The paragraph is an introduction to Honeywell's Fourth Quarter 2024 Earnings Conference Call. The Operator welcomes participants, mentions the call is in listen-only mode, and introduces Sean Meakim, Vice President of Investor Relations. Sean Meakim outlines the agenda, including the presentation of financial results for Q4 and the full year 2024, guidance for Q1 and full year 2025, and an update on portfolio evaluation. He also introduces key executives like Vimal Kapur, the Chairman and CEO, and CFOs Greg Lewis and Mike Stepniak. The call includes forward-looking statements subject to risks outlined in SEC filings, and there will be a Q&A session. Vimal Kapur notes that Honeywell finished 2024 strong, meeting or exceeding sales and earnings guidance despite challenges.

In 2024, Honeywell deployed over $14 billion in capital and is on track to exceed its goal of deploying $25 billion by 2025. The company is divesting non-core businesses, such as advanced materials and personal protective equipment, and focusing on innovations and expanding its global presence. However, geopolitical, economic, and demand challenges may affect short-term momentum. Despite this, Honeywell remains optimistic about long-term growth. As part of its transformation strategy, following a comprehensive evaluation, Honeywell plans to separate its automation and aerospace technologies to unlock value.

Honeywell's Board of Directors has decided to separate its automation and aerospace divisions, along with previously announced plans to spin off advanced materials, creating three independent public companies. This move aims to provide strategic focus, operational independence, and financial flexibility, enhancing growth and value for shareholders and other stakeholders. The separation is expected by the second half of 2026, with strategic actions taken over the past two decades serving as a strong foundation. The decision aligns with the differing strategic paths for automation and aerospace, aiming to unlock additional value.

The paragraph discusses the strategic advantages of separating Honeywell into three independent companies: Honeywell Automation, Honeywell Aerospace, and Advanced Materials. This move allows each entity to focus on its unique purpose and market needs, enhancing innovation, strategic clarity, and financial flexibility. The distinct profiles will enable tailored capital allocation strategies, unlocking growth potential and improving commercial success. Each company will benefit from specialized leadership and retain strong credit ratings to compete effectively in their markets. The goal is to establish these companies as leaders in their fields, leveraging competitive advantages for substantial growth.

The paragraph highlights Honeywell Aerospace and Honeywell Automation as prominent players in the aerospace and automation sectors. Honeywell Aerospace is recognized for its diverse technology offerings across various aircraft, emphasizing sustainability and growth investment opportunities through advanced materials. Honeywell Automation, valued at $18 billion, leverages its cutting-edge controls and automation technology across process, industrial, energy, and building markets globally. The company boasts a strong market presence, serving over 10 million buildings and 17,000 process plants. With a segment margin of 23%, Honeywell Automation focuses on continuous efficiency improvement. Anticipated growth drivers include labor scarcity, increased capital project funding, energy security, and supply chain resiliency, enabled by advancements in automation technologies, cloud connectivity, and advanced analytics.

The paragraph discusses the transition from automated to autonomous industrial facilities through industrial AI, which allows machines to analyze historical data and adapt to new conditions. This shift is expected to boost demand for advanced sensors, controls, and software technologies, aligning with Honeywell's expertise. Honeywell's IoT platform, Honeywell Forge, is enhancing asset performance and security, creating new revenue streams. The growing need for energy efficiency and security is spurring investments in both emerging and traditional energy infrastructures. Honeywell Automation is positioned to capitalize on these trends, focusing on innovation in renewable fuels and LNG. As an independent entity, it aims to strengthen its presence in high-growth sectors, benefiting customers and shareholders. The following page will detail Honeywell Aerospace.

Honeywell Aerospace, with over a century of innovation in aerospace and defense, is set to become a leading publicly traded aerospace supplier. It boasts a diverse technology portfolio and significant achievements, such as delivering over 100,000 auxiliary power units and 72,000 engines, with 90% of global aircraft using its avionics. As an independent entity, Aerospace aims to drive growth through strategic capital deployment, focusing on the electrification and automation of flight. The company reports $15 billion in annual sales, a 26% segment margin, and plans to invest in innovations while maintaining profitability. It also seeks growth through retrofits, modifications, and upgrades, offering high-margin revenue streams independent of OEM build rates or flight hours.

The paragraph discusses Honeywell's strong position in the aerospace industry, highlighting its significant R&D investments, both Honeywell-funded and customer-funded, which comprise 4% and 7% of sales, respectively. Honeywell is well-prepared to benefit from high demand in aerospace and defense markets due to factors like aging aircraft fleets, increased defense budgets, and heightened flight activity in growth regions. The industry also needs advancements in electrification and sustainability to meet carbon reduction goals. Honeywell's innovations in electric propulsion and autonomous technologies are expected to generate substantial revenue, as demonstrated by $10 billion in Advanced Air Mobility contracts. The company's large global presence and strategic focus are poised to drive future growth in aviation. The paragraph also alludes to a transition to a discussion on Advanced Materials.

The paragraph discusses AM's plan to create a standalone specialty chemicals and materials company focused on sustainability. This new company will have the financial flexibility to pursue growth in areas like sustainable refrigerants, electronic materials, and healthcare solutions. With $4 billion in projected sales for 2024 and strong EBITDA margins, AM has invested over $1 billion in building a competitive advantage with a robust supply chain and a large patent portfolio. The company will benefit from strong macro trends and focus on sustainable innovations. Additionally, AM is transforming its portfolio, having announced strategic acquisitions and plans to reorganize around three mega trends, while also planning the sale of its PPE business.

The announcement highlights Honeywell's plan to separate its automation and aerospace sectors and spin off advanced materials, marking a new phase in its transformation. The company is committed to quantum computing through a partnership with SoftBank and looks forward to an eventual IPO for Quantinuum. Honeywell plans to continue strategic acquisitions and share repurchases to enhance its financial profile and reduce its share count by 1% this year. The spin-off of advanced materials is expected by late 2025 or early 2026, and the automation and aerospace separation is targeted for completion in the latter half of 2026, aiming to be tax-free for shareholders.

Honeywell is taking measures to prevent business disruption and manage the significant costs associated with separating its automation, aerospace, and advanced materials divisions. The company's operating principles will continue to guide these franchises, ensuring commitments to customers, shareholders, and employees are met as part of a broader portfolio transformation. The CEO acknowledges the leadership of Greg Lewis, the outgoing CFO, for his contributions. Honeywell ended 2024 strongly, meeting high-end growth and earnings expectations despite challenging economic conditions. Notably, they secured a major agreement with Bombardier for next-generation aircraft technology, including their Anthem avionics system, valued at $17 billion.

In the fourth quarter, Honeywell experienced positive sales and earnings, exceeding previous guidance despite impacts from investments related to Bombardier. Organic sales grew 2% overall, or 6% excluding Bombardier, with notable improvements in certain business areas. Segment margins declined due to Bombardier, but adjusted earnings per share rose 9% excluding its effects. Free cash flow decreased mainly due to Bombardier contributions. Honeywell's backlog hit a record $35.3 billion, and orders increased across all segments. For 2024, organic sales rose 3%, or 4% excluding Bombardier, driven by Aerospace and Building Solutions. Acquisitions added over $800 million in sales, with successful integration. However, full-year segment profit grew just 1%, with a 90-basis-point margin contraction.

The paragraph discusses Honeywell's financial performance and strategies. Excluding Bombardier, their segment profit grew by 6%, with a slight margin contraction driven by pressures in industrial automation. The company believes its accelerator operating system will help expand margins over time. In 2024, adjusted earnings per share grew 4% (or 9% excluding Bombardier). Honeywell generated $4.9 billion in free cash flow, or $5.5 billion without Bombardier, and spent $8.9 billion on acquisitions. They allocated $14.6 billion in total capital, including stock repurchases, capital expenditures, and dividends, which were increased for the 15th time in 14 years. The outgoing CFO, Greg, expresses pride in Honeywell's transformation and confidence in his successor, Mike, who highlights upcoming market challenges and opportunities.

The paragraph outlines Honeywell's market outlook and financial guidance for 2025. The company expects continued growth and investment in aerospace and defense, though with slightly moderated growth rates. Infrastructure and automation investments are benefiting Honeywell, despite short-term muted demand for short-cycle products. Energy investments and digitalization are driving backlog growth and AI-enabled offerings. Growth is anticipated in high-growth regions within the U.S., while demand in Europe and China may offset this. The strengthening U.S. dollar and potential tariffs are seen as challenges. Honeywell projects sales of $39.6 to $40.6 billion, reflecting organic growth of 2% to 5%, or 1% to 4% excluding a Bombardier agreement impact, and notes plans for changes in business segments, including exiting the PPE business and spinning off advanced materials by 2025 or early 2026.

The company's outlook for 2025 predicts steady industrial demand without a recovery in end markets, with aerospace leading growth. Acquisitions from 2024 are expected to boost sales by approximately $2 billion and contribute to organic growth. First quarter sales are projected at $9.5 to $9.7 billion, with a slight organic growth. Segment margins for the year are expected to increase by 60 to 100 basis points or slightly decrease excluding Bombardier. The automation business will drive margin expansion, while aerospace margins will decline due to the lower margin CAES acquisition. Other segments will see margin growth, but faster project growth may create a mixed headwind. First-quarter segment margins are anticipated to be 22.5% to 22.9%, slightly down year-over-year. The company expects modest organic sales growth acceleration as acquisitions mature and aerospace supply improves.

The paragraph discusses Honeywell's financial outlook for 2025, highlighting expectations for various business segments. Aerospace technologies will continue to drive top-line growth, with organic sales projected to increase by mid to high-single digits, excluding Bombardier. The acquisition of CAES will boost sales and profit growth but may slightly reduce margins due to integration costs. Core Aero margins are expected to remain around 26-27%, with a slight decline due to the CAES acquisition. First-quarter sales are anticipated to grow mid-single digits, driven by improvements in output and commercial aftermarket strength. Industrial Automation sales in 2025 are projected to decrease slightly, but margins may expand from commercial excellence initiatives. Building Automation is expected to grow, particularly in solutions for data centers, airports, and hospitality sectors.

The paragraph outlines financial expectations for various segments of a company's operations in 2025. Overall, BA sales are anticipated to grow in low mid-single digits with improved margins due to productivity measures and the Access Solutions acquisition. Building Solutions are expected to outperform Building Products in the first quarter. Energy and Sustainability Solutions should experience low single-digit organic sales growth and increased margins, partly due to the LNG acquisition. However, first-quarter sales in Fluorine Products may decline, although growth is expected in UOP. Earnings per share are projected to rise or fall between 2% to 6%, excluding Bombardier. Free cash flow should grow in line with earnings, with an increase in capital expenditures aimed at high-return projects, funded by working capital improvements. The anticipated free cash flow range is $5.4 billion to $5.8 billion, adjusted for Bombardier impacts.

In 2025, the company plans to strategically manage capital by balancing acquisitions and share repurchases, aiming to reduce the share count by over 1% with a $3 billion allocation. The adjusted EPS is projected to decrease slightly at the midpoint of the guidance, with organic segment profit growth contributing $0.22 per share and acquisitions adding $0.33 per share, despite integration costs. The exit from the PPE business is expected to lower earnings by $0.05, while strengthening growth and margins. Currency fluctuations could reduce sales and adjusted EPS by $400 million and $0.12, respectively. Below-the-line items are forecasted to exert $0.52 of negative pressure on earnings. Additionally, pension income is expected to be $550 million, down $50 million due to a one-time European item.

The paragraph discusses Honeywell's financial expectations and results. It outlines anticipated increases in repositioning and below-the-line expenses, with higher net interest expenses contributing to the rise. The company expects a 20% effective tax rate for 2025, consistent with 2024, and a slight reduction in average shares outstanding, which should boost earnings per share (EPS). The first quarter shares are expected to be around 654 million. Honeywell projects its full-year adjusted EPS to rise by 2% to 6%, excluding Bombardier's impact. Vimal Kapur highlights 2024 as a productive year despite initial optimism, emphasizing the company's adaptability and resilience. They aim to sustain growth through innovation and productivity, acknowledging economic and geopolitical uncertainties in their 2025 outlook. The guidance is positioned as a conservative baseline with potential upside.

The paragraph announces the planned separation of the company into three standalone entities focused on Automation, Aerospace, and Advanced Materials, aiming for long-term growth and value creation for stakeholders. During the Q&A session, Julian Mitchell from Barclays asks about costs related to the separation. Mike Stepniak responds that both Aerospace and Automation sectors are expected to achieve around 100% free cash flow conversion. Vimal Kapur mentions one-time costs estimated between $1.5 billion and $2 billion but does not provide a specific number for stranded costs, indicating further refinement is needed.

The paragraph discusses the company's financial projections and strategy, focusing on growth and cost management plans until 2026. Greg Lewis and Mike Stepniak express confidence in normalizing costs over two years, particularly through advanced materials. Julian Mitchell inquires about margin guidance and potential cost-cutting strategies for 2025, given flat or slightly reduced margins. Stepniak responds that while $100 million will be added in repositioning costs to aid margin expansion, segment margins, especially in aerospace, are expected to improve due to acquisitions and increased volume. However, the recent case acquisition might hinder short-term margin expansion due to its dilutive nature and associated integration costs.

The paragraph discusses a financial outlook and management strategy for a company, likely Honeywell. The focus is on margin expansion in various segments, with a specific emphasis on the aerospace sector and the impact of a case acquisition, expected to positively affect segment profit growth by 2025. Scott Davis from Melius Research asks a question about the timing for naming management teams and whether there will be an internal or external search for aerospace leadership. Vimal Kapur responds that management decisions will be announced over time, with a focus on maintaining the current Honeywell leadership team. The discussion also covers financial aspects like below-the-line items and profit contributions from mergers and acquisitions (M&A), with Mike Stepniak providing a breakdown of these figures, highlighting interest expense, repositioning costs, and reduced pension income as key components.

The paragraph discusses a financial conversation during an earnings call. It includes Scott Davis confirming that a merger and acquisition will be net neutral in 2025. Sean Meakim mentions 1% to 2% business accretion, which still holds in the guidance. Stephen Tusa from JPMorgan questions about cash flow, noting the guidance of $8.50 a share in free cash, translating to 83% conversion. He inquires about reaching 100% conversion and which segment will become the "RemainCo." Vimal Kapur says the decision on spinning off aerospace or automation hasn't been finalized but confirms they will become separate companies. Mike Stepniak explains their plan to achieve 100% cash conversion within 24 months by optimizing working capital and reducing inventory in aerospace. Stephen Tusa then asks about handling below-the-line items such as pension income.

The paragraph involves a discussion during a conference call about the aerospace market and financial strategies. Sheila Kahyaoglu from Jefferies asks about the expected growth in the aftermarket sector for 2024 and projections for 2025, noting that some peers anticipate slower growth. Mike Stepniak responds by indicating that while flight hours have stabilized and the supply chain is catching up, they expect continued growth, especially in original equipment (OE) due to a strong backlog. Sheila also inquires about aerospace margin profiles and investment decisions following a company spin-off, mentioning a specific payment of $385 million to Bombardier in the fourth quarter.

In the paragraph, Vimal Kapur discusses a long-term agreement with Bombardier, which will benefit revenue streams over the next several years, particularly in avionics and engine sectors. The company plans to increase its R&D investments in aerospace, anticipating more opportunities and maintaining momentum in the M&A market. Nigel Coe from Wolfe Research inquires about the impact of these investments on profit margins, noting anticipated M&A dilution and potential growth in automation. Mike Stepniak confirms that Coe's calculations are generally accurate and underscores that margin expansion will depend on product mix and short-cycle product growth, with acquisitions expected to improve margins in the latter half of the year.

The paragraph discusses the company's plans for increasing R&D investment, capital allocation, and M&A activity. They expect a notable rise in R&D spending by 2025 to prepare for future growth while maintaining margins. They plan a $3 billion share buyback in 2025 to reduce share count by 1%. The company is active in the M&A market, particularly in automation, aerospace, and energy, aiming to enhance their portfolio for future growth. The successful outcomes of their 2024 deals affirm their strategy of portfolio transformation. Additionally, they have significant balance sheet capacity for further M&A activities.

The paragraph discusses Honeywell's decision to separate its businesses to create more value and growth. Vimal Kapur explains that Honeywell will focus on three mega trends: the future of aviation, automation, and energy transition. He notes that the aerospace and automation sectors require different strategies, with aerospace needing attention on capacity, supply chain, and electrification, while automation focuses on AI, digital transformation, and energy security. The separation aims to allow each business to grow with focused strategies and investments. Kapur believes that operating as separate companies will unlock more value and growth potential.

In the paragraph, Christopher Snyder inquires about the noticeable positive growth in short cycle end markets like industrial and building automation during Q4, questioning whether this growth might be influenced by tariff pre-buys since forecasts for 2025 suggest slower growth. Mike Stepniak responds positively about Q4 performance, highlighting the company's outstanding results in orders and revenue. However, he emphasizes caution for the upcoming year, aiming to give a realistic financial guide that doesn't rely on uncertain market improvements. He notes potential challenges in the first quarter, like a reduced number of sales days and variability in aerospace, particularly defense and space sectors. Stepniak underscores the need for prudence in the first quarter despite encouraging recent trends. After this discussion, Joe Ritchie from Goldman Sachs is introduced to ask the next question.

The paragraph discusses Honeywell's decision to split the company into three entities: Aerospace, Automation, and Specialty Chemicals. Vimal Kapur explains that while there's potential to break down the automation business further, there are significant commonalities that bind it together. These include shared business models focused on leveraging installed bases, similar strategic priorities like digitalization, and highly interdependent technologies and offerings, such as the EBI and experience platforms and the IoT Forge platform. Additionally, there's significant talent sharing across these businesses due to their similarities.

The paragraph discusses a conversation about Honeywell's recent performance, particularly focusing on the Environmental and Energy Solutions (ESS) division's margins, which were lower than expected year-over-year. Mike Stepniak attributes this primarily to the timing of catalyst sales projects, which are uneven and significantly impact margins. He also mentions a slight deceleration and a lack of confidence in the recovery of their short-cycle industrial products business, which they are monitoring. Additionally, they face pressures from a higher tax rate in the first quarter and pension-related costs. Overall, they anticipate an improvement in the second half of the year.

The paragraph discusses the impact of price versus cost on a company's financial performance. Greg Lewis highlights that significant individual catalyst shipments can greatly affect quarterly margins, advising not to focus too much on any single quarter's results. Andrew Kaplowitz from Citigroup questions how costs and prices are affecting margins, particularly in light of possible tariffs. Mike Stepniak responds that the company had a positive year regarding pricing and anticipates a more than 2% increase in price at the enterprise level this year. The company is focusing on enhancing cost management strategies, suggesting a positive outlook for managing price relative to cost overall.

In the article paragraph, Vimal Kapur discusses the company's focus on enhancing material productivity and managing costs to achieve margin expansion, alongside strategic pricing. Unlike the previous high-inflation periods of 2021 and 2022 when price was the main focus, in 2024, productivity has become a significant lever. The company is carefully balancing pricing and volume strategies, which may vary by business. Kapur predicts that 2025 will show similar pricing dynamics as 2024, with perhaps slightly higher productivity. In terms of revenue growth by geography for 2025, Kapur notes stability over the past 18 months. The aerospace and energy businesses are experiencing global growth, while automation is seeing growth in the U.S., India, and the Middle East. However, there are pressures in Europe and China.

The paragraph is part of a discussion during a financial call addressing Honeywell's industrial emission business and its projected performance, particularly in China and Europe, where they are not expecting recovery. Deane Dray from RBC Capital Markets asks about credit ratings and leverage targets for automation and advanced materials. Mike Stepniak explains that while the investment areas will be high below investment grade, the overall business is expected to be investment grade, with a strong equity story. Additionally, they do not anticipate tariffs affecting their 2025 guidance, as their business operations in China and Canada are not significantly impacted due to their local positioning.

The paragraph is a conclusion to a conference call, featuring brief remarks from Vimal Kapur and others. It mentions Honeywell's efforts to understand tariffs from Mexico and highlights gratitude toward shareholders, colleagues, and customers. Vimal Kapur expresses optimism about the future and a commitment to progress. The operator officially ends the call, thanking participants and allowing them to disconnect.

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