The operator introduces the Honeywell Second Quarter 2024 Earnings Conference Call, stating that the call is being recorded and there will be a Q&A session. The Vice President of Investor Relations, Sean Meakim, then introduces the CEO, Vimal Kapur, and the CFO, Greg Lewis. They discuss the company's financial results for the second quarter, guidance for the third quarter, and an update on the full year 2024. They mention that there are risks and uncertainties, but overall, Honeywell had a strong quarter with growth in their aerospace sector and across their portfolio.

Honeywell's order rates are strong and the company is adding new assets to their technology portfolio to create value for customers and shareholders. The CEO's top priority is to accelerate organic sales growth, and they are focusing on new product innovation, monetizing their installed base, and expanding in high-growth regions. The company's self-help actions and aftermarket services are showing positive results and they expect further volume growth in the second half of the year. The company is also transforming how they operate through their digital foundation and Honeywell Accelerator operating system, which standardizes their business model and enhances their growth capabilities. They are leveraging their digital capabilities to improve production and material management and reduce working capital intensity.

Honeywell is using generative AI to maximize the benefits of their operating system for customers and themselves. They are also focused on portfolio optimization, with plans to make strategic acquisitions and divest non-core businesses. They are also integrating their Honeywell Connected Enterprise strategy into their business groups to deliver better outcomes for customers and drive software growth. Overall, they are confident in their ability to deliver on their long-term financial goals and create value for shareholders.

Honeywell has recently made several acquisitions in line with their strategy to target bolt-on acquisitions. Their most recent announcement is the acquisition of Air Products' liquefied natural gas processing technology and equipment business for $1.8 billion. This will expand Honeywell's energy transition portfolio and create new opportunities for growth in aftermarket services and digitalization. This is the fourth acquisition announced this year as part of Honeywell's disciplined capital deployment strategy. In June, they also acquired CAES Systems for $1.9 billion, enhancing their defense technology solutions.

Honeywell has announced a new business that will provide electromagnetic defense solutions for the U.S. DoD platforms, aligning with the future of aviation. This is their second aerospace-focused transaction this year. They have also recently acquired Carrier's Global Access Solutions business, positioning them as a leading provider of security solutions. The business is expected to have annual sales of over $1 billion and will be integrated into Honeywell's Building Automation business. The company plans to utilize their operating system to streamline processes and generate anticipated synergies. In the past year, Honeywell has made bolt-on acquisitions totaling over $2 billion in annualized revenue with growth profiles exceeding their algorithm.

The company has made significant progress in its capital deployment commitments, with $10 billion already deployed and committed for acquisitions and $5 billion for share buybacks. The balance sheet provides flexibility for future capital allocation, and the company will continue to pursue M&A opportunities and divest non-core assets. The company remains disciplined in its approach to generate the highest returns. The second quarter results were strong, and the company will now exclude certain expenses from segment profit and adjusted earnings per share.

In the second quarter, the company saw strong performance, meeting the high end of their organic sales range and exceeding their earnings per share guidance. Organic sales were up 4%, with significant growth in Aerospace Technologies and a 1% increase in volumes. Segment profit and earnings per share also saw growth, driven by segment profit growth. Orders and backlog also saw increases, with growth in several business segments.

In the second quarter, the company had free cash flow of $1.1 billion, which was relatively unchanged from the previous year. They expect working capital to be a positive factor in the future as they reduce inventory levels. The company also made progress on their capital deployment strategy, allocating $6.4 billion for M&A, dividends, share repurchases, and capital expenditures. Sales in the Aerospace Technologies business were up 16% organically, with double-digit growth in both defense and space and commercial aerospace. This was the 13th consecutive quarter of double-digit growth in commercial aviation. Supply chain improvements also contributed to growth, with output increasing by 14% in the second quarter.

In the Aerospace Technologies segment, margin decreased due to expected mix pressure in the original equipment business, but was partially offset by commercial excellence. Sales in Industrial Automation fell due to lower volumes, but showed improvement sequentially. Process Solutions revenue grew, driven by aftermarket services. Sensing and Safety Technologies saw a slight decline, but had positive indicators for the future. In Productivity Solutions and Services, sales improved when excluding a one-time payment in the first quarter. Orders in PSS and IA grew, leading to a book-to-bill ratio of 1.1. Industrial Automation segment margin decreased due to lower volume leverage and the end of a payment agreement. In Building Automation, sales increased due to strong performance in long-cycle Building Solutions, while Building Products continued to have lower volumes.

In the second quarter, the company experienced double-digit sales growth, including benefits from an acquisition and strong performance in building automation and fire/building management systems. However, segment margins decreased due to mix headwinds and cost inflation. In Energy & Sustainability Solutions, sales grew 3% and orders were strong, resulting in a book-to-bill ratio of 1.2. The company's value creation framework and long cycle end markets give them confidence in navigating the current environment. They will now discuss their outlook for the third quarter and full year.

Honeywell has been able to deliver on its organic growth commitments thanks to its commercial and operational discipline. The company has seen modest sequential growth in its short-cycle businesses and is expecting continued growth in the second half of the year, despite the uncertain economic environment. As a result, Honeywell is increasing its 2024 top line expectations and forecasts sales to be in the range of $39.1 billion to $39.7 billion. This includes organic sales growth of 5% to 6% and the impact of recent acquisitions. In the third quarter, the company expects sales to be in the range of $9.8 billion to $10 billion, with the benefit of acquisition-related revenue. However, there may be a bit less favorable mix in some of the segments in the short term as long-cycle businesses outpace the short-cycle recovery.

The company expects to see long-term benefits from strong demand for projects and original equipment, leading to high-margin aftermarket revenue streams. With recent acquisitions, the overall segment margin is expected to be flat to slightly down, but segment profit will still grow. Energy and Sustainability solutions and Building Automation will see the most margin expansion, while industrial automation and aerospace may see a slight contraction due to the CAES acquisition. For the third quarter, the company expects a margin in line with the first two quarters, with growth in Aerospace Technologies driven by robust orders and increased factory output. In commercial aftermarket, growth is expected to continue but may slow down due to tougher comparisons.

The global geopolitical backdrop and strong order book will support sequential growth in defense and space for the third and fourth quarters. Aerospace is expected to lead Honeywell in 2024 with low double-digit organic sales growth. However, aero margins are expected to decline slightly in 2024 due to the impact of the CAES acquisition. In Industrial Automation, there is solid orders momentum in long-cycle businesses and some improvement in short-cycle businesses. Sales growth in the second half will be led by Process Solutions, while Productivity Solutions and Services will see sequential growth. Sensing and safety technologies and warehouse and workflow solutions are also expected to improve sequentially. Overall, flattish organic sales growth is expected in 2024.

The company expects margins to expand in the second half of the year due to productivity actions and volume leverage. Building Solutions is expected to outpace Building Product sales, with modest sequential improvement in sales. Projects and services orders have grown, leading to anticipated revenue growth in the back half of the year. The Access Solutions acquisition has been incorporated into guidance for Building Products. Organic sales growth is expected to be low single digits for the year. While segment margin is still expected to expand, the pace of expansion may be slowed by a shift in mix towards higher sales in Building Solutions. In Energy and Sustainability Solutions, sales are expected to be flat in the third quarter and down slightly sequentially, but sustained strength in catalysts and a recovery in electronic materials will support growth for the full year.

The company's confidence in its sustainable Technology Solutions business remains strong, with expected robust growth for the year. The acquisition of Air Products LNG business is expected to have a positive impact on the company's performance. The organic growth outlook for ESS is low single digits, with expected margin improvement in the fourth quarter. Pension income will remain stable, but there will be a negative impact on net below-the-line income due to increased interest expense. The company plans to invest in high-return projects to support future growth and productivity. The adjusted effective tax rate and average share count are expected to remain stable. Overall, the company anticipates a 6-8% increase in adjusted earnings per share for the full year and a 3-7% increase for the third quarter.

The company expects to see an increase in free cash flow due to progress in working capital and investments in high-return projects. They anticipate continued growth in the second half of the year and remain confident in their long-term growth algorithm. M&A deals also play a role in achieving EPS growth. The CEO is focused on accelerating organic growth, optimizing the portfolio, and evolving the company's operating system.

The company has made progress in improving its financial performance and has completed several deals, bringing the total M&A to $10 billion. They are confident in their ability to meet their financial targets despite challenges. During the Q&A, they were asked to clarify the impact of below-the-line costs, interest, and acquisitions on their organic growth and core profit.

The acquisitions made by the company are having a significant impact on the segment profit numbers. The first half of the year has shown that the organic growth is still within the expected range, but there is a shift towards long cycle projects rather than short cycle ones. This is affecting the margin mix for IA and BA, resulting in a decrease of about $0.15 in guidance at the midpoint. The company has also added new acquisitions, but this will also come with a cost of 5%. Despite these changes, the back half of the year is expected to have a strong exit rate and the company is on track with its strategy.

Stephen Tusa asks for clarification on the profit contribution from recent acquisitions and the impact on core segment profit. Greg Lewis explains that the reduction at the midpoint is about two thirds from the core business and one third from the M&A, including interest costs. Vimal Kapur adds that the margin changes are due to shifts in business mix, such as more OE in aerospace and more solutions in building and industrial automation.

The speaker wants to clarify that the company's underlying businesses are strong, with margin expansion and productivity. The second half outlook is built on long cycle businesses, with some short cycle growth but mostly long cycle growth. The lower margin mix is due to the dynamics of longer cycle businesses growing more than shorter cycle businesses, but this is not due to underlying business margin issues. The short cycle margins are typically 30 points higher than long cycle margins, which explains the lower margin rate overall.

The speaker is responding to a question about the expected increase in revenue in the fourth quarter due to recent M&A deals. They clarify that the deals are expected to close in the third quarter and will contribute to the increased revenue in the fourth quarter. They also mention that there will be integration costs in the early stages of the acquisitions but they are expected to be accretive in the long term. The speaker also mentions that the recent closing of the Access Solutions business and the increased guidance for the year reflect an additional $400 million of M&A revenue in 2024.

The speaker discusses a run rate of close to $2 billion for the company by 2025, with each deal being accretive to the respective businesses and overall Honeywell. A question is asked about the guidance revision math and it is clarified that most of the cut is in IA and BA segments, with the short-cycle, long-cycle mix changes being the most pronounced. The speaker mentions that there will be integration costs and a degradation of EPS guide by $0.04 to $0.05 due to interest costs. The questioner also asks about the repo costs, which the speaker confirms will come down by about $50 million. The speaker explains that integration costs are included in segment profit and there will be ongoing integration costs for the acquired business.

The speaker asks a question about the impact on segment income from new acquisitions in the back half of the year. The response is that a precise answer cannot be given, but there is a range within what was shared. The next question is from Scott Davis about the book-to-bills on Slide 11, which look encouraging and indicate a sharp acceleration in the back half. The speaker confirms that the orders performance in the second quarter was strong, with double-digit growth in Building Automation, high single-digit growth in Industrial Automation, and double-digit growth in Energy & Sustainability Solutions. This has resulted in a backlog of $32 billion, up 5%, which is expected to contribute to strong revenue in the second half. The speaker also mentions a strong forecast for orders in the second half and a pivot towards long-cycle businesses based on the strength of the backlog and forecast. The book-to-bill ratio is nearly one, indicating a strong footing. The speaker then discusses the strong performance and forecast for orders globally.

The speaker discusses the performance of Honeywell in different regions, such as China and the Middle East, and notes that China is facing economic challenges while the Middle East is showing strong growth. They also mention a recovery in Europe and a focus on making aerospace a longer cycle growth sector for Honeywell. A question is asked about the company's approach to monetizing programs in aerospace that are sunsetting, and the speaker confirms that they are changing their approach to make it a more sustainable source of growth.

The Aero business has faced various cycles and is positioned for high single digit growth in the next 5-7 years. The company is focusing on both organic growth and acquisitions in the defense segment. The Chairman remains optimistic about the performance of the Aero business in the future. The short-cycle businesses have performed as expected, but the company may be taking a more conservative approach due to macro uncertainties. The long-cycle businesses are performing well due to attractive segments such as energy transition and aerospace. The short-cycle businesses are reverting back to lower end of initial estimates.

The speaker discusses the mix of short and long-term goals and the impact on margins. They express confidence in the overall business and prioritize organic growth. They mention their goal of delivering on the upper end of their revenue guide and state that short and long-term goals are equally important. They also address concerns about the US elections and potential impact on the global economy.

The speaker discusses the current global political climate and the upcoming US election. They also mention the recent deals made by Honeywell and the potential for revenue synergies from these acquisitions. However, they clarify that the deals were not based on sales synergies and that the main focus is on the accretive nature of the acquisitions. They also mention the potential for sales synergies in the future as the companies are integrated.

The analysts on the conference call asked about the company's aerospace segment, specifically commercial OE and profitability. The CEO and CFO discussed how they are constantly adjusting their output to align with key OEMs like Airbus and Boeing, and the recent changes in production rates. They expect strong double-digit growth in OE, mid-teens growth in aftermarket, and double-digit growth in defense and space. They also mentioned a 100 bps contraction in profitability in the second half, but did not provide further details on how the recent Cobham acquisition will impact this.

The company's mix of deliveries has caused quarter-to-quarter volatility, resulting in the lowest margin rate in the third quarter. However, they expect it to recover in the fourth quarter based on their backlog and margin projections. The aero margin rate will be flat this year, but the recent CAES acquisition will have a negative impact. The company's overall outlook remains unchanged, but there may be fluctuations in margin rates due to product mix. The building products and productivity solutions businesses have been slower to recover than expected, leading to weaker-than-expected June results. The company is closely monitoring these businesses and adjusting their projections accordingly.

The company gave guidance in June before the third month of the quarter, so their current results may differ. Certain parts of their short-cycle businesses are slower than expected, but they are still improving sequentially. The company plans to continue M&A activity, but is also working on divestitures. They will update on the progress of divestitures and their impact on earnings. The company is sourcing opportunities for M&A, but is also focused on integrating past acquisitions.

The speaker, Joe Ritchie, asks about the expected margins for the BA and IA segments for the year. Vimal Kapur responds that the expectations have been lowered due to back half margin performance, but progress is still expected. He also mentions that the PSS business has had a negative impact on IA margins. Greg Lewis adds that pricing is trending as expected at a rate of 3%.

The speaker discusses how their company's pricing is at a neutral level and their productivity is strong, leading to margin expansion. They expect a 3% increase in pricing and mention that electronics and labor are areas with high inflation. The speaker expresses appreciation for shareholders and confidence in the company's future.

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