Honeywell International Inc.

Thank you for standing by, and welcome to the Honeywell Second Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. Please be advised that today's call is being recorded. I would now like to hand the call over to Sean Mecham, Vice President of Investor Relations. Please go ahead, sir.

Thank you. Good morning, and welcome to Honeywell's Second Quarter 2024 Earnings Conference Call. On the call with me today are Chairman and Chief Executive Officer Vimal Kapoor and Senior Vice President and Chief Financial Officer Greg Lewis. This webcast and the presentation materials, including non-GAAP reconciliations, are available on our Investor Relations website. From time to time, we post new information that may be of interest or material to our investors on this website. Our discussion today includes forward-looking statements that are based on our best view of the world and of our businesses as we see them today and are subject to risks and uncertainties including the ones described in our SEC filings. This morning, we will review our financial results for the second quarter, share our guidance for the third quarter, and provide an update on full year 2024. As always, we'll leave time for your questions at the end. With that, I'll turn the call over to Chairman and CEO, Vimal Kapoor.

Thank you, Sean, and good morning, everyone. Second quarter was another strong one for Honeywell. We exceeded the high end of our adjusted earnings per share guidance, and achieve the high end of our organic space guidance ranges. While aerospace continues to lead our growth, we are seeing broader participation across our portfolio. Three of our four strategic business groups contributed positive growth for the quarter, and we saw sequential improvement in growth rate from all four. Order rates were healthy across Honeywell, supporting our expectation of further organic growth acceleration into back off of the year. We're adding attractive new assets to our already compelling technology portfolio, which will enable us to create further value for our customers and shareholders alike. Let me take a few minutes to restate my priority as Chairman and CEO of Honeywell before we get into more detailed discussion on the second quarter 2024 results and update on our full 2024 year expectations. First, our key priority remains accelerating organic sales growth to deliver upper end of our long-term target range of 4% to 7%. In order to achieve this, we are enhancing how we think about our new product innovation, monetizing our vast install base, accelerating software offerings, and improving our leadership position in high-growth regions. As an early read on these efforts, our self-help actions and aftermarket services are demonstrating favorable proof points. double-digit growth in the second quarter, and a creative growth even when excluding aerospace. In fact, I'm pleased to highlight that our total Honeywell grew volume in the second quarter, and we expect further volume acceleration in the second half. Second, of the strength of our contemporary digital foundation, we are transforming how we run Honeywell to the latest version of our Honeywell accelerator operating system. We are standardizing by business model to drive incremental value Enhancing our growth capabilities. Our integrated operating system principles enable us to deploy world-class digital supply chain and technology development capabilities at scale, along with multiple growth drivers that benefit the entire enterprise. For example, we are leveraging our digital capabilities in demand planning to more closely match production and material management, enabling us to capture incremental inventory improvement and reduce working capital intensity. We are also leveraging generative AI to maximize the potential benefit of our operating system, both for our customers and ourselves. As anticipated, Accelerator is proving to be a powerful source of profitable growth across all our businesses as well as an important tool to successfully integrate the recent addition to our portfolio. Third, we are excited about our progress on our portfolio optimization goals. We are demonstrating a commitment to accelerate deal flow through multiple strategic port on acquisition in the $1 billion to $7 billion range in order to upgrade the quality of our business and financial profile. These acquisitions are aligned to three compelling megatrends around which we are focusing Honeywell, automation, the future of aviation, and energy transition. The additions combined with a modest subtraction of non-core lines of business that are not aligned to these trends will enable us to accelerate value creation for our shareholders. Last, as we aim for ways to simplify and accelerate growth at Honeywell, we are taking our Honeywell Connected Enterprise Strategy to the next stage by seamlessly integrating HCE into our strategic business groups. In 2018, we formed HCE to enable the creation of one unified industry-leading IoT-forged platform to support the digital transformation for our customers. Over the last few years, we have been increasingly focused on scaling our commercial offering to deliver outcome-based solution in performance, sustainability, and security. We are maintaining our robust software development expertise at the center. NFC version 3.0 will more deeply integrate those centralized capabilities within our segment-level commercial teams. This will deliver even better outcomes to our customers and drive sustained creative software growth across the portfolios. As we demonstrate further progress against this priority, we expect to deliver on our long-term financial algorithm and generate superior value for our shareholders. In the spirit of that progress, let's turn to slide three to discuss our recent acquisition announcements. Our top M&A priority remains targeting bolt-on acquisition as evidenced by our recent announcement. We are creating a flywheel of deals that strategically add to our technological capabilities enhance our alignment to our three compelling megatrends, and provide a creative growth that supports Honeywell's overall long-term financial framework. Let's discuss our recent deals in a bit more detail. Earlier this month, we announced our intention to acquire Air Products' liquefied natural gas processing technology and equipment business for approximately $1.8 billion in all cash transactions. With this addition, Honeywell will be able to offer customers end-to-end solution that optimize the management of natural gas assets. Currently, Honeywell provides a pretreatment solution serving LNG customers globally and automation technology unified under the Honeywell Forge and Expedion platforms. Air Products' complementary LNG business consists of comprehensive portfolio, including in-house design and manufacturing of coil-bound heat exchangers and related equipment. This acquisition will foster our energy transition portfolio within energy and sustainability solutions. The LNG technology will immediately expand our install base, creating new opportunities to compound growth in aftermarket services and digitalization through Honeywell Forge. Notably, this is the fourth acquisition Honeywell has announced this year as part of our disciplined capital deployment strategy, adding a business with a creative economics at an attractive valuation. In June, we announced the acquisition of CAES Systems, or CAES for short, from private equity firm Advent International for $1.9 billion, enhancing Honeywell's defense technology solution across land, sea, air, and space. This business will enable us to provide new electromagnetic defense solutions for end-to-end radio frequency signal management for critical existing and emerging U.S. DoD platforms. which are forecasted to grow significantly at accretive rates in years to come. We are excited that this is the second aerospace-focused transaction we have announced this year, underscoring our alignment to the future of aviation. The business adds state-of-the-art advanced manufacturing capabilities, impressive engineering talent, and potential for significant commercial opportunities in international defense. Also in June, we completed acquisition of Carrier's Global Access Solutions business, which positions Honeywell as a leading provider of security solutions for the digital age, with opportunities for accelerating innovation and fast-growing cloud-enabled services. Honeywell will also benefit from businesses' attractive growth and margin profile, valuable software content, and a creative mix of recurring revenue with forecasted annual sales in excess of $1 billion when combined with our existing security portfolio. We are happy to welcome the Access Solutions team to Honeywell's building automation business. Together, the combination will build our long track record of delivering high-value, critical building automation products, solutions, and services to our customers globally. As we turn our attention to ensuring a seamless integration of the business into our portfolio, we'll utilize our multifaceted tools of our accelerated operating system to streamline processes, ritualize operation, and manifest the anticipated synergies that help make the deal compelling from a top and bottom line perspective. Cumulatively, the Bolton acquisition of the past year represents over $2 billion of incremental annualized revenue with growth profiles well in excess of Honeywell's growth algorithm of 4% to 7%. Collectively, these deals represent an accretive margin profile to our current portfolio at valuation below of our own before factoring any expected sales synergies. Before I hand it off to Greg, I'll turn to slide four to review our progress on overall capital deployment commitments. We are very excited to demonstrate significant progress on the commitment I made to you during the last May Investor Day when we re-upped our intention to deploy at least $25 billion of capital in 2023 through 2025. With the accelerated M&A deal activity this year, we have already deployed and committed approximately $10 billion acquisitions and approximately $5 billion to share buyback, exceeding our minimum pledge of $13 billion over a year early. However, this does not mean our work is done. Our robust balance sheet capacity provides us with the flexibility to allocate capital to accretive M&A, opportunistic share purchases, and high return growth capital. As the deal environment remains favorable, we will continue to reshape the portfolio by building on our already strong pipeline of high value M&A opportunities, as well as strategically proven select non-core assets. In true Honeywell fashion, you can expect us to maintain discipline approach to generate highest return combination of capital deployment. Now, let me turn over to Greg on slide five to discuss the second quarter results in more detail as we provide our views on third quarter and full year 2024 guidance.