The Honeywell Fourth Quarter 2023 Earnings Conference Call has begun, with participants in listen-only mode. The call is being recorded and will include a question-and-answer session. Sean Meakim, Vice President of Investor Relations, introduces the speakers, CEO Vimal Kapur and CFO Greg Lewis. The webcast and presentation materials are available on the Investor Relations website. The discussion will include forward-looking statements and risks and uncertainties. The financial results for the fourth quarter and full-year 2023 will be reviewed, along with the outlook and guidance for 2024. There have been important leadership changes announced, including Vimal Kapur taking on the role of Chairman and Bill Ayer becoming the Independent Lead Director.

The speaker thanks Darius and Scott for their contributions to Honeywell and congratulates Bill on his new role as Lead Director. They also express gratitude for being named Chairman and look forward to leading the company. The speaker then discusses the company's solid performance in meeting their 2023 commitments and their aim to deliver strong organic sales growth in the future through enhancing their innovations, focusing on sustainability and software, and leveraging their leadership position in high-growth regions.

Over the past six years, Honeywell has transformed into an integrated operating company with world-class capabilities and multiple growth enablers. They are evolving their operating system to drive further value and are consistently optimizing their portfolio through strategic acquisitions and divestments. The recent acquisition of Carrier's Global Access Solution business aligns with their strategic framework and will enhance their security portfolio, supporting long-term growth.

Quantinuum recently announced an equity raise of $300 million, bringing their total capital raised to $625 million. This investment demonstrates their leading position in fault-tolerant quantum computing and their potential for monetization. Honeywell remains the majority owner and is committed to deploying at least $25 billion in capital through 2025. Recent wins in the aviation sector, including over $1 billion in new avionics and mechanical contracts, demonstrate Honeywell's innovation and alignment with megatrends in automation, future of aviation, and energy transition.

In the fourth quarter of 2023, United Airlines chose Honeywell to provide advanced avionics for 350 aircraft, demonstrating the company's strength in the market. In the energy sector, Honeywell's battery energy storage solution will be used in six solar parks in the US Virgin Islands, helping with decarbonization efforts and reducing emissions and energy costs. Honeywell's hydrogen purification and carbon capture technologies will also be used in a multi-billion dollar low carbon ammonia project, showing the company's ability to solve tough challenges for customers. In the fourth quarter of 2023, Honeywell had a strong finish to a challenging year, meeting their 2023 commitments.

In the past year, Honeywell has successfully met its financial commitments, with organic sales growth of 4%, segment profit growth of 8%, and free cash flow of $4.3 billion. This was achieved despite a decline in safety and productivity solutions sales. The company also increased its dividend for the 14th time in 13 years and deployed $8.3 billion in capital. In the fourth quarter, organic sales were up 2% and segment margin expanded by 60 basis points. Earnings per share for the quarter was $1.91, while adjusted earnings per share was $2.60, with the difference being driven by a pension liability adjustment. Adjusted earnings per share was up 8% when excluding a non-cash pension income headwind.

In the fourth quarter, the company saw strong performance in its adjusted EPS, free cash flow, and backlog. Orders were up, particularly in the commercial aerospace, PMT, and HPT sectors. The company remains confident in its 2024 outlook and continues to execute on its value creation framework and Accelerator operating system. Aerospace saw 15% organic growth, driven by strong demand in commercial aviation and defense and space. Supply chain challenges are being managed to support this growth.

In the fourth quarter, the aerospace book-to-bill ratio was around 1, indicating strong demand and a favorable market position for Honeywell. Segment margin expanded due to commercial excellence and volume leverage, offset by cost inflation and mixed pressure. Sales in Performance Material and Technology and HPS grew organically, with PMT seeing growth across all three businesses. Sustainable technology solutions had a strong quarter with over 30% growth. Safety and productivity solutions saw a decrease in sales due to lower volumes, but Honeywell remains committed to delivering innovative solutions in this market.

The company is seeing positive growth in its productivity solutions and service business, with a 30% increase in orders indicating the end of the distributor de-stocking cycle. The Sensing and Safety Solutions segment remains resilient, while the Building Technology segment saw a decline in sales but growth in long-cycle solutions. Honeywell Connected Enterprise continues to drive double-digit sales growth, contributing to the overall success of the company. Looking ahead, the company is optimistic about its potential for accelerated growth in 2024.

The company is confident in their ability to adapt to a dynamic environment and drive growth, protect margins, and ensure liquidity. Their end-market exposures across aerospace, automation, and energy are favorable and supported by digitalization and record backlogs. However, the uncertain timing of a recovery in short-cycle markets may impact sales. The company expects sales of $38.1 billion to $38.9 billion in 2024, with 4% to 6% organic growth and a greater balance between volume and price. The second half of the year is expected to be more back-half weighted due to a potential recovery in short-cycle markets. The company also plans to continue pursuing accretive M&A opportunities.

The company is focused on new product innovation, maintaining their leadership position, monetizing their installed-base, and strengthening their software franchise. They anticipate a gradual improvement in the Aero supply-chain and expect sales to be flat-to-up 3% organically in the first quarter. They also expect segment margins to expand, with building automation showing the most growth. In aerospace, they anticipate continued investment in innovation and the supply-chain, with margins staying within a tight band. The company's guidance for the first quarter and full year does not include the planned acquisition of Carrier's Global Access Solutions business, which is expected to close by the end of the third quarter. The company expects robust demand in the Aerospace Technologies business for 2024 due to their record level backlog.

In 2024, commercial build rates are expected to increase, driving growth in chipset deliveries. The commercial aftermarket is also expected to see volume strength as flight hours improve. In defense and space, supply-chain constraints will limit volume growth. Overall, Aerospace is expected to have low-double-digit organic growth in 2024, with margins remaining comparable to 2022 and 2023. Industrial Automation's results will be influenced by the timing of the short-cycle recovery, with Process Solutions expected to have another strong year of growth. IA sales are expected to be flat in 2024.

The company expects segment margins to increase in the second half of the year due to a recovery in short-cycle demand. The first quarter will see stable sales in Industrial Automation and a decline in warehouse automation. Building Automation is expected to see growth in long-cycle businesses and a low-single digit sales increase for the full year. Energy and Sustainability Solutions will have mixed results due to macro-economic factors, with growth in UOP and Sustainable Technology Solutions but potential challenges in Process Technologies.

In 2024, Advanced Materials is expected to see strength in the fluorine products business offset by a decline in legacy stationery products due to quota reductions. Short-term demand from semiconductor fabs will support sales, and margins are expected to improve thanks to commercial excellence and productivity actions. In the first quarter, sales are expected to be down due to challenging comps and higher activity levels later in the year. Pension income will be flat, and net below-the-line impact is expected to be negative. Repositioning spend will be between $200 million and $300 million for the full year and between $60 million and $100 million in the first quarter.

The company expects an adjusted effective tax-rate of around 21% for the full-year and 22% for the first quarter, with an average share count of 656 million shares. This is expected to result in adjusted earnings per share of $9.80 to $10.10 for the full-year and $2.12 to $2.22 for the first quarter. The primary drivers for year-over-year growth are higher volumes and increased productivity, with lower share count offsetting below-the-line changes. The company also expects to grow free-cash flow in line with earnings, excluding the impact of prior year settlements. They plan to begin the multi-year unwind of working capital and invest in high-return projects focused on innovative technologies. Free-cash flow is expected to be in the range of $5.6 billion to $6 billion, up 6% to 13% excluding the impact of prior year settlements.

Honeywell's focus on executing their M&A pipeline and opportunistic share repurchases, along with their leverage to key macro trends, give them confidence in delivering another strong year in 2024. Their financial algorithm, which includes 4-7% organic sales growth and margin expansion, consistently delivers 6-10% organic EPS growth. With additional EPS accretion from share buyback and M&A execution, they are confident in delivering double-digit adjusted EPS growth. Their dividend also adds value to shareholder returns.

The company has achieved 8% segment profit growth and 2% adjusted EPS accretion through share repurchases in line with their long-term financial framework. They are now focusing on M&A to drive further benefits. Their 2023 and 2024 expectations for organic growth, margins, and cash flow are in line with their long-term commitments. They are prioritizing organic growth, utilizing Accelerator 3.0, and optimizing their portfolio to achieve their targets. The company remains optimistic about their opportunities for value creation and will continue to update on their progress. They are confident in their ability to navigate the current economic and geopolitical climate with their operating rigor.

The recent backlog levels and strength in aerospace and energy markets, along with an expected recovery in the short-cycle business, will support strong results for Honeywell through 2024. The company's CEO is optimistic about the future and believes they are well-positioned to drive innovation to solve global challenges. The Q&A portion of the call is now open for questions. The first question is about the sequential progression of EPS for the rest of the year. The CFO explains that the first quarter is not much different from the previous year and expects the short-cycle revenue to accelerate between the second and third quarter. The EPS is expected to follow this trend, with the last two years being more back-end weighted.

During the recent earnings call, Vimal Kapur, CEO of Johnson Controls, discussed the company's performance in the building products and solutions business. He mentioned that the company had a strong finish in quarter 4, with growth in both segments. Looking ahead, he expects sequential progress in the short cycle, with more strength in the solution side of the business. However, Europe remains challenged and the US is in the late stages of destocking distributor inventories. Despite this, Kapur is confident in the company's growth and margin expansion in 2024 due to new products and strength in high growth regions. Analyst Julian Mitchell inquired about the progress of segment margins throughout the year, noting that there have been seven quarters of year-on-year expansion and Q1 was flat. Kapur responded that the sharpest improvement will likely come in Q4, with margins up 100-bips or more.

The company expects a steady improvement in margin year-on-year, driven by short cycle recovery and strong pricing execution. They also anticipate good productivity and margin accretion from the recovery of their non-Aero related businesses. Slide 15 shows the expected sales recovery, with the two units at the bottom, productivity solutions and service and warehouse and workflow, expected to contribute to the overall improvement.

The exit rates for the two businesses that experienced a decline in the previous year are not specifically guided, but it is expected that the exit rate will decrease as the year progresses. The aftermarket services business is expected to continue with double digit growth, while the warehouse solutions business may face challenges in terms of top line growth but will not be a hindrance to EPS growth. The company has taken actions to improve the cost base and expects margin expansion in this business. It is also important to note that the second half of 2023 was weaker than the first half, which should be taken into consideration when modeling for 2024.

The speaker discusses the expected performance of Honeywell in various regions for 2024, including China, high-growth regions, and Europe. China is not expected to have significant growth, while high-growth regions such as the Middle East and India are expected to continue performing well. Europe is expected to have both positive and negative impacts on Honeywell's business. Overall, the company is projected to have organic growth in line with its algorithm.

In this paragraph, the speaker discusses the current state of the company's business in different geographies and the potential impact of interest rates. They also mention the recent Carrier deal and classify it as a bolt-on, explaining how it fits into their overall strategy. They also note that the deal is not a significant portion of their market cap. The next speaker also chimes in and thanks the previous speaker.

Andrew Obin, an analyst, asks about the growth of UOP in the quarter and its visibility for the future. Vimal Kapur, CEO of UOP, explains that the 1% growth in 2023 is due to large equipment-based projects in the previous year, but the core business of UOP remains strong in catalysts. He also mentions the success of sustainable technologies, with plans to reach $1 billion in the next few years. Greg Lewis, CEO of Honeywell, adds that UOP has grown sales and orders by 8% and 2% respectively, with a strong backlog. Overall, they feel confident about the future of UOP.

Vimal Kapur, the Chairman of Honeywell, discusses the positive outlook for 2024 and the recovery in advanced materials and semiconductors. He also mentions the recovery in short cycle chemicals in Q4 and expects it to continue in 2024. Nigel Coe asks about pricing and the break back to growth for IA and ESS. Vimal Kapur responds that IA will be flat on a year-on-year basis and expects a recovery in the second half of the year. He also mentions that order rates support the view that the market has bottomed out.

In 2023, Process Solutions had a strong year and is expected to continue performing well in 2024. Other areas of the company are also showing signs of recovery, such as in scanning and mobility, warehouse automation, and UOP. The company's backlog is at a record high, with strong orders in both short and long cycles. Pricing is expected to be around 3% for 2024, with a balanced view of price versus volume.

The speaker discusses the company's strong capabilities and confidence for the next year. They also mention a potential tax benefit from R&D rollback, but state that they are not counting on it. In regards to the aerospace sector, the company expects low double-digit growth, with high growth in OE and aftermarket, and low to mid-single digit growth in defense. The main challenge for the company is supply chain constraints.

The company had a strong performance in 2023 and expects a good start to the year. The demand from OEs remains the same. The biggest variable for revenue growth acceleration is the pace of short cycle recovery. The company is on track to exceed the $25 billion capital deployment guidance from 2023-2025.

During a Q&A session, Vimal Kapur, CEO of Carrier, discusses the company's capital deployment strategy and potential for mergers and acquisitions. He states that the strategy will be balanced to maximize shareholder return, with both M&A and share repurchases being a part of it in 2024 and beyond. The company's pipeline for potential deals is strong, and they plan to take action on divesting certain parts of their portfolio in 2024. CFO Greg Lewis adds that with the recent Carrier deal, the company's annual capital deployment will increase to $10 billion, putting them on track to reach their goal of $25 billion by 2024. He also mentions that the company's Aero segment showed a 20 basis point margin growth in Q4, despite challenges with the supply chain, and that there may be further opportunities for improvement as the supply chain continues to improve.

Vimal Kapur, along with Greg, discusses the current state of the legacy segment SPS, specifically the warehouse automation projects. They mention that there has been a 30% increase in the pipeline compared to the previous year, showing that the value proposition and long-term trend of warehouse automation remains strong. However, customers are hesitant to invest due to the uncertain market. They remain confident in the business and the actions taken, such as growing the aftermarket, have been successful. In 2024, they expect double digit growth in the aftermarket.

The business is expected to have a 50/50 split between project and aftermarket sales this year, with growth supported by market activity and a strong pipeline. Pricing is expected to be higher in non-Aero segments, and the security business is expected to drive growth in the first half of the year. There is a backlog in projects and services, and the overall outlook is for low single digit growth in building technologies with strong margin expansion.

The speaker, Greg Lewis, discusses the company's commercial excellence actions and their confidence in making progress in the current year. He mentions the challenges faced in the past three years due to COVID, supply chain constraints, and inflation, but expresses excitement for the future and the potential growth from their recent acquisition. He differentiates between short-term challenges and long-term opportunities. The CEO, Vimal Kapur, thanks shareholders and employees for their support and looks forward to updating them on the company's progress.

This summary was generated with AI and may contain some inaccuracies.