Honeywell International Inc. (NASDAQ:HON) Bank of America 2025 Industrials, Transportation, and Airlines Key Leaders Conference May 13, 2025 8:00 AM ET Company Participants Mike Stepniak - SVP and CFO Sean Meakim - VP, IR Conference Call Participants Andrew Obin - Bank of America Andrew Obin With that, we're going to kick off right on time. We have Honeywell. We upgraded Honeywell last week. The stock is neglected, for a lack of a better term. And we think there's a lot of good news happening below the surf ...

Summary of Honeywell (HON) 2025 Conference Call Company Overview - **Company**: Honeywell (HON) - **Date**: May 13, 2025 - **Speaker**: Mike Stepnik, Senior Vice President and CFO Key Industry Insights - **Industrials Sector Performance**: The industrials sector is the best performing sector year-to-date, with the U.S. being the leading market for industrials, currently experiencing the largest capital expenditure (CapEx) cycle in two decades [3][4] - **Resilience in Earnings**: Companies in the industrials sector have shown surprising resilience during the earnings season, indicating strong underlying fundamentals despite market noise [4] - **Pricing Power**: Companies have improved their pricing strategies post-COVID, which has contributed to their resilience [5] - **Supply Chain Dynamics**: There has been a notable shift in supply chains moving out of China, with a focus on resilience and reshoring, particularly in sectors like semiconductors and LNG [5][7] Honeywell's Business Performance - **First Quarter Results**: Honeywell reported strong orders in the first quarter, with continued strength observed in April and May [13][14] - **China Exposure**: There is cautious optimism regarding demand in the second half of the year, particularly in segments exposed to China, with tariffs impacting gross margins by approximately $500 million [14][15] - **Segment Performance**: - **Building Automation**: Strong performance noted, particularly in fire products and short-cycle demand in Europe [16] - **Aerospace**: Organic growth of 9% driven by aftermarket demand, despite a 7% decline in Commercial OE [24] - **Defense and Space**: Strong international demand, particularly in Europe, with no significant impact from the defense budget [28][29] - **Building Products**: Growth driven by infrastructure projects and services, with a focus on creating an install base for value-added services [35] Strategic Initiatives - **Spin-Off Strategy**: Honeywell is separating into three distinct segments to allow for more focused capital allocation and management of growth CapEx [22][23] - **Acquisitions**: Recent acquisitions, such as Sundyne, are aimed at enhancing Honeywell's technology portfolio and stabilizing revenue streams [66] - **Advanced Materials**: The business is expected to grow, with a focus on refrigerants and HVAC, and is set to be spun out as Solstice Advanced Materials [68] Market Dynamics and Competition - **Chinese Competition**: Rising competition from Chinese companies is anticipated, particularly in lower-end markets, while Honeywell focuses on high-end technology [10][50][55] - **Energy Demand**: The demand for energy is expected to continue increasing, with Honeywell positioned across various energy sectors [51] Financial Strategies - **Pricing Strategy**: Honeywell is managing pricing carefully to avoid destroying demand while recovering costs through surcharges related to tariffs [76][77] - **Stock Buybacks**: The company has been active in stock buybacks, viewing its stock as attractively priced [81][82] Conclusion Honeywell is navigating a complex market landscape with a focus on strategic growth, resilience in its core segments, and proactive management of its supply chain and pricing strategies. The company is well-positioned to capitalize on emerging opportunities while addressing competitive pressures, particularly from China.

Group 1: Honeywell International - Honeywell has been added to UBS analyst Amit Mehrotra's list of "top picks" alongside Johnson Controls and 3M, indicating strong potential for outperformance [1] - The company raised the midpoint of its full-year guidance following excellent first-quarter results, with an organic sales growth outlook of 2% to 5% [2][4] - Honeywell's aerospace business is benefiting from increased aircraft production and growth in flight departures, with notable double-digit growth in Building Solutions [3] - Long-term potential exists from the planned breakup into three divisions, allowing for a more focused investment proposition and capital raising opportunities [6][7] Group 2: Johnson Controls - Johnson Controls reported a 7% organic sales growth in its fiscal second-quarter 2025, raising its full-year earnings guidance to $3.60 [9] - The company achieved a 5% order growth, increasing its backlog to $14 billion, driven by digital technology deployment [10] - Long-term growth catalysts include the adoption of the OpenBlue suite, which optimizes building efficiency and supports net-zero emissions goals [12] - The company's HVAC systems present growth opportunities in data centers, aligning with the AI/data center spending boom [13] Group 3: 3M - 3M's new CEO, Bill Brown, is implementing improvements after a period of underperformance, particularly in addressing legal issues and restructuring [14][15] - The company is tracking toward the low end of its guidance for full-year organic sales growth of 2% to 3%, but operational improvements have increased its operating margin to 23.5% [16] - If the tariff environment improves, 3M could benefit from enhanced earnings due to improved end markets and reduced cost headwinds [17]

Core Viewpoint - 3M Company and Honeywell International Inc. are competing in the diversified operations industry, with both companies investing heavily in R&D to drive growth and innovation [1][2] Group 1: 3M Company (MMM) - The strongest driver of 3M's business is the Safety and Industrial segment, with organic sales improving by 2.5% year over year in Q1 2025, supported by demand from data centers and renewable energy projects [3] - The Transportation and Electronics segment is benefiting from growth in the transportation and aerospace markets, with adjusted organic revenues growing 1.1% in Q1 2025 [4] - 3M rewarded shareholders with $396 million in dividends and $1.3 billion in buybacks in Q1 2025, with a total of $2 billion in dividends and $1.8 billion in buybacks in 2024 [5] - The Consumer segment faced a decline of 1.4% in Q1 2025 due to decreased consumer discretionary spending [6] - 3M's long-term debt was $12.3 billion, a 10.8% increase sequentially, with a long-term debt-to-capital ratio of 73.1%, significantly higher than the industry average of 55.2% [7] - Ongoing litigations, including a $6 billion settlement related to earplug lawsuits, pose additional financial concerns [8] Group 2: Honeywell International Inc. (HON) - Honeywell's commercial aviation aftermarket sales increased by 14% year over year in Q1 2025, driven by growth in air transport flight hours and supply-chain improvements [9] - The defense and space business saw a 23% year-over-year sales surge in Q1 2025, benefiting from stable defense spending [9] - The Building Automation segment is expected to benefit from increasing building projects, with an overall backlog growing 8% year over year to $36.1 billion [10] - Honeywell paid out $732 million in dividends and repurchased shares worth $1.9 billion in Q1 2025, with a total of $2.9 billion in dividends and $1.66 billion in buybacks in 2024 [11] - The Industrial Automation segment has faced weakness, particularly in smart energy and thermal solutions [12] - Honeywell's long-term debt was $25.7 billion, with a long-term debt-to-capital ratio of 58.8%, higher than the industry average [13] Group 3: Financial Estimates and Performance - The Zacks Consensus Estimate for 3M's 2025 sales implies a year-over-year decline of 9.8%, while EPS estimates indicate growth of 4.9 [14] - Honeywell's 2025 sales and EPS estimates imply year-over-year growth of 4.4% and 4.5%, respectively [14] - In the past three months, 3M shares have lost 7.4%, while Honeywell stock has gained 2.9% [18] - 3M is trading at a forward P/E ratio of 17.62X, above its three-year median of 12.03X, while Honeywell's forward earnings multiple is at 20.15X, close to its median of 20.05X [19] Group 4: Investment Considerations - 3M's strength in safety and industrial markets is offset by weakness in consumer retail and ongoing legal challenges, leading to cautious sentiment [23] - Honeywell's diversified portfolio and strong market position provide a competitive advantage, making it a more favorable investment despite higher valuation [24]

Core Viewpoint - Honeywell International has demonstrated resilience amid tariff-related uncertainties, raising its earnings guidance for 2025, which positions the stock as a good value for patient investors [1][4][14] Group 1: Honeywell's Guidance - Honeywell raised its 2025 earnings per share (EPS) guidance from a range of $10.10 to $10.50 to a new range of $10.20 to $10.50, reflecting management's estimate of current tariff impacts [4] - Despite the overall positive guidance, Honeywell lowered its full-year sales expectations in industrial automation to a mid-single-digit decline from a prior low-single-digit decline [5] - The company's first-quarter organic sales growth of 4% exceeded internal expectations, particularly in the commercial aerospace aftermarket, and management increased its sales guidance in building automation [6] Group 2: Tariff Management - Honeywell's guidance accounts for a $500 million impact from increased tariffs, but management is implementing pricing actions and seeking alternative sourcing to mitigate this impact [7] - More than 80% of Honeywell's sales in the U.S. and Europe are produced locally, which aids in managing tariff impacts [8] - As a net exporter to China, Honeywell's earnings could benefit from any easing of U.S./China trade tensions, given that the company has already incorporated existing tariffs into its guidance [9] Group 3: Future Growth Catalysts - Honeywell plans to spin off its advanced materials business as Solstice Advanced Materials in late 2025/early 2026, with expected growth improvements in the latter half of 2025 [10] - Honeywell Aerospace is experiencing high-single-digit growth due to ongoing demand in the commercial aftermarket and original equipment sales [11] - The separation into three standalone companies—Solstice Advanced Materials, Honeywell Aerospace, and Honeywell Automation—will likely enhance growth potential, particularly in aerospace and automation sectors [12] Group 4: Investment Appeal - Honeywell's stock is attractive for both near-term and long-term investors, with potential to exceed guidance in 2025 and operational improvements expected from the planned business breakups [14]

Core Insights - Honeywell Inc. experienced a significant stock price increase of 5% following the announcement of better-than-expected quarterly earnings [1] - The company's sales rose by 8% year-over-year, reaching $9.8 billion in the first quarter of 2025, with the Aerospace segment performing particularly well [1] Financial Performance - Honeywell's quarterly earnings exceeded market expectations, contributing to the stock price surge [1] - The Aerospace division was highlighted as a key driver of sales growth, indicating strong performance in this sector [1]

Cybersecurity, predictive maintenance and operational efficiency identified as most valuable uses of AI for the energy industryThis builds on analysis from Bloomberg that shows overall global energy demand will increase 32% by 2050CHARLOTTE, N.C., April 30, 2025 /PRNewswire/ -- Honeywell (Nasdaq: HON) today released its AI in the Energy Industry pulse survey, which reveals the majority of participating U.S. energy executives believe artificial intelligence (AI) has the near-term potential to improve and enh ...

Core Insights - Honeywell reported Q1 2025 sales of $9.8 billion, representing an 8% year-over-year increase [1] - Earnings per share (EPS) stood at $2.22, unchanged from the same period last year, while adjusted EPS was $2.51, reflecting a 7% increase [1] - Operating cash flow reached $600 million, and free cash flow was $300 million, marking a 61% year-over-year growth [1]

Financial Data and Key Metrics Changes - Honeywell exceeded the high end of its guidance on all metrics in the first quarter, with organic sales growth of 4% year over year [4][18] - Adjusted earnings per share (EPS) was $2.51, up 7% year over year, while earnings per share remained flat at $2.22 [20][21] - First quarter cash flow exceeded $300 million, over $100 million above the prior year, driven by better adjusted earnings [20] Business Line Data and Key Metrics Changes - Aerospace Technologies saw a 9% organic sales increase, with commercial aftermarket sales growing 15% due to robust demand [22] - Industrial Automation sales declined 2% organically, primarily due to lower demand in personal protective equipment [23] - Building Automation grew 8% organically, driven by strong demand in both Building Solutions and Building Products [25] - Energy and Sustainability Solutions sales declined 2% organically, while Advanced Materials sales decreased by 4% [26] Market Data and Key Metrics Changes - Orders for the first quarter were $10.6 billion, up 3% year over year, with a record organic backlog growth of 8% [20] - Aerospace industry demand continues to outpace supply, supporting orders growth of 9% and a book-to-bill ratio of 1.1 [22] Company Strategy and Development Direction - Honeywell is focused on separating into three standalone public companies to unlock significant value and position each for long-term growth [9][10] - The company is actively pursuing acquisitions, with the recent acquisition of Sundyne being part of its portfolio transformation strategy [12][14] - Honeywell's local for local strategy aims to mitigate the impact of tariffs and geopolitical tensions by serving local markets [15][16] Management's Comments on Operating Environment and Future Outlook - Management acknowledged increasing economic uncertainty and shifting global trade patterns but remains confident in achieving its 2025 outlook [4][5] - The company is maintaining its full-year organic growth guidance while raising its adjusted EPS guidance [5][29] - Management emphasized the importance of ongoing mitigation efforts and a strong operational framework to navigate current challenges [16][28] Other Important Information - Honeywell has repurchased approximately $3 billion of its shares in 2025, with plans to continue opportunistic buybacks [11][33] - The company expects free cash flow for the year to be between $5.4 billion and $5.8 billion, down 2% to up 5% excluding the Bombardier impact [32] Q&A Session Summary Question: Details on tariffs and offset strategies - Management confirmed that the estimated tariff impact is approximately $500 million, with strategies including pricing adjustments and productivity measures to mitigate this impact [47][48] Question: Volume assumptions and contingency - Management indicated a conservative approach to guidance, assuming a volume decline of 1% to 2% and a price increase of about 3% [60] Question: Impact of tariffs by segment - The largest tariff exposure is in Industrial Automation and Aerospace, with Building Automation being largely protected due to its local strategy [87] Question: Aerospace aftermarket performance - The commercial aftermarket grew 15%, driven by strong demand and a positive backlog, with no significant changes in pricing expectations [108][109] Question: Supply chain exposure to China - Management noted that while there is tariff pressure, they do not foresee a shortage of parts, focusing instead on demand destruction due to tariffs [102][105]

Core Insights - Honeywell International Inc. reported first-quarter 2025 adjusted earnings of $2.51 per share, exceeding the Zacks Consensus Estimate of $2.21, marking a 7% year-over-year increase on an adjusted basis [1] - Total revenues reached $9.82 billion, surpassing the consensus estimate of $9.57 billion, and reflecting an 8% increase from the previous year, driven by the Aerospace Technologies segment [2] Financial Performance - Aerospace Technologies revenues were $4.17 billion, up 14% year over year, with organic sales increasing by 9% due to heightened flight activity in commercial aftermarket and defense markets [3] - Industrial Automation revenues declined 4% year over year to $2.38 billion, with organic sales falling 2%, impacted by softness in the safety & sensing technologies business [4] - Building Automation revenues increased 19% year over year to $1.69 billion, with organic sales up 8%, driven by strength in building solutions and products [5] - Energy and Sustainability Solutions revenues rose 2% to $1.56 billion, although organic sales fell 2% due to weakness in the Advanced Materials business [6] Costs and Margins - Total cost of sales was approximately $6.04 billion, an increase of 8.1% year over year, while selling, general and administrative expenses rose by 4.5% to $1.36 billion [7] - Operating income was $1.97 billion, reflecting a 6% year-over-year increase, with an operating income margin of 20.1% compared to 20.4% in the previous year [7] Balance Sheet and Cash Flow - As of the end of Q1 2025, Honeywell had cash and cash equivalents of $9.7 billion, down from $10.6 billion at the end of December 2024, with long-term debt increasing to $25.7 billion [8] - The company generated net cash of $597 million from operating activities, up from $448 million in the prior-year period, with capital expenditure totaling $251 million [8] - Free cash flow for the quarter was $346 million, representing a 61% increase from the previous year [9] 2025 Guidance - Honeywell expects sales for 2025 to be in the range of $39.6-$40.5 billion, with organic sales anticipated to increase by 2-5% [11] - The company projects a segment margin of 23.2-23.5%, up from 22.6% in 2024, and adjusted earnings per share between $10.20 and $10.50, indicating a 3-6% year-over-year increase [11] - Operating cash flow is expected to be in the range of $6.7-$7.1 billion, with free cash flow projected between $5.4-$5.8 billion [11] Major Developments - Honeywell plans to divest its Advanced Materials business and has already entered into a deal to divest its Personal Protective Equipment unit, leading to the creation of three publicly listed companies: Honeywell Automation, Honeywell Aerospace, and Advanced Materials [12][13] - The planned separation is expected to be completed in the second half of 2026 in a tax-free manner for shareholders [13]