All right. We'll kick off the fireside chat session here with Mike Stepniak, CFO of Honeywell, as well as Mark Macaluso, who's back and running investor relations. Let's just maybe start with some opening comments on, I know you guys have a bit of Middle East exposure, but what are you kind of seeing out there in this fluid environment, in the near term with everything that's going on in the world?
Sure.
We'll start with that.
Middle East, obviously very fluid, but maybe I'll just start with that and make a small clarification. Based on some comments and write-ups I saw earlier today. Our annual revenue, if you think about Honeywell's annual revenue, high single digit of our annual revenue comes from Middle East, on average. With that said, given what's happening in Iran, we do not see any impact to us right now for the quarter or for the year. There are some shipment delays, et cetera, but they're minimal. They're about $20 million-$30 million of top-line revenue pressure for the quarter, and the team's going to figure out, obviously, we offset it within our overall construct and framework as we have contingencies, et cetera.
Right now we don't see any impact from Iran conflict and what's going on in the Middle East.
Could you just talk about the various, you know, angles of attack from this issue, whether it's what happens if oil price stays higher for longer, air traffic? Like, just maybe the variables at play here that you guys are watching more closely with all the various, knock-on impacts.
Sure. I would say, if oil prices stay higher for longer, that means that there will be more investment. Our customers will have more money, more investment. I think you'll see more investment in refining, more investment in catalysts, et cetera, as these spreads getting better and the pricing gets better. On the other hand, you have to watch inflation 'cause inflation will rise, and that's really where you have to have good pricing discipline. As far as traffic and hours, et cetera, we don't see a slowdown right now due to Middle East. Jim's going to talk about it in a while, but right now everything is still intact.
If this conflict doesn't last for much longer, I think it'll be good outcome overall for the industry.
As far as the other businesses, I guess.
Sure.
You know, heading into the beginning of the quarter pre what's happening over there, what were you guys seeing on the ground in the other businesses or just in general from a macro perspective?
Sure. I would say a lot of moving parts, but net-net things are the way we plan them to be. I'll just talk maybe through our segments. Building Automation is performing extremely well. Orders are strong across the board. All our regions last year in Building Automation grew. That seems to be continuing to be a trend this year as well. Overall, our orders for total business for automation were about 5% quarter to date, and March tends to be strong for us, and that's, I think, the orders will be mid-single digits. PT will have another quarter with double-digit orders growth, I think. There are a couple of big projects that they were working that will close out.
There will continue to be building backlog and we're just waiting for the backlog to start converting, and we see line of sight for that backlog to start converting in the second half of the year. We'll see about $100 million of incremental revenue coming on the back of those orders they had in the fourth quarter and early this year.
Orders remain pretty strong.
Pretty strong.
That's been kind of a positive aspect of second half of 2025.
Quarter to date, orders grow 5% on a three-month rolling high, high single digit growth.
Our high single-digit growth on a three-month rolling basis.
Yes. Which includes strong December. We don't see any deceleration. Pricing is good. Demand's good. I heard Delta talking this morning. Their demand is still very strong. I think right now our end markets and macros are holding pretty well.
When you think about kind of how this year is gonna play out, you talked about the second half.
Yeah.
Is this kind of a, I know normal seasonality is tough to call these days given what's happened in the last several years, but is, you know, the trend from 2Q in the second half, is that a normal seasonal trend, putting Iran aside? Was that what you were seeing and thinking about as far as the trajectory of the year?
Just remind everybody on our framework and the guide for the year. We guided 3%-6% top line for the year. We guided 20-60 basis points margin expansion and 6%-9% EPS growth. I'm extremely confident in us achieving that guide. What's happening right now is Building Automation will continue to perform strong. Industrial Automation is starting to grow in the second half. I see them starting to grow. They're getting much more focus, and PI machine is starting to work. We talked about PT and PA. They're starting to have some backlog, and the backlog's converting to second half. If you look at seasonality, we see a much stronger, I would say, tailwinds in the second half of our automation business.
On Aerospace, Jim will talk about it, but I think they're extremely confident in their total year guide as well. As you know, with our supply chain, things tend to be choppy, and it's hard to kind of hit everything quarter to quarter.
Okay. Just digging back into the BA side, the growth there has been pretty strong. Maybe you could talk about whether it's the technologies that you're bringing to bear or the verticals. It's obviously a much more global business than maybe some of the Building business if you think about here in the U.S. with the U.S. non-res exposure. Maybe what's driving growth there and talk about the macros.
We're seeing strength in Building Automation across the board. Regionally, this is a business that's most global for us. Last year, we saw growth in every geography, including China. The team spent a lot of effort over the last couple of years pivoting to higher growth verticals. If you think about data centers, hospitality, healthcare, these verticals are about 20% of our revenue, and they're growing at 2.5x, 3x rest of the business. That's helping to the growth. Then NPI. NPI is really a big differentiator for the team, which includes Forge, Forge Cognition, Connected. Our fire business last year alone had over 30 NPIs, most of them based on Forge platform.
We're seeing that annual recurring revenue, software services being bigger part of the business. I think the team is doing something exceptional there. You met with Suresh and Billal a few weeks ago, so I'm quite confident that we're something special here, and this business will continue to grow this mid-single to high single-digit growth over the next few years.
Maybe talk about what you're doing there and how it's been so successful, how you're kind of leveraging the, you know, the R&D and the innovation at, on the product side, and how you're able to bring that, you know, globally, 'cause it is a global business. I believe that's the way it's structured.
That's right. It really started with channels, if you will. Our solutions are helping our channels deal with what's common industry problems, predominantly lack of workforce, like lack of skilled labor, et cetera. Our products focus on self-testing, self-diagnosis, faster commissioning, better predictable failure mode spotting, if you will. When our channel partners go to the site and there's a problem in the building, they can already diagnose it before they go to the site, use fewer people, get a first attempt fix at 100% yield fruit.
Just geographically, where are you having the most success with this innovation?
North America is extremely strong. If you think about hospitality, people asking where are the most hotels being built? We're actually in the U.S. Middle East has been strong, Asia, Australia. Like we talked earlier, over the last year, Europe's starting to come back for us as well. We're seeing some tailwinds in Europe as well.
Maybe just talk about your data center exposure here. I know it's not huge, but what you guys are doing there, I'm sure that's a growth driver, albeit from a pretty low base.
Sure. Our data center business was three years ago, it was about 0% of our revenue. Today, it's about 5% of our revenue in Building Automation, and this continues to scale. We spent a lot of time with hyperscalers on updating our offering, getting into really security, safety, energy storage, fire protection modes, et cetera. This business will continue to grow for us really nicely. Like I said, it's only about 5% of our business right now.
Right. Then just lastly, Forge, on the building front, we saw them at AHR Expo. It's pretty impressive what you guys are doing there, the connected assets. Maybe just the business model is always tough for us to chew on. How are you looking at that as you know, driving actual revenue business? What's the outcome of Forge?
It's-
From a financial perspective?
It's really about first connecting the install base. If you think about our Forge platform, last year alone, we connected more buildings than we connected for the last five years, prior to 2025. We're still only about 10% connected. We're focusing on first on connections, and Suresh and the team have a really good, I would say, playbook as far as getting these assets connected. Once you get them connected, that's where you really start deploying your ontology, which essentially just understanding how the assets perform based on asset class. Obviously, hospital building behaves very different than a hotel or a school, et cetera. We have over 300, I would say, ontology models, which we're deploying for our customers to help them run these buildings more efficiently, more secure, et cetera.
It really comes to pricing on, in terms of how you value price. Historical model for us was really pricing by connection. That's, I think, where, how you start the business. Now we're moving into value sharing, taking, participating in the productivity and really leveraging the decoupled growth. It's business model is quite similar to Aerospace model and RMUs. It behaves very similarly, but it's all about getting that asset base connected and penetrated from a services and AR standpoint.
This is a lot of where AI is coming into play. Maybe talk about how you've, you know, leveraged what you've done in the last several years on building that capability, and then maybe a little bit on how you see it as, you know, the, what the mode is relative to development challenges.
AI is really the applications are built on Forge. Forge is a platform where all this comes together, but we're building applications, we're co-innovating with customers to build these models to help run the operations more efficiently. That's really what AI is. These buildings, you want them to be self-learning, if you will. That's what we focus on. I think if you think about AI, Building Automation is furthest ahead of us. Furthest ahead from our portfolio standpoint, as far as moving into full autonomy.
Okay.
Moving away from automation to full autonomy and having buildings run autonomously. In Industrial Automation, in P&P and PA, we still have a lot of work to do, but that's really what's exciting about the business.
Just taking a step back just to, you know, tie up the loop here. On the growth verticals, how big do you see those growth verticals? How big are those?
The growth verticals.
In the portfolio.
Are about 20% of our portfolio.
Okay.
In Building Automation. We'd like them to be 25%-30%, and that's what we're working on. We also are focusing on services and ARR. Right now, our services ARR is about 40% of our revenue. Vimal would like it to be 60%, and that's something that we'll really think about, and we'll talk about it during our investor day. That's something that we'll move towards over the next few years.
Clearly BA kind of leading the way on growth-
That's right.
mid- to high-single-digit $7 billion business.
Mm-hmm.
Pretty significant percentage of your portfolio. Maybe just moving to the other large business, you know, PAT. You talked about some of the second half, you know, the wins and the orders flowing through in the second half. Maybe what are you seeing on the verticals there, LNG and some of the other, you know, core businesses within HPS and UOP from that market perspective?
Sure. I would say, we've been supplementing our current business model in UOP with diversifying to other aspects of energy stocks, specifically around LNG and then Sundyne, which is more for us an aftermarket play. Last year in LNG, we booked about $700 million of orders, $500 million of those orders in the fourth quarter alone. Our LNG business now is essentially sold out for the next two and a half years, and we have more demand. We feel really good about the LNG business.
How big could that be at some point, LNG for you guys?
I mean, it could be.
On an annual basis.
Could be, you know, well over $1 billion. It's really just a matter of having capacity and building that capacity thoughtfully. You don't want to overbuild capacity and then in the event of a downturn, be stuck with a bunch of under absorption. So that's something we're monitoring. On UOP, I would say we're seeing a lot of orders also in the projects like we talked about. So the backlog is extremely strong. Now the question is when these projects start to convert into revenue. We have a good line of sight to the second half of this year where we'll start generating revenue for our projects.
I would say Catalyst, there's still a lot of overcapacity in Catalyst because of one, the oil prices, feed prices and the spreads were not attractive. I think with everything that's going in the world, those spreads are starting to become attractive and that overcapacity industry is. I get a sense is burning off.
Overcapacity at the end user.
In the, in the-
Not in the Catalyst or in the Catalyst industry.
In the petrochemicals.
Yeah. In the end user. Yeah.
End user side.
Okay.
Correct. It's a really good setup for the business. On PA side, I would say it's predominantly PA for us, predominantly OpEx. The projects business is growing in MMM, life sciences, utilities, also LNG. Traditional core energy is I would say still depressed. That business should be a mid-single digit grower for us in the second half as well.
Mid-single-digit run rate for the segment in the second half heading into next year. Is that-
I would.
Is that the way to look at it?
Look, I mean, we're being, I would say prudent. We're not assuming in our guide a lot of improvement in PA&T, but the orders would indicate, assuming no significant disruptions in geopolitics, that the market is coming back.
A little bit of upside potential for second half relevant to guide?
Maybe. I wouldn't want to commit to it yet because a lot of things can change. The backlog is strong.
I guess longer term, if we think about what the growth drivers are here, what is the long-term algo? I mean, obviously we think about these downstream oil and gas end markets as being relatively low growth.
Yeah.
Can this be a GDP business? Do you have enough technology here to be GDP plus?
If you think about how we diversify the business, and if you think about us getting into LNG, us picking up Johnson Matthey, us picking up Sundyne, which has a strong play in the aftermarket, we're diversifying the business. Our aim is for the business to be mid-single-digit grower for the cycle and less volatile. Great portfolio, as you know, number one, number two products in many of the markets. We're actually quite excited about the business.
I guess from a regional perspective, what should we be watching outside of obviously what's happening in the Middle East? What are the big hotspots for?
Generally, what we've seen is Europe to be slow. Now, that said, if you think about Latin America, if you think about Mexico, if you think about Brazil. Pemex, Petrobras, huge opportunities for us, customers are investing. Venezuela, we have over 400 assets in Venezuela. Short term, it's not going to grow, I don't think. It's really more of a three, four year type of cycle. We're cooperating and working with some of our customers, like Chevron, to assess the situation and be ready to invest in that market if the background allows it. MENA continues to be strong. We see a lot of activity in Africa as well.
China for us is doing a little bit better than it did last year. We see a lot of growth and green shoots, if you will, but we just have to be patient.
I think there were some growth businesses here you guys had. There were some, I don't know, like $1 billion of orders or something, you guys used to talk about. Is there still this pocket of growth businesses, whether it was like the plastics recycling or, any kind of the new technologies that we're watching?
Mm-hmm.
'Cause I feel like we're back to now talking about.
Yeah
You know, the core, the traditional business.
The new technologies are down right now. We'll continue to invest in R&D and NPI. We're quite confident that these markets will come back, but that's more for us a 2028 event based on everything we're seeing.
Okay. A bit further.
Further out.
Into the future.
What's offsetting it is really LNG right now.
Okay. Let's just pretend that, you know, the war in the Middle East ends pretty quickly. There is some supply coming from Venezuela. Oil price goes down quite a bit. Is that a positive for you guys because you're gonna see more, a bit more, you know, activity and volume? Or is that a negative 'cause you know that'll have an impact on spreads? How do we kind of look at a normalization? What's the right price of oil for you guys, do you think that you're, you know, you're comfortable with for that business?
I would say 70+.
Okay.
If the oil stays above $70, the spread should be good enough for our customers to start investing in it again. Time is on our side, 'cause these short cycle catalysts, et cetera, they have a shelf life, and they deteriorate. If demand, generally the industry demand improves, then customers will need to reload, and then that's obviously good for us.
I know this is a little bit of an area where you have software. You guys were kind of a leader in software and HPS.
That's right.
How do you see that business? Any, I kind of have to ask, any threats from AI there? I mean, I think it's very, you know, highly mission critical and domain expertise driven, but...
It's-
Anything on the software side there and HPS?
We're quite bullish about that business. That business is about $900 million, approaching $1 billion. It's predominantly ARR, and it's growing at a high single to double-digit growth. It's a great business. It's very CapEx-like. We have a tremendous installed base and tremendous products. Like I said earlier, we're moving away from traditional energy into MMM, life sciences, utilities, and that transition is working quite well for us.
You guys have in HPS historically not had a strong position in field devices. Is that something that maybe, with a fresh look as a new company, could be interesting, or you kinda wanna focus on the core in HPS?
Right now, we're focusing on the core. We think that what we have as far as our play on software and the software strategy, that's the way to grow and continue to penetrate our install base. We still haven't penetrated our install base as far as aftermarket and decoupled growth. That's really the strategy we're embarking on right now, similar to what we've done over the last few years in building automation.
Okay. One last one, just on Matthey. I know that acquisition, they had you guys kinda repriced that. What's kind of the financial update there, and what kind of impact will that have this year?
We're targeting August close, assuming we get through all the regulatory approvals. Things are progressing well. The price adjustment you saw there just reflects the state of the Catalyst business and general industry and how the business performed. Like I said earlier, we like this business for its strategic fit to Honeywell and to our PT business. This is a long-term play, not something that we're expecting to get a return on day one, given where the industry is right now, but great technologies, great team, and I look forward to having it in the portfolio.
On IA, obviously the smaller of the three, I think roughly $4 billion. Maybe just talk about what's left in there and how you view the drivers going forward. Obviously to me, this segment probably will evolve over the next couple of years, perhaps.
It will. Actually, that's the business I'm most excited about as far as the margin expansion and how it's going to contribute to the portfolio. With TLW coming out, what you will have left is really mission-critical applications in measurement and sensing, and that's the business that we know extremely well. It's highly fragmented, critical products, very high cost of failure, customers who are willing to pay price for performance. We have management team, specifically Peter Lau, that joined us recently, who knows very well how to run this business. Peter ran fire business for us two years back, and we're deploying very similar play on that side. Probably if you look at the portfolio, that's one business where we would like to do some M&A.
We will be selective, and we'll be patient. Vis-à-vis our last seven transactions, we feel bolt-ons and tuck-ins are the best approach for us. They allow us then to plug in businesses that are accretive to growth in the right verticals, if you will, accretive to underlying business margin. And we're looking for businesses that we can actually from a strategy standpoint absorb into the portfolio. Think about the strategy of creating installed base and mining installed base, that's something that we want to do. We'll be patient, but definitely that's the area that we're focused.
I would just add that in the short term, I'm personally focused on paying down debt in the company and get our leverage ratio below 3x by the end of this year and then 2.5x on the longer-term basis.
That's on a.
On a growth basis.
On a growth basis. Just remind us where you're gonna come out, you know, on day one of the RemainCo on gross and net.
Sure. On we'll come out somewhere around 37%-35% on gross. I think 22%-25% on net, and obviously we'll take it down from there.
Right. Just stepping back to IA for a second.
Sure.
Just talk about how you look at the, I think there's now maybe three pieces of the business left. I know your segment reporting is a little bit different than that.
Yeah.
I think you talk about it as sensing, maybe it's sensing and measurement. Maybe those are the two kind of-
Yeah. It's really.
How should we think about the two?
Industrial measurements and control.
Yeah.
Smart energy.
Yeah.
That's really and thermal solutions. Kind of. That's the those are the big businesses. What Pete's really focusing on is self-help story. That business is for us in the short term. It's about better execution. Better pricing execution as far as managing discounting. The business has a lot of channel go-to-market where we need to do better as far as pricing discipline. Better supply chain execution. Post-COVID, we just took our eye off that. We're working on that. Stronger NPI. We grew NPI investment in our business, this business last year about 10%. We're adding about incremental 6% this year. We're starting to see the benefits of it.
And then focus on growth verticals and migrating to growth verticals. I would be quite disappointed if this business is not mid-single grower second half of next year.
Second half of next year?
Next year. You think about NPI cycle in this business is 18 months. It's one thing to engineer the product and get it to the market, but then you also need to get it certified. Majority of our products in this industry, just like in building automation, they have to be either specified or certified. Ultimately, that process takes nine to 12 months for most of the NPI.
It's really low singles. It can still grow in the near term.
Yeah.
Low singles, and then you kind of...
It'll be flattish in the first half. We have some tough comps in the second quarter, both in IA and PT. But post that, it starts inflecting in the second half of this year. Like I said, everything we're doing, we should be mid-single digit grower next year in the second half.
Okay. Again, just remind us of what's in there. It's the metering business, it's the sensors.
Sensors, smart energy.
Smart energy.
Yeah.
On that front, are there any platforms here that you're looking at versus others? Is there a kind of a diversity of opportunity that's outside these platforms? Is this really where you wanna this is what you wanna build off of synergistically?
That's something that we wanna build off of. The reason for it is we want to protect consistency of the model and go to market. It's extremely difficult to manage a business that's $7 billion, and you have 12 P&Ls in it, and each of them operates differently. We're trying to get consistency, have teams focus. There's a reason we actually are shedding PLW to get more consistency in our business model and in order for the teams to be more focused and have a better say do.
Is T&M kind of an offshoot here that, you know, like, whether it's electronic test or I know it's a little bit outside of what you guys do. Is that an area that could be of interest? You know, Emerson bought NI, you know, that type of portfolio.
We're not shutting down any, I would say any targets right now and keeping the optionality for us. The key for us is to make sure that the businesses are in areas where the technology stock is quite high. Where you need to innovate, you need to get the product certified or you need to be specified, where you have not only creating installed base, but this installed base has aftermarket. In terms of M&A standpoint, we're looking for businesses that can be accretive to us on day one, meaning they're in better end markets, better verticals, et cetera.
I think the key point here is you guys talk about it as Industrial Automation. This is not meant to be, you know, hey, look at the discrete systems automation players. We wanna kind of replicate that type of business. This seems like it's a little more of a, for lack of a better term, niche market approach in a bit more fragmented businesses.
Industrial Automation is extremely fragmented. Whether it's
Like, do you need a PLC?
No.
Do you need to go in that direction?
No, we do not.
Okay.
We do not. For us, it doesn't really, I would say, ultimately, it doesn't matter kind of which end market it is, as long as it has those characteristics that fit our business model.
Okay. Any questions out there? I know it's early. Just moving to the bottom line on the margins.
Sure.
You know, this year's margin expansion is fine, but not necessarily, you know, what we've known Honeywell for over the years. How should we think about the algo here, going forward on a, you know, incremental margin or a year-over-year basis?
I feel really good about our margin story and how the business is going to evolve. We spent a lot of 2025 setting this up, one, from a portfolio transformation, second, just, from a company transformation inside out. As we're separating Aerospace, as we separate Solstice, we got ahead on our stranded cost takeout, which is gonna be a significant driver of margin expansion over the next twelve months. We have better pricing discipline. Our NPIs are delivering better pricing as well. M&A is accretive, so you'll see it on June 11th, but I feel we have a very compelling story on the margin expansion.
Just thinking about the moving parts, you guys have always had a, you know, a pretty complex below the line dynamic.
That's right.
Just corporate, for clarity there, maybe talk about what that number will be on, you know, day one, and then what you're able to work out of that over a 12-month period. There's some moving parts there.
Sure. Our corporate number you see today is about $650 million. $400 million of that is net corporate costs, $250 million is Quantinuum. That's $650 million on day one. On top of it, what you'll see on day one, you'll see $350 million-$400 million of stranded costs. Essentially costs that we are assessing today to Aerospace that will come back to us. We'll work for 12 months to take this cost out. We'll also be receiving from Aerospace a trademark, which is about $150 million a year. That's gonna be net down to the corporate costs.
That'll run into corporate, so we'll just see one line item that'll start.
That's my goal.
Roughly $1 billion whatever, and then 150 off. $1 billion plus-
All of that.
$150 off of that.
That's right. I'm trying to keep it simple.
The $350-$400 comes out over a 12-month time period.
12-month period. Yeah. We're talking about 12-18 months. Where we are today and based on how the teams have executed, I am confident we'll take the cost out in 12 months.
Got it. Is that cost to take that cost out embedded in the one-time cost that, you know, you're thinking about in the deal?
Yes.
Is it something you'll see in restructuring running through as well?
It's both. It's because some of the restructuring we're doing are related to the separation, others are not. You'll see from us probably going forward on an annual basis $50-$250 of restructuring costs. I would say this year and next year, those costs will be lower as we essentially took care of a lot of the restructuring with the one-time costs.
Lastly, just, you know, the pension elephant in the room has always been, you know, a big debate for you guys. How are you thinking about reporting the pension income going forward?
Maybe I'll start with this. Pension is overfunded. It's over 40% overfunded for Honeywell. The way we're handling pension, we'll split the pension between the Aerospace and RemainCo based on essentially how employees fall out based on their service. The overfunding will proportionally go with that. For automation, we're discussing whether to keep the pension in our financials or keep it out. We're gathering feedback. Obviously, our board needs to opine on it. There are two schools of thought on it. But like I said, I'm trying to keep our financials very simple going forward and make sure that there is a very, very clear connection between earnings generated and free cash flow generated.
Maybe we can, who thinks that Honeywell should remove the pension expense from the income statement despite it hitting earnings, even though it's non-cash? Show of hands.
Okay. For those not in the room, it's about 80%.
Yeah. Yeah. Anyway. All right.
No.
Thank, I tried. Thank you.
Thank you. Thank you for the feedback.
Great. Appreciate it. Thank you.
Thanks, Steve.
Bye.