and sustainability solutions was offset by mix pressures in our other three businesses. Earnings per share for the second quarter was $2.36, up 6% year-over-year and adjusted earnings per share was $2.49, up 8% year-over-year, driven primarily by segment profit growth. A bridge for adjusted EPS from 2Q '23 to 2Q '24 can be found in the appendix of this presentation. Orders grew 4% year-over-year with a book-to-bill of 1, led by growth in BA, ESS and IA, including pockets of short-cycle strength |
3,029 | HON | 2 | 2,024 | 2024-07-25 08:30:00 | Honeywell International Inc. | 1,340,740 | grew 4% year-over-year with a book-to-bill of 1, led by growth in BA, ESS and IA, including pockets of short-cycle strength with advanced materials and building products growing both year-over-year and quarter-over-quarter. Orders growth supported a 5% year-over-year increase in backlog to maintain our record level of $32 billion. Free cash flow was approximately $1.1 billion, roughly flat year-over-year versus the second quarter of '23 as higher net income and improved working capital from reduced inventory levels were offset by the timing of higher cash taxes. We continue to expect working capital becoming a more meaningful tailwind in the coming quarters as we unwind the multiyear buildup of inventory. This quarter, we were able to effectively reduce our days of supply each month in all our businesses by utilizing our accelerator digitalization capabilities, improving demand planning and optimizing production materials management, which gives me confidence that we are starting to systematically bend the curve. As Vimal discussed earlier, we made significant progress on our capital deployment strategy this quarter, allocating $6.4 billion to M&A, dividends, share repurchases and capital expenditures, including closing our $5 billion acquisition of Access Solutions. When combined with the anticipated closing of CAES and Air Products LNG businesses later this year, we are on track to deploy a record $14 billion of capital in 2024. Now let's spend a few minutes on the second quarter performance by business. In Aerospace Technologies, sales for the second quarter were up 16% organically, with double-digit growth in both defense and space and commercial aerospace. This marks the 13th consecutive quarter of double-digit growth in commercial aviation enabled by sustained growth in global flight activity and increased shipset deliveries. Defense and space growth accelerated in the second quarter as we continue to see robust global demand coupled with supply chain improvements, enabling an incremental volume unlock. |
3,030 | HON | 2 | 2,024 | 2024-07-25 08:30:00 | Honeywell International Inc. | 1,340,740 | as we continue to see robust global demand coupled with supply chain improvements, enabling an incremental volume unlock. Aerospace supply chain improvements remain on track as output increased by 14% in the second quarter, the eighth consecutive quarter of double-digit output growth. Segment margin in Aerospace Technologies contracted 60 basis points year-over-year to 27.2%, driven by expected mix pressure within our original equipment business, partially offset by commercial excellence net of inflation. For Industrial Automation, sales fell 8% organically in the quarter, primarily due to lower volumes and warehouse and workflow solutions, but overall sales improved 1% sequentially. Process Solutions revenue grew 1% in the quarter as another quarter of double-digit growth in our aftermarket services business was partially offset by headwinds in Thermal Solutions and Smart Energy. Our Sensing and Safety Technologies business declined modestly year-over-year, but saw sequential growth in both orders and sales, a positive indicator going forward. In Productivity Solutions and Services, sales improved year-over-year when excluding the impact of the $45 million quarterly license and settlement payments that ended in the first quarter. Orders in PSS grew double digits for the third consecutive quarter, and overall IA orders grew high single digits, led by growth of over 20% in Warehouse and Workflow solutions, driving an overall book-to-bill of 1.1. Industrial Automation segment margin contracted 90 basis points to 19% due to lower volume leverage and the end of payments under the license and settlement agreement in Productivity Solutions and Services. Excluding the impact of that agreement, margins expanded in the second quarter. Moving to Building Automation. Sales were up 1% organically as another quarter of excellent performance in our long-cycle Building Solutions business led the way, while we continue to work through lower volumes in our Building Products portfolio. Solutions grew 14% in the quarter with 20% |
3,031 | HON | 2 | 2,024 | 2024-07-25 08:30:00 | Honeywell International Inc. | 1,340,740 | while we continue to work through lower volumes in our Building Products portfolio. Solutions grew 14% in the quarter with 20% growth in projects as a result of strength in data centers, health care and energy. Sales grew double digits sequentially, including one month of benefit from the acquisition of our Access Solutions business, highlighted by strong execution and solutions and further progress in fire and building management systems within building products. Double-digit orders growth was a highlight for building automation in the quarter, growing both sequentially and year-over-year in both solutions and products, resulting in an overall book-to-bill ratio of 1.1. Segment margin contracted 60 basis points to 25.3% due to mix headwinds and cost inflation, partially offset by productivity actions and commercial excellence. In Energy & Sustainability Solutions, sales grew 3% organically in the second quarter. Advanced Materials increased 8% year-over-year due to continued strength in fluorine products. UOP sales declined 4% as previously noted, difficult year-over-year comps in gas processing equipment projects more than offset solid growth in refining catalysts and aftermarket services. Orders were a highlight in ESS as book-to-bill was 1.2 in the second quarter, the third consecutive quarter of a book-to-bill above 1.0 primarily on greater than 20% growth in advanced materials and more than 60% growth in sustainable technology solutions. Segment margins expanded 200 basis points on a year-over-year basis to 25.2%, primarily driven by productivity actions. We continue to execute on our proven value creation framework underpinned by our Accelerator Operating System. This, combined with ongoing benefits from our long cycle end markets and the strength of our backlog give us confidence in our ability to navigate the current environment. Now let's turn to Slide 6 and talk about our third quarter and full year outlook. Our commercial and operational discipline have enabled us to deliver on our organic growth |
3,032 | HON | 2 | 2,024 | 2024-07-25 08:30:00 | Honeywell International Inc. | 1,340,740 | third quarter and full year outlook. Our commercial and operational discipline have enabled us to deliver on our organic growth commitments, with continued long-cycle strength and modest sequential growth within certain of our short-cycle businesses, particularly in advanced materials, building products and sensing and safety technologies. While we are encouraged by our performance year-to-date and our robust backlog, the back half will remain influenced by the dynamic macroeconomic backdrop and varying levels of channel improvement across our portfolio. Given these dynamics and our recent acquisition announcements, we are increasing our 2024 top line expectations. We forecast sales to be in the range of $39.1 billion to $39.7 billion, which includes overall organic sales growth of 5% to 6% for the year, up from 4% to 6% previously, increasing the midpoint from our prior guidance. The sales forecast also includes the acquisition of CAES and Air Products LNG businesses, which we expect to close in the third quarter. Collectively, acquisitions are expected to add approximately $800 million to Honeywell sales in 2024. Sequential growth in the third and fourth quarters across most of the portfolio will be driven by continued progress in the aerospace supply chain, seasonal uplift from UOP in addition to other long-cycle businesses and areas of modest short-cycle improvement, which will vary depending on the end market exposures. For the third quarter, we anticipate sales in the range of $9.8 billion to $10 billion, up 4% to 6% organically with the benefit of roughly $300 million in acquisition-related revenue. Moving to segment margin as growth in our long-cycle businesses outpaces the short-cycle recovery, supporting the raise to our top line range, we expect to see a bit less favorable mix within some of our SPGs in the short term. However, from a long-term perspective, executing on robust demand for projects and original equipment sets our business up for a long tail of high-margin aftermarket revenue streams by |
3,033 | HON | 2 | 2,024 | 2024-07-25 08:30:00 | Honeywell International Inc. | 1,340,740 | demand for projects and original equipment sets our business up for a long tail of high-margin aftermarket revenue streams by expanding our vast installed base. When incorporating the impact of recently announced acquisitions, we now anticipate our overall segment margin to be in the range of 23.3% to 23.5%, flat to down 20 basis points year-over-year. Overall segment profit dollars will still grow significantly in 2024, between 6% and 9% as margins will continue to be supported by price cost discipline and productivity actions, including our focus on reducing raw material costs. From a segment perspective, Energy and Sustainability solutions and Building Automation will lead the group and margin expansion, followed by modest contraction for industrial automation as well as aerospace as a result of the CAES acquisition. For the third quarter, we anticipate overall segment margin in the range of 23.0% to 23.3% and down 30 to 60 basis points year-over-year and in line with the first two quarters of this year due to quarterly variability in aero mix, the anticipated close of CAES and normal seasonality within energy and sustainability solutions. Now let's spend a few minutes on our outlook by business. Looking ahead for Aerospace Technologies, we expect momentum from the first half to carry over into the second half as robust orders and increases in factory output will support growth. In commercial original equipment, we anticipate the second quarter to be our low point of the year for growth and some related supply chain challenges abate. We see strong sequential and year-over-year growth through the third and fourth quarters, particularly in air transport as build rate strength drives volume progression. In commercial aftermarket, we anticipate continued sales momentum, though growth rates will come down slightly in the back half as comps get more difficult. For defense and space, the global geopolitical backdrop, coupled with our robust order book and increased investments in our supply chain will provide |
3,034 | HON | 2 | 2,024 | 2024-07-25 08:30:00 | Honeywell International Inc. | 1,340,740 | the global geopolitical backdrop, coupled with our robust order book and increased investments in our supply chain will provide support for sequential growth in the third and fourth quarters. As a result of these dynamics in a strong first half, we now forecast defense and space growth to be double digits for the year. We still expect Aerospace to lead Honeywell in 2024 with organic sales growth in the low double-digit range. For segment margin, the dynamics remain comparable to 2022 and 2023 as higher sales from lower margin products are partially offset by volume leverage. However, we now expect 2024 aero margins to decline modestly year-over-year due to the impact of the CAES acquisition. We anticipate the third quarter will be the low point in the year, reflecting the closing of CAES and less favorable quarterly mix. Industrial Automation, we're benefiting from solid orders momentum in most of our long-cycle businesses, while our short-cycle businesses are showing varying signs of sequential progress. In the third quarter, we expect modest sequential improvement in IA and a return to year-over-year growth in the back half. Second half sales growth will be led by Process Solutions, which will see further strength in our aftermarket services businesses and improvement in the Smart Energy and Thermal Solutions businesses that weighed on first half results. In Productivity Solutions and Services, sales will grow sequentially from here. Orders have grown double digits for three straight quarters in PSS, giving us confidence in our outlook for the second half and into 2025. Sensing and safety technologies will improve sequentially as we benefit from the fading effects of distributor destocking. Warehouse and workflow solutions will grow sequentially as we move through the trough in warehouse automation spending and should end the year around $1 billion in sales. As a result of these dynamics, we expect flattish organic sales growth in 2024. Margins will expand in the second half as we implement productivity |
3,035 | HON | 2 | 2,024 | 2024-07-25 08:30:00 | Honeywell International Inc. | 1,340,740 | dynamics, we expect flattish organic sales growth in 2024. Margins will expand in the second half as we implement productivity actions and benefit from volume leverage through long-cycle seasonality and further short-cycle progress. Moving on to Building Automation. In the third quarter, we expect Building Solutions to outpace Building Product sales. In products, we anticipate sales to improve modestly sequentially in the third and the fourth quarters, supported by 2Q's favorable order trends. However, the magnitude remains dependent on the ongoing normalization of channel inventories. In Solutions, both projects and services orders grew over 20% in the second quarter, providing support for additional revenue growth in the back half and into 2025. Projects has been a standout, and we forecast double-digit growth for the year. As a reminder, the Access Solutions acquisition has now been incorporated into our guidance within Building Products. For the year, we continue to expect organic sales growth of low single digits. For segment margin, while we still anticipate expansion year-over-year, incremental shift in mix toward higher sales in our Building Solutions business will slow the pace of that expansion near term. Finally, in Energy and Sustainability Solutions, encouraging fundamentals in our end markets will drive a favorable growth outlook in the third quarter and the full year. In the third quarter, we expect sales to be roughly flat year-over-year and down slightly sequentially with typical seasonality in fluorine products as we exit the summer months, offsetting improvement in Electronic Materials and UOP. Notably, the second quarter marks the last of significant year-over-year unfavorable comps from large gas processing equipment projects in UOP. For the full year, sustained strength in catalysts in conjunction with an incremental back half recovery in electronic materials will support growth for ESS. Our confidence in our sustainable Technology Solutions business remains unchanged as a strong demand |
3,036 | HON | 2 | 2,024 | 2024-07-25 08:30:00 | Honeywell International Inc. | 1,340,740 | support growth for ESS. Our confidence in our sustainable Technology Solutions business remains unchanged as a strong demand profile will drive robust growth for the year. Additionally, we expect the closing of our acquisition of Air Products LNG business to take place in the third quarter and have included this impact in our guidance. For the year, our organic growth outlook for ESS is low single digits. Margins should improve half over half, particularly in the fourth quarter as a result of typical catalyst reload seasonality, leading to full year margin expansion for ESS. Moving on to other key guidance metrics. Pension income will remain roughly flat to 2023 at approximately $550 million. As a result of the acquisitions and corresponding increase in interest expense, we now anticipate net below-the-line impact to be between negative $700 million and negative $800 million for the full year and between negative $185 million and negative $235 million in the third quarter. This guidance includes repositioning spend between $150 million and $225 million for the full year and between $30 million and $70 million in the third quarter as we invest further in high-return projects to support future growth and productivity. Adjusted effective tax rate will be around 21% for both the full year and the third quarter. We anticipate average share count to be approximately 655 million shares for both the full year and the third quarter as we have already achieved more than 1% share count reduction for the year, but we maintain balance sheet flexibility to deploy additional capital to achieve the highest shareholder returns. As a result of these inputs, we now anticipate full year adjusted earnings per share to be between $10.05 and $10.25, up 6% to 8% year-over-year. We expect third quarter earnings per share between $2.45 and $2.55 up 3% to 7% year-over-year. We expect free cash flow to benefit from progress on the multiyear unwind of working capital as we continue to extract more value from our digitization efforts through |
3,037 | HON | 2 | 2,024 | 2024-07-25 08:30:00 | Honeywell International Inc. | 1,340,740 | progress on the multiyear unwind of working capital as we continue to extract more value from our digitization efforts through Accelerator. In addition, we'll continue to fund high CapEx projects, high-return CapEx projects focused on creating uniquely innovative, differentiated technologies. As a result, our free cash flow expectations are now in the $5.5 billion to $5.9 billion range, up 4% to 11%, excluding the impact of prior year settlements and commensurate with the revision to net income growth. So in summary, we delivered a strong first half of the year and anticipate continued top line acceleration in the second half as we benefit from strength in our long-cycle businesses. Our rigorous operating principles will enable us to execute through short-term mix pressure, and we remain confident in our long-term algorithm with a strong second half 2024 exit rate on revenue intact, giving us nice momentum into 2025. So with that, let me turn it back to Vimal on Slide 7. |
3,038 | HON | 2 | 2,024 | 2024-07-25 08:30:00 | Honeywell International Inc. | 1,340,740 | Vimal Kapur: Thank you, Greg. Before we end the call, let's take a moment to focus on the progress Honeywell has demonstrated on our long-term growth algorithm. While we significantly transformed the company over the past 10 years, we are not close to finish. We remain committed to delivering long-term organic growth in 4% to 7% range, coupled with a gross margin above 40%, segment margin profit above 25%, free cash flow margins in mid-teens plus and adjusted EPS growth of 8% to 12%. M&A deals like the three we highlighted today also play a key factor enabling us to achieve 1% to 2% EPS accretion, a key factor that will allow us to generate double-digit adjusted EPS growth on a through-cycle basis. I remain excited about the opportunity to lead Honeywell to the next phase of our transformation, executing on my key priorities of accelerating organic growth, optimizing our portfolio and evolving our Accelerator Operating System. We'll continue to update you as these efforts to drive improvement in our financial performance. And now let's turn to Slide 8 for the closing thoughts before we move into Q&A. In the first half of the year, we made material progress towards our capital deployment goals, closing the Access Solution deals and announcing three additional deals, Civitanavi, CAES and Air Products LNG business. This brings us to $10 billion in M&A since the beginning of the last year as we work towards achieving my key priorities of optimizing the portfolio. We will continue to effectively manage through the dynamic economic and geopolitical backdrop while delivering on our long-term financial framework. We executed well in the second quarter, meeting or exceeding all guidance metrics and our portfolio set up for top line growth acceleration in the second half as we benefit from easy comp, strong orders growth in the second quarter and strength in our long-cycle businesses. We are confident in our ability to weather near-term challenges and meet our financial targets. With that, Sean, let's take questions. |
3,039 | HON | 2 | 2,024 | 2024-07-25 08:30:00 | Honeywell International Inc. | 1,340,740 | 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 Stephen Tusa with JPMorgan. Please proceed with your question.
Stephen Tusa: Hi, good morning.
Vimal Kapur: Hey, Steve. Good morning.
Stephen Tusa: Can you guys just help us parse out the moving parts here? I mean, the below-the-line costs are higher, obviously, on interest, quantinuum costs are higher and you raised organic, but you're also including the revenue from acquisitions and then you're, I think, cutting core profit. So I just really want to get down to like what the size of the segment core profit reduction is, if any? And then just help us with the acquisitions and how much they're influencing the segment profit numbers? |
3,040 | HON | 2 | 2,024 | 2024-07-25 08:30:00 | Honeywell International Inc. | 1,340,740 | Greg Lewis: Sure. Sure. Thanks, Steve. So I think you've got thematics quite right there. Essentially, when you think about it, first of all, when we opened the year, we always said the first half was going to tell us a lot about how the full year was coming, particularly as it relates to short cycle. And now here we are through six months. And what we're seeing is the organic growth in its totality is still in the range of our guidance and actually doing quite well, which is why we took up the bottom. But it's a -- it's more heavily towards short cycle -- or sorry, towards long cycle than short. So there's good news in there, which is things like Building Solutions, our PaaS [ph] projects business and HPS and others are accelerating. But some of the short cycles are not accelerating as much as we had hoped. So that's really just changing the margin mix, particularly in IA and BA and I would say it's probably like two thirds, one third in terms of the -- if you think about our guidance at the midpoint, I think we're coming down by about $0.15 and probably about two thirds, one third the organic core business versus the acquisitions because as you rightly noted, we've added in the next set of acquisitions. But along with that, we're going to spend $4 billion in the back half of the year. And of course, that's going to cost us about 5% roundabout. So that's really the thematic changes that we're making here overall. But the encouraging thing is the back half exit rate is still very strong. So we're -- we feel really good about the back half in its totality at this point and it's going to be a really compelling exit rate. And again, layering on $2 billion of acquired revenue into next year, about 500 basis points of revenue. So I think very much on strategy and from kind of where Vimal is trying to take us at this point. |
3,041 | HON | 2 | 2,024 | 2024-07-25 08:30:00 | Honeywell International Inc. | 1,340,740 | Stephen Tusa: Sorry, what's the profit contribution from these acquisitions that are now in the numbers relative to what you guys had thought in early June? And what is the cut to the core segment profit ex quantinium, you know, dollar wise...
Greg Lewis: Steve, it's about two thirds, one third. The $0.15 reduction at the midpoint is about two thirds relative to the core business, and it's about one third relative to our M&A net of interest.
Stephen Tusa: Okay. Okay. got it. Okay. Thank you.
Greg Lewis: Yeah.
Sean Meakim: Thank you, Steve.
Operator: Thank you. Our next question comes from the line of Julian Mitchell with Barclays. Please proceed with your question.
Julian Mitchell: Hi, good morning. Maybe just wanted to follow up on a couple of points there. So the segment profit dollar guide has come down, I think, about $100 million to $150 million. So I just wanted to check, Greg, what you're saying is, and that's a full year number, I think. You're saying that around two thirds of that is core dilution just from more long cycle mix versus short cycle? And then a third of it is just the newer acquisitions closing in Q3. Those are sort of negative EBITDA [ph] if you like. I just wanted to check that. And then when we're looking at...
Greg Lewis: What I'm saying, Julian, is that at the EPS line, it's about a $0.15 reduction at the midpoint, and about two thirds of that is for the core business and about one third of that is due to the M&A, which is inclusive of the interest cost of actually making those acquisitions. |
3,042 | HON | 2 | 2,024 | 2024-07-25 08:30:00 | Honeywell International Inc. | 1,340,740 | Vimal Kapur: Julian, the point I will add there is the margin changes, not that something has gone shift in the businesses. It's the mix within the businesses, which is causing this margin changes. Like in case of aerospace, we continue to have OE versus aftermarket, market mix, in case of building automation, more solution, less products, similar dynamics in case of industrial automation. So I want to make it clear that underlying businesses remain strong. We are seeing margin expansion. We are seeing productivity. Our fixed cost remains very attractive. So it's mixed within the businesses. We are getting more longer-term long-cycle businesses, which in a way also solidifies our second half outlook. We are not factoring a significant uptake in the short cycle. We are factoring some but to which we have visibility. But majority of our outlook for second half is built upon long cycle businesses, continued growth in aerospace, sequentially quarter on quarter ramp up of UOP in the second of the year, specifically catalyst businesses, strong backlog and other solution businesses. So then all that comes together, it just makes the margin mix to what we have guided it to.
Julian Mitchell: I see. Yes, I think a lot of the question just because it looks like the absolute sort of segment profit dollar guide is lower, not just sort of the margin mix...
Vimal Kapur: That's right because of the dynamics of longer cycle businesses growing way greater than shorter cycle, it -- the margin mix is unfavorable. But if you roll it up to 2025 that factor should play off because this is not an underlying business margin issue. That's the point I'm highlighting. It's not that we are dropping margins somewhere, we're having price cost issue, we are not getting productivity. Our fixed cost has gone up. None of that is true. We are, in fact, getting excellent productivity and margin expansion. It's purely driven by mix within the businesses.
Julian Mitchell: That's helpful. And do... |
3,043 | HON | 2 | 2,024 | 2024-07-25 08:30:00 | Honeywell International Inc. | 1,340,740 | Julian Mitchell: That's helpful. And do...
Greg Lewis: Just keep in mind, short -- in most cases, our short cycle margins, think about them as being 30 points higher than our long-cycle project solution-oriented margin. So that's really what you're seeing. Revenue in its totality organically, roughly the same, but carrying a lower margin rate along with it.
Julian Mitchell: That's very helpful. And on your point on the M&A, the fourth quarter, I think you're assuming sequentially, revenues are up maybe 9%. That's a lot more than normal, but you've got the deals coming in Q3. So just wondered sort of how much of those new deals add to that fourth quarter revenue if you have that to hand?
Greg Lewis: Yes. I mean you should think that we're expecting closure of those deals in the third quarter, but likely to be mid- to late part of the third quarter. So there is some level of that step up. Remember, we always have a big step up in aero in Q4, and we expect that to also be true. We also have a lot of visibility into the ESS rev streams in Q4 as well. So catalyst reloads and so forth. So it is on the higher side of the revenue step-up for sure. But we feel good we've interrogated that quite deeply, and we feel good about the credibility around that outlook. Now the other thing I would just mention is, keep in mind, if you just take a step back for a minute on the M&A side. In the early days of these acquisitions, that's -- there's going to be some meaningful integration costs on the front end. But again, beyond 2024, these deals are nicely accretive as we get through that integration cost period. So again, good -- I think it's a very nice adder to the portfolio. And if you think about the work that was trying to do on improving the quality of the portfolio, this is all good news for '25 and beyond. |
3,044 | HON | 2 | 2,024 | 2024-07-25 08:30:00 | Honeywell International Inc. | 1,340,740 | Sean Meakim: And then Julian, this is Sean. Just one to put a button on your question around the incremental revenue in '24. On June 3rd, we announced the closing of the Access Solutions business. We also increased our guidance by $400 million for the year. Now this new guidance reflects another $400 million of related M&A revenue in '24. So full year '24, about $800 million, of which we had a month of Access Solutions in the month of June in the second quarter. Such would give you enough to kind of walk through the quarterly through the balance of the year. And then we talked about a run rate of close to $2 billion collectively going into '25. As Greg said, he's going to be -- each of these deals are coming in at accretive growth rates to the respective businesses as well as Honeywell overall.
Julian Mitchell: Very helpful. Thank you.
Sean Meakim: Thank you, Julian.
Operator: Thank you. Our next question comes from the line of Nigel Coe with Wolfe Research. Please proceed with your question.
Nigel Coe: Good morning. I hate to be a bore, but I do want to come back to this guidance revision math. My understanding was that the LNG acquisition was actually margin accretive, but I think maybe 30%, 40%. So on that $400 million [ph] of incremental M&A revenue, it feels like you've got over $100 million of segment income coming through here. So it feels like the core guide is getting cut by maybe $200 million or so. Is that correct? And how do we think about that? Is that solely within the IA and BA segments? And is it all margin? Just want to clarify that. |
3,045 | HON | 2 | 2,024 | 2024-07-25 08:30:00 | Honeywell International Inc. | 1,340,740 | Greg Lewis: Sure. So most of the cut is in IA, BA [ph] for sure. That is where the short-cycle, long-cycle mix changes is most pronounced for sure. And yes, we're getting incremental segment profit on these new acquisitions. As I mentioned, there's going to be some integration costs on them early on and then net of the interest cost that we're going to bear. That's where we talk about, I don't know, $0.04 to $0.05 roughly of degradation in the EPS guide associated with that.
Nigel Coe: But the repo costs are coming down, Greg, by about $50 million. So are you talking about integration costs over and above repo? I mean -- and can you just help us out how much segment...
Greg Lewis: Yeah. Integration costs get incurred inside of segment profit unless there's a repositioning project associated, but there are...
Nigel Coe: Okay...
Greg Lewis: There are ongoing integration costs that go into the segment profit of the business that we're acquiring into that SPG.
Nigel Coe: Okay. My last question, Greg, is what is the impact on segment income from the new acquisitions in the back half of the year?
Greg Lewis: I don't think we're giving you a precise answer on that. There's a range around inside of what I was sharing. So I'm not going to give you like a point in precise number.
Nigel Coe: Okay, no problem. Thanks.
Operator: Thank you. Our next question comes from the line of Scott Davis with Melius Research. Please proceed with your question.
Scott Davis: Hey, good morning Vimal, Greg and Sean.
Greg Lewis: Hi, Scott.
Scott Davis: I'm looking at these book-to-bills on Slide 11. I don't think we -- we don't have a lot of history with you guys talking about book-to-bill. But they look pretty encouraging. I just wanted to get kind of your view on historically, they've been relatively volatile. Are they something that we can kind of take to the bank, if you will, that this does indicate a pretty sharp acceleration in the back half? |
3,046 | HON | 2 | 2,024 | 2024-07-25 08:30:00 | Honeywell International Inc. | 1,340,740 | Vimal Kapur: Yes, Scott, actually, one of the highlights for this earnings story is our orders performance in second quarter. Our orders grew double digit in Building Automation, high single in Industrial Automation and double-digit in Energy & Sustainability solution. So that has put our backlog now to $32 billion, up 5%. And that's really what is now flowing into our revenue of second half with a strong book-to-bill, which we did in second quarter. By the way, the forecast we have for the orders for the second half is also very strong. So essentially, we have pivoted towards our guide toward long cycle on the strength of the backlog and the forecast we are getting on the long-cycle businesses because it gives us more assurance and more visibility, and that's why we called out book-to-bill, which is nearly one. And we feel that this is standing on a very strong footing at this point of time.
Scott Davis: Okay. And Vimal, could you walk around the world a little bit for us? I mean have you seen any meaningful changes in the key regions, notably China?
Vimal Kapur: Yes. No, I would say -- I will call out the two biggest regions for us, China and Middle East. I would say China, Honeywell continues to do well, thanks to aero and energy businesses we have here. We scored high single in last year. We are trending towards similar rates this year. Short cycle businesses are challenged there, too, like the economic cycle of China, as we all read. Middle East remains a counterpoint for us. It is growing very strongly, specifically Saudi Arabia, also UAE, we see a strong momentum. And in a way, we are counting on that reversion in the times ahead to the slowdown of China progressively every passing year. Europe, actually, we are seeing a recovery. We have seen good revenue progression for Honeywell in first half of the year. So probably bottom is behind us, and that's how we are looking at times ahead for Europe for us. So that's kind of for some high-level comments on geography. |
3,047 | HON | 2 | 2,024 | 2024-07-25 08:30:00 | Honeywell International Inc. | 1,340,740 | Scott Davis: Okay. Very helpful. Thank you. Good luck.
Vimal Kapur: Thank you.
Operator: Thank you. Our next question comes from the line of Andrew Obin with Bank of America. Please proceed with your question.
Andrew Obin: Yes, good morning.
Vimal Kapur: Morning.
Greg Lewis: Hey, Andrew.
Andrew Obin: Just a question on aerospace. And as I said, maybe it's too long term. But just sort of thinking about the mix for aero into the second half, which I believe you've sort of highlighted as a drag. Vimal, are you guys changing your approach to monetizing programs in aero that are sunsetting because my understanding is that they have been sort of a steady source of upside over the past couple of years. Are you -- as you sort of become the Chairman, are you changing approach to how to think about your portfolio there?
Vimal Kapur: I mean I would say we absolutely are looking to make aero more of a longer cycle growth sector for Honeywell. Aero has always faced cycle, up cycle, down cycle, and we are really positioning it to grow high single for until next 5 to 7 years. And there's an organic growth work which is happening around it through new products. But equally importantly, the acquisitions which we made of Civitanavi and CAES e, both are targeted to defense segment. And defense segment, we are bullish on the growth occurring in defense. Our backlogs are growing very nicely there. So we're really pivoting towards higher growth segments within aerospace to maintain our growth rates there in the times ahead. And I remain very both bullish and optimistic on how aero business is going to perform in the next several years ahead. |
3,048 | HON | 2 | 2,024 | 2024-07-25 08:30:00 | Honeywell International Inc. | 1,340,740 | Andrew Obin: And I guess I'm going to go back to the question that everybody else asked. As we go through sort of the list of the performance of businesses this quarter, right, I mean, it was very few exceptions. It seems that short-cycle businesses have actually done as well as you were expecting. So another way of asking the question, now that you're a Chairman, are you just taking a more conservative approach to sort of how to think about the framework going forward given the level of macro uncertainty out there?
Vimal Kapur: I mean I think the macros are reality, Andrew, at the end of the day, that's something which I don't control. So long-cycle businesses are performing well because the segments we serve are attractive, energy transition, aerospace, and that's certainly helping us. I think short cycle businesses are reverting back. I'm not suggesting that they are contracting, but the reversion is more at the lower end of our initial estimate at start of the year versus at the mid or upper end of it. That's only subtle [ph] difference. And the swing between the mix of short and long is the difference in the margin because we are raising the low end of our guide of revenue, which shows our confidence in the overall business, organic growth, because my comment right from the day I started is organic growth is my highest priority and we are delivering on that. Our guide is 5 to 6. My goal will be, of course, to deliver on the upper end of it. And I would argue in the very first year of my inception in the job, that's not a bad outcome and we'll strive for that subsequent year. I don't leave any impression that short cycle is less important, long cycle is more important. I think it's just a derivative of how markets are performing and how we are performing in the markets at this point of time.
Andrew Obin: Thanks so much.
Vimal Kapur: Thank you.
Operator: Thank you. Our next question comes from the line of Deane Dray with RBC Capital Markets. Please proceed with your question. |
3,049 | HON | 2 | 2,024 | 2024-07-25 08:30:00 | Honeywell International Inc. | 1,340,740 | Deane Dray: Thank you. Good morning, everyone.
Vimal Kapur: Good morning, Deane.
Deane Dray: I was hoping to get some commentary if you're seeing any of the election worries delaying customer decisions, and it's not really related, but any impact from the CrowdStrike fiasco early in the week, anything ripple through your businesses?
Vimal Kapur: I mean, being nothing on the CrowdStrike, no impact on Honeywell. We are not a user of that software. We obviously pay a lot of attention to our cybersecurity strategy and remain very vigilant on that. So I'm never going to claim victory on that front. We need to stay vigilant. I think, on elections, look, I mean, we always will prepare for both the scenarios. That's not new for a company like Honeywell. But this year, elections are more than a US factor spinning around rest of the world. And clearly that is certainly been a factor on how economies are shaping up. That's my view. I think there was a lot of stories around, half the world is going through elections, but that's not playing out because the results are out and I think the biggest one in US, we are anxiously waiting on how the results will play out in a couple of months down the line. But we are prepared in either scenario. This is something we do for a living and we anticipate each outcome and how will it impact us?
Deane Dray: That's great to hear. And just a second question. I know we're still early in the deal integration, but where would you highlight some of the revenue synergy opportunities? What would be the biggest and potential timing? |
3,050 | HON | 2 | 2,024 | 2024-07-25 08:30:00 | Honeywell International Inc. | 1,340,740 | Vimal Kapur: Look, I would like to highlight that all the deals we have announced, none of our deal ROIs are based on sales energy. We don't count it. Having said that, each of the 4 Ds [ph] we have done, they are highly synergetic to Honeywell and that has been our theme. I'm equally -- I'm bullish on all the four deals and synergies it brings. Aero has substantial synergies on both CAES acquisition and in Civitanavi acquisition. Same is true for both UOP and HPS and LNG because we were always present in LNG segment. This was not a new arrival for us. But with the deep technology expertise, this new Air Products business brings, it's just going to further enhance our LNG penetration and growth rate in that segment. And Carrier acquisition, we have talked in some of the earlier calls, it's all about taking that business truly global because the business is very concentrated in North America, and that's going to provide us sales synergies. So there are two factors in these acquisition I'll call out. The first is all the acquisitions we have made, they are accretive to the baseline growth rate of Honeywell, all of them. Second, the sales synergies are icing on the cake on top of it, and we will deliver on that as we integrate them in 2025 and more, and that's going to be a strong part of our earnings story in the times ahead.
Deane Dray: Thank you.
Vimal Kapur: Thank you.
Operator: Thank you. Our next question comes from the line of Sheila Kahyaoglu with Jefferies. Please proceed with your question.
Sheila Kahyaoglu: Good morning, Vimal, Greg, Sean, thank you.
Vimal Kapur: Good morning, Sheila.
Sheila Kahyaoglu: Good morning. Maybe just to start on the top line with aerospace. Can you talk about commercial OE, how you're thinking about where your MAX and 787 rates are today and how they progress through the year? Is Boeing signaling any sort of change to your output as we think about the rest of the year and into '25? |
3,051 | HON | 2 | 2,024 | 2024-07-25 08:30:00 | Honeywell International Inc. | 1,340,740 | Vimal Kapur: Sheila, we are constantly calibrating our output with all the key OEMs on a 12 months earning frequency. That has been a process for a while now. I would say that based on the recent adjustment path, both Airbus and Boeing, we have calibrated our volumes aligned with them. It's not a major change. But there's some small change, specifically on the electronics side, where we don't have much past dues. But the change is not material to aerospace and not material to Honeywell. But our guide does factor changes, which have been signaled by both Airbus and Boeing recently.
Sheila Kahyaoglu: So how do we think about the OE growth? Is it up 20%, I think?
Vimal Kapur: This year, it's going to be up strong double digits...
Greg Lewis: So you're in the right neighbourhood, yes. The way to think about aerospace by end market would be something approaching 20% for OE is reasonable, something like mid-teens for aftermarket and then double digits for defense and space.
Sheila Kahyaoglu: Okay. And then just on the profitability, you have about 100 bps of contraction, I think, in the second half despite more typical selection credit dynamics. So how do we think about profitability in the second half and how that Cobham acquisition changes that? |
3,052 | HON | 2 | 2,024 | 2024-07-25 08:30:00 | Honeywell International Inc. | 1,340,740 | Vimal Kapur: Yes. So as we talked about the mix inside of our deliveries has caused us quarter-to-quarter volatility, I'll call it, for lack of a better word. And the third quarter is likely going to be the lowest margin rate of the year for us, and we expect that will then recover back in fourth quarter. And that's based on, again, what we can see in terms of what's in the backlog, the margin on those products, et cetera. And we talked about the fact that aero on an organic basis, it was going to be roughly flat in margins this year and then layering on the CAES acquisition that will have a negative impact on that baseline and then we'll bring it back up from there. So as you start seeing the third and the fourth quarter prints, that's what you should expect to see inside the aero margin rate, but it's not a change in our overall outlook, definitely amplitude from quarter to quarter to quarter as we've been discussing, given the mix of the products we're delivering even inside the OE itself, but no real change in our outlook on how that is performing.
Sheila Kahyaoglu: Thank you.
Operator: Thank you. Our next question comes from the line of Andy Kaplowitz with Citigroup. Please proceed with your question.
Andy Kaplowitz: Good morning, everyone.
Vimal Kapur: Good morning, Andy.
Andy Kaplowitz: Vimal or Greg, just maybe double-clicking on the short cycle businesses that are resulting in the lower expected organic margin in the second half. I think you said building products orders have been improving. Are they just improving more slower than you thought and you saw weaker-than-expected June? Is that one of the issues? And then maybe the same question on productivity solutions are sensing. What are you assuming for these businesses in terms of rate of recovery now? |
3,053 | HON | 2 | 2,024 | 2024-07-25 08:30:00 | Honeywell International Inc. | 1,340,740 | Greg Lewis: Yes. Thanks, Andy. So a couple of things to keep in mind. Just to remind, when we gave our guidance on June 3rd, it's obviously before the third month of the quarter and remember, half of our results happen in the third month of any given quarter. So that just speaks to like what we were able to see at that moment in time versus what we can see today. But your supposition is exactly right. There are certain parts of the short-cycle businesses inside of building products and inside of IA short cycle that are slower than we had hoped. And so that's really what's driving the margin mix. It's getting offset, as we mentioned, by the Building Solutions sales, the HPS project sales, et cetera. But they're still improving sequentially. So that's not -- that is also still true. They're improving sequentially, but not as robustly as we would have liked.
Andy Kaplowitz: Helpful, Greg. And then obviously, you stepped up M&A activity considerably. Do you see the recent rate of M&A continuing? Is the M&A market conducive to that? And then you've talked about divestitures or ramping that up. Can you offset dilution that you might eventually get from divestitures to still grow that 10% in terms of -- in line with your longer-term algorithm?
Vimal Kapur: That will only play out. I mean I can only on divestiture, I would say we are working on it, and I would be disappointed if we do not show any progress during 2024. And as those things play out, we'll update you on its implication on our earnings guide, if any, we have to take any cost actions, but that's work in progress. And you can expect to hear more from us as the year progresses. On M&A front, our pipeline is still active. We are obviously conscious of the fact we have done 4 Ds [ph] we have to integrate them. We don't want to take that lightly. But it doesn't mean that we are walking away from the market, and we're actually sourcing what's available out there.
Andy Kaplowitz: Appreciate it, guys.
Vimal Kapur: Thank you.
Greg Lewis: Thanks. |
3,054 | HON | 2 | 2,024 | 2024-07-25 08:30:00 | Honeywell International Inc. | 1,340,740 | Andy Kaplowitz: Appreciate it, guys.
Vimal Kapur: Thank you.
Greg Lewis: Thanks.
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 Lewis: Hey, Joe.
Vimal Kapur: Hey, Joe.
Joe Ritchie: And so thanks for all the color. So just maybe just focused on BA and IA for a second and the margins that are expected for the year there. How has those expectations just change for those two particular segments for the year?
Vimal Kapur: Yes. They're coming down versus what we had anticipated and again, mainly because of the back half margin performance expectations. But we still expect that on an overall basis, we will make progress in BA in particular. We ought to see a little bit of improvement. It's just not going to be as robust as we had thought in the beginning of the year. So think about that in 10s of basis points as opposed to 100 basis points. And on the IA side, similarly, we expect to make some progress in the year, but it's probably going to be in the 10s of basis points over all for the full year as opposed to 100 basis points type of range.
Greg Lewis: But progress nonetheless...
Vimal Kapur: Keep in mind, inside of IA, we are overcoming the very accretive license payments relative to the PSS business that were a nice lift for us, and now we're going to experience three quarters of that loss this year and one quarter of it next year.
Joe Ritchie: Yes. Okay. Okay. Great. And then I guess just -- I know a lot of the comments on the - the change in margins has been driven by the mix commentary, and we've highlighted that already. I'm just curious, has anything changed from a pricing standpoint or like raw material inputs or inflation? Just any comments around that would be helpful. |
3,055 | HON | 2 | 2,024 | 2024-07-25 08:30:00 | Honeywell International Inc. | 1,340,740 | Vimal Kapur: The pricing Joe is trending in the direction we have signaled. We are at a rate of about 3%, and we expect second half to be a little slightly stronger. The punchline is our price cost is just about neutral, and our productivity is very strong, which is giving us the margin expansion across our businesses. And what -- as I explained before, the margin rates at EPS level is just mix within the businesses itself. But pricing remains at the right level. And we do expect this 3% - I've spoken before that the era 1% price is over, so we always should expect something greater than that, and we are demonstrating that in 2023.
Greg Lewis: Yes. And again, on the inflation side, no big changes. There's always something that comes along...
Vimal Kapur: Electronics, I would say, remains hot. That's where we continue to see elevated level of pricing, but others are I would say - and labor. Labor is and will remain a high elevated inflation category for us.
Joe Ritchie: Okay, thank you.
Vimal Kapur: Thank you very much.
Operator: Thank you. Ladies and gentlemen, that concludes our time allowed for questions. I'll turn the floor back to Mr. Kapur for any final comments.
Vimal Kapur: I want to express my appreciation to our shareholders for your ongoing support and again to our Honeywell future shapers, who are driving differentiated performance for our customers. Our future is bright, and we look forward to sharing our progress with you as we continue executing on our commitment. Thank you for listening, and please stay safe and healthy.
Operator: Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.+ |
3,056 | HON | 1 | 2,024 | 2024-04-25 09:00:00 | Honeywell International Inc. | 1,340,740 | Operator: Thank you for standing by, and welcome to the Honeywell First Quarter 2024 Earnings Conference Call. [Operator Instructions] 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 First Quarter 2024 Earnings Conference Call. On the call with me today are Chief Executive Officer, Vimal Kapur; and Senior Vice President and Chief Financial Officer, Greg Lewis. .
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 business 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 first quarter, share our guidance for the second 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 CEO, Vimal Kapur.
Vimal Kapur: Thank you, Sean, and good morning, everyone. We delivered a very strong first quarter, exceeding the high end of our first quarter adjusted earnings per share guidance and meeting the high end of our organic sales and segment margin guidance ranges.
The disciplined execution of our world-class Accelerator operating system and differentiated portfolio of technologies enabled this strong performance amidst a dynamic macroeconomic backdrop. |
3,057 | HON | 1 | 2,024 | 2024-04-25 09:00:00 | Honeywell International Inc. | 1,340,740 | As expected, our long-cycle Aerospace and energy-oriented businesses led the way with healthy organic volume growth. We are starting to see recovery in some areas of our short-cycle portfolio, including consecutive quarters of order growth in productivity solutions and services, while the other short-cycle businesses continue to normalize as the effects of destocking fade consistent with our second half acceleration framework.
Before we get into a more detailed discussion on the first quarter 2024 results and updates to our full year 2024 expectation, let me take a minute to revisit my priorities for Honeywell.
First, we are keenly focused on accelerating organic sales growth towards the upper end of our long-term target range of 4% to 7%. We are doing this by enhancing our innovation playbook, accelerating sustainability and software offerings, increasing penetration of our installed base and leveraging our leadership position in high-growth regions.
Second, we are evolving Honeywell Accelerator to drive incremental value through deploying global design model across the portfolio to enhance our growth capabilities. Following the great integration inside of Honeywell over the past several years, we are now an integrated operating company that deploys world-class digital supply chain and technology development capabilities at scale, along with multiple growth drivers that benefit the entire enterprise. This includes leveraging generative AI to maximize the potential benefit of our operating system, both for our customers and internally. Of the strong digitally enabled foundation, Accelerator is providing to be a powerful source of profitable growth across all of our businesses and potential addition to our portfolio. |
3,058 | HON | 1 | 2,024 | 2024-04-25 09:00:00 | Honeywell International Inc. | 1,340,740 | Third, we are executing on our portfolio, optimizing goals, upgrading the quality of our business and financial profile by executing on strategic bolt-on acquisitions while divesting noncore lines of business to accelerate value creation. We expect to deliver profitable growth and strong cash generation as we demonstrate progress against these priorities, creating a compelling long-term value proposition for our share owners.
In the spirit of that progress, let's turn to Slide 3 to discuss the latest action in our portfolio-shaping goals. Our M&A playbook is yielding positive results. Over the last few years, we have accumulated several quality bolt-ons and tuck-in assets that strategically add to our technological capabilities, enhancing our alignment to compelling megatrends and provide accretive growth that supports Honeywell's overall long-term financial framework.
We remain focused on creating a flywheel of bolt-on M&A transaction roughly in the $1 billion to $7 billion purchase price range. We have successfully executed on meaningful deals that add technological adjacencies to our portfolio and are accretive to our growth and margin rate profile with attractive business mix characteristics.
The most recent example of this came in the fourth quarter when we announced our intention to acquire Carrier's Global Access Solutions business for nearly $5 billion, enabling Honeywell to become a leader in security solution for the digital age. The transaction further enhances our equipment-agnostic, high-margin product business mix within Building Automation. |
3,059 | HON | 1 | 2,024 | 2024-04-25 09:00:00 | Honeywell International Inc. | 1,340,740 | Last year's acquisition of Compressor Controls Corporation, or CCC, a leading provider of turbomachinery control and optimization solutions that will play a critical role in early transition, aligns with this playbook as well. CCC technologies, including controlled hardware, software and services bolster Honeywell's high-growth sustainability and digitalization portfolio with new carbon capture control solution. CCC has seamlessly integrated into our Process Solutions business, and we are already seeing meaningful revenue synergies benefit with Honeywell Forge.
Second, acquisition is also an important growth lever for us as we continuously evaluate a build, buy or partner approach to add strategically important offering that solve our customers' toughest challenges. Last month, Honeywell announced our intention to acquire Civitanavi Systems for approximately EUR 200 million.
Civitanavi's technology will reinforce our leading navigation solutions across aerospace, defense and industrial platform. This acquisition, which is [ direct concert ] with Honeywell's alignment to the megatrend of automation and future of aviation, furthers our ability to create value for our customers from nose to tail, whether they are traditional operators seeking to increase the autonomous capability of their existing fleets or new entries in the advanced air mobility space. |
3,060 | HON | 1 | 2,024 | 2024-04-25 09:00:00 | Honeywell International Inc. | 1,340,740 | Last year, we acquired SCADAfence, a business that delivers Internet of Things and operational technology cybersecurity solution for monitoring large-scale network. SCADAfence brought proven technologies in asset recovery, threat detection and security governance into our [ SC ] portfolio, all key components for critical infrastructure and industrial cybersecurity. The acquisition has bolstered our strategic foundation in an attractive market for us to continue to build on both organically and inorganically. With the recent portfolio announcement, including Carrier's Global Access Solutions business and Civitanavi, we are on track to accelerate capital deployment in 2024 and exceed our commitment to deploy at least $25 billion of capital in 2023 through 2025.
Our robust balance sheet capacity enable us to allocate capital to opportunistic share repurchases, high-return growth CapEx and accretive M&A. As the deal environment remains relatively favorable in 2024, we will build on our already strong pipeline of high-value M&A opportunities, supporting the execution of our portfolio-shaping strategy.
Before I hand it over to Greg, let's turn to Slide 4 to review some of our exciting recent wins. Let me take this opportunity to highlight our recent commercial wins and strategic actions we are taking that demonstrate innovation across our portfolio and support alignment of 3 compelling megatrends: automation, future of aviation and energy transition, all underpinned by robust digitalization capability and solutions.
In the automation space, Honeywell was chosen to provide automation, cybersecurity and safety solution to a multibillion-dollar plant expansion project for a major energy company in Middle East. We will deploy our flagship distributed control system and safety manager technologies amongst other solutions. We remain excited about the various automation opportunities across our portfolio. |
3,061 | HON | 1 | 2,024 | 2024-04-25 09:00:00 | Honeywell International Inc. | 1,340,740 | In Aerospace, we will invest more than $80 million to expand our Olathe plant in Kansas. This project will enable the production of next-generation avionics technology and directly create hundreds of jobs at site and in the local economy. This facility upgrade is another example of the resources we are committing to unlock the supply chain and our ongoing investment in the Aerospace Technologies business to drive growth.
Finally, Honeywell will be incorporating our hydrocracking technology in the new DG Fuels SAF refinery to convert hydrocarbon liquids into SAF. This technology is a low-capital solution, which facilitates 90% reduction in CO2 intensity versus traditional fossil fuel-based jet fuels by using biomass as a feedstock. When completed, the refinery is expected to produce 600,000 tons of SAF every year. As demonstrated here, Honeywell remains committed to actively solving both our customers and worst, toughest challenges.
Now let me turn it over to Greg on Slide 5 to discuss our first quarter results in more detail as well as provide our views on second quarter and full year 2024 guidance.
Gregory Lewis: Thank you, Vimal, and good morning, everyone. Let me begin on Slide 5. As a reminder, we're now reporting our results using the new segment structure, which went into effect in the first quarter. With that, let's discuss the results.
We delivered a very strong first quarter, exceeding the high end of our adjusted earnings per share guidance and meeting the high end of our organic sales and segment margin guidance ranges. Despite a dynamic macro backdrop, Honeywell's disciplined execution and differentiated solutions enabled us to deliver on our commitments.
First quarter organic sales growth were up 3% year-over-year, led by 18% organic growth in Aerospace Technologies. This was the 12th consecutive quarter of double-digit growth in our commercial aerospace business in addition to double-digit growth in Defense & Space. |
3,062 | HON | 1 | 2,024 | 2024-04-25 09:00:00 | Honeywell International Inc. | 1,340,740 | Segment profit grew 4% year-over-year, and segment margins expanded by 20 basis points to 22.2%, driven by expansion in Aerospace. Improved business mix, our focus on commercial excellence and benefits from productivity, allowed us to expand margins in line with the high end of our guidance range.
Earnings per share for the first quarter was $2.23, up 8% year-over-year. And adjusted earnings per share was $2.25, up 9% year-over-year. While tax was a bit lighter relative to our first quarter guide, our full year tax expectations have not changed. A bridge for adjusted EPS from 1Q '23 to 1Q '24 can be found in the appendix of this presentation.
Orders were $10.2 billion in the quarter, down 1% year-on-year, which supported our backlog growth of 6% to a new record of $32 billion. This was led by quarter-over-quarter growth in aero, Building Automation and Industrial Automation, including in key short-cycle product businesses, namely productivity solutions and services in IA and fire in BA. This setup gives us confidence in our back half 2024 outlook, which I'll discuss in a few minutes.
Free cash flow was approximately $200 million, up $1.2 billion versus the first quarter of 2023, due to the absence of last year's onetime settlement of legacy legal matters that derisked our balance sheet. Excluding the impact of these settlements, net of tax, free cash flow is up approximately $200 million as higher net income was partially offset by a higher working capital due to lower payables. However, we see working capital becoming a tailwind in the coming quarters as we unwind the multiyear buildup of excess inventory. |
3,063 | HON | 1 | 2,024 | 2024-04-25 09:00:00 | Honeywell International Inc. | 1,340,740 | We also continue to execute on our capital deployment strategy, putting our robust balance sheet to work through $1.6 billion, including $700 million in dividends, $700 million in share repurchases and $200 million in high-return capital expenditures. As you saw in February, we successfully issued $5.8 billion in bonds during the first quarter, including our first-ever 4-year maturity, taking advantage of strong demand in both the euro and dollar markets and locking in attractive long-term spreads, while extending our weighted average bond maturity from 7 to 10 years.
Proceeds will be used primarily to fund our acquisition of the Carrier Global Access Solutions business and to address current debt maturities. This really demonstrates the attractiveness and strength of Honeywell in the capital markets that we have built over time. Now let's spend a few minutes on the first quarter performance by business.
In Aerospace Technologies, sales were up 18% organically year-on-year, matching the third quarter of last year as among our strongest performances in over a decade. Increases in commercial aviation were led by original equipment, which saw over 20% growth in both air transport and Business & General Aviation as supply unlocks and deliveries continue to increase.
We also saw significant growth in air transport aftermarket as global flight activity remains strong. In Defense & Space, robust demand and improvements in our supply chain enabled us to grow sales 16% in the quarter. AT had book-to-bill of approximately 1.1 in the quarter as commercial demand and benefits from the impact of an increased global focus on national security support a strong growth trajectory. |
3,064 | HON | 1 | 2,024 | 2024-04-25 09:00:00 | Honeywell International Inc. | 1,340,740 | Supply chain continues to show sustained modest sequential improvement, leading to a 15% increase in output year-on-year, marking the 7th consecutive quarter of double-digit output growth. Segment margin in Aerospace expanded 150 basis points year-over-year, driven by commercial excellence and volume leverage, partially offset by cost inflation and mix pressures within our original equipment business.
For Industrial Automation, sales decreased 13% organically in the quarter, primarily as a result of lower volumes in warehouse and workflow solutions as investments in warehouse automation remains subdued. Our short-cycle sensing and safety technologies and productivity solutions and services sales were stable, but lower year-over-year with orders in our productivity solutions and services business growing sequentially and year-over-year for the second consecutive quarter, a positive sign that we're nearing a return to growth in that business.
Process Solutions revenue was flat in the first quarter as growth in our aftermarket services business was offset by mega project timing. Segment margin in Industrial Automation contracted 200 basis points to 16.8%, driven by lower volume leverage and cost inflation, partially offset by productivity actions and commercial excellence.
Building Automation sales were down 3% organically. We had another strong quarter of growth in our long-cycle building solutions business, while we worked through the volume challenges and the short-cycle building products area. Solutions grew 7% in the quarter, led by double-digit growth in building projects, driven by strong execution of our backlog. On a year-over-year basis, orders and building projects were up double digits with strength in our core business and robust performance in energy and airports. Sequentially, orders for Building Automation improved in the first quarter, highlighted by a seasonal lift in building services and modest improvement in fire, resulting in an overall Building Automation book-to-bill of 1.1. |
3,065 | HON | 1 | 2,024 | 2024-04-25 09:00:00 | Honeywell International Inc. | 1,340,740 | Segment margins contracted 120 basis points to 24%, due to mix headwinds from softer product volumes and cost inflation, partially offset by productivity actions and commercial excellence. Energy and Sustainability Solutions sales grew 5% organically in the first quarter. Advanced materials gained 6%, primarily driven by double-digit growth in flooring products.
In UOP, sales were up 3% year-over-year as robust demand led to a double-digit increase in both petrochemical catalyst shipments and refining equipment more than offset expected challenging year-over-year comps in gas processing equipment projects.
ESS book-to-bill was 1.2 in the first quarter, the second consecutive quarter of a book-to-bill above 1. Segment margin contracted 70 basis points on a year-over-year basis to 19.8% as onetime factory restart costs were partially offset by favorable business mix and productivity actions. Growth across our portfolio was supported by another quarter of double-digit sales growth in Honeywell Connected Enterprise, a powerful indicator of our strong software franchise powered by our differentiated Forge AI IoT platform.
Our offerings in cyber, life sciences and connected industrials all grew by more than 20% year-over-year in the quarter. HCE continues to generate not only value for our customers, but accretive growth and profitability for Honeywell. The ongoing tailwinds in our long-cycle end markets and the strength of our backlog give us confidence in our ability to navigate the current operating environment. We continue to execute on our proven value creation framework underpinned by our Accelerator operating system, which will enable us to drive compelling growth in earnings and cash for quarters to come. |
3,066 | HON | 1 | 2,024 | 2024-04-25 09:00:00 | Honeywell International Inc. | 1,340,740 | Now let's turn to Slide 6 and talk about our second quarter and full year guidance. We delivered on our 1Q commitments while maneuvering through known risks. And as we look to the rest of 2024, our original guidance framework continues to be solid. We expect the environment to remain dynamic as we were reminded again by recent geopolitical events.
However, our Accelerator operating system that enables us to move quickly and decisively, our exposure to attractive megatrends and our record backlog will continue to support organic growth for the business. This outlook includes continued progress among our long-cycle portfolio as well as a modest back half recovery in short cycle as markets continue to normalize. Overall, we have a strong setup that will drive growth within our long-term financial framework for sales, margin, earnings and cash in 2024.
Now let's discuss how these dynamics come together for our 2024 guidance. Given the backdrop I just laid out, in total for 2024, we continue to expect sales to be in the range of $38.1 billion to $38.9 billion, which represents overall organic sales growth of 4% to 6% for the year with a greater balance between volume and price. We expect sequential improvement in the second half of 2024 over the first as Aerospace continues to grow its supply capabilities, coupled with a modest short-cycle recovery that should build momentum in the second half of the year, albeit with different rates of improvement for our various end markets.
For the second quarter, we anticipate sales in the range of $9.2 billion to $9.5 billion, up 1% to 4% organically. We anticipate our overall segment margin to expand 30 to 60 basis points this year, supported by improving business mix, price/cost discipline and productivity actions, including our precision focus on reducing raw material costs. Similar to last year, Building Automation margins will lead the group in margin expansion, followed by Industrial Automation and Energy and Sustainability Solutions. |
3,067 | HON | 1 | 2,024 | 2024-04-25 09:00:00 | Honeywell International Inc. | 1,340,740 | For Aerospace, margins should remain relatively comparable to the last few years as volume leverage covers higher sales from the build-out of our original equipment installed base, which is driving robust year-over-year profit growth. For the second quarter, we expect overall segment margin in the range of 22.0% to 22.4%, roughly flat sequentially, but down 40 basis points to flat year-over-year, primarily due to volume deleverage in IA and the expiration of the Zebra licensing payments.
Importantly, our guidance for both the second quarter and full year 2024 does not consider the planned acquisition of Carrier's Global Access Solutions business. We anticipate the closing of the deal by the end of the third quarter, and we'll update our guidance accordingly at that time.
Now let's spend a few minutes on the outlook by business. Looking ahead for Aerospace Technologies, demand remains very encouraging across our end markets. Sales should grow sequentially in the second quarter, particularly in commercial original equipment as shipset deliveries continue to increase. However, we expect these sales to come at a lower margin, driving a sequential and year-over-year decrease in margin rate following the first quarter's strong result.
Increased build rates and shipset deliveries will carry on throughout the year, leading commercial OE to be our strongest growth business in 2024. In commercial aftermarket, volume strength and further improvement in wide-body flight hours will support additional growth. We'll continue to work through our healthy order book in defense and space, generating sequential sales improvement throughout the year. Ongoing supply chain improvements will continue to support double-digit output growth in AT throughout 2024. |
3,068 | HON | 1 | 2,024 | 2024-04-25 09:00:00 | Honeywell International Inc. | 1,340,740 | For the year, we still expect Aerospace Technologies to lead organic growth for total Honeywell with sales in the low double-digit range. 2024 segment margin should be relatively comparable to 2022 and 2023, as volume leverage is mostly offset by higher sales of lower-margin products, a dynamic that likely leaves the first quarter at the high point for aero margins this year.
In Industrial Automation, the timing of short-cycle recovery will remain an important factor in our 2024 results, leading a back half-weighted year. In the second quarter, IA should be roughly flat sequentially. We expect growth in Process Solutions to be offset by warehouse automation demand that remains near trough levels and the end of the $45 million quarterly license and settlement payments we have received for the past 2 years in our productivity solutions and services business.
For the full year, Process Solutions will grow sequentially each quarter to build on last year's strong performance, driven by the aftermarket services business. Warehouse and workflow solutions will improve as we move through the trough of warehouse automation spending, while also benefiting from easing comps throughout the year. Our sensing and safety technologies business will benefit as the effects of distributor destocking fade throughout the year.
Lifecycle solutions and services orders grew sequentially and year-over-year in the first quarter, and we expect that strength to continue throughout the rest of the year. Two consecutive quarters of orders growth in our Productivity solutions and services business provide confidence in a back half ramp, excluding the impact from the absence of additional Zebra payments. As a result of these dynamics, we continue to see flattish sales growth in 2024 for IA. We still expect segment margin to expand, particularly in the second half as short-cycle recovery leads to positive volume leverage. |
3,069 | HON | 1 | 2,024 | 2024-04-25 09:00:00 | Honeywell International Inc. | 1,340,740 | Moving to Building Automation. We remain confident in the overall outlook and execution of the business. For the second quarter, sales should improve sequentially as the channel further normalizes and our long-cycle businesses continue to benefit from strong backlog and aftermarket services tailwind. The timing of the short-cycle recovery remains one of the key drivers of business performance throughout the year, and our expectation for a more back half-weighted recovery in BA has not changed. As such, we will anticipate our long-cycle businesses to outpace our short-cycle portfolio, as both projects and services benefit from strong demand in backlog.
Additionally, high-growth regions remain a core part of the growth strategy for this business, and encouraging signals from regions like India and the Middle East support our full year sales forecast, which remains low single-digit growth for the year. We anticipate BA will be the segment with the largest margin expansion, primarily driven by productivity actions and commercial excellence net of inflation.
Finally, in Energy and Sustainability Solutions, the geopolitical environment will remain a key focus as we move through the year. In the second quarter, we expect sales to remain roughly flat year-over-year and sequentially, as sustained demand in flooring products and catalysts will offset remaining volume headwinds from challenging comps in gas processing equipment. For the full year, strong performance in those businesses is expected to offset volume declines in our legacy stationary products due to well-telegraphed quota reductions within the U.S. |
3,070 | HON | 1 | 2,024 | 2024-04-25 09:00:00 | Honeywell International Inc. | 1,340,740 | In sustainable technology solutions, robust demand will lead to another strong year of growth. We continue to monitor the ongoing short-cycle recovery, particularly from semiconductor fabs, a key component to achieving our unchanged top line expectation of flat to up low single digits for the year. Margins should improve throughout the year from a 1Q bottom, driven by a combination of commercial excellence and productivity actions.
Moving on to other key guidance metrics. Pension income in 2024 will be roughly flat to 2023 at approximately $550 million. We anticipate net below-the-line impact to be between negative $550 million and negative $700 million for the full year and between negative $120 million and negative $180 million in the second quarter. This guidance includes repositioning spend between $200 million and $300 million for the full year and between $25 million and $75 million in the second quarter, as we continue to invest in high-return projects to support our future growth and productivity. We expect the adjusted effective tax rate to be around 21% for both the full year and the second quarter. We anticipate average share count to be around 656 million shares for the full year, as we execute our commitment to reduce share count by at least 1% per year through opportunistic buybacks.
As a result of all these inputs, we are maintaining our previously provided full year adjusted earnings per share range of $9.80 to $10.10, up 7% to 10% year-over-year. We anticipate second quarter earnings per share between $2.25 and $2.35, up 1% to 5% year-over-year. We also expect free cash flow to grow in line with earnings, excluding the after-tax impact of last year's onetime settlement from derisking our balance sheet. We are progressing on the multiyear unwind of working capital, where our efforts to improve demand planning and optimize production and materials management are yielding some early operational benefits, another indicator of the power of our digitalization capability through Accelerator. |
3,071 | HON | 1 | 2,024 | 2024-04-25 09:00:00 | Honeywell International Inc. | 1,340,740 | In addition, we will continue to fund high-return projects focused on creating uniquely innovative, differentiated technologies. As a result, our free cash flow expectations remain $5.6 billion to $6 billion for the year, up 6% to 13%, excluding the impact of prior year settlements. Our robust balance sheet and strong cash generation will support accretive capital deployment. And while we're happy with our recently announced transactions, we will further build on our active M&A pipeline as we continue to optimize the portfolio.
So in summary, we executed a strong first quarter and anticipate delivering a strong second quarter and 2024, benefiting from our alignment to the compelling aerospace, automation and energy transition megatrends. Our record backlog and rigorous operating principles give us confidence in our track record of execution.
So let me turn it now back to Vimal on Slide 7. |
3,072 | HON | 1 | 2,024 | 2024-04-25 09:00:00 | Honeywell International Inc. | 1,340,740 | So let me turn it now back to Vimal on Slide 7.
Vimal Kapur: Thank you, Greg. Let's take a minute to zoom out from the near-term dynamics and talk about the tremendous progress Honeywell has demonstrated across our key metrics since 2016. We remain keenly focused on delivering our long-term growth algorithm and remain confident in our ability to accelerate growth, achieve 25%-plus segment margins, expand gross margins to above 40% and generate free cash flow margins to mid-teens plus. This framework will enable us to deliver what matters: consistent, compelling EPS growth. Our annual 4% to 7% organic sales growth rate and 40 to 60 basis points of margin expansion, coupled with 1% to 2% of EPS accretion from both share buyback and consistent M&A execution, is a powerful combination that will allow us to generate double-digit adjusted EPS growth on through a cycle basis. '24 is no different as we continue to make steady, consistent improvement to the quality of Honeywell's financial profile. The organization is aligned to my key priorities of accelerating organic growth, deploying the operational power of Accelerator 3.0 and executing on a robust portfolio optimization strategy, all of which will enable us to achieve our long-term targets.
I'm incredibly optimistic about the high-value opportunities we are already surfacing during the next phase of our transformation. We'll continue to track our progression closely as our efforts to drive incremental sales growth, expand margins and generate more cash faster into our enhanced financial profile. |
3,073 | HON | 1 | 2,024 | 2024-04-25 09:00:00 | Honeywell International Inc. | 1,340,740 | Let's turn to Slide 8 for closing thoughts before we move into question and answers. Our value creation framework is working. While the economic backdrop remains fluid, we are deploying our rigorous operating playbook to effectively manage near-term challenges to meet our performance targets. Record backlog levels, ongoing strength in our biggest end market, aerospace and energy as well as an impeding recovery in our short-cycle businesses will allow us to achieve our strong results as we progress through 2024. This includes our margin expansion guidance, which will benefit from improving business mix, in addition to our continued focus on commercial excellence and productivity.
It's no secret, I am excited about the future of Honeywell and believe our company is on track to drive the innovation needed to solve some of the world's most challenging problems and enhance the life of people around the world. As we move to Q&A, I want to take a moment to thank our 95,000 future shapers whose dedication and capabilities enable us to deliver the best of our customers, partners and communities every day.
With that, Sean, let's take questions.
Sean Meakim: Thank you, Vimal. Vimal and Greg are now available to answer your questions. [Operator Instructions] Operator, please open the line for Q&A.
Operator: [Operator Instructions] Our first question comes from the line of Scott Davis of Melius Research.
Scott Davis: Guys, in the spirit of kind of looking at the outliers here, warehouse automation is still really a tough spot. What's on the other side of this? Is this just a deeply cyclical business, so we're going to see a big bounce back? Have you structurally changed your cost structure? What's kind of on the other side of this tough period?
Vimal Kapur: Yes. So Scott, if I get your question, just that I've missed the front word. Is it -- did you mention industrial automation or warehouse automation?
Gregory Lewis: Warehouse automation.
Vimal Kapur: Warehouse automation. Okay. Thank you. |
3,074 | HON | 1 | 2,024 | 2024-04-25 09:00:00 | Honeywell International Inc. | 1,340,740 | Gregory Lewis: Warehouse automation.
Vimal Kapur: Warehouse automation. Okay. Thank you.
Scott Davis: Warehouse. Sorry, Vimal, warehouse.
Vimal Kapur: No, I got it. I got it. Look, the need for warehouse automation is strong. There is no doubt that it drives labor productivity. So there is no debate on the basics of it. The interesting part is our pipeline remains strong, but order conversion is weak, specifically in the project side.
Another fact which encourages me about the business is the aftermarket continues to grow, which means once the systems are deployed, people use it well and our aftermarket business is in excess of $0.5 billion. We also have rationalized our cost base. All in, I would say the business is in trough right now, and we are waiting for its recovery. But net-net, we remain very optimistic and confident about the business prospects.
Scott Davis: Okay. I appreciate that, Vimal. And you've been in the seat kind of long enough to have a good sense to, well, at least review the portfolio. Do you anticipate further portfolio actions, Vimal? It's still a relatively complex portfolio. We certainly get that feedback frequently. I'm sure you do as well. But has your view on the portfolio evolved at all since you've taken the role?
Vimal Kapur: Scott, I would say it in two parts. I have committed that we will take action on about 10% of our portfolio, which doesn't fit with the 3 megatrends, and we are absolutely taking action on that. We will make progress one step at a time because that constitutes a few businesses and no one big thing.
On a broader basis, I will review with both, as I did last year on a broader Honeywell portfolio, and we will continue to be our own activist. And wherever there's a case to look at things differently, we absolutely will do that. |
3,075 | HON | 1 | 2,024 | 2024-04-25 09:00:00 | Honeywell International Inc. | 1,340,740 | Gregory Lewis: Yes. And if I just build on that, I would say our pipeline on inbound as well is very healthy. You saw the Civitanavi announcement. You know that the Carrier deal is on its way. So we're on pace to deploy $10 billion this year with just what we know about, and we're not done.
Operator: Our next question comes from the line of Stephen Tusa at JPMorgan.
C. Stephen Tusa: Can you just talk about maybe just sequentially how you see the earnings trajectory in 3 and 4Q?
Vimal Kapur: Yes. So I would say the earnings, as we guided here, we gave the guide for Q2 and rest of the year. So I think the headline is that H2 will be stronger than H1, and that's built upon our order spacing. If you see our orders performance in Q1 was on expected lines, our book-to-bill is 1.1, our backlog is up 6%. Long cycle remains strong across the board in Aerospace and building solutions, and we expect the same trend in European Process Solutions. And short cycle is recovering on expected lines.
You saw the results of ESS. The chemical business did perform well on the strength of short cycle. We saw a recovery in scanning and mobility business. We saw some early green shoots in fire business. So things are progressing as we expected, and that's the basis of our guide for rest of the year. So the punchline is we're going to have stronger second half versus first half, and that's reflected on our earnings guide for the year.
Gregory Lewis: Yes. And we know that, that's outside of the normal historical comps that you've seen, but that's not really different than the way we've modeled the year so far. And to Vimal's point, we are starting to see some of those short-cycle order patterns. And we said that those were going to be different by end market as the year progresses. So no real change, Steve, to what we outlined in the original guidance. |
3,076 | HON | 1 | 2,024 | 2024-04-25 09:00:00 | Honeywell International Inc. | 1,340,740 | C. Stephen Tusa: So I guess just normally, you guys are up, I think, a little bit 2Q to 3Q. You're up like, I think, I don't know, low to mid-singles from 1Q to 2Q. Should we think about like just to kind of frame this, the ramp because it is from a timing perspective, is it 2Q to 3Q? What do you think?
Gregory Lewis: Yes. So we're going to have a ramp from 2Q to 3Q as opposed to flat, and then the ramp from 3Q to 4Q will be greater than 2Q to 3Q.
Operator: Our next question comes from the line of Julian Mitchell with Barclays.
Julian Mitchell: I think a lot of that second half pickup rests on the IA segment. So maybe just wanted to home in on that for a second. I think you'd guided full year sales there flattish, so about $10.8 billion. And it sounds like you're doing $2.5 billion a quarter in the first half. So you've got a sort of high teens half-on-half step-up in the second half in IA revenue from sort of $5 billion to $5.8 billion. Maybe help us understand which of the pieces inside IA will lead or lag that delta, and if it's similar to the firm-wide where there's some pickup in Q3 and then a steeper one in Q4 sequentially.
Gregory Lewis: Yes. So thanks, Julian. I mean the ramp for the company actually is in IA and in BA, and then we'll get sort of a nice ramp in the fourth quarter in ESS as well. So it really does come back to all the products businesses inside of each of those portfolios.
So think about in IA, PSS, the sensing business. In BA, think about fire and the BMS business. And then as Vimal mentioned earlier in ESS, you're going to get a continued step-up in electronics and chemicals as well as our normal sort of fourth quarter move in our catalyst business. So it's really not all predicated on any one segment overall. And it's going to be -- you've got your numbers approximately right in terms of the IA first half, second half overall. But you're going to see it across the portfolio. It's not going to be concentrated in any one specific business around the portfolio. |
3,077 | HON | 1 | 2,024 | 2024-04-25 09:00:00 | Honeywell International Inc. | 1,340,740 | Vimal Kapur: Only thing I'll add, Julian there, is that in IA, the HPS continues to perform very well. It's going to mirror the performance it had in 2023. So similar growth rates. The bookings remain very strong. Aftermarket is performing extremely strong. And that's the biggest constituents of the newly framed IA business.
And the short cycle is recovering. I remain very confident on short-cycle recovery. We have seen that in PSS business, it has 2 successive quarters of orders growth. We see that in early cycle in other businesses. So net-net, we are going to see strong exit rates in IA business at end of the year.
Julian Mitchell: That's helpful. And then just my quick follow-up on the buildings division margins. So I think they're guided to be up maybe 100 bps or so for the year, above the firm-wide margin expansion. First quarter clearly starting down -- tricky down over 100 bps. So the slope of that, maybe help us understand kind of how do we think about the buildings margins in the second quarter? How quickly we start to see that flip to margin expansion in the rest of the year, please?
Gregory Lewis: Sure. So again, you're going to see that tie a lot to the product volumes because of the volume leverage that comes with that and the margin rates associated with it are going to be very helpful in that margin ramp as well as the work that we've done on productivity, particularly around direct materials this year.
So that's -- our last 2 quarters were in the same neighborhood, right around 24 points with the lower product mix. And as the year progresses, you're going to see that move up sequentially throughout the remaining 3 quarters of the year.
Operator: Our next question comes from the line of Andrew Obin with Bank of America.
Andrew Obin: Good to hear that short cycle is finally starting to move.
Vimal Kapur: Absolutely, Andrew. |
3,078 | HON | 1 | 2,024 | 2024-04-25 09:00:00 | Honeywell International Inc. | 1,340,740 | Andrew Obin: Good to hear that short cycle is finally starting to move.
Vimal Kapur: Absolutely, Andrew.
Andrew Obin: Just a question on defense and space. That picked up very nicely, nice lever. Can you just talk specifically, and I know there are a lot of programs there. But what is driving that? And what's the outlook specifically for defense and space into the second half because this is a very, very impressive performance there.
Vimal Kapur: Yes. Thanks, Andrew. Look, the Q1 performance of defense and space was more linked to the supply chain unlock. That remains the biggest variable in Aerospace even in 2024.
We are very pleased with the strong growth in Q1. We expect high single-digit growth in defense and space in the revenue, but order booking will be much stronger. And that's driven by the fact of not only the demand in U.S. but the international demand, which is coming up in this business. And those trends are extremely favorable. So net-net, we do expect to finish the year strong, not only in the revenue side but equally strong on the order side on the defense.
Andrew Obin: Got you. And maybe to -- shifting to ESS. Can you just talk about visibility of UOP? I know you guys were optimistic about some of the green projects coming in. And I think due to regulatory issues, it's just taking time. What does the pipeline look like? And what does the ramp look in this business into the year-end? And how do you balance this visibility on these projects and just the time it takes to get them approved?
Vimal Kapur: So very bullish on UOP. I would say this business is headed for a great time ahead. The traditional projects continues to remain active while the new energy project on sustainability, a strong pipeline, and we see decisions now maturing. You saw in one of our exciting wins, we mentioned here new way to make SAF with the biomass now, which is a new technology we have launched. |
3,079 | HON | 1 | 2,024 | 2024-04-25 09:00:00 | Honeywell International Inc. | 1,340,740 | So net-net, with the strength in traditional energy, strength in renewable technologies and catalysts, we are going to have a strong year for UOP, both in orders and revenue. And that's not only 2024. Look ahead for the business remains extremely, extremely positive in the times ahead.
Operator: Our next question comes from the line of Sheila Kahyaoglu with Jefferies.
Sheila Kahyaoglu: I wanted to ask about Aerospace. Commercial OE was really strong, up 24% in the quarter. How are you thinking about that for the full year just given slower MAX production we're seeing and the new news of the 787 also slowing down production there? Any top line margin or cash impact that you foresee? And then I just want to clarify the comment about margins for Aerospace. You said it would dampen just given OE mix, but I would think aftermarket would accelerate as we progress through the year.
Vimal Kapur: Okay. So I think there are 3 questions there, Sheila, I'll try to pick up.
Sheila Kahyaoglu: Sorry about that.
Vimal Kapur: No, no problem. So the overall, we do expect commercial OE to grow double digits, both on the -- the commercial OE to grow double digits and aftermarket. So we'll maintain the strong growth trend as is indicated in our guide for the rest of the year.
To your comment specifically on 787 MAX, I won't give you a specific input on one particular platform. But I would say that our demand for Boeing hasn't changed. We know that we all heard their earnings call yesterday, and there are different drivers for that. But for Honeywell, we are present in multiple platforms, and the demand for them remains unwavered.
I personally talk to Boeing leadership, and I'm very confident that's going to trend that way. On margins, it's a -- Q1 was strong. It's a mixed driver. As the year progresses, we have different product mix and mix between OE and aftermarket. So net-net, we are still guiding flattish margins for the year, and that's what we have given in our guidance. |
3,080 | HON | 1 | 2,024 | 2024-04-25 09:00:00 | Honeywell International Inc. | 1,340,740 | Operator: Our next question comes from the line of Joe Ritchie with Goldman Sachs.
Joseph Ritchie: I just want to really focus my questions on margins. So just making sure that I understood some of the comments already. As you think about the rest of the year, I guess, how much of the margin expansion that you're expecting in both BA and IA is really dependent on short cycle accelerating?
And then, Vimal, just a quick clarification on the answer you just gave on the aero side of the business. The OE business was up, I think it was over 24% or something like that in aero. I'm just curious, like what were some of the kind of mix tailwinds you saw this quarter in aero? And again, why doesn't that continue going forward?
Gregory Lewis: Yes. Joe, I mean, as it relates to the mix, I'm not going to bore you with the details, but it's actually quite deep between the different OEs, the shipsets within each of them and so forth. So that is going to migrate up and down during the course of the year as it goes. So there's not one particular thing happening there.
As Vimal mentioned though, we're going to continue to see very strong OE margins -- or excuse me, OE volumes during the year. In fact, I wouldn't be surprised if the growth in OE actually accelerates in the next couple of quarters, not dramatically so, but in terms of its relative mix inside of the overall portfolio. So that's what I would say about aero.
And then in terms of the margin rates in IA and BA, both of those businesses are seeing mix down with products softer. And so absolutely mix up with products growth is going to be a driver of those margins. But that also comes with a lot of the work we've been doing on the productivity side, both in direct materials as well as in our continued repositioning of the cost base that we have been doing. So our margin story is going to be a combination of the volume leverage, the product mix and our productivity actions that we continue to take, as you know, is always a strength for Honeywell. |
3,081 | HON | 1 | 2,024 | 2024-04-25 09:00:00 | Honeywell International Inc. | 1,340,740 | Operator: Our next question comes from the line of Nigel Coe with Wolfe Research.
Nigel Coe: Sorry to bore you in another -- obviously, aero margins were great. What's the timing of Boeing shipments to customers affected there? Just curious if there's a timing issue there. But mainly my question is around 2Q margin dynamics. And thinking about that drop-off in the Zebra royalty income in the second quarter, are we looking at maybe margins, I don't know, down like 300 basis points year-over-year in the second quarter for IA? And therefore, the balance of the segment margin performance is actually probably more like on trend? So just any more color on the 2Q margins by segment would be helpful.
Gregory Lewis: Yes. No, we don't expect IA margins to be down 300 basis points in 2Q on a year-over-year basis. We talked about the Zebra impact. Again, it's $45 million a quarter on the revenue side. There is some costs associated with that as we talked about over the last 2 years, as we've had that impact into our P&L. So you guys can do the math on the direct impact of just that item all by itself. But we have other actions in place to continue to offset that. I don't expect margins to necessarily be up year-on-year in IA, but nothing to the degree that we described in terms of 300 basis point drop.
Nigel Coe: Okay. And then any color on aero margins in second quarter?
Gregory Lewis: Yes. Just that I would expect them to be down sequentially from Q1, that Q1 is going to be the high point. And as we go through the year, again, our overall expectation is flattish on a year-on-year basis, but Q1 will be the high point.
Operator: Our next question comes from the line of Andy Kaplowitz with Citi.
Andrew Kaplowitz: Vimal, maybe can you talk a little bit more about what you're seeing by region? I think you mentioned strength in India. How important is that region becoming? And what are you seeing in China and Europe? |
3,082 | HON | 1 | 2,024 | 2024-04-25 09:00:00 | Honeywell International Inc. | 1,340,740 | Vimal Kapur: Yes. So I would say, if I go around the corner, we continue to see strength in our high-growth regions, specifically in India and Middle East. Those remain strong. China also did well for us. We grew high single digits on the strength of our aero and energy business. So net-net, we do see strong -- continued strong trend in emerging markets.
Europe has stabilized. I would say the worst is definitely behind us. We see more recovery and positive trends, specifically in short cycle, we talked about it earlier in Europe. And U.S., of course, is the balance here. So net-net, high-growth region remains a tailwind in overall revenue mix for Honeywell.
Andrew Kaplowitz: Great. And I just want to follow up on the process business. I think you mentioned delays. Is it you're seeing more geopolitical uncertainty or election fears, higher rates? I think you still have a good outlook for that business. Maybe talk about it a little bit more.
Vimal Kapur: So Process Solutions business, absolutely. Our booking -- we carried a strong backlog, and our booking trends remains strong there. Aftermarket is double-digit growth for several quarters in a row. So that business will, as I mentioned before, will repeat 2023 pattern of high growth.
And we expect to do -- continue to do well in that segment, monetizing installed base, aftermarket software, all our strategies are really working. And also diversification into new verticals as the new energy segment are emerging like battery storage, gigafactories, all are becoming attractive growth optionality for us in that business.
Operator: Our next question comes from the line of Jeff Sprague with Vertical Research Partners. |
3,083 | HON | 1 | 2,024 | 2024-04-25 09:00:00 | Honeywell International Inc. | 1,340,740 | Operator: Our next question comes from the line of Jeff Sprague with Vertical Research Partners.
Jeffrey Sprague: Vimal, just back to kind of the ongoing portfolio review, and you said it could be many things, not one big thing. Can we take that? Or should we take that to mean as we look at kind of your revenue disaggregation, right, there's kind of 11 buckets we track and model to, that none of those entire sleeves would be gone at some point in time in your thought process?
Vimal Kapur: Look, whenever we complete any action of addition and substraction, we'll give you an early guide for that. As I mentioned, this is no one step change. So it's not that we're going to take action of a $4 billion type of thing in a single move. But whenever we are ready to communicate, we'll give you a heads up on what's likely coming in.
For example, Carrier business will likely come in, Civitanavi will likely come in, and what are the implications on the guide? And then what goes out, if and when this happens, we'll provide you the guide. But what I can share with you is there is not going to be one mega event on divestiture. It's going to be a combination of multiple small events.
Jeffrey Sprague: And one thing you have been clear on is ultimately, there's a monetization play on Quantinuum. Where are we there? Where's the spending tracking? And can you kind of give us an idea of maybe the time line of a monetization event?
Vimal Kapur: So Quantinuum is in, I would say, exciting times. We completed a major event of pre-money. We got valuation in excess of $5 billion, got more people invested there. We talked about that in the last earnings call.
We also met another major milestone. I don't know if you read that Honeywell and Microsoft announced a major milestone of testing different scenarios to deliver reliable results. So Microsoft gave, ran 14,000 experiments on H2 quantum computer, and they were able to prove that every time all 14,000 times, we're able to deliver results with accuracy. |
3,084 | HON | 1 | 2,024 | 2024-04-25 09:00:00 | Honeywell International Inc. | 1,340,740 | Why it matters is in quantum, the repeatability or accuracy matters more than the speed at this point. Once we are able to solve the problem solving with accuracy, we can work on the speed part. So that's a major milestone, and that's what matters in quantum business. We continue to hit these milestones one after another, and we score some wins on the commercial side, and that has set us for the next event of the monetization somewhere in 2025. It's contingent upon hitting this, but I remain confident that we are on the right track on that.
And by the way, the last comment I'll make there is AI is definitely giving us a lot more momentum. There's a deeper understanding and appreciation why quantum is necessary. And that's going to certainly help us when we are ready for an IPO or something similar in 2025.
Operator: Our next question comes from the line of Brett Linzey with Mizuho.
Brett Linzey: Again, I wanted to come back to ESS. You noted the margin contraction on some of this onetime factory restart cost. Maybe could you quantify that? And then any detail on the nature of just the timing of some of these pressures?
Gregory Lewis: Sure. So in our clean energy business, we had been operating as in a trading manner, and we had shut down the major facility some number of years ago in that business, and we restarted it. And so as you can imagine, that restart has some fits in it as we go through the course of the year to get to stabilization. And that's really the -- if you look at ESS margins, I'm not going to give you precise numbers. But if you back out the impact of that, we would have been roughly flat, maybe slightly up on a margin rate basis year-on-year in the first quarter. |
3,085 | HON | 1 | 2,024 | 2024-04-25 09:00:00 | Honeywell International Inc. | 1,340,740 | And so that's going to take some time to get to stability. But the good news is this is a great business. The long-term dynamics for it from a pricing standpoint, a supply standpoint are very favorable. As we exit the year, we're going to have more stable operations internally. And so we're going to have a very nice exit rate going into 2025 with a very strong business. And again, that business is, think about it being around about $400 million on an annual basis.
Brett Linzey: All right. Got it. And then just one more on M&A. Just thinking about the velocity there. I know last May, you talked about the pipeline prioritization. I think you had 90 deals looking at within your markets, and that's still at the top 10. I guess how is that 90 compared today? I mean it sounds like the enthusiasm, it sounds a little bit more optimistic about some actionability. But maybe just talk about some of the pipeline and the movement there.
Vimal Kapur: Absolutely. I would say the pipeline is very strong as we sit today. Of course, we compete for every target, and we remain very sensitive to both strategic fit and valuation fit. So net-net, we do expect to continue to take some actions on adding new business to our portfolio. And overall, my tone is very positive on that.
Okay. Just to wrap up here, I want to continue to express my appreciation to our shareholders for your ongoing support and, again, to our Honeywell future shapers, who continue to drive differentiated performance. Our future is bright, and look forward to sharing our progress with you as we continue to execute on our commitments. Thank you for listening, and please stay safe and healthy.
Operator: This concludes today's teleconference. Thank you for participating. You may now disconnect. |
3,086 | HON | 1 | 2,025 | 2025-04-29 08:30:00 | Honeywell International Inc. | 1,340,740 | Operator: Thank you for standing by, and welcome to the Honeywell International Inc. First Quarter 2025 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. Thank you.
Sean Meakim: Morning and welcome to Honeywell International Inc.'s first quarter 2025 earnings conference call. On the call with me today are Chairman and Chief Executive Officer, Vimal Kapur, and Senior Vice President and Chief Financial Officer, 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 first quarter, share our guidance for the second quarter, and provide an update on the full year 2025. 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. Thank you, Sean, and good morning, everyone. |
3,087 | HON | 1 | 2,025 | 2025-04-29 08:30:00 | Honeywell International Inc. | 1,340,740 | Vimal Kapur: Honeywell International Inc. saw its strong finish to last year's cadence of 2025, as we exceeded the high end of our guidance on all metrics in the first quarter, and this performance translated into substantial free cash flow growth as well. Overall, demand was strong with a book-to-bill above one. Although our business has solid momentum heading into the second quarter, the economic climate has become increasingly uncertain in recent weeks. Global trade patterns are shifting because of increasing tariffs and duties, making customer planning more difficult. Weaker sentiments combined with higher price expectations warrant incremental caution regarding end-market demand in the coming quarters. Despite these headwinds, we remain on track to deliver on our 2025 outlook as we are maintaining our full-year organic growth guidance and raising our adjusted EPS guidance. Our outlook now incorporates the impact of current tariffs and macroeconomic uncertainty fully offset by our ongoing mitigation efforts, local-for-local strategy, accelerator operating system, and resilient market position. As you can see, we are taking decisive actions during this uncertain time to not only protect but grow earnings, invest for the future, and position Honeywell International Inc. for long-term success, regardless of the operating environment we face. Honeywell International Inc. has a team across functions and businesses meeting daily to review and respond to tariff announcements. This team analyzes a number of levers to optimally respond to changing conditions. We're also closely monitoring bilateral negotiations and engaging with key stakeholders. From our perspective, there are three very important considerations for supporting American competitiveness and manufacturing: maintain the principle of USMCA, strike the right kind of trade agreement with our major trading partners, and continue the global framework that has made the US the world leader in aerospace. As the external environment has become more |
3,088 | HON | 1 | 2,025 | 2025-04-29 08:30:00 | Honeywell International Inc. | 1,340,740 | continue the global framework that has made the US the world leader in aerospace. As the external environment has become more unpredictable, we remain focused on what we can control, and we have made significant progress in planning and executing our separation into three industry-leading public companies. This preparation has included key leadership appointments to ensure that we have the right people in place to continue our portfolio transformation. Let's turn to slide three to discuss a few important changes announced earlier this month. Two Ping Liu will succeed Anne Madden as Senior Vice President and General Counsel while retaining her role as Corporate Secretary. Sue's more than fifteen years of legal experience with Honeywell International Inc. across many of our business lines and geographies will further strengthen our executive leadership team. Anne will transition into a new role as Senior Vice President of Portfolio Transformation and Senior Adviser, where her experience leading over one hundred acquisitions as Honeywell International Inc.'s global head of M&A will prove invaluable during our continued portfolio optimization. Also, our board of directors has elected Steven Williamson to join us as an independent director and audit committee member. Steven's decade as CFO of Thermo Fisher Scientific will broaden and deepen the expertise aboard. I want to personally congratulate these three individuals on their new roles, and I look forward to working closely with each one of them. Let's turn to slide four to discuss an update on separation. We hold strong conviction that separating automation, aerospace, and advanced materials will unlock significant value for all Honeywell International Inc. stakeholders by best positioning each standalone public company for long-term profitable growth. Following our announcement in February, Honeywell International Inc. has taken many steps forward in preparation for these transactions. First, we determined a tax-free spin of Honeywell Aerospace will be a more |
3,089 | HON | 1 | 2,025 | 2025-04-29 08:30:00 | Honeywell International Inc. | 1,340,740 | steps forward in preparation for these transactions. First, we determined a tax-free spin of Honeywell Aerospace will be a more efficient way to separate our automation and aerospace businesses. Second, the board confirmed that I will lead the automation company going forward, as this is where I've spent the bulk of my career and where I have a specific vision for the future. |
3,090 | HON | 1 | 2,025 | 2025-04-29 08:30:00 | Honeywell International Inc. | 1,340,740 | Sean Meakim: At the right time, the board will evaluate the future leadership of Honeywell Aerospace as well. Third, we established a dedicated separation management office run by experts in corporate transformation. These entities have the empowerment to maintain the value of our businesses, minimize separation costs, and achieve our communicated timelines. Most importantly, they will ensure that our operation leaders are focused solely on serving our customers and achieving our financial targets. Fourth, we appointed an accomplished leadership team for what will be called Solstice Advanced Materials. Collectively, they bring years of experience leading public companies, operating specialty chemical businesses, and utilizing Honeywell International Inc.'s Accelerative Operating System. Solstice will be headquartered in New Jersey, where the current team for the business sits. Fifth, we continue deploying capital as an active buyer of our own shares, which offer tremendous value at recent levels. We have repurchased about $3 billion of our shares already this year and will continue to repurchase our stock opportunistically. Lastly, in March, we announced the acquisition of Sundyne as we continue to optimize our portfolio. If you turn to slide five, I'll discuss how this deal fits into our portfolio transformation. As you can see, Sundyne will be the fifth strategic port-on acquisition since I became Honeywell International Inc.'s CEO, along with a couple of strategically important technology tuck-ins. Sundyne meets each of the common-sense criteria we have set in. It's the right size, it exceeds our financial return hurdles, it improves our business profile by boosting both organic growth and segment margins, and Honeywell International Inc. is a natural owner of the business as Sundyne addresses a closely adjusted market. To our existing ESS offering, which will allow us to sell a more robust and complementary portfolio of solutions to our customers, particularly in LNG. We have meticulously built a pipeline of |
3,091 | HON | 1 | 2,025 | 2025-04-29 08:30:00 | Honeywell International Inc. | 1,340,740 | robust and complementary portfolio of solutions to our customers, particularly in LNG. We have meticulously built a pipeline of acquisition targets with compelling financial characteristics over the past several years, and we'll continue to pursue them if they become available to us. Given everything we have in flight, only the deals that are time-sensitive will be pursued for now. Buying these differentiated businesses with strong aftermarket content and secular growth drivers at a reasonable price is a powerful use of capital. Our 2024 acquisitions are now increasingly incorporated into our operations and performing admirably well, with the bulk of integration work behind us, reinforcing that we have the right M&A process in place to create incremental value. While we continue to evaluate acquisitions, we also look forward to opportunistically exiting businesses such as personal protective equipment that do not fit into our business model or strategic priorities. The PPE sale will improve margins and organic growth. I will now move to slide six to address how we view the present global uncertainty. As a company, we remain confident in our ability to navigate the current trade environment. For decades, we have positioned each of our business lines to serve their local markets. This local-for-local strategy reduces our overall exposure to international trade and geopolitical tensions. Based on tariffs in place today, our approximate 2025 exposure is about $500 million before taking any mitigation measures. Our better-tested accelerated operating system can quickly identify areas of concern and implement mitigation efforts. Then we pursue consistent and clear communication with our suppliers, customers, and partners to maximize operational stability for all parties. Through this well-developed operational system and our established local-for-local footprint, we are confident we can fully offset the impact of current tariffs and are well-positioned to manage future trade uncertainty. This is evident in today's |
3,092 | HON | 1 | 2,025 | 2025-04-29 08:30:00 | Honeywell International Inc. | 1,340,740 | offset the impact of current tariffs and are well-positioned to manage future trade uncertainty. This is evident in today's results, and our confidence in maintaining and raising guidance is part of these offsetting headwinds. Most importantly, whenever elevated global tensions do subside, we remain in an excellent position to capitalize on record backlog and continue our growth trajectory. Now let me turn over to Mike to discuss our excellent first-quarter results. Thank you, Vimal, and good morning to everyone joining us. |
3,093 | HON | 1 | 2,025 | 2025-04-29 08:30:00 | Honeywell International Inc. | 1,340,740 | Mike Stepniak: Let me begin on Slide seven. We had a very strong start to the year in the first quarter, exceeding the high end of our organic sales, segment margin, and adjusted earnings per share guidance. Our results demonstrate tremendous effort from our commercial teams, successful productivity initiatives, and excellent supply chain coordination with our partners in a rapidly changing marketplace. First-quarter sales grew 4% organically, led by aerospace technologies, where both our commercial aftermarket and defense in space businesses experienced double-digit growth. Building solutions remain a significant contributor as well. Segment margin remained flat from the prior year at 23%, with improvement in building automation and energy and sustainability solutions offset by pressure in aerospace technologies and industrial automation. I would like to highlight that this margin performance includes an increase in our research and development spend of 50 basis points from the previous year to 4.5% of sales. We continue to balance current period profitability with our organic growth initiative. Segment profit for the quarter grew 8% year over year, aided by the inclusion of our 2024 acquisitions, which are performing ahead of the initial expectations. Earnings per share for the first quarter was $2.22 per share, flat from the previous year, while adjusted earnings per share was $2.51 per share, up 7% year over year. Segment profit more than offset headwinds from interest rate expense, foreign exchange, and taxes. You'll find a bridge of adjusted EPS from 1Q 2024 to 1Q 2025 in the appendix of this presentation. Orders were $10.6 billion in the quarter, up 3% year over year, excluding the effect of acquisitions. Both supported by organic backlog growth of 8% to a new record of $36.1 billion. This growth was led by longer cycle building automation and aerospace businesses. First-quarter cash flow was more than $300 million, over $100 million above the prior year, driven primarily by better-adjusted earnings. |
3,094 | HON | 1 | 2,025 | 2025-04-29 08:30:00 | Honeywell International Inc. | 1,340,740 | cash flow was more than $300 million, over $100 million above the prior year, driven primarily by better-adjusted earnings. We're utilizing our cash flow and strong balance sheet to dynamically allocate capital, including returning capital to shareholders. In the first quarter, we repurchased nearly $2 billion of our own shares at prices we find highly compelling, and we bought back roughly another $1 billion during the month of April, representing about 2% of our shares outstanding in 2025. We also paid more than $700 million of dividends in the first quarter. We are investing in our business both organically and inorganically, as we allocated approximately $250 million of capital projects and announced the acquisition of Sundyne. Now let's spend some time discussing our first-quarter performance by business. In aerospace technologies, sales in the first quarter were up 9% organically year over year, exceeding our prior expectations. Better output as a result of supply chain improvements and robust demand from air transport customers supporting increased flight activity drove 15% sales growth in the commercial aftermarket business. Defense and Space, aided by increased output and elevated global defense spending in a world of ongoing geopolitical uncertainty, delivered the fifth consecutive quarter of double-digit growth despite challenging comps and expiring government programs a year ago. Aerospace industry demand continues to outweigh supplies, supporting our orders growth of 9% and a book-to-bill of 1.1. First-quarter segment margin contracted 190 basis points to 26.3%, but matched our expectation as mix pressure and acquisition integration costs from Kays were partially offset by productive reactions. Industrial automation sales declined 2% organically in the first quarter, led by lower demand in personal protective equipment, particularly in China and Europe. Warehouse and workflow solutions returned to growth in the quarter, up 5% as demand for warehouse automation continues to stabilize and prior year |
3,095 | HON | 1 | 2,025 | 2025-04-29 08:30:00 | Honeywell International Inc. | 1,340,740 | solutions returned to growth in the quarter, up 5% as demand for warehouse automation continues to stabilize and prior year comparisons get easier. Our sensing business demonstrated recovery in the second consecutive quarter with double-digit growth in both healthcare and aerospace and defense end markets. Process solution sales were flat as continued strength in lifecycle solutions and services and compressor controls was offset by modest declines in smart energy thermal solutions. In productivity solutions and services, weakness in Europe led the sales decline of 1% year over year when excluding the impact of the final year license and settlement payments. Segment margin in industrial automation contracted 130 basis points to 17.8%, driven by receivables write-downs and volume deleverage, partially offset by productivity options. Building activation delivered another solid quarter and outpaced our expectation, up 8% organically. |
3,096 | HON | 1 | 2,025 | 2025-04-29 08:30:00 | Honeywell International Inc. | 1,340,740 | Vimal Kapur: Led by the second consecutive quarter of both double-digit growth in building solutions and mid-single-digit growth in building products. Solutions continue to benefit from its robust backlog, up 11% in the quarter and led by over 30% growth in the Middle East and mid-teens growth in North America. Building products growth of 6% was driven by double-digit organic growth in fire and sustained strength in security. Overall, orders continue to be an encouraging indicator for building automation, with the first quarter marking a fourth consecutive quarter of year-over-year growth. Building automation margin spending 150 basis points driven by volume leverage, productivity actions, and accretion from access solutions. Energy and sustainability solutions sales declined 2% organically in the first quarter. A strong quarter in petrochemical and refining projects as well as sustainability projects helped EOP deliver 2% organic sales growth year over year. Advanced material sales declined 4% as challenging prior year comps in flooring products offset broad-based strength in specialty chemicals and materials highlighted by over 20% growth in spectra. Orders were the bright spot for advanced materials, up 7% year over year, driven by double-digit growth in foreign products. This quarter marked the second full quarter of ownership of the LNG business acquired from Air Products, which continues to grow at accretive sales and margin rates. ESS segment margin expanded 230 basis points in the quarter, led by productivity actions and the year-over-year benefit from the LNG acquisition, partially offset by cost inflation. Taken altogether, we still see long-cycle businesses outperforming short-cycle ones. While record backlog levels and best-in-class operating systems position us well for future periods. I'll now move to slide eight to talk about our second quarter and full-year guidance. Although a strong first quarter like we delivered would typically indicate improved expectations for the remainder of the year, we |
3,097 | HON | 1 | 2,025 | 2025-04-29 08:30:00 | Honeywell International Inc. | 1,340,740 | a strong first quarter like we delivered would typically indicate improved expectations for the remainder of the year, we cannot ignore changes in the geopolitical environment that Vimal mentioned in his earlier remarks and believe that continuing to take a pragmatic approach to our guidance is appropriate given the increasing global uncertainty. Rest assured, Honeywell International Inc. is actively and successfully addressing both potential cost and demand challenges to mitigate their impact on our business. We have a playbook of rapid implementation of sourcing, pricing, and productivity changes. As a reminder, our local-for-local approach to maintaining the supply chain has been our strategy for more than two decades, and it's a very mature part of our operating system. This structure and our leading market positions will help mitigate much of our recent tariff changes across the portfolio, but we're not immune. We'll continue to balance protecting margins and sustaining volume across our end markets. Now let's discuss what this means for 2025 guidance. For clarity, our guidance now assumes the impact of announcing tariffs net of mitigation actions as well as additional contingency for potential end-market demand weakness triggered by this uncertainty. We're maintaining our prior outlook calling for organic sales growth of 2% to 5% for the year, or 1% to 4% when excluding the prior year impact from the Bombardier agreement. With better 1Q performance being offset by a prudent guidance posture given greater uncertainty for the rest of the year. As we contemplate the potential influence of uncertainty on our customers' activity, we are assuming an impact to organic sales for the remainder of the year approaching 1%, the segment profit of about 2%, and to EPS of about $0.18 compared to the guidance we laid out in February. Full-year sales are now projected to be $39.6 to $40.5 billion as favorable movements in foreign exchange rates since year-end are being offset by two fewer months of revenue from our PPE |
3,098 | HON | 1 | 2,025 | 2025-04-29 08:30:00 | Honeywell International Inc. | 1,340,740 | as favorable movements in foreign exchange rates since year-end are being offset by two fewer months of revenue from our PPE business, given an early May exit rather than the end of June. Our guidance does not incorporate the acquisition of Sundyne, which is still expected to close in the second quarter. We anticipate year-over-year organic sales improvement to be relatively balanced across the next three quarters when excluding the impact of last year's Bombardier agreement, which will only influence the fourth quarter comparison. |
3,099 | HON | 1 | 2,025 | 2025-04-29 08:30:00 | Honeywell International Inc. | 1,340,740 | Vimal Kapur: Consequently,
Mike Stepniak: We also see second-quarter sales growing 1% to 4% organically, which translates into sales of $9.8 to $10.1 billion with one more month of PPE operations included, or a $200 million impact compared to a full quarter. We now anticipate our overall segment margin to six basis points this year, or to be down ten basis points to up twenty basis points ex-Bombardier. Changes to our margin outlook from prior expectations are focused in IA and ESS, given their relatively higher exposure to China trade. For the second quarter, segment margin is expected to be in the range of 22.8% to 23.2%, down 20 basis points to up 20 basis points from the prior year as margin improvement in IA and BA is offset by contraction in Aero and ESS. For the year, we now expect earnings per share
Vimal Kapur: Of $10.20 to $10.50, |
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