Okay, thanks everyone for joining us for a kickoff of our industrials conference this year. Great to have everybody here. Before we start with Honeywell, just wanna remind everybody, and I feel like an idiot saying this, but we have a panel at 2:00 P.M. this afternoon on AI, and it's basically the head of AI, J.P. Morgan. We're doing a lot here, and I think it's actually gonna be super interesting, better than prior year panels. So, hopefully, you can take some time and sit in on that at 2:00 P.M. But before that, we have a bunch of companies lined up here, and we're very pleased to start with Honeywell. We have Greg Lewis, CFO, and Sean Meakim of investor relations. Greg, thanks for being here.
I don't know if you wanna kick off with just a little bit of an update on what you guys are seeing.
Yeah.
So far here, through the beginning of March, and then, I have a few questions.
Sure. So, first of all, thanks for having me. It's been a while since I've been here with you. You know, just super quick, just a couple of quick pages, and then we can get into the Q&A. You know, maybe first and foremost, we're, you know, two months plus through the quarter. Our guidance is in the backup of this document, but, you know, certainly reaffirming that we're on track to our guidance for the first quarter. I'm excited to see, you know, I'm excited for a new year. I'm excited for the platform that we've built here at Honeywell and, you know, certainly what, you know, Vimal is bringing to the table in terms of an enhanced focus on growth. And we're excited about the megatrends that we are, you know, stacked up against.
You know, you've seen this before, but you know, certainly we're getting closer to closing on the acquisition with Carrier. You know, we've said that was expected to close sometime in the third quarter. You know, the timing of that, of course, will be what it will be. But we also had the raise for Quantinuum, which, again, importantly, $5 billion, you know, valuation on that with the $300 million raise. And there's been a lot of talk, of course, about our capital deployment overall. You know, this year, just with the closing of the Carrier deal, you know, Vimal says we're gonna deploy $10 billion of capital, which is the highest that we've done, you know, in a number of years, and certainly will take us to over our $25 billion plus three-year commitment.
So you can see that the acceleration is there. We're excited about the financial algorithm that we have to bring to bear, for the company, you know, 8%-12% EPS growth given both our organic growth algorithm, you know, what we've continued to do in terms of our 1% minimum share repurchase. And again, of course, the adding onto that M&A, and, you know, we're not done with just one deal last year. And, you know, I think as you've seen before, we've demonstrated our ability to deliver on our algorithm year after year through ups and downs in the environment that we've seen, and we'll continue to do that as we go forward from here.
So very excited about the platform that we've built at Honeywell over the last, you know, 20 years, but particularly the last five to six, and looking forward to really leverage that with the Vimal's focus and pivot, you know, towards a bigger growth agenda. So maybe with that, I'll turn it over to you for comments or questions.
Great. Thanks. So you guys, reaffirming the guide. And anything moving around, within the businesses, puts and takes, anything that's, that's better or worse in the near term here, short cycle versus long cycle, or?
Yeah. I think, you know, Q1's probably gonna look a lot like Q4 did. So I don't think anything materially different has evolved. Again, we're only a couple months in, and, as you know, a large portion of the quarter happens in the last two to three weeks, you know, of the third month. So still a lot to be unfurled. But as it sits here today, you know, we're leveraging the long cycle backlog that we came into the year with. We're seeing short cycle stable but not pivoting, you know, up yet. That's not unexpected. We think that's more of a second half versus a first half dynamic.
And, you know, we're doing all the right things to prepare for that, including, again, getting ready for closing and beginning the integration around Carrier as well as continuing to work the pipeline.
Just geographically, what, what's your take on what's going on in China from your, your dashboard?
Yeah. So we actually have a very healthy growth rate in China that's supported a lot, of course, by the aero business and, you know, just return to travel and Aerospace. You know, the Chinese economy is muted. I, you know, I was there late last year. You know, we continue to have a big presence there and are traveling there fairly often. And I'd say, you know, the economy itself is going through a bit of a restructure, if you will. But you know, we still have a lot of confidence that we're gonna be able to grow our business, you know, mid-single digits, not maybe the double digits that we had, you know, expected in the past.
But, you know, we've got a great business there, and we're gonna continue to, you know, take advantage of our positions in that business.
You guys have a pretty strong backlog, you know, great collection of long cycle businesses. You know, one of the few companies that continues to grow backlog. How do you see backlog playing out this year?
Yeah.
You know, book- to-b ill has been pretty solid, so.
Yeah.
Where do you see kind of finishing the year from just a comparable perspective?
Yeah. I mean, I wouldn't be surprised if our backlog grows throughout the course of the year. We continue to have, you know, our past due backlog in Aerospace grow, you know, quarter-over-quarter and even within the months of the quarter at this point because that's, as you know, that's gonna be a multi-year story on the unlocking of that supply chain. And that's not gonna. I don't think we're gonna see that past due backlog start to burn until perhaps next year. And that's such a big part of our business, so that's going to influence our overall company backlog, you know, pretty meaningfully. You know, in the short cycle, most of the past due backlog challenges have been flushed through.
There's a couple of spots where we're still working through, you know, some challenges, but for the most part, that's worked its way through. So, you know, book- to-b ill, you know, we're gonna be in that 1:1 range, you know, ±, you know, as I see it right now.
When you think about the more commercial businesses, the non-aerospace businesses in that backlog, aside from what you're not able to ship, is the demand running in and around the shipments, or is that what are you seeing there in kind of the more commercial businesses, long cycle?
Yeah. I mean, I'd say yeah. Long cycle, actually, the buildings business, very strong, and I would say, orders are outstripping sales at the moment. So we're building some backlog in the HPS business, which is good. You know, we're gonna see a little bit of decline in the equipment business in UOP. And again, that's just because of the cyclicality of some large projects, particularly around LNG, that run through it. But the catalyst backlog, very healthy there. HPS has had a very good two years, frankly, and continues to, you know, see healthy orders.
So and the one, you know, the one spot that we all know very well about is the warehouse automation backlog, which has come down significantly, you know, given the warehouse automation pinch in that market. But other than that, I think some pretty healthy dynamics.
So on the topic of backlog, early, you know, short cycle stuff, you definitely have, like you said, a bit of a step up from first half to second half. I guess when we look at, you know, normal seasonality, you definitely have a step up from Q1 to Q2 this year. I believe the comments have been a bit muted but still up. Can you maybe just refresh us on just the high level of what you've said from, you know, the trajectory on EPS and revenue for Q1 to Q2 in a kind of directional sense?
Yeah. The way I would think about the year is you're gonna get a marginal step up from 1Q to 2Q, and then 3Q and 4Q will be a bit more substantial off of the 2Q base. So it's not like there's gonna be a huge inflection, you know, in the second quarter that we see, but a bit more of a moderate improvement sequentially from quarter to quarter. You know, EPS and revenue growth are going to, on a percentage basis, just each quarter get a little bit better. So it's gonna be a little bit of a, you know, stair step up as we go throughout the course of the year with, again, the back half.
You know, remember, some of that is the absolute growth rates, and some of that is just the comps, you know, are gonna become more favorable in the back half versus the front half. And we should have a pretty healthy exit rate, overall for the business.
You're talking about year-over-year growth, right?
That's right.
Sequentially, do you think you'd be able to grow earnings faster, you know, leverage a revenue growth, grow earnings sequentially a little bit faster than revenue growth?
Yes. Yes. And this again, in the second half.
Second.
That should pick up.
That should accelerate, but even in 1Q to 2Q, a little bit better revenue.
Yeah. A little bit better revenue and leverage on top of that.
Okay.
Gives us a little bit better EPS.
On sequentially. Okay. Great.
Mm-hmm.
I appreciate that. Sorry. We gotta get the sequential stuff out of the way. So, just on the businesses, you guys recently restructured some of the reporting. IA's a big segment, so maybe we can just kind of, like, delve into that one in the different segments. I guess we'll start with warehouse automation.
Yeah.
You know, where do we stand in that cycle? How do you see the, you know, the recovery playing out there? And anything to point out as far as future, you know, the future drivers here?
Yeah. Yeah. So I guess what everyone knows where the industry is. So there's nothing differentiated for me to tell you that you don't already know about the, you know, the squeeze in terms of the growth rates on the overbuild that occurred. What I would tell you and what's important to know about Honeywell and about IGS is a few things. Number one, you know, our business has been repositioned in a very healthy way, both from a supply chain footprint and cost perspective, as well as an execution focus. I think we've done a lot of work to increase our capabilities around execution. And the third part of that is just the, you know, remember, when we bought this business, the whole point was win install base, create a very healthy aftermarket service business.
That's now approaching a $600 million part of the portfolio. So fairly substantial, you know, aftermarket at very high rates. So we're poised for leverage as, you know, growth does return. We still feel like the overall macro trend of e-commerce and warehouse automation is a positive one. And, you know, while, you know, we're not happy with the close rates of deals as we sit here right now, it will happen. And as it does, I think the leverage prospectively is really the important thing to be mindful of. And again, keep in mind too, this is 4% of the portfolio from a revenue perspective, you know, less than that from an EPS point of view.
So while it's interesting, it's not the biggest driver in, you know, the Honeywell value creation story, but I'm still, you know, excited about what we've done and, you know, where it goes from here.
Is this a strategic asset? I mean, is this something that you guys wanna reinvest in, now that it's gotten, you know, small? Is this part could this be a platform really for you guys going forward?
Yeah. Yeah. Listen, I mean, that's why when you think about the Industrial Automation segment now as it is, you know, there are clearly going to be synergies with, you know, our technology across both that and HPS. You know, obviously, there's synergies around the supply chain, which we're gonna delve into. So it fits right into software. You know, a lot you know, you, you mentioned AI a few moments ago. AI is important to us as well. I think there's gonna be some interesting solutions that our technology teams are creating that, I think can help on the maintenance assist side. You know, so there's some really good use cases for us. So I think it fits nicely into the kinds of things that Honeywell does well with our, you know, our controls platform and background.
Again, prospectively, from this point forward, it has a very nice, thematic, you know, growth path in the future. We've gotten the business really well structured to take advantage of that as that happens.
I guess when we think about a combination of project selectivity and, you know, the low. You moved some supply to low-cost regions.
Yep.
These are kind of like structural changes that ultimately, as it comes back, it won't be that, you know, you guys will be nipping at these tough deals, and you can really leverage the business as it comes back.
Yeah. Yeah. I mean.
Like the markets are sustainable.
Listen, we learned a little bit of a lesson around overconcentration. So I don't think you'll see us do that again in the future. So I'm very excited about the forward leverage for the business as it does return to growth.
And sorry, one more on just the pipeline. We were down at the show yesterday, and everybody's saying that these warehouse pipelines are definitely expanding, but the close rates are relatively a challenge. I mean, is that something that you would expect to hit in the second half, like perhaps a little loosening of that.
Yeah.
Of that pipeline, or we just don't know?
Yeah. I mean, I wish if I knew that, I'd be in Vegas, you know, probably placing bets 'cause I mean I knew more than I do. We'll see how that goes. I, you know, it really, everybody's got a different point of view as to what their appetite for investment is. The thing I will tell you, though, is everyone is struggling for people. When you think about warehouse automation and the number of people that have to, you know, touch packages, and when you look at some companies who have had to sign on to pretty substantial labor inflation clauses in their own operations, I don't know that anybody would argue that there's going to be, you know, a need to do important things in this space.
So whether that happens in the second quarter, the third quarter, the fourth quarter, or early in 2025, you know, I really can't tell for sure, but those are real thematic problems that people have to go solve, and we're gonna be part of that solution.
Moving on to the handheld business, we like to start with the kind of negative comps, and we'll finish with Aerospace, so.
You promise?
Finish on a positive. Yes. Yes. We will get to Aerospace. This business has obviously seen some really dramatic destocking, pretty clear destocking. I know one of your peers has been relatively more positive recently. What, what the orders were, I think, pretty good in the fourth quarter. What are you guys seeing there, and why can't that business maybe surprise a little bit potentially in the near term?
Well, I would tell you that that is one of the businesses that we have a bit more optimism around. You know, in the fourth quarter, its book- to-b ill was over 1, you know, somewhat meaningfully relative to others who were kind of a little bit above but just around. And so we do think that there is going to be an inflection coming. The business is operating reasonably well, and, again, this is one of those businesses that has a very high variable contribution margin. So as you see growth, you know, the leverage associated with that is going to be very meaningful. We are optimistic, and, yeah, this is a business that we're looking forward, you know, to providing some of the juice that's gonna help us here as we progress through the year.
Is there anything unusual about the fourth quarter, like timing of a price increase or anything like that that would have driven those orders? Can those maybe sustain into at least the first quarter? If you don't ship it, it's at least some orders that, you know, you're being a little backlogged or not really?
Yeah. If I think back to, you know, the kinds of things you're referring to, you know, are people buying ahead of a price increase? That would have been much more meaningful.
Yeah.
You know, 2022 into 2023 as opposed to 2023 into 2024. You know, we talked about the fact that, you know, we did 10% price in 2022, 4% in 2023, and our number this year, we think, is gonna be in the 3% range. So it's not like there's a big heavy thing for any customer to go try to avoid. So I'd be surprised if that were.
The point is that order number is indicative.
I think it's a solid order number that should be indicative of the future. We definitely, this is one of the businesses that we have the clearest visibility into channel inventory. That channel inventory seems to be, you know, back to sort of a normalized level. So we would expect, like, real demand increases would then flow through, you know, pretty evenly with our overall profile.
Would you have visibility on that by the time you like, when you report first quarter, would you have visibility, more confidence, or is it just so short cycle that your visibility there is pretty vague?
I mean, that's a very short cycle business, so I will probably have a little bit better view of Q2.
Okay.
but, you know, again, when you get into some of these products, businesses, you know, 90 days out is kind of the limit of what you can have, you know, a lot of certainty on.
Yep.
so.
You do have the Zebra headwind in Q2.
We do. Yep.
In re on revenue.
Well-known. I mean, yeah, that's not news. It was an eight-quarter event, and the first quarter of this year is the last of those eight quarters, and then that will matriculate out of the P&L.
Yep. Makes a lot of sense. Then lastly, on the sensing business, always tough to tell what the real drivers are there. What are you guys seeing there, and how do you see that playing out in the next couple of years?
Yeah. Well, again, think about there's a number of drivers. I mean, industrial, healthcare, Aerospace. Healthcare, Aerospace, you know, are very solid. Industrial, probably low single-digit type kinds of numbers. Again, this is another business where the stocking levels are coming back into alignment. We're getting better visibility on that. I'll just make a quick plug for Accelerator for a second because when we talk about our accelerator operating system, you know, this is one of those areas when we talk about aftermarket services or products-based business models, we're getting more on-purpose visibility into our channels as a way of operating, right? So, you know, that wasn't the truth across every single business. Now we're making that a capability that we're digitizing so we get better visibility to that on purpose.
We're doing that here, and we're starting to see those stocking levels, you know, also come down to a bit more normalized rate. So, you know, that gives us a bit more confidence as we head into the back end of this year as well.
That business, I know, is a business that you guys like and worth talking about maybe adding to at some point.
Yes. We'd love to.
Is that still a, it's still kind of a platform?
Yeah. 100%. Yeah. 100%. I mean, the sensing business, you know, everything that is going to be automated requires some level of sensing. So this is an area that we would definitely like to add onto the portfolio.
And then lastly, the newcomer there, HPS. What are you guys seeing there? And also, it was a very strong margin year for them. Maybe talk about what drove that, and ultimately, is that temporary? Do you see that continuing on?
Yeah. So, again, HPS probably is our most mature projects and services operating, you know, business model combination in the whole company. And it had a terrific year. In fact, it had two great years in a row, in both 2022 and 2023. And a big part of that is they're making a lot of hay in the aftermarket, whether it's our software solutions coming through HCE on the industrial side or whether it's our regular way, you know, aftermarket business. It's probably the best aftermarket business outside of Aerospace, you know, in sort of the traditional, you know, Honeywell portfolio. And that's also driving, you know, strong margins, right? So that's that, if those things are growing at, think about a double-digit growth rate in services, you know, that is creating some nice margin leverage.
We expect 2024 to be very similar. We expect positivity in the project side, not you know not massive on the top line from a percentage basis, but also a very good pull-through on the aftermarket services. That's why Vimal probably spoke about it. You know, we talked about it a little bit at the earnings release. You know, as we think about 2024, a lot of what we're trying to do is self-help: aftermarket services, that accelerator, you know engine that we're working on across all the businesses there, taking something like the success we see in HPS, extending it across the others. You know, our story around HGRs has always been a strength for us. So you know, these are the kinds of self-help levers.
HCE continues to have strong double-digit growth on the top line, again, off of a $1.5 billion-plus base, so not huge in the context of Honeywell, but still, you know, nicely accretive to the top line. Again, that's also embedded in HPS as well.
But I think the backdrop at HPS is also pretty good, right? I mean.
Oh, yeah.
Process CapEx is okay. Any, any concerns around the LNG, you know, noise that's going on out there, and then, you know, the kind of project delays?
Yeah. I would say the way I mean, with LNG in particular, the way I think about that is it's gonna happen somewhere. And if it doesn't happen in the U.S. and it winds up in a different spot of the world, we're gonna be there.
Right.
You know, because we're such a global business, and our reach is what it is. So, you know, that demand, I think, is going to be satisfied in one form or another, across the globe, and we're gonna be a big part of that wherever it happens to land.
The point is that that's not like an impact on your near-term growth rate or a cycle killer or anything like that.
No. No. No.
Still a pretty good cycle demand-wise there, right?
Yes. Yes. For sure.
Okay. Just moving on to the Building Automation business. That one's always tricky because a lot of us think of non-res spending. It's a global business. There's solutions and products. Maybe on the product side, there's definitely been a destocking.
Yep.
For everyone involved in fire and security products. When is there any visibility on when that's coming to an end, and how do you guys look at demand there this year?
Yeah. I mean, we're feeling it too. You know, again, I would call our demand profile stable but not growing, on a year-over-year basis. And I think, again, that's a little bit of what we're seeing here in Q1 is a bit of a continuation of that. If I had to call the end of destocking and some of those channels, it's probably Q1 maybe a little bit of a bleed over into Q2, but not really much beyond that. And then I would expect to see, again, sort of demand, you know, like real demand recouple, with our sales growth rates, you know, from, from, you know, sort of the latter part of Q2 into Q3.
I know you guys have a lot of solutions and software. I'll get to that in one second. But, like, the pie chart for us from an end market perspective is always tough to see on this one. Should we think about it as similarly like a you know, the, the non-res data the government puts out there where, you know, there's some office, some education? Like, are there any verticals you're overly exposed to? And would you have some content in these manufacturing plants that are going up here in, in the U.S.?
You know, some, yes, but, you know, that's the, I would say the beauty of, you know, Building Automation. We've talked. People do, to your point, go, "Oh, commercial building equals BA," and that's not it. I think we're something like 20% exposed, across our entire, you know, portfolio to just commercial buildings. And also, you know, we play heavily in retrofits, so it's not all about a new construction thing. To be honest with you, the best indicator we've had as we look back has generally been GDP, and we think about our growth rate should be GDP-plus in that business, overall. So there's not any one vertical that I would be, you know we're into data centers, you know, we're into hospitals, we're into schools, you know, we're into commercial buildings, a little bit into manufacturing.
I think that's actually a good thing for us, the broadness of where we play.
This is one of the more mature software businesses you guys have, great controls platform. What are some of the Forge KPIs you're looking at? And, you know, you guys have been at this for a couple of years now. Anything to point to, to highlight the success or failures?
Yeah. Sure. I mean, the two biggest parts of HCE are in buildings and in industrial. And again, both of those businesses are growing healthy double digits. So, you know, whether it's energy management-related offerings coming out of Forge, whether it's building occupancy related. You know, we're now getting into with ESG, there's a lot, you know, people have to measure greenhouse gas emissions, so we've got some solutions around that as well. So, you know, those would be probably the two or three things that I'm really excited about. I think the other thing you're gonna see is, you know, we're gonna get a little bit more deeply into the small and medium-sized market.
I think as we can make applications like Forge more attractive to small- and medium-sized businesses, you should expect us to be looking for solutions that'll fit that end of the market as well because I think there's a lot of demand in that space, which we haven't to this point cracked code on. But that's something we're working on that could expand our SAM.
How do you count? Is it subscriptions? Is it seats? Is it how do you measure success there from a unit kind of volume perspective?
You know, we, yeah. I mean, we're trying to get to a place where ARR becomes a more relevant metric for us. And, you know, we're learning, and that's not necessarily our usual way that we had traditionally thought about it. But, again, as we're executing our software accelerator launch as the fourth of the four business models, that's happening right now, you know, we're putting a lot more emphasis in energy, around that, specifically. But that's ARR, I think, is where you're gonna see us starting to go to try to, you know, put a point on it.
Yep. That's a helpful metric when it's actually ARR.
Yeah.
Companies report ARR. It doesn't really matter.
Yes.
Seemingly matter. Just on the margin side, that business has been unbelievable. Very strong, mid-20s.
Yep. Yep.
You know, even with the products de-destock, is that a mix? Is that a mix? Yeah. Is that a mixed dynamic, and can that continue?
Yeah. I would say, if you think about all the things that we have tried to do at Honeywell, you know, they've been leading in a number of them. They're the furthest along in the supply chain rationalization. You could, I mean, they have more than three factories, but you could think about a large percentage of their volume is coming out of a regional factory in each one of the three main regions. So we've created a lot of scale on manufacturing. You know, one of the things that, you know, never let a good crisis go to waste. With all of the challenges that we had in semis during the supply chain constraint, well, what do you think we did with our R&D team? We went back to reconfiguring to, you know, fewer boards, newer boards, on our platform.
So we're creating some scale, you know, there that we maybe didn't have before. Like I said, they've got one of the two largest parts of HCE, which is growing quite nicely. So there's a number of elements that have helped us drive that business to a much more streamlined, you know, lean operational model. And as the products business returns to growth at, you know, fairly high margin rates, we expect that to continue to have room to run. So, you know, we talk about a 27% long-term target. We've already printed something around 25%, and I'm very confident in hitting that number, as we go forward from here.
Yeah. It's pretty, pretty attractive. On ESS, maybe talk about what's going on at Advanced Materials. Freon and prices are moving around a little bit. There's this transition. That business had a nice margin in 2022, went down in 2023.
Yep.
What's happening on the Advanced Materials side? You've also got electronics coming off the bottom, so.
Yeah. Yeah. I mean, if you think about sort of the three big pieces of AM, you know, being fluorines, the chemicals business, and electronics, I think what you're gonna see is almost like it's gonna be a little bit of a one, two, three, I think. I think chemicals will start, you know, having some growth early, you know, perhaps as early as the first quarter. Then I think electronics, second, third quarter, and then fluorines, you know, third, fourth quarter. So it's gonna be a little bit of a stairstep as the orchestra comes, you know, back into balance with one another. You know, nothing really new on the quota and the pricing side in fluorines. So I think that, you know, that dynamic is pretty well understood by most people.
So we'll see the quota come down, but we'll have some other applications that, you know, we think we're working on to kick in to try to offset that to some degree. But, you know, this business should be heading towards a nice growth path as the year progresses as well, and we'll get some nice leverage on those margins as the business grows.
The R410A price, is that still important to you guys? Is that something we need to, you know, we need to watch and?
Well, I mean, it's always important. The volatility, I would say, has lessened over the last, you know, few quarters. So it's something that we'll always pay attention to, but it's not something that we're concerned about at the moment, I guess I would say.
Yeah. Okay. And then lastly, just on the sustainable technology side. How big is that business now, and where can that go in the next couple of years? I know you talk about orders, but.
Yeah. Yeah. I was gonna say orders is probably in the $400 million range in 2023. You know, sales a little bit behind that. But again, that's growing at a very healthy double-digit type of a rate. So, you know, really excited about what Barry Glickman and team are doing in that area. Again, we talk about from a zooming out from a long-term perspective, you know, the energy transition is gonna be a long-term theme. And the things that we bring into play there for separation technologies, for carbon capture, you know, sustainable fuels, I mean, all of those things are gonna be with us for some time. So, you know, we talked about that getting to being a $700 million business over a few years' time. I think that's, you know, our growth expectations remain very bullish in that area.
Then lastly, just on UOP, I don't have any specific questions there, but what are you guys seeing? And how do you expect that to play out sequentially as we move through the year?
Yeah. I would say what you're gonna see, you're gonna go, "Oh, the top line's not as strong as I thought." Well, no, that's not really the case. I mean, we're gonna have a little bit of the LNG projects, you know, that flowed through the back half of last year, or I should say during the course of last year. So we'll probably have a little bit of a lighter equipment growth rate early in particular, both orders and revenue. But that was, again, creating install base for catalyst, and the catalyst business should be very strong.
That's positive for margins. I would assume on that front.
You bet. Absolutely.
All right. And then getting just to Aerospace, all, all the good stuff from a demand perspective. Where do we stand on supply chain? You said that the past-due backlog actually is expanding a bit. Does that mean supply 'cause it seemed like you guys were on a nice, steady trajectory. Does that mean supply chain is kind of like you've stalled again, or?
It's continued. No.
No, getting there?
No. It's again, I know everyone would like this to be over fast. And, you know, if I'm here a year from now, we'll probably be having the same conversation again, and we'll talk about, you know, continued sequential, you know, modest improvement. And that's what we're getting. And so, you know, the reason why the past-due backlog continues to go up and again, not massively at this point. You know, we're not going up by, you know, $500 million in any given quarter. But it's creeping up, you know, still every quarter because the demand remains very strong. And we are continuing to get, you know, that little bit of incremental each and every quarter, which on a year-over-year basis, you know, is delivering strong Vs. And that's gonna happen this year, going into next year.
You know, this back to automation, AI, etc. I mean, the supply chain in Aerospace is very exposed to labor shortages. That's not solved yet. I don't and that's gonna have to have some other solutions to it. It's a very disaggregated supply base for the whole industry.
So, if I'm a customer, should I be bitching as much as I was a couple of months ago, more or less?
Well, I would say when you go all the way up the chain, everybody wants everything now. So they're never, you know, like, I don't expect our customers to be, you know, having dinners for us and celebrations anytime soon. But what I would tell you is we have a very active dialogue with our customers, you know, Vimal, Jim Currier, you know, top to top. Those relationships are very active. So there's no mystery about where we are, you know, between any of us. You know, we would like it to unlock faster. They would like it, you know, to unlock faster for their own growth. And we're all kind of arm in arm in this together to try to achieve that. But I don't think, you know, the level of stress or is gonna be with us, you know, for some time.
Certainly not any, your growth rates are still pretty strong. So it's.
Oh, yeah. Yeah. Yeah.
You guys are printing it, and especially aftermarket. Just on the defense side, that was a little weak. Or it's been slower than we would have expected. Still a nice trajectory there. How do we think about that?
Yeah. Yeah. I mean, I think, you know, the world is not safer tomorrow than it was yesterday. And so I think the demand for, you know, defense, is going to continue to be healthy, and we're gonna play a role in that. So I don't, again, I don't think that's gonna be a one-year-up big and then flattens out. I think that's gonna be a nice growth path for us for a number of years to come. I don't see any reason why, you know, that would change anytime soon. The conflicts that we're experiencing today are, you know, very active. None of us like that, but that's true. And so, you know, I would see in the foreseeable future that that's gonna continue to be a very strong driver of demand for us.
And then on the margin front, there's a decent amount going on here. The aftermarket is obviously very accretive to you guys, but the OE stuff. How much is this margin burdened by these, how active you're being in trying to remedy these supply chain issues? Obviously, that's not going away, so we're not. That doesn't flip. But, like, is there an? I'm assuring you, as an accounting guy, have a number in your head of how much cost, extra cost.
Oh, yeah. Oh, yeah. No. And listen, we're, we are spending extra money in the form of people. You know, if you think about we have a supplier recovery program with humans that are aligned to different outlines that we're producing and the supply base that goes along with that. They're partnering very closely with suppliers, trying to help in cases where maybe we have some leverage to bring to bear, you know, either the access to talent or adding capital, where perhaps we're gonna, you know, buy capital, own tooling that might sit in some of those suppliers. You know, so there's a variety of things that we're doing to create this unlock or support the creation of this unlock in the supply base. It's not just happening by the passage of time.
Right.
Yes, that's, you know, there is, you know, that is measured in tens of millions on a run-rate basis. You know, and it's gone up, you know, from 2022 to 2023, 2023 to 2024. We continue to invest and expand that program. And so it is definitely burdening margins, but we're also getting leverage. So if you think about it, we're investing in R&D. We're investing in the supply chain recovery. We're battling the mixed challenges that come along with, you know, OE and aftermarket, but we're also getting some really nice leverage with, you know, mid-teens top-line growth.
I think that's pretty. Anybody have any questions on the actual businesses before we go to, like, portfolio? Yeah. I think that was a pretty comprehensive discussion of the businesses. Appreciate it.
Yep.
Just on the portfolio, you guys have talked about selling some stuff. Maybe, you know, less than 10% of the portfolio. I mean, we just walked through all the businesses. It sounded like you were pretty committed to each of them. Maybe there's a couple things here and there, but is that still a plan that you guys?
Yeah.
When will we have any kind of is that in the next couple of years, in the next, you know, timing-wise as we think about any announcement there?
Yeah. Yeah. I, I would say, again, we, we just walked through the whole portfolio. It's, it's a $37 billion portfolio. You know, we probably hit on, you know, $27 billion of it. I don't know. So it's not like we touched on every single thing in the portfolio. There are certainly things that, you know, as, as time passes and change happens in markets, you know, perhaps don't fit quite as well as they once did. We know what those are. You know, we go through a refresh of that portfolio assessment each and every year, and it's an evergreen type of a thing.
You know, we always talk about, you know, we're our own, you know, activists to make sure we understand what's happening and how we see both how the thing fits in the portfolio, but also what the receptivity to separating something might be, right? So, you know, you don't wanna be even something may not fit, but it may be a bad time to separate that thing from you in order to gain value. We're not really just willing to give things away. So I would just have that in mind, that we're always working on the things that we think are you know, just like we have a pipeline of incoming things we hope to execute on, we also have a pipeline of outgoing things.
When, you know, the two things meet in terms of business performance readiness and market readiness, to get, you know, appreciable value, then you would expect us to, you know, start talking about any individual property at that point.
And then, can you just remind us of the financial impact of Quantinuum? You know, you guys recently had some news there, but what's running through the P&L and the cash flow statement today from that asset that's, you know, should be a positive, but you treat it as a negative valuation?
Yeah. No. If you think about it just on the face of the financials, what you see when you look at the K or the Q, it's about a $150 million burn rate in corporate. So if you just think about that as cash flow for, you know, simplicity's sake, you know, both earnings and cash flow. But, you know, from an EPS perspective, then knock that in half, right? So, you know, relative to our EPS, it's probably a drag of, I don't know, $0.06, $0.07 on a, you know, EPS of $9.16 last year.
So, you know, I would call that de minimis, which is one of the reasons why it gets a little frustrating sometimes when people are like, "Why are you doing that thing?" And, you know, we're saying we're doing that thing 'cause we think it's got a pretty big option value, and it's not a huge investment in our, you know, financials to, to create that option. And we're pretty you know, we're pretty bullish on, you know, what that could turn into. You again, I'll go back to you mentioned AI. AI eats data. There's gonna be more and more high-powered, analytics that are gonna need to be done. You know, quantum computing is going to play a role in that kind of thing. So, and we feel very, you know, bullish again on our technology and its capabilities.
So how does that dovetail with, like, you know, these data centers with all these GPUs? I mean, is that you know, well, I guess I could ask, Drew this afternoon, but, like, is that, are they competitive technologies, or are they?
I wouldn't think so. I mean, I think data centers power these things, right? So I think those you know, it's part of the portfolio of things that are gonna be needed to take advantage, and we're gonna play in that value chain.
As far as the impact of the election is concerned, I mean, are you guys at all talking about it? There's obviously a pretty stark contrast between the two potential administrations. Are you guys talking at all in the boardroom about any changes in approach on anything if there's a change in the administration?
Yeah. So, so we're always mindful of it, as I'm sure you could guess. I mean, Anne Madden and her team, you know, do a great job in government relations of making sure that we, as a company and our executives, stay, you know, plugged in and tuned in and also, you know, providing input wherever we can to be helpful, as things evolve. I mean, who knows what's gonna happen? This is, you know, again, it's gonna be an interesting time, you know, between now and November to see what shakes out.
You know, when I think about, you know, certain things as it relates to the, you know, geopolitical tensions or changes, tariffs, that type of thing, I mean, the good news is our local-for-local strategy has always been very helpful to us, and this is another place where that's going to be true, because we're not super exposed to any one region serving another. So, you know, when you think about, you know, trade agreements and tariffs and that kind of thing, it's not that it doesn't matter. But it's not so material that we don't know how to deal with it. When the tariff regime was going through, you know, we had very clear visibility as to what that was. Again, we were able to pass that through to the marketplace.
I would expect we would do that again, you know, if that were to be, the evolution of it. You know, as I mentioned earlier, I think, you know, when you think about things like the energy transition specifically, those things are going to need to get addressed, whether, you know, it's a Republican or a Democrat in the White House over the period of time we're talking about, you know, which is, again, a medium- to long-term threshold, you know, that is going to, that is going to be need to be addressed, and we're gonna be a player in addressing some of those big challenges. What happens in the very short run, you know, I think we'll all have to wait and see, you know, how this year plays out. I mean, something like 50% of the world's democracies are going to the polls this year.
So it's, you know, it's the U.S., but it's actually, you know, quite a few different places are going to be having elections this year. So this will be a pretty consequential year overall on that topic.
Yep. Every year seems consequential every day, actually, these days. Then, just lastly on AI, what are you guys doing, internally? Are you doing anything? Is that initiating any initiatives there, and are they accelerating? What pace are they at? I kinda have to ask that question of everybody.
Yeah. No. Listen, I think we're trying to do, from both angles, both trying to bring it into some of our solutions as well as that we're offering as well as using it internally. You know, a big part of what, you know, you hear about is engineering and coding efficiency. We're definitely seeing that and doing it. So that's adding capacity and/or allowing us to perhaps bring some cost down. So that's a positive. And we have, as I'm sure you would probably expect, in our plan, we have a cost-down target associated with creating some efficiencies in a number of areas. Finance is another one where that, you know, that's gonna be relevant as well. But anywhere that, you know, you have, you know, data transactionally needing to be addressed, there's opportunities there.
So we're doing it both on the cost side, and we're also doing it in our solution sets. Again, I think about AI and generative AI in particular as a learning device. And so whether it's I'm a again, I mentioned, technicians. I'm a technician, and I need to learn what my next best action is or how I might go about doing something, and I wanna learn it fast. You know, AI can be part of that solution, and our software solutions can bring that to bear. So that would be the thing I would just try to leave you with is, again, AI eats data.
You know, what we have created at Honeywell, both for ourselves internally as well as in our IoT platform that we bring to the market through Honeywell Forge, is a data backbone for these things to, you know, sit on and work on. If you do not have that data backbone, you're probably gonna be talking about hype cycles, and it'll be interesting, but your, you know, a company's ability to execute on that, I think, will be challenged without that data backbone. And that's what we've spent the last seven years building both for ourselves, as well as, you know, for our customers with the Forge platform.
And internally, the initiatives and business models you're pursuing to make yourself more productive, is that getting reflected in higher spend within IT budgets or more CapEx in on-prem data center? Like, how is it influencing your spending on, you know, the ultimate infrastructure that's supporting you guys? Or it's so efficient, you don't even see it. It's, "We're doing these uses, and we can do this.
Well, I would think about it. There's a marginal cost of some of that, but it's not major again. We've already spent. I've talked about this for the last number of years, over $1 billion in creating our own digital infrastructure for Honeywell. We've spent a substantial amount of money creating our IoT platform. Those investments are done. You know, like, we're still adding. We're at the add-to-it and refinement stage now. So things like AI, for us, yeah, there's a marginal cost of, you know, perhaps a certain AI, you know, license for a thing or a partnership with someone, perhaps, in certain use cases to help make a particular thing go. But those are, like, small marginal costs relative to the benefits that we think will come from them.
We don't feel constrained by that.
Right.
We want them to pay for themselves, you know, real-time. But you're not gonna see, like, a big blip in our P&L, and I'm not gonna come to you one quarter and go, "Oh, you know, our expenses, we're up by $100 million this quarter because of AI." That conversation's not coming.
We got our GPUs this quarter. We're, we're promising. All right. I think that's it. Thanks, everyone. Thanks, Greg.
Yeah. Thank you.
I appreciate it. Thank you, sir.
Thank you.