HONEYWELL INTERNATIONAL INC Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Leadership Change: Greg Lewis will step down as CFO and enter a new role, with Mike Stepniak succeeding him in February.
• Strategic Priorities:
  • Acceleration of profitable organic growth towards the upper-end of the long-term target range of 4% to 7%, with new product innovation and commercial excellence efforts.
  • Evolution of the accelerator operating system to extract incremental value from operations and drive growth.
  • Acceleration of value-creation through portfolio simplification and optimization, including acquisitions and divestitures.
• Third Quarter Performance: Demonstrated operational excellence, exceeding adjusted earnings per share and segment margin guidance ranges despite sales being below guided range. Organic growth was 3% in the quarter. Orders grew 2% organically with a book-to-bill of 1.1, and backlog reached a record $34 billion.
• Business Segment Progress: Impact of acquisitions like Access Solutions was seen, with positive performance in Aerospace, Building Automation, and Energy and Sustainability solutions.

Segment Performance

• Aerospace Technologies: Sales were up 10% organically year-over-year, with double-digit growth in Defense & Space and commercial aviation original equipment. Segment margin remained flat at 27.7% in Q3.
• Industrial Automation: Sales were flat sequentially but decreased 5% organically in the quarter, primarily due to lower volumes in warehouse and workflow solutions and short cycle safety and sensing technologies. Segment margin expanded 60 basis points to 20.3%.
• Building Automation: Sales grew 14% year-over-year and 11% sequentially, with organic sales up 3%. Segment margin expanded 30 basis points to 25.9%.
• Energy and Sustainability solutions: Organic sales grew 1% in Q3. Advanced Materials grew 3% year-on-year. UOP sales declined 2% but orders were up over 50% to a record $1 billion. Segment margin expanded 10 basis points to 24.5%.

Guidance

• Full-Year Sales: Revised to $38.6 billion to $38.8 billion, representing organic growth of 3% to 4%, down from previous range.
• Fourth Quarter Sales: Anticipated to be in the range of $10.2 billion to $10.4 billion, up 2% to 4% organically.
• Segment Margins: Overall segment margin expected to end the year between 23.4% and 23.5%. Fourth quarter segment margin expected in the range of 23.8% to 24.2%.
• Business-Specific Guidance: Aerospace Technologies expects low-double-digit organic sales growth in 2024; Industrial Automation sees low-single-digit organic sales decline in 2024; Building Automation expects low-single-digit organic growth; Energy and Sustainability solutions expects low-single-digit organic growth with strong sequential improvement in Q4.

Risks

• Operational Environment Challenges: Near-term delays in project-led businesses, lack of short cycle improvement, and discrete supply chain disruptions.
• Market Uncertainty: Macroeconomic and geopolitical uncertainties impacting sales and margins.
• Supply Chain Disruptions: Discrete manufacturing disruptions in sectors like aerospace affecting shipments and margins.

Question and Answer

Q: Maybe I just wanted to start off with a sense, maybe flesh out a little bit more any thoughts around sort of next year.

A: Vimal Kapur mentioned that portfolio actions are driven by fit in the Honeywell portfolio and commitment to three megatrends, and Greg Lewis explained the takedown in repositioning guidance is due to Q3 being on the low-end.

Q: Just on the Aero performance, maybe just touch on the Boeing strike and how you dial that into your sort of 4Q outlook?

A: Vimal Kapur said Boeing circumstances are challenging but no impact on revenue in Q4, and Greg Lewis noted Boeing's demand on them hasn't gone down demonstrably.

Q: I wanted to ask on the ARO organic growth into Q4, slowing to mid to high-singles. And I think you said earlier that there's no impact from the Boeing strike in that.

A: Vimal Kapur explained margins in Q3 to Q4 are due to OE shipments and supply chain disruptions, and Greg Lewis said Boeing's demand on them hasn't changed meaningfully.

Q: Hey, good morning, guys. [Multiple Speakers] to the call. Guys, you made this announcement with Forge and Gemini AI. I mean what's the deliverable here?

A: Vimal Kapur said it's about connecting customer assets to Forge platform and using AI capabilities to create new applications, with products embedding AI to be launched in early 2025.

Q: Thank you. I wanted to ask on the ARO organic growth into Q4, slowing to mid to high-singles. And I think you said earlier that there's no impact from the Boeing strike in that.

A: Vimal Kapur explained margins in Q3 to Q4 are due to OE shipments and supply chain disruptions, and Greg Lewis said Boeing's demand on them hasn't changed meaningfully.

Q: Thank you so much, guys, and good morning. Going back to Aerospace and Greg, if we -- or if we could talk about -- can you tell us what the rate was in Q3? How you think about it in Q4 and deceleration Q3 to Q4?

A: Vimal Kapur said margins in Q3 to Q4 are due to OE shipments and supply chain disruptions, and Greg Lewis said Boeing's demand on them hasn't gone down demonstrably.

Q: Thank you. Good morning, everyone.

A: Vimal Kapur talked about portfolio actions being driven by fit in the Honeywell portfolio and commitment to three megatrends, and Deane Dray asked about time frame for other divestitures and Vimal Kapur said it's determined by opportunity set.

Q: Hey, good morning, guys.

A: Joe Ritchie asked about project delays in Process Solutions and Vimal Kapur explained root causes are push outs due to uncertainty, and about defense business growth in 2025 and Vimal Kapur said defense business has strong order books and will maintain momentum.

Q: Good morning, everyone.

A: Andy Kaplowitz asked about accelerating new products and evolving the accelerated operating system's impact in 2025 and Vimal Kapur said new product categories will act as an enabler, and about geography and Vimal Kapur said there's recovery in Europe's building automation and different performance in China.