Honeywell International Inc. (HON) Bank of America Securities 2023 Financial Services Conference (Transcript)

Honeywell International Inc. Conference Call Summary Company Overview - Company: Honeywell International Inc. (NASDAQ: HON) - Event: Bank of America Securities 2023 Financial Services Conference - Date: June 14, 2023 - Participants: Greg Lewis (CFO), Joe O'Dea (Wells Fargo) Key Points Financial Outlook - Honeywell reaffirmed a growth algorithm of 4% to 7% and margin expansion of 40 to 60 basis points [2] - Gross margin target set at 40% or more, currently at 37% [2] - Recurring revenue base is about one-third of the portfolio, with a target to grow it over 35% [3] - Capital deployment expected to exceed $25 billion over the next three years [3] - Upgraded margin expectations for HPT to 27% and SPS to 20% [3] Demand and Market Trends - Strong demand in aerospace and defense, with an upgraded outlook to low-double-digits growth [4] - China’s market is improving, with low-single-digit growth in Q1 accelerating in Q2 [7] - Aerospace demand remains solid despite supply chain challenges, with normalization expected in short-cycle businesses [8] - Past due backlogs in aerospace continue to grow due to strong demand [12] Supply Chain and Pricing - Supply chain issues are bifurcated: semiconductor shortages are more concentrated, while aerospace faces skilled labor shortages [14][15] - Improvement in supplier commitments and reduced decommit rates, leading to better output [16] - Honeywell achieved 10% price increase in 2022, with a more nuanced pricing strategy for 2023 [18][19] - Confidence in maintaining positive price-cost dynamics across the portfolio [20][24] M&A Strategy - Honeywell is focusing on M&A with a target of two to four deals annually [45] - The current capital markets environment is favorable for Honeywell due to a strong balance sheet [44] - Increased bandwidth for M&A activities as integration efforts from previous transformations are winding down [42] Segment Insights - Aerospace: Expected mid-single-digit organic revenue growth, with strong demand for commercial aerospace and defense [46][48] - HBT (Honeywell Building Technologies): New construction represents about 10% of total demand, with a focus on institutional customers [50] - PMT (Performance Materials and Technologies): Targeting sustainable technologies, aiming to grow this segment to a $1 billion business [56] - SPS (Safety and Productivity Solutions): E-commerce trends remain strong, with expectations of a bottoming out in revenue trends by the end of 2023 [61][62] Digital Transformation - Honeywell is reducing ERP systems from 150 to 10, enhancing operational efficiency and data integration [36][39] - Focus on creating a digital infrastructure that supports various business models, improving customer experience and operational metrics [29][33] Conclusion - Honeywell is positioned for growth with a robust financial outlook, strong demand across key segments, and a strategic focus on M&A and digital transformation initiatives. The company is navigating supply chain challenges while maintaining pricing power and exploring sustainable technology opportunities.