Honeywell(HON) - 2024 Q3 - Earnings Call Transcript

Financial Data and Key Metrics - Q3 2024 organic sales growth was 3%, below guidance, but aerospace technologies showed sustained strength [5] - Adjusted EPS was $2.58, up 8% YoY, exceeding the high-end of guidance [16] - Free cash flow increased 10% YoY to$ 1.7 billion, driven by stronger operational income and higher collections [16] - Backlog grew 10% YoY to a record $34 billion, with a book-to-bill ratio of 1.1 [14] - Full-year sales guidance revised to$ 38.6 billion to $38.8 billion, representing organic growth of 3% to 4%, down from 5% to 6% previously [24] Business Segment Performance Aerospace Technologies - Sales grew 10% organically YoY, marking the ninth consecutive quarter of double-digit growth [17] - Defense & Space and Commercial Aviation OE both saw double-digit growth [17] - Segment margin remained flat at 27.7% due to cost inflation and mix pressure [18] Industrial Automation - Sales were flat sequentially but declined 5% organically YoY, primarily due to lower volumes in warehouse and workflow solutions [18] - Segment margin expanded 60 basis points to 20.3% due to productivity actions and commercial excellence [20] Building Automation - Sales grew 14% YoY and 11% sequentially, driven by the Access Solutions acquisition and acceleration in the fire business [20] - Orders grew 25% YoY, led by strong demand in data centers, healthcare, and energy [21] - Segment margin expanded 30 basis points to 25.9% [21] Energy and Sustainability Solutions - Sales grew 1% organically, with Advanced Materials up 3% YoY [21] - UOP orders reached a record$ 1 billion, with sustainable technology solutions accounting for over $200 million [22] - Segment margin expanded 10 basis points to 24.5% [22] Market and Strategic Direction - The company is focusing on three megatrends: automation, the future of aviation, and energy transition [9] - Four acquisitions were closed in 2024, representing over$ 9 billion in deployed capital, aligning with the company's strategic priorities [10] - Advanced Materials will be spun off into an independent, publicly-traded company to focus on sustainability-focused specialty chemicals and materials [11] - The PPE business was reclassified as an asset held for sale to strengthen core business growth and margins [12] Management Commentary on Operating Environment and Future Outlook - The company expects organic growth across all four businesses in 2025, with margin expansion driven by volume leverage and productivity actions [33] - Despite macroeconomic challenges, the company remains confident in its ability to execute its long-term growth algorithm [32] - The company is cautious about the short-term macroeconomic environment but sees a constructive outlook due to its robust backlog and leading market positions [33] Other Important Information - The company deployed $3.1 billion in capital in Q3, including$ 2.1 billion in M&A, $700 million in dividends, and$ 300 million in high-return CapEx [16] - Full-year capital deployment is expected to reach a record $14 billion in 2024 [12] - The company expects adjusted EPS for 2024 to be between$ 10.15 and $10.25, up 7% to 8% YoY [31] Q&A Session Summary Question: Thoughts on 2025 outlook and cost-cutting measures - The company plans to provide detailed 2025 guidance in January but expects organic growth across all segments and margin expansion [36][37] - Repositioning guidance was adjusted due to lower Q3 spending, but the company maintains a robust productivity pipeline [38][39] Question: Impact of portfolio actions on organic growth and margins - Portfolio actions, such as the Advanced Materials spin-off and PPE divestiture, are driven by strategic fit and are expected to accelerate organic growth and margin expansion [40][41] Question: Free cash flow guidance reduction - The reduction in free cash flow guidance is primarily due to slower inventory progress in Aerospace and slower payment cycles in high-growth regions [45] Question: Aerospace performance and Boeing strike impact - The Boeing strike had no impact on Q4 revenue, but the company is adjusting shipments to aftermarket customers [48] - Commercial aftermarket growth was led by ATR, with BGA showing single-digit growth [49] Question: Portfolio divestiture pipeline - The company has largely completed its initial portfolio reshaping but will continue to evaluate opportunities for further optimization [73][74] Question: Project delays in Process Solutions - Project delays in Process Solutions were due to short-cycle pushouts, driven by geopolitical uncertainty and oil price fluctuations [76][77] Question: Defense business growth outlook - The defense business is expected to maintain strong growth in 2025, supported by robust order books and supply chain normalization [78] Question: Accelerating new product development - The company expects a material step-up in core growth in 2025 due to accelerated new product development and the evolution of the Accelerator operating system [81][82] Question: Geographic performance - Europe showed signs of recovery in Building Automation, while China remains flat to slightly contracting in automation businesses [83][84]