The paragraph is a transcript from Honeywell's Third Quarter 2024 Earnings Conference Call. Sean Meakim, the Vice President of Investor Relations, welcomes participants and introduces key executives, including CEO Vimal Kapur and CFO Greg Lewis. The call will review Honeywell's third-quarter financial results, provide fourth-quarter guidance, and update the full-year 2024 outlook. It also mentions a leadership change: after the 2024 financial results, Greg Lewis will step down as CFO and take on a new role as Senior Vice President of Honeywell Accelerator and serve as a special advisor to the CEO.

The paragraph expresses gratitude to Greg for his successful tenure as CFO since 2018, highlighting his leadership during company transformations, including reorganizations and M&A activities, which helped shape Honeywell into a digital operator. Mike Stepniak will succeed Greg as Vice President of Corporate Finance in February and work closely with the current CEO during the transition. The company exceeded earnings per share and segment margin guidance in the third quarter despite lower sales, due to delays in project-led businesses and supply chain issues. Encouraging aerospace technologies and building automation trends were noted. The CEO reiterated the strategic focus on accelerating profitable organic growth within a 4% to 7% long-term target range.

The paragraph discusses Honeywell's strategic efforts to drive growth and improve financial performance. Despite recent underperformance, the company is focusing on product innovation, commercial excellence, and partnerships, such as with Google Cloud, to enhance growth. Honeywell has achieved a record $1 billion in orders and is transforming its operations with its accelerator operating system and Honeywell Forge IoT platform. These initiatives aim to create recurring revenue streams, optimize their portfolio through acquisitions and divestitures, and ultimately deliver strong cash generation and an attractive outlook for investors.

The paragraph discusses the company's progress in its portfolio strategy, focusing on three key megatrends: automation, future aviation, and energy transition, over the past year. It highlights the completion of four acquisitions totaling over $9 billion, which enhance capabilities in automation, aerospace, and energy transition. The company also announced plans to spin off its advanced materials division into an independent, publicly-traded company, aiming to capitalize on sustainability-focused specialty chemicals and materials. Additionally, the personal protective equipment business has been reclassified as an asset held for sale as part of their simplification strategy.

The paragraph discusses Honeywell's strategic efforts towards strengthening its core business through acquisitions, share buybacks, dividends, and capital expenditures, aiming to deploy a record $14 billion in 2024. The company will continue pursuing portfolio optimization for growth and margin enhancement into 2025. Greg Lewis then reports on the third quarter results, mentioning that although they faced operational challenges, including an underperformance in Industrial Automation and manufacturing disruptions caused by Hurricane Helene and a plant fire, the company achieved higher-than-expected segment margins and adjusted earnings per share. Organic sales grew by 3% year-over-year, with notable growth in defense, space, and aerospace sectors. Early impact from recent acquisitions such as Access Solutions, CAES, and Civitanavi was also noted.

The company experienced a 2% organic growth in orders year-over-year, with a strong book-to-bill ratio of 1.1, driven by significant growth in Energy and Sustainability solutions and Building Automation. Backlog increased by 10% year-over-year to $34 billion but was 6% higher excluding M&A impacts. Despite lower-than-expected sales, profit was stable due to effective cost management, with a 6% increase in segment profit, especially from Aerospace. Earnings per share for the quarter was $2.16, down 5%, while adjusted earnings per share was $2.58, up 8%, benefiting from segment profit growth and lower interest expenses. The company also took a charge for exiting the PPE business. Free cash flow grew by 10% to $1.7 billion. They allocated $3.1 billion in capital with $2.1 billion for M&A, $700 million for dividends, and $300 million for capital expenditures. The company aims to deploy over $14 billion in capital this year, with ongoing plans to reshape their portfolio by 2025.

In the third quarter, Aerospace Technologies experienced a 10% organic sales increase, marking nine consecutive quarters of growth, with notable performance in Defense & Space and Commercial Aviation. Despite supply chain disruptions, the sector's output grew by 13%. Segment margins remained stable at 27.7%, as commercial actions were countered by cost pressures. In contrast, Industrial Automation sales dropped 5% organically due to reduced volumes in certain solutions. However, Process Solutions saw modest year-over-year and sequential growth, driven by aftermarket services and compressor controls, despite some demand challenges. Sensing and Safety Technologies faced year-over-year and sequential sales declines, but the Sensing business showed slight sequential growth. Productivity solutions and services saw strong double-digit growth in orders and sales year-over-year, excluding a previous license impact.

The paragraph discusses the financial performance and growth of various business segments. The Industrial Automation segment saw a margin expansion due to productivity and commercial excellence, despite cost inflation. Building Automation experienced significant sales growth from acquisitions and strong demand, with a notable increase in segment margin. Energy and Sustainability Solutions had modest organic sales growth, while Advanced Materials saw a 3% year-over-year growth driven by specialty chemicals and materials. UOP faced a decline in sales but achieved a record $1 billion in orders due to strong demand in core process technologies and sustainable solutions. Overall, the company maintained margin protection through strategic actions, even in a low-growth environment.

The paragraph discusses the company's financial outlook and performance. It highlights confidence in future organic growth due to strong orders, a record backlog, and successful M&A deals. However, due to a challenging market environment, the company is revising its full-year sales guidance to $38.6 billion to $38.8 billion, reflecting organic growth of 3% to 4%, down from the previously expected 5% to 6%. This adjustment is due to lower third-quarter results and slower recoveries in industrial automation and certain Aerospace and Energy markets. The paragraph notes that four recent acquisitions will contribute significantly to sales in 2024. For the fourth quarter, the company expects sales to grow 2% to 4% organically, particularly in Aerospace due to improving supply chains and increased flight hours.

In the third quarter, strong results driven by commercial excellence and productivity have allowed the company to adjust its segment margin guidance higher, expecting to end the year at 23.4% to 23.5%. While delays in short cycle improvements create margin headwinds, they also expand the potential for high-margin aftermarket projects in the long-term. Segment profit is anticipated to grow between 5% and 6% for the year, with Building Automation and Energy and Sustainability Solutions leading in margin expansion. For the fourth quarter, segment margins are expected to be 23.8% to 24.2%, up sequentially but slightly down year-over-year due to product mix and volume de-leverage issues. In Aerospace Technologies, the company predicts low-double-digit growth in 2024 organic sales and mid to high-single-digit sales growth for the fourth quarter, driven by strong performance in commercial aviation, defense, and space, despite some margin contraction due to supply chain disruptions and equipment volume changes.

The company has revised its 2024 outlook for Industrial Automation, expecting a high-single-digit decline in year-over-year organic sales due to slower short-cycle demand recovery and project delays. Fourth-quarter sales in this segment are predicted to fall slightly, with growth in projects and aftermarket services offset by weaknesses in sensing, safety technologies, and smart energy. Margins will decrease this year but increase when excluding certain early-year payments. Building Automation is expected to see low-single-digit organic growth, driven by strong performance in Building Solutions and high-growth regions like India and Saudi Arabia, with fourth-quarter sales rising and margins peaking. Energy and sustainability solutions are projected to have low-single-digit organic growth, with the fourth quarter showing strong margin expansion due to catalyst shipment seasonality and contributions from a newly acquired LNG business. Overall, for the full year, net below the line is projected to be between negative $650 million and $700 million, with the fourth quarter forecast between negative $250 million and $300 million.

The company has updated its financial expectations for 2024, anticipating $600 million in pension income, a $50 million increase from previous guidance. This includes a one-time item delayed until 2025. Repositioning expenses are projected between $150 million and $190 million for the year and $60 million to $100 million for the fourth quarter, with an emphasis on investing in projects for future growth. The adjusted effective tax rate is expected to be around 20% for the year and 17% for Q4 due to favorable tax adjustments. The average share count is estimated at 655 million for the year and 653 million for Q4. The company highlights that the impact from recent acquisitions will be neutral for 2024 EPS, improving slightly from last quarter’s predictions, with 1%-2% EPS growth expected in 2025. The adjusted EPS forecast for the year is between $10.15 and $10.25, up 7%-8% from last year, and Q4 EPS between $2.73 and $2.83, up 1%-5%. Free cash flow guidance is now $5.1 billion to $5.4 billion, adjusting for prior year settlements.

The paragraph discusses Honeywell's current challenges, including slow inventory progress in aerospace and delayed payment cycles in high-growth regions, affecting their performance and expectations. Despite these issues, they remain focused on reducing working capital and funding high-return CapEx projects for technological innovation. Acquisitions are progressing well, with record-high backlogs and an expanding installed base, giving them confidence in executing long-term growth strategies. Honeywell reports better-than-guided margins and earnings per share for the third quarter, adjusting its outlook to current macroeconomic conditions. Looking forward to 2025, they anticipate benefiting from a strong backlog, acquisitions, and market position, although short-cycle growth may be muted early on. They expect organic growth across all four businesses next year, aiming to resume margin expansion in 2025 by leveraging volume and productivity actions, despite modest aerospace headwinds.

In the article paragraph, Honeywell executives are discussing their financial outlook for 2025. They plan to provide more detailed guidance in the next quarter's earnings call as they gain clearer insights into their business environment and the effects of their portfolio strategy. Despite uncertainties, such as geopolitical events and upcoming U.S. elections, they express confidence in their portfolio's ability to drive innovation and address significant global challenges. Julian Mitchell from Barclays asks about cost management and potential margin expansion strategies. Vimal Kapur acknowledges the uncertainty and indicates that detailed guidance will be given in January when more information is available.

The paragraph discusses the company's optimistic outlook for 2025, highlighting a 6% increase in backlog (10% with acquisitions), a strong cost position, and margin expansion across all segments due to productivity and cost control actions. The company is focusing on growth through new products and maintaining a high-quality P&L, with expectations for organic growth in all segments in 2025. Specific growth ranges will be shared in January. They anticipate a return to margin expansion based on actions taken. Despite some uncertainty, the setup remains positive. Greg Lewis explains a reduction in guidance due to lower Q3 numbers, but emphasizes a strong productivity and repositioning pipeline, dismissing concerns about a negative outlook for 2025.

The paragraph discusses Honeywell's approach to managing its portfolio and the recent spin-off of its Advanced Materials and PPE assets. Vimal Kapur explains that portfolio actions are guided by the strategic alignment with Honeywell's focus on three megatrends, enhancing organic growth, and improving margins. While the PPE business is expected to boost growth and margins, the Advanced Materials business is more neutral. Kapur emphasizes that portfolio optimization is ongoing, and future actions will aim to further enhance the quality of Honeywell's portfolio. Additionally, the recent acquisitions are in high-growth sectors such as defense, LNG, and Access Solutions.

The paragraph is part of an earnings call Q&A with Honeywell executives discussing future growth and financial expectations. Steve Tusa from JPMorgan asks about Honeywell's growth trajectory and margin trends into 2025. Greg Lewis from Honeywell responds, stating that they expect growth in all four business segments in the upcoming year, with margin expansion across the portfolio. Although the aerospace sector might experience pressure from acquisitions, those acquisitions are expected to drive strong growth and segment profit. In response to a question about free cash flow cuts, Greg Lewis indicates it's related to an earnings adjustment rather than issues with working capital.

The paragraph discusses challenges in managing aerospace inventory, which remains difficult to reduce compared to other areas like IA and BA. Payment cycles in high-growth regions are slowing due to factors like oil prices and disruptions in the Middle East, impacting cash flow guidance. The focus is on accelerating working capital reduction and digitizing processes to improve inventory and planning. Nigel Coe from Wolfe Research asks about the impact of a Boeing strike on fourth-quarter outlook and seeks a breakdown of commercial aftermarket performance between ATR and Bizjet, suggesting Bizjet may face more challenges. Vimal Kapur acknowledges the challenges related to Boeing.

The paragraph discusses the impact of a strike vote on Honeywell's operations, noting that there is no immediate impact on Q4 revenue due to coordinated efforts with Boeing. Honeywell is adjusting shipments for Boeing's aftermarket customers and planning for 2025. Greg Lewis comments on commercial aftermarket growth, highlighting high-single-digit growth overall and notable international market expansion. Additionally, Nigel Coe inquires about Honeywell's PPE revenue and margin, and the potential monetization of their investment in Quantinium, which Honeywell plans to do at the right time.

The paragraph discusses a company's strategic focus on achieving technical milestones that will lead to acquiring commercial customers and eventually launching an IPO. Recent progress includes collaboration with Microsoft on quantum computing advancements and announcements regarding logical qubits. This progress is critical for customer acquisition. The speaker, Vimal Kapur, addresses a question about an announcement involving Forge and Gemini AI, explaining that as more customer data is connected through their Forge platform, they plan to utilize AI models and Google's Vertex AI capabilities to develop new applications based on this data.

The paragraph discusses a company's strategy to monetize its installed base by enhancing product capabilities through partnerships, such as embedding AI technologies from Google. They aim to launch new AI-embedded products by early 2025, emphasizing organic growth through innovation. The conversation then shifts to Intelligrated, a business that has faced challenges after initial success. Scott Davis asks how to improve it, citing potential issues like innovation, market cyclicality, and customer concentration. Vimal Kapur acknowledges the frustration but notes slight growth in recent quarters, indicating a positive trend towards recovery.

The paragraph discusses the focus on aftermarket business growth, predicting it will make up 60% of revenue by 2025, up from 30% at acquisition. The increased revenue run rate is near $1 billion, but customer adoption rates are limited by the high capital investment needed for fixed sortation systems. This requires a significant long-term commitment from customers, which is a constraint on business growth. The company aims to manage the business efficiently and improve it over time. The discussion shifts to addressing a question about aerospace (Aero) organic growth slowing in Q4, attributed to high comparison levels and two transitional discrete events in Q3.

The paragraph discusses a series of challenges and developments for a company, starting with the temporary impact on revenue due to a fire at one of its plants and disruptions from a hurricane affecting shipments from its aerospace facility in Florida. Despite these setbacks, the company reports a 13% volume growth in Q3, lower than past high-teens growth. The outlook for their Aero division remains positive, with expectations of low-double-digit growth, although supply chain issues have prevented exceeding those projections. The backlog is over $2 billion, which is not ideal for customers but is expected to support similar growth in 2025. The company is optimistic about a new acquisition worth $750 million, expected to boost growth in the defense segment. There is also a brief mention of ongoing declines in the Industrial Automation sector due to market challenges.

In the paragraph, Vimal Kapur discusses Honeywell's performance in industrial automation across various global markets, noting the influence of market drivers and economic dynamics in regions like the U.S., Germany, and China. While it's challenging to give a concise answer about market share changes, he suggests that Honeywell is aligning with the overall market trends. Looking forward to 2025, Kapur anticipates growth for the Industrial Automation business, as two significant challenges—Intelligrated business volume rebasing and Zebra royalty contributions—will be resolved, allowing for sustained performance improvements.

The paragraph discusses a Q&A session regarding aerospace performance, specifically focusing on production rates and margin shifts between Q3 and Q4. Sheila Kahyaoglu asks about the Boeing MAX production rates and the reasons for the margin deceleration from Q3 to Q4. Vimal Kapur explains the margin change is due to differences in Original Equipment (OE) shipments, with supply chain disruptions in Q3 lowering volume but improving the product mix, which positively affected margins. As supply chain issues are resolved in Q4, shipments will increase, altering the margin trajectory. Greg Lewis adds that the demand from Boeing remains stable, though there were disruptions in shipment capabilities between the quarters.

In the discussion, Sean Meakim mentions that the third quarter performance exceeded expectations but anticipates some reversion in the fourth quarter, leading to an unchanged full-year outlook. Sheila Kahyaoglu inquires about the commercial aftermarket in Q3, particularly its underperformance at 8%, and asks whether it will lead in growth in Q4, focusing on ATR versus BGA. Greg Lewis confirms that ATR will continue to outperform BGA. Deane Dray of RBC Capital Markets asks about the re-segmentation and divestment plans stated a year earlier, and Vimal Kapur explains that while some parts of advanced materials were initially up for divestment due to their misalignment with megatrends, a full spin was deemed more valuable after further analysis.

In the discussion, Vimal Kapur outlines Honeywell's strategic approach to managing its portfolio, emphasizing the near-term completion of broader strategy work but acknowledging that portfolio management is ongoing. Kapur highlights the integration of aviation, energy transition, and automation into Honeywell's operations and mentions the company's strong balance sheet capacity, which they plan to use for business development. When asked about potential divestitures, Kapur refrains from providing a specific timeline, explaining decisions will be based on opportunities and fit. The conversation shifts to addressing project delays in Process Solutions, with an observation that revenue conversion typically amounts to 50% in the third month of each quarter, but no specific root causes or solutions were elaborated upon.

The paragraph discusses recent business developments, highlighting issues with smaller project conversions and delayed catalyst shipments in Q3, contrasting with a record $1 billion in new project orders for UOP. These dynamics reflect continued long-cycle commitments but also short-cycle project delays, attributed to Middle East uncertainties due to conflict and oil price volatility, as well as the impending U.S. elections. Despite these external factors, the defense business has been growing robustly as the supply chain normalizes. Looking forward to 2025, there's an expectation that the defense sector will continue to experience significant growth, potentially high single to double digits, driven by the steadying supply chain.

The paragraph discusses the company's strong defense order books and ongoing demand, highlighting its success in managing supply chain actions for the defense sector over the past two quarters. This momentum is expected to continue into 2025, influencing aerospace growth, boosted further by the acquisition of a defense service segment named Kate. The company anticipates an increase in its defense segment and relatively higher growth rates compared to its core aerospace business. Additionally, Vimal Kapur mentions the company's strategy of accelerating new product categories and refreshing core products to enhance growth in 2025. This strategy involves launching new products that are not currently part of their system, which is expected to lead to a significant increase in core growth from 2024 to 2025, even if market conditions remain subdued outside of aerospace.

In the article paragraph, Vimal Kapur discusses the current state of Honeywell's business across different geographies. He notes a moderate recovery in the building automation business in Europe, while China remains flat with no significant change in performance. Strong growth is observed in India and Saudi Arabia, contributing to their double-digit revenue growth. Kapur emphasizes that these factors make him confident in delivering growth by 2025 and concludes by thanking shareholders and Honeywell employees for their support in achieving these goals.

The speaker expresses optimism about the future and looks forward to sharing updates. They thank the audience, wish them safety and health, and the operator ends the conference call.

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