Thank you for standing by. Welcome to the Honeywell First Quarter 2023 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 Meakim, Vice President of Investor Relations. Please go ahead.
Thank you, Liz. Good morning, welcome to Honeywell's first quarter 2023 earnings conference call. On the call with me today are Chairman and CEO, Darius Adamczyk, Senior Vice President and Chief Financial Officer, Greg Lewis, President and Chief Operating Officer, Vimal Kapur, and Senior Vice President and General Counsel, Anne Madden. 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 the 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 first quarter, share our guidance for the second quarter, and provide our update to our full year 2023 outlook. As always, we'll leave time for your questions at the end. With that, I'll turn the call over to Chairman and CEO, Darius Adamczyk.
Thank you, Sean. Good morning, everyone. Let's begin on slide two. To open today's discussion, I'd like to take a moment to reflect on what our company has accomplished over the past seven years. We've consistently outperformed against the market and our peers, doubling our share price over that timeframe. We undertook a radical transformation agenda, dramatically simplifying and digitizing our operations and supply chain, resulting in much more contemporary company, which is a platform for growth. We launched a software business, Honeywell Connected Enterprise, that continues to generate not only value for our customers, but accretive growth and profitability for Honeywell. We also reshaped the portfolio, spinning off three sizable businesses while selling to others and adding 16 successful acquisitions, reducing cyclicality and enhancing our margins. We reconfigured our strategic business groups to better align with end market opportunities and customer needs.
We built a culture of innovation that has led to significant new breakthrough technologies and ultimately meaningfully stronger organic growth. Last, and I'm not breaking any news here, this will be my last earnings call as the CEO of Honeywell. As Vimal transitions into the CEO role in just over a month, and I become Executive Chairman, it's a great example of the emphasis Honeywell places on leadership development and succession planning. With his decades of experience and success leading businesses across our portfolio, Vimal is absolutely the right person to take on the CEO mantle for Honeywell into the next phase of our transformation. I look forward to supporting him over the next year, providing him with additional bandwidth by helping with mergers and acquisitions activity, spending time with customers, and strategic planning. Our future is bright. With that said, the present is pretty good too.
Let's turn to slide three to discuss our first quarter performance. We delivered a very strong first quarter, exceeding the high end of our first quarter organic sales, segment margin, and adjusted EPS guidance, despite ongoing macroeconomic challenges. I'm pleased with our disciplined execution and differentiated technologies that enable us to over-deliver on our commitments. First quarter organic sales were up 8% year-over-year, led by double-digit growth in our Aerospace and PMT businesses, underpinned by a rigorous operational execution. The first quarter backlog grew to a new record of $30.3 billion, up 6% year-over-year and 2% sequentially due to continued strength in Aerospace and Performance Materials and Technologies.
Similar to last quarter, orders remained a very positive story in aero and PMT, up double digits organically in each, leading to 1% organic growth and 8% sequential growth overall in the first quarter, overcoming the difficult year-over-year comps HBT and SPS. We remain confident in our 2023 setup as we capitalize on recovering end markets combined with solid operational execution. Our segment margin expanded 90 basis points year-over-year, led by robust expansion Safety and Productivity Solutions in the Honeywell Building Technologies. Their strategic pricing actions enable us to remain ahead of the inflation curve, and we benefit from our productivity actions. Excluding the net impact of the settlements, as we discussed in our guide, free cash flow was $300 million in the first quarter, in line with our expectations and operationally stronger than 2022.
We deployed $1.6 billion to dividends, growth CapEx, and share repurchases, including opportunistically repurchasing 3.5 million shares throughout the quarter, reducing our weighted average share count to 673 million. We also announced the acquisition of Compressor Controls Corporation this week, which Vimal will provide more detail on shortly. Looking forward, I am encouraged by the strength we're seeing in many areas of our portfolio. We continue to execute on our proven value creation framework, which is underpinned by our Accelerator operating system. I am proud of our ability to over-deliver another quarter amidst a challenging external environment. Let's turn to Vimal to discuss some exciting recent announcements.
Thank you, Darius, Good morning, everyone. Let's turn to slide four. In February, we announced that ExxonMobil will deploy Honeywell's carbon capture technology at its integrated complex in Baytown, Texas. The plant is expected to be the largest low-carbon hydrogen project in the world at plant startup.
Projected to produce around 1 billion cubic feet of low carbon hydrogen per day. Honeywell technology will enable the facility to capture more than 98% of the associated CO2 emission, which will be sequestered and permanently stored by ExxonMobil. In addition, Honeywell recently launched a European clean aviation project to develop a new generation of aerospace qualified megawatt class fuel cells powered by hydrogen. Green hydrogen is an extremely clean power source that can be used to propel future aircraft, which makes it particularly appealing to the aerospace sector as we work to reduce carbon emissions. Work on this project will be performed at Honeywell Technology Solutions Research and Development Center in Brno, Czech Republic, and at all other Honeywell and project partner sites across Europe.
This week we announced a $40 million + win in our Connected Enterprise business with Globalworth, a leading real estate investor in Central and Eastern Europe. Globalworth is using Honeywell's Forge for Buildings technology to help monitor energy consumption down to a device or asset level across their commercial office buildings in Romania and Poland while maintaining occupant comfort and productivity. Our solution will help reduce operating costs and lower energy consumption, key outcome for Europe's overarching climate objectives. These existing technology provide us with the new growth vectors while reinforcing Honeywell's sustainability message, demonstrating how we are helping the world solve its toughest challenge across all our end markets. Let's turn to slide five to discuss an exciting new acquisition we just announced this week.
On Wednesday, we announced an agreement to acquire Compressor Controls Corporation, in short CCC, a leading provider of turbomachinery control and optimization solutions, including control hardware, software and services, for $670 million in all-cash transaction. CCC technologies primarily serve the LNG, gas processing, refining, and petrochemical segment, and will bolster Honeywell's high-growth sustainability portfolio with new carbon capture control solution, where the same turbomachinery is used to achieve effective removal of CO2 from the process plant emission. This acquisition will be integrated into Honeywell's Process Solutions business and strengthen Honeywell's leadership in industrial control, automation, and Process Solutions, enabling customers to accelerate their energy transition. CCC's EBITDA margins are accretive to Honeywell, and we expect to achieve a cash-basis return on investment of more than 15% by fifth year that CCC is part of Honeywell.
The transaction represents 15 times 2023 expected EBITDA on a tax-adjusted basis, and 13 times EBITDA assuming $8 million of analyzed cost synergies. I'm excited about the new technologies and adjacencies we have unlocked through this latest transaction. We said before that we have an active M&A pipeline, this is further evidence that we are continuously enhancing our automation portfolio by investing in new opportunities. Let's turn to slide six to discuss the first quarter results in more detail. As Darius mentioned, we delivered a strong first quarter result despite a dynamic economic backdrop. Our operational agility enabled us to exceed our financial commitments. First quarter sales grew 8% organically with double-digit growth in PMT and Aero, where we generated continued volume improvement on a strong demand and an improving supply chain.
In fact, volume grew 2% for overall Honeywell in the first quarter, despite an impact of dropping activity levels in our long cycle warehouse automation business. Excluding SPS, volumes were up 7% for first quarter. Our backlog grew 6% year-over-year and 2% sequentially, and our orders grew 1% organically and 8% sequentially, driven by long cycle strength in Aero and PMT. Supply chain remains a constraint on our overall growth. However, Aero saw further output improvement, and we saw positive backlog reduction across all our short cycle businesses. In addition to strong organic growth, we expanded segment margins by 90 basis points year-over-year to 22%. We continue to reap benefits from our investment in Honeywell's digital that have enabled us to stay ahead of the inflation curve through the strategic pricing action.
Despite the top-line headwinds, SPS led the other SBGs with the largest segment margin expansion as a benefit from the right-sized cost base. Let's spend a few minutes on the first quarter performance by business. Aerospace sales for the first quarter are up 14% organically, led by 20% growth in commercial aviation, the fifth straight quarter of at least 20% organic growth, and eighth straight quarter of double-digit growth. Sales growth was strongest in commercial aviation aftermarket, where continued flight hour recovery resulted in increased spare shipments and repair and overhaul sales, particularly in air transport. Commercial original equipment sales were also increased double digit, driven by higher business and general aviation sales. Defense and space returned to growth in the first quarter, as we were able to convert our strong 2022 orders book increased sales volume.
Book-to-bill defense, book-to-bill in defense and space remained greater than one in the quarter. As expected, the Aero supply chain continued to make modest progress sequentially. Improvements in material availability from the lower supplier decommitment rates enabled us to increase our original equipments and spare shipment by 20% year-over-year in first quarter. Our positive backlog remains historically high level as expected, with plenty of volume yet to be unlocked. Segment margin in Aerospace contracted 80 basis point year-over-year to 26.6%, driven by higher sales of lower-margin original equipment products, partially offset by our commercial excellence effort and volume leverage. Performance Materials and Technologies orders grew organically across all three businesses ahead of our expectations, led by over 20% growth in UOP. We remain particularly excited about traction in our Sustainable Technology Solutions business, where orders doubled year-over-year.
For sales, PMT grew 15% organically in the quarter, with double-digit growth in all three segments of the PMT portfolio. This was the 4th consecutive quarter of double-digit organic growth in PMT. UOP grew 19% organically in the quarter, led by refining catalyst shipment and gas processing, partially offset by lower refining and pet chem equipment volumes. Process Solutions grew 16% organically, driven by strength in projects and smart energy. In Advanced Materials, sales grew 12% in the quarter as we saw another quarter of robust demand in fluorine products that more than offset some softness in our electronic materials business.
Segment margin contracted 20 basis point year-over-year to 20.6% as a result of cost inflation, higher sales of lower margin products, and a previously communicated disruption in one of our PMT plant that caused some unplanned downtime, partially offset by commercial excellence and volume leverage. Safety and Productivity Solution sales decreased 11% organically in the quarter. Sales decline were led by warehouse and workflow solutions and productivity solutions and services. The aftermarket services portion of our integrated business continues to perform well as expected, with sales growing greater than 20% in the quarter at accretive margins. The sensing portion of our sensing and safety technologies business remains a bright spot in the portfolio.
Continuing on the trend from last year, segment margin for SPS was once again a standout in the quarter, expanding 270 basis points to 17.2% as a result of productivity actions and commercial excellence, partially offset by lower volume leverage and inflation. In Building Technologies, sales increased 9% organically in the quarter, with growth in both Building Products and Building Solutions. Project sales were up double digits for the fourth consecutive quarter as we continue to convert our strong backlog. Services volumes also increased in the quarter, resulting in 13% organic sales growth in Building Solutions. Turning to our product portfolio, the supply chain is improving as expected. Building Products grew 7% organically year-over-year to continued strength in our world-class fire franchise.
HBT orders were stronger than expected in 1st quarter, although down mid-single digits year-over-year organically as we lap outsized 2022 comps from the height of supply chain challenges. While inflation remains elevated and our strong building solution sales presented a mixed headwind, our commercial excellence and productivity effort allow us to mitigate these challenges and expand HBT segment margins by 170 basis points to 25.2%. Growth across our portfolio continues to be supported by accretive results in Honeywell Connected Enterprise, an ongoing indicator of the power of strong software franchise. Robust overall growth was driven by double-digit growth in cyber, industrial, aerospace, and connected building. The future outlook is also strong due to double-digit growth in orders. Overall, this was a great result for Honeywell.
Adjusted earnings per share in the fourth quarter grew 8% to $2.07, $0.11 above the high end of our first quarter guidance, up 16% excluding pension headwinds. Segment profit drove $0.21 of year-over-year improvement in earnings per share, the main driver of our EPS growth. Excluding the pension headwinds, below the line and other added $0.03 year-over-year, a lower adjusted effective tax rate contributed $0.02 of improvement, and reduced share count added an additional $0.05 for total EPS, excluding the pension impact of $2.22. This was offset by $0.15 headwind from a lower pension income. A bridge from adjusted EPS from 1 Q-22 to 1 Q-23 can be found in the appendix of this presentation. We made good progress on cash for Q1.
Reported cash flow for the quarter was - $1 billion due to payment of settlements signed in fourth quarter of 2022, which we signaled in our guidance call. Excluding the net impact of these settlement, we generated $300 million of free cash flow, up from $50 million in the first quarter of last year. This increase was driven by improved working capital, including more favorable payables and inventory balances. As we discussed, our inventory planning focus will be a major contributor to our cash performance in 2023, and we are off to a promising start. Overall, Honeywell operating playbook continues to deliver strong results, and that, combined with our differentiated portfolio of solutions, we're enabled us to drive compelling growth in earnings and cash for the quarters to come.
Now let me turn it over to Greg as we move to slide seven to discuss our second quarter and full year guidance.
Thanks, Vimal, and good morning, everyone. As we look to the rest of 2023, our original guidance framework continues to be solid. We delivered above our Q1 guide as we navigated known risks and have raised the year to reflect that. Our demand profile remains robust with record backlogs and favorable order trends in aerospace and PMT. We continue to monitor the macroeconomic backdrop and its impact on our shorter cycle businesses, and our rigorous operating principles enable us to stay agile to outperform through another challenging year. For our 2Q sales guidance, we expect to be in the range of $9.0 billion-$9.2 billion, up 1%-4% on an organic basis.
We now expect full year sales of $36.5 billion-$37.3 billion, which represents an increase of $500 million on the low end and $300 million on the high end from our prior guidance, incorporating our strong first quarter results. We're raising our organic growth range now at 3%-6%. We continue to expect a greater balance of price and volume versus last year and have upgraded our full year expectations in Aero while softening our outlook for SPS to reflect the demand we're seeing.
Moving to our segment margin guidance, we expect the second quarter to be in the range of 21.8%-22.2%, resulting in year-over-year margin expansion of 90-130 basis points due to continued benefits from our improving cost position and business mix in SPS and commercial excellence in HBT. For full year 2023, we're upgrading our segment margin expectations by 10 basis points on the low end to a new range of 22.3%-22.6% or 60-90 basis points of year-over-year expansion. Our rigorous fixed cost management and favorable price cost strategies remain key elements of our operating playbook, helping us to drive margin expansion. Let's take a moment to walk through the second quarter and full year expectations by segment.
Looking ahead for aerospace, demand across our end markets remain very encouraging. We expect modest sequential sales growth in the second quarter as flight hours continue to improve, with particular strength in commercial aftermarket. This flight hour growth, enhanced by further recovery in wide body aircraft as international travel recovers, will lead commercial aftermarket to be our strongest end market for sales in 2023. On the commercial OE side, we also expect strong volume growth as build rates, particularly for business and general aviation OEs, continue to trend upwards. In defense and space, we passed the growth inflection point in 1Q, and we expect similar organic growth rates throughout the year as we convert our strong defense order book into sales.
While the demand environment supports rapid top line acceleration, the pace of sales growth throughout 2023 will ultimately be determined by the rate of recovery in the Aero supply chain. Our expectation for the supply chain remains unchanged, modest, steady improvement each quarter. Reduced decommits from suppliers should allow for sequential improvements in factory output. Given the positive signs from the supply chain and continued strength in our order book, we now expect Aero organic sales growth in the low double-digit range, an upgrade from our outlook last quarter of high single-digit to low double-digit growth. We anticipate most of the incremental sales strength to come from our OE business, resulting in modest mix pressure on margins. We now expect Aero segment margins to be flattish for the full year.
In Performance Materials and Technologies, the constructive outlook across our end markets will continue to drive favorable growth. For the second quarter, we expect sales to increase sequentially and year-over-year, led by continued strength in our projects and smart energy businesses within Process Solutions, as well as lifecycle solutions and services. This strength will likely continue throughout the year, supporting a strong growth for Process Solutions overall. In Advanced Materials, continued demand for fluorine products will enable us to capitalize on our capacity expansion investments we made in 2022, but we still expect to see some softness in electronic materials until the second half of the year. In UOP, our growth outlook is supported by robust demand for gas processing equipment, and we see increase in global demand for our Sustainable Technology Solutions as legislation has improved project economics.
For the full year, another quarter of strong orders and backlog growth gives us confidence in our sales expectations, although more challenging comps moving forward mean that the first quarter will likely be the largest in terms of organic growth. We still expect sales for overall PMT to be up mid-single digits for the year. Segment margin and PMT should expand sequentially in the second quarter and throughout the second half, leading to modest expansion for the year. Looking ahead for SPS, we're expecting low double-digit year-over-year declines in the second quarter as we see continued impact from the decline in investment for new warehouse capacity and short-cycle demand softness in our products businesses. However, we expect sales to grow sequentially from the first quarter, led by strength in sensing and safety technologies.
The aftermarket services portion of our Intelligrated business continues to grow at strong double-digit rates, and we anticipate this trend continuing throughout the year. In our short cycle businesses, the demand outlook for 23 is a bit more challenged than we initially anticipated, and as a result, we now expect SPS to be down high single digits, lower than our initial guidance last quarter of down mid-single digits to high single digits. From a margin standpoint, we still anticipate another solid year for SPS as we see the results of our operational improvements and as sales mix continues to improve, as evidenced in our first quarter results. In Building Technologies, we are encouraged by our strong start to the year and the overall execution of the business.
For the second quarter, sales should improve sequentially and lead to modest year-over-year growth as the supply chain environment continues to slowly improve, allowing us to further work down the past due backlog we built last year in our building products business. We expect this robust backlog, along with stimulus-led institutional demand in verticals such as airports, healthcare, and education to remain resilient throughout the year. On the building solutions side, we are encouraged by the strong demand for our building services, and we see our long cycle building solution sales likely outpacing product sales in 2023.
For overall HBT, while we delivered high single-digit growth for the 1st quarter, comps get harder as we progress throughout the year, given that the impacts from our supply constraints were most acute in the 1st half of 2022. We maintain our full year sales outlook of low single-digit organic growth. As we've said previously, we'll continue to monitor orders for Q2 and may have an upgrade opportunity after we complete the 2nd quarter. HBT remains well aligned to emerging secular themes of sustainability and energy efficiency. We see runway for growth acceleration as we exit 2023. For HBT segment margins, we still expect year-over-year expansion in 2023 as we maintain our momentum for the 1st quarter.
Turning to our other core guided metrics, net below the line impact, which is the difference between segment profit and income before tax, is expected to be in the range of -$130 million to -$185 million in the second quarter, and -$500 million to -$625 million for the full year. This guidance includes a range of repositioning between $50 million and $100 million for 2Q, and $225 million-$325 million for the year as we continue to fund attractive restructuring projects and properly position Honeywell for the future.
We expect our adjusted effective tax rate to be roughly 21% in the second quarter and for the year, and the average share count to be around 671 million shares in 2Q and approximately 670 million shares for the full year. Earlier this week, the board approved a $10 billion share repurchase authorization, providing us with continued flexibility on the best way to deploy our balance sheet. As a result of these inputs, our adjusted earnings per share guidance range is between $2.15 and $2.25 for the second quarter, up 2%-7% year-over-year.
For full year EPS, we are upgrading the low end of our guidance range by 20 cents and the high end of our guidance range by 5 cents to a new range of $9-$9.25, up 3%-6%, reflecting our continued confidence that 2023 will be a strong growth year for Honeywell despite the year-over-year pension headwinds. Excluding these headwinds, EPS growth will be 9%-12% up for the year. We still expect to meet our original free cash flow guidance of $3.9 billion-$4.3 billion in 2023, or $5.1 billion-$5.5 billion, excluding the net impact of settlements.
In total, we executed a strong first quarter with outperformance across all guided metrics and are raising our full year 2023 organic sales growth, segment margin, and adjusted EPS guidance ranges. Let's turn to slide eight, and I'll hand the call back to Darius for some closing thoughts before we move to Q&A.
Thank you, Greg. In summary, we're off to a strong start to 2023. Over-delivering across the board versus our guidance, allowing us to meaningfully raise our full year guidance for organic growth, segment margin and earnings per share. Our value creation framework is working. The macroeconomy remains uncertain, we continue to grow our record backlog, and executing on it provides significant runway in the near term. Honeywell remains well positioned to outperform in any environment. Thank you to all of our Honeywell colleagues who continue to drive differentiated performance for our customers and shareholders. With that, Sean, let's move to Q&A.
Thank you, Darius. Darius, Greg, Vimal, and Anne are now available to answer your questions. We ask that you please be mindful of others in the queue by only asking one question. Liz, please open the line for Q&A.
Our first question comes from the line of Steve Tusa at JP Morgan.
Guys, good morning.
Good morning.
Good morning.
Congrats again, Vimal, on the change.
Thank you.
Your, I guess, your first call is gonna be, I guess, the second quarter. On that front, maybe give us some color on the, you know, sequential trends, as far as earnings are concerned for the rest of the year, 2Q, 3Q, and 4Q, just to kind of level set everybody after this, you know, pretty strong first quarter.
Yeah. Sequentially, as Greg gave you the full year view, we do expect the growth momentum to continue, even though at a slightly different rate. Part of it is we had a pretty strong quarters in PMT and HBT prior year, so we are dealing with the tough comps. There is certainly gonna be, you know, some revenue comparison issues there. Aero will be very strong, and SPS, as we guided, will be moderated performance over the rest of the year. Overall, we remain confident on our new guide of 3% to 6% organic growth rate. You know, we'll work hard to perform on that. Greg, if you wanna add anything.
No, I think you hit it. I mean, the second quarter, you know, gonna be really nice results, I think, in across the portfolio. We're just coming off of, you know, four quarters of significantly strong double-digit growth in PMT for four straight quarters. You know, HBT at high single digits for, you know, three to four straight quarters. You know, but the underlying business performance going forward is gonna be really healthy.
Sorry. What's the sequential performance for EPS? Should we think about that as kind of in line with normal seasonality? You know.
Yeah, when you look.
It's usually up every quarter. Like, how do we-
Yeah.
How do we think about?
Yeah.
The seasoning of EPS for the rest of the year?
Yeah. When you look at EPS sales, I mean, we're gonna be roughly in line with our normal, you know, kind of percentage of the year, in those quarters. This year and last year, a little bit heavier in the back half. This year, a little less so, but it's not gonna look out of the norm. What is the norm? Can you just remind us? 'Cause it's been a couple of years of not the norm.
Well, you're asking about many different metrics, so it depends on which one you're talking about.
EPS.
Yeah. We're, I mean, when you look at it right now, we're gonna have a little bit of a heavier back end of the year. You know, fourth quarter will probably be bigger than second and third, but the second and third will be, you know, within spitting distance of one another roundabout.
Okay, great. Thanks a lot for the color.
Yeah.
Our next question comes from Julian Mitchell with Barclays.
Hi, good morning. Maybe,
Good morning.
Good morning. Just wanted to try and understand, dialing in on the second quarter for a second. You've got a smaller than maybe normal sequential sales increase. It doesn't sound like that's anything sort of macro or demand related. It's maybe more on supply. Any extra color on that? And also it looks like you're guiding for sort of sales to be up sequentially in Q2 firm-wide, somewhat, but flat margins. Is that just something around maybe aero, OE mix? Just any thoughts on that, please.
Yeah, Julian, if you actually look at the historical, revenue sort of step from Q1 to Q2, it's very much in line with what we've done historically. You know, last year was a bit of anomaly given that it was more heavily impacted by some of our supply chain challenges. If you look at this, the historical graduation from Q1 to Q2, it's very much consistent and in line with that if you look at the prior year averages.
No, I mean, we've grown anywhere from 4%-7%, you know, quarter to quarter sequentially. You know, this guide has us rising like a 3%-4% range. You know, last year we had a really big step up in PMT. It's a little bit less, you know, in Q2 this year. Again, very much within historical parameters. From a margin perspective, again, last year we went down in margin rate from Q1 to Q2. You know, our guide is solidly within, you know, our Q1 performance. I think at the top end, we're up 20 basis points. At the bottom end, we're down 20. You know, it's frankly right in the, right in the norm, so I wouldn't read too much into it.
Thanks very much. Just my follow-up would be around the SPS piece, sort of update his thoughts on that second half outlook, particularly the PSS portion. How are you looking at that in the second half on revenue versus warehouse? If there's been any change in your warehouse growth or sales assumptions for the year. Thank you.
Yeah. I mean, let's kinda take this piece by piece. I mean, in terms of PSS, I mean, we've kinda actually seeing sequential improvement off of Q4, so we think that that business is back on the rise, and we saw that sequentially. I think that that's very much consistent with our assumptions and very much in line with our expectations. When it comes to IGS, you know, that market continues to be relatively soft. Having said that, our quote activity and our opportunity activity is significantly increasing for Q2, Q3, and Q4, because as we look at forward in the pipeline, that continues to get better and better. You know, we're cautiously optimistic that we're gonna see much better order trends as we head into the last three quarters of the year.
Yeah. No, I, I think Darius put it quite well. Look, this is IGS revenue for this year is kind of already locked given the, you know, long, long nature of the business here. Really working hard to secure a good base of orders for 2023 so that we can print a good year for 2024 ahead. We remain. One thing I can assure, we are not gonna lose share, so it's all more on the market. As market recovers, we will get our fair share of demand.
Our next question comes from Nigel Coe with Wolfe Research.
Oh, thanks. Good morning. Thanks for the question.
Good morning.
Hey, hi, guys. let's maybe just be a little clearer on kind of the, what surprised to the upside. you know, it sounds like it's partly supply chain, but it also sounds like it's partly demand. maybe just talk about that. we saw a pretty significant uptick in accounts receivable, on the balance sheet, which might indicate that March was perhaps particularly strong. maybe just talk about that as well.
Sure. Let me take that. If you think about our guidance, you know, 90 days ago, we talked about really three specific risks that we were watching. You know, one was China with Chinese New Year and concerns about whether everyone was gonna go home and then come back and, you know, wind up with lockdowns in China. It didn't happen. Things turned out quite well. There was really no disruption in China at all. Second one was really, again, aerospace and, you know, were we gonna get a substantial sequential improvement in output? We did. We were up 20% in our output in aerospace year-over-year, which was, you know, above the high end of our guidance and was quite strong. Then the third one was PMT.
We talked about the fact that, you know, in December, we had some challenges with a freeze in the Louisiana area with some of our factories there. We had an outage early January, which we needed to shut down a plant and bring it back up again. It came up quite well, and in fact, on time and after the plant was restored, it was operating at, you know, levels that were greater than before the outage even occurred. That's why what you're seeing is essentially PMT and Aerospace in particular, you know, drove probably over $100 million each on the top end of our own guide in terms of the revenue outlook.
you know, those are things that we, you know, we're conscious of and we're, and we're watching and managing, where we could and, you know, things turned out quite well. That, that was, that was really good. Again, as you mentioned, accounts receivable goes up. You know, as you recall, 50% of our revenues in any quarter or in the last month of the quarter, we had a really strong revenue performance. You know, AR goes up, and we've got a lot of receivables here to collect in April, and I'm sure that will bode well for, you know, strong cash here in Q2.
Great. Thanks, Greg. I'll leave it there. One question.
Yep.
Our next question comes from Scott Davis with Melius Research.
Hey, good morning, guys.
Morning.
Morning, Bonnie.
Welcome, Vimal. Guys, you announced this buyback is pretty darn large. $10 billion is a big number, and we're hearing chatter from kind of other companies here and there that M&A is just starting to get into a little bit of a sweet spot where valuations are starting to make a little bit more sense, and PE is less competitive, of course. How do you guys think about your pipeline of deals that's out there and the optionality and you know, and versus kind of the guide, I think of share count down, kind of 1% ballpark means you may not be going in and hitting the bid on that $10 billion right away, but how do you think about the ebb and flow of the buyback versus that M&A?
Perhaps the big question there is, what's your backlog and pipeline look like? I'll stop there. Thanks.
Hey, hey, Scott Davis, real quick. Just what you saw with the $10 billion authorization, that is like what we always do. You know, we work our authorization down to about a $2 billion range, and then we frankly, almost as a matter of course, re-up it to $8 billion or $10 billion. You should view that as us just doing our normal, you know, restacking of our, you know, buyback authorization to give us the flexibility that we always have. There was nothing abnormal in that at all in terms of the cycle of the way we operate. I'm sure Darius Adamczyk will talk about the capital allocation aspect.
Yeah, I mean, you know, in terms of our frameworks, you've got to remember, we are holding to the framework of 1% you know, min buyback per year on average. We've done that. We've stuck to that. I think that that $10 billion authorization continues to underpin that kind of an algorithm. I think I wouldn't look too much or too little into it. It's just supportive of that. You know, we're gonna continue to buy back shares as we see they're priced aggressively, and we'll do at least 1%. On the M&A, which I think is the more important question is I, you know, I think I've always said there's time to be a buyer and there's a time to be a seller.
I have not seen a better time, at least since I've been CEO, to be a buyer. You saw one deal we did this past week. I think that it's an opportunity for us to be much more active. The pipeline is probably better than it's ever been. I think we've got some interesting bolt-ons that we're looking at that hopefully, we're gonna be able to close here in the next few months.
Darius, just natural follow-up. It's a quite a statement, "Never seen a better time to be a buyer." I don't think I've ever heard you say anything in that context or that bullish in your tenure. Would you consider going up in size? You just said bolt-ons, but perhaps something a little bit more larger in the pipe?
Well, I mean, you know, I think, you know, we said the bolt-on for us is up to a $5 billion, $6 billion, $7 billion range. I would say that's decent in size. You know, the reason I'm more bullish is, look, the cost of money has gone up significant. I mean, you know, you see the interest rates and frankly, you know, the competition is different. The competition for assets now is primarily strategics. A lot of the PE activity is not, I wouldn't say it's nonexistent, but it's not as nearly as strong as it used to be. You know, I think it's smart to be a buyer or a seller in various cycles of economic conditions and interest rates. I think right now, I think it's smart to be a little bit more aggressive on being a buyer.
Very encouraging. Thank you. I'll pass it on, guys. Good luck.
Thank you.
Our next question comes from Sheila Kahyaoglu with Jefferies.
Thank you, and good morning, everyone. Maybe bigger picture as well. Can you talk about what you guys are seeing, Darius, across the pricing portfolio? I think, Greg, you mentioned pricing contributed six points to organic growth of eight, including SPS. You know, how does pricing balance out and volume throughout the remainder of the year, and how do you see it playing across the segments?
I mean, I think you saw kind of a 6-2 mix as we move forward. I think, you know, frankly, you know, we're still projecting to be about a 4% price impact for the year. obviously, you know, pricing is gonna become a bit tougher in the second half of the year as we kind of lap some of those comps. overall, pricing is gonna continue to be a significant value driver for our results, given the differentiation and the technologies that we have within our portfolio. that's kinda how we see the setup, obviously, coming off a 6% and projecting forward for the year, we expect something a bit lower in the second half.
That's all very much within the algorithm that we expected for the year and actually gained confidence in that algorithm given our raise both in the bottom and top end of our ranges. I don't know, Greg, if you.
Yeah, no, I think you said it. This is not really that different from what we talked about, and we have positive price every quarter of this year. No concerns in that. Again, we've talked about it, you know, for the last six, nine months as inflation settles down a little bit, there are gonna be pockets where, you know, won't be as necessary as it was a year ago. That's what you're seeing now. Great. Thank you.
Our next question comes from Jeff Sprague with Vertical Research Partners.
Thank you. Good morning, everyone.
Good morning, Jeff.
Good morning. Just a two-parter on kind of Aero OE. I mean, it looks like you're making pretty good progress, as you stated, and you acknowledged some supply chain issues, but I was a little surprised one of your customers called you out by name yesterday. Just wondering if there's something Honeywell specific that's hung up from a delivery standpoint, or you would just kind of point your finger further down the line to your suppliers is just kind of part one, if you could add any color there. Just also on OE kind of incentive payments and the like, where do we stand for 2023 now? Is this still kind of peak year for headwinds or does some of that maybe, you know, move into 2024 if deliveries aren't quite what you thought they might be?
Yeah. Let me kind of start with the first part of your question. I think, you know, as we look at our output, you know, it's ranges depending upon whether it's, you know, avionics or some of the mechanical things, we're up anywhere from 20%-40%+. I think we're actually very pleased in terms of the output. Like, I can assure you that in terms of the bottlenecks, it's not Honeywell, and it's not sort of throughput to our facilities. We have a lot of issues with our supply base as well, and frankly, some of those being large public companies. I'm not gonna sit here and call them out on a call like this. Frankly, it's our responsibility and it's our job to deliver, and I'm not gonna use somebody else as an excuse for us not delivering.
That's our job to manage. Frankly, the earnings call is not the right place to actually have those kinds of discussions. We're gonna work at it. We own it. I know the supply chain in aerospace is not perfect. It's getting better, and it's getting better relatively quickly, probably even better than we anticipated. There's work to do. You know, there's four or five layers of the supply chain, and, you know, what we're seeing and feeling flows down to our suppliers. We're still getting some very inconsistent supply base. I mean, our decommit rate went from being, you know, 19%, 20% Q4 down to 15, but 15 is still not good, but improving and we're making those improvements.
We've launched hundreds, and I mean literally hundreds of people into our supply chain to assist our suppliers, and frankly, probably put more time and effort, to be responsive to the needs of our OE base. I don't know, Greg.
Yeah. On the incentive side, we're not making any adjustment to our expectations as far as that is concerned. You know, it's still very early in the year. As far as we know, you know, OE deliveries are still gonna be roughly in the range of what we had anticipated as we opened the year. Like you said, we expect this year is probably the peak, and then it's gonna flatten out or come down slightly next year, but still be relatively high. You know, should that shift left to right a little bit, you know, we'll see. At this moment, we're keeping our expectations as they were.
I think one point I wanted to add was that the diversity of our portfolio in Aero is quite unique. We supply engines, avionics, navigation equipment, lighting, brakes, the list goes on. Due to diversity, our volume is growing overall, but there could be some category where the growth is slightly less versus others. I think that puts us in a unique position on how we get viewed by our customers because they obviously want growth to occur consistently across all product lines. Wanna have that appreciation that our diversity is one of the unique factors compared to our peer group here.
Great. Thanks for that color. Appreciate it.
Our next question comes from Joe Ritchie with Goldman Sachs.
thanks. Good morning, everybody.
Hey, Joe.
Morning.
Just wanted to stay on Aero for my one question. I guess as you think about the margins for the year, you guys talked about flat margins, but that started the year off down. What's expected to improve as the year progresses? Is there friction associated with the supply chain that's impacting the margins today? Because, you know, your aftermarket business is growing faster than OE. Just any color on like the what gets better in Aero from a margin standpoint as the year progresses.
Yeah, sure. I mean, think about it this way, the first and most basic one is volume leverage, right? We are very much in control of our fixed costs and revenue's gonna go up each and every quarter sequentially, and it will have a crescendo in probably the highest quarter in Q4. Just by that alone, we're going to get some volume leverage. There's not like any, you know, big changes from one quarter to the next, that I would call out from a mix perspective. Again, that can always, you know, fluctuate, you know, as time goes by, but the single biggest thing, that you should expect is really around volume leverage. It's fairly simple.
Okay, great. Good enough. Thanks.
Our next question comes from Deane Dray with RBC Capital Markets.
Thank you. Good morning, everyone.
Good morning.
Hey, Darius, since this is your last call, just wanna say congratulations, on your run as CEO. Look, all CEOs wanna go out on a strong note, leaving the company in good hands, and I think this quarter speaks to that. Congrats.
Thank you. Appreciate that.
For my one question on Intelligrated aftermarket, you know, there was always this high growth in installations and we were waiting to get that critical mass in the installed base to start to get to the aftermarket. Have you reached that point? You know, what's that mix going forward between OE and aftermarket? Thanks.
Yep. Overall, our performance on aftermarket has been double digits for last couple of years, including this year. In fact, we are performing extremely well, I would say, in high teens. We are at a point, to your question on the mix now, two-thirds, one-third. I think we are going towards that mix now, which is a start. I mean, this business is seven, eight years old, so if you roll the dice 15 years from now, the mix will be probably more in favor of aftermarket as we are experienced in other parts of Honeywell. It's trending very frankly better than our thesis, you know, consistently north of 15% and we are pretty pleased with that and margins are pretty attractive.
Great. Thank you.
Our next question comes from Gautam Khanna with Cowen. Gautam, your line is now open. Our next question will come from Chris Snyder with UBS.
Thank you. The guidance, at least at the midpoint, seems to suggest slightly better organic growth in the back half relative to Q2, you know, and comes despite tough comps and maybe some macro concerns out there. Could you just maybe provide some more color on the subsegments or business lines where you think you could see better organic growth in relative to Q2? Also, does this dynamic maybe reflect some Q2 conservatism, the prior commentary kind of said that Q2 seasonality is coming in below normalized levels? Thank you.
Sure. again, what I would tell you is, aerospace, you know, we expect now to have, some really nice sequential organic growth as the year progresses, which is gonna be a big level of support for us overall. You know, back to 2Q, it's very much in line with, you know, kind of our historical trends. We feel good about the guided range that we're at. In terms of, you know, the back end of the year as far as, you know, PMT is concerned, I think we'll have a really strong back half there as well. You know, SPS will get actually sequentially a little bit easier as the year goes by.
We'll probably hit the heights of our declines here in the first half, and the second half will get a little bit easier, and that'll take a little bit of pressure off the overall portfolio. I think we're gonna see really nice growth throughout the portfolio in three out of the four businesses and the easing of the SPS comps, you know, will help.
Yeah. The other factor is that we're gaining more and more confidence in output out of Aerospace. I mean, you know, we're continuing to grow. It's the work that we've done in terms of mending the supply chain is producing results. I quoted some of the year-over-year numbers earlier. We expect that progress to continue and even accelerate, particularly as we get into the back half of the year. We're very confident in our outlook for the growth that we have and looking forward for signs and especially order rates for HPC to see what that looks like. Obviously, our Q1 results there were also better than expectations, both in terms of revenue as well as orders. We'll see how Q2 goes, and that may offer some further upside.
Thank you. I appreciate that.
Thank you. I would now like to turn the call back over to Darius Adamczyk for closing remarks.
Once more, I want to thank our shareholders for ongoing support. I valued our dialogue over the past seven years. I also want to thank the entire Honeywell family, including our colleagues, both present and past. We've built a tremendous company over the past two decades, and it's thanks to all your hard work and perseverance. It has been an honor to be able to lead this company. We delivered outstanding first quarter results, and more importantly, I have the utmost confidence that we'll continue to do so in the future under Vimal's leadership with the typical level of operational rigor we've come to expect from Honeywell. This company's best days remain ahead of us, and we look forward to discussing this further at our upcoming Investor Day next month. Thank you all for listening, and please stay safe and healthy.
Thank you.
This concludes today's conference call. Thank you for participating. You may now disconnect.