Q2 2022 Honeywell International Inc Earnings Call

July 28, 2022

Yeah.

Thank you for standing by and welcome to Honeywell's second quarter fiscal year 2022 earnings Conference call. At this time all participants are in a listen only mode. After the speaker presentation. There will be a question and answer session to ask a question. During the session you will need to press star one one on your telephone.

I would now like to hand, the call over to Sean Meacham. Please go ahead.

Thank you good morning, and welcome to Honeywell's second quarter 2022 earnings Conference call.

On the call with me today are chairman and CEO , Darius Adamczyk, and senior Vice President and Chief Financial Officer, Greg Lewis.

Also joining us as senior Vice President General Counsel and Madden.

Alright, President and Chief supply chain Officer Torsten Pilz.

This call and webcast, including any non-GAAP reconciliations are available on our website at www Dot Honeywell Dot com forward slash investor.

Honeywell also using our website as a means of disclosing information, which may be of interest are material to our investors and for complying with disclosure obligations under regulation FD.

Investors should monitor our Investor Relations website. In addition to following our press releases SEC filings public conference call webcast and social media.

Note that elements of this presentation contain forward looking statements, which are based on our best view of the world and of our businesses as we see them today.

Elements can change based on many factors, including changing economic and business condition, and we ask that you interpret them in that light.

We identify the principal risks and uncertainties that may affect our performance and our annual report on Form 10-K, and other SEC filings.

This morning, we will review our financial results for the second quarter of 2022 and share our guidance for the third quarter and provide an update to our full year 2022 outlook as always leave time for your questions at the end with that I'll turn the call over to chairman and CEO Gary <unk>.

Thank you Sean and good morning, everyone, let's begin on slide two the.

The second quarter was another strong one for Honeywell.

We over delivered on our commitment as a rigorous operating principles enable us to navigate a challenging backdrop and remained highly resilient amid ongoing supply chain constraints inflation headwinds and geopolitical unrest.

Met or exceeded our second quarter guidance. Despite these challenges with adjusted earnings per share of $2 10.

Up 4% year over year, and <unk> <unk> above the high end of the guidance range.

Organic sales grew 4% year over year led by strong double digit growth in our commercial aviation building products productivity solutions and services advanced sensing technologies advanced materials and recurring connected software businesses. This was partially offset by a three percentage point impact from a combination of the.

Wind down of our Russian operations, and lower Covid related mass sales as we lapped the height of demand in 2021.

We expanded segment margin by 50 basis points year over year to 29%, beating the high end of the guidance range as commercial excellence enable us to remain ahead of the inflation curve, excluding the impact of our investments continue the margin expansion was 80 basis points year over year.

And backlog strength continued in the second quarter led by Arrow, HPT and PMT as our end markets continue to recover giving us confidence our demand outlook for the back half of the year orders were up 12% year over year and closing backlog was $29 5 billion.

While also up 12% year over year in terms of capital, we deployed $2 $3 billion to share repurchases dividends and capital expenditures.

Leverage the strength of our balance sheet to Opportunistically purchased $7 5 million shares throughout the quarter, reducing our average share count to 685 million shares and continuing to execute on our commitment to buy back $4 billion in shares in 2022.

As always we continue to execute our rigorous and proven value creation framework, which drive outstanding shareholder value I'm proud of honeywell's ability to rise to the challenge to deliver strong results amid such a fluid operating environment.

Now, let's turn to slide three to discuss recent senior leadership changes.

This morning, we announced that <unk> has been appointed role of President and Chief operating officer effective immediately.

Currently the president and CEO of Honeywell performance materials and technologies, and we will maintain as PMT role until his successor is named.

I think most fortunate to benefit from a very deep bench of experienced leaders like nimble with 33 years across various Honeywell businesses.

If.

You will work closely with me to drive the continued profitable growth of Honeywell's operating businesses.

This includes creating new solutions to help our customers drive their sustainability transformations and accelerate their digital transformation journeys.

She will also oversee the continued integration of honeywell's operating system, which we call Honeywell accelerator.

<unk> is uniquely qualified for this role and improvement is operational capabilities capabilities across many different industries business models regions and business cycles.

This support and provides additional bandwidth to focus on strategy business development customer engagement and people development now.

Now many of you will recall that I served as CEO or once upon a time as well.

This announcement today is not a repeat of that playbook.

It won't be chairman and CEO definitely I have no definitive plans to retire and we will continue to meet Honeywell.

<unk> appointment is going to allow me additional flexibility to focus on our overarching objective.

In addition, effective earlier this month, we expanded both Sheila Jordan and Suresh win trickles role and welcome them to the executive leadership team as Honeywell officers reporting to me to ensure we continue to advance our enterprise transformation.

Sheila expanded her role to include all digital transformation efforts become the senior Vice President Chief Digital Technology Officer, Sheila joined Honeywell in January 2020, and has proven significant value working to modernize our it infrastructure applications digital capabilities and talent.

Suresh took an expanded role becoming senior Vice President Chief Technology, and innovation Officer.

So Russia has been of Honeywell almost 30 years.

How that series of engineering, and IP leadership positions, including CTO of Honeywell and Sps, So Russia is responsible and new product development and introduction processes, including development for breakthrough technologies I'd like to congratulate simmel, Sheila and Suresh.

Their new roles and I look forward to working closely with them as they enter the next phase of Honeywell transformation.

Let me turn to slide four to discuss other exciting recent announcements.

In the second quarter, we continued to build on our reputation as one of the premier providers of cutting edge technologies that can deliver more sustainable solutions, we announced yesterday that Archer aviation selected Honeywell to provide flight control actuation and thermal management technologies for the urban Air mobility Erk.

Correct.

<unk> production aircraft will operate dense urban environments, making critical precision from the aircraft's flight controls actuators a must for civil.

The 1 billion feet Honeywell.

Honeywell's actuary can except hundreds of micro adjustments and commands per second from fly by wire computers, enabling precise navigation, which will enhance safety and accommodate the unique elements of archers electric vertical takeoff and landing aircraft.

Honeywell has a wide variety of ready now solutions that will create a more sustainable future for the aviation sector is a great example of that.

In addition last month, we announced a partnership ship with Enlink midstream to deliver carbon capture solutions industrial scale <unk> meters, along the Louisiana, Louisiana Gulf Coast.

Our carbon capture and hydrogen purification technologies combined with Enlink is planned to pipeline transportation network provides a cost efficient solution for customers looking to reduce the environmental impact of their operations.

Lastly, we discussed in our Q2 leadership webcast unsustainable building technologies, we released a new carbon and energy management software focused on the energy optimization and carbon reduction of commercial buildings.

Commercial buildings currently account for almost a third of global energy consumption and 37% of global energy related <unk> emissions.

Building owners recognize that this issue needs to be addressed.

Zones of companies have voluntarily pledged to meet sustainability targets Honeywell's, new software offering enables building owners.

<unk> and optimize energy performance down to a device or asset level, our carbon and energy management software Leverages honeywell's.

Artificial intelligence and machine learning algorithms to economists, we identify and implement energy conservation measures.

This makes it possible for building owners to reduce the environmental impact of their building while at the same time, improving the well being of their occupancy.

As you can see we are leveraging our expertise and culture of innovation to enable a more sustainable future now.

Now, let me turn it over to Greg on slide five to discuss our second quarter results in more detail and to provide an update on our 2022 outlook.

Thank you Darius and good morning, everyone.

As Gary highlighted we delivered second quarter results with met or exceeded the high end of our guidance, while navigating persistent macroeconomic uncertainties.

Second quarter sales grew by 4% organically or 7%, excluding the impact of lower COVID-19 related mass volumes and the wind down of our operations in Russia.

While demand trends remained strong supply chain constraints continue to weigh on volume growth predominantly in Aero, HPT, and Sps, causing our past due backlog to increase sequentially by more than $100 million in the quarter.

However, we once again demonstrated our operational agility by staying ahead of the inflation curve through strategic pricing actions, enabling us to expand margins and beat the high end of our adjusted EPS guidance.

Aerospace sales for the second quarter were up 5% organically compared to the second quarter of 'twenty, one as we continue to face a challenge overall aerospace supply chain.

The ongoing recovery in commercial flight hours led to approximately 20% year over year sales growth in both air transport aftermarket and business in general aviation aftermarket sales.

Business in General Aviation original equipment returned to growth in the quarter growing double digits, while air transport original equipment continued a strong 2022 growing over 25% year over year.

Growth from our commercial aerospace business was partially offset by defense and space sales, which were down 11% year over year. They were up sequentially from Q1 in both U S and international markets.

Aerospace segment margin expanded 80 basis points in the second quarter to 26, 5%.

In building technologies sales were up 14% organically led by commercial actions and strength in both building products and building solutions.

Demand remains strong with orders up double digits for the second consecutive quarter led by building projects building management systems and our security products.

Backlog grew double digits year over year in the second quarter, giving us continued confidence in our 2022 outlook.

Our healthy buildings portfolio remains robust with over $100 million of orders in the quarter.

Segment margins expanded 110 basis points to 23, 5%.

In performance materials and technologies sales grew 10% organically in the quarter, despite an approximately 3% headwind from Russia.

Advanced materials continues to stand out with 21% organic sales growth in the quarter as a result of commercial excellence and greater volume in specialty additives and electronic materials.

Process solutions grew 7% organically on increased demand for thermal solutions and lifecycle solutions and services.

<unk> grew over 40% and was earnings accretive for the second consecutive quarter.

Process solutions orders grew more than 15%, including double digit growth in our projects business showing continued momentum.

<unk> sales decreased 1% in the quarter, including a seven point headwind to year over year growth from lots of Russian sales.

We continue to see strength in our higher margin catalyst business, which grew more than 20% and helped to offset lower equipment volume due to timing of larger projects.

PMT segment margins expanded 150 basis points to 22, 3% in the quarter.

Safety and productivity solutions sales decreased 10% organically in the quarter in line with our expectations as strength in advanced sensing technologies and productivity solutions and services was offset by lower personal protective equipment and warehouse automation volume.

Elevated COVID-19 driven mass demand in the second quarter of 'twenty, one led to a 5% year over year headwind for Sps in the quarter.

Advanced sensing technologies grew 25%.

Productivity solutions and services grew 19% and gas detection also grew organically in the quarter, all demonstrating excellent execution in a difficult supply constrained environment.

We continue to be impressed by the performance of these businesses.

This quarter marks six straight quarters of double digit organic growth and productivity solutions and services and three straight quarters for advanced sensing technology.

SPS also benefited from a licensing and settlement agreement to resolve patent related litigation with a competitor, which we entered into in the second quarter.

Under this agreement each party agreed to provide a license to its existing patent portfolio for use by the other parties existing products and Honeywell is entitled to receive up to $360 million over two years.

<unk> received the first of these payments of $45 million in the second quarter and recognize the corresponding sales and profit in the SPX financial results.

It's incremental profit in the quarter was more than offset by legal costs associated with the agreement and a onetime write down of excess COVID-19 related mask inventory, which should close the book on that math story.

Overall, Sps segment margins contracted 140 basis points to 12, 6%, primarily due to the lower volume and the PPE write down.

Growth across our portfolio continues to be supported by strong results in Honeywell connected enterprise, we had another quarter of double digit revenue growth, including double digit recurring and 40% SaaS business growth year over year.

BARDA system connected safety and cyber all sub growth of greater than 25% year over year in the quarter.

So for overall Honeywell, we exceeded our sales outlook growing top line, 4% organically and we executed operationally to expand second quarter segment margins by 50 basis points to 29%.

Meeting the high end of our margin guidance range with expansion in PMT HPT in aerospace this is.

Spansion is net of a 30 basis point year over year headwind associated with our investment in <unk>.

On EPS, we delivered second quarter GAAP earnings per share of $1 84 and.

And adjusted earnings per share of $2, 10, which was up <unk> <unk> year over year, Despite a <unk> <unk> headwind from foreign exchange.

A bridge for adjusted earnings per share from $2 21 to <unk> 22 can be found in the appendix of this presentation.

Segment profit was an eight tailwind driven by strong commercial execution.

Share count reduction drove up <unk> year over year tailwind to earnings per share we saw a <unk> <unk> headwind from below the line items, primarily due to the lower pension income.

Higher effective tax rate 23, 4% this year versus 23% last year to have a one set headwinds.

In response to winding down operations in Russia, we recorded an additional charge of $126 million or 19 set impacted GAAP EPS.

The company also took a $50 million noncash charge in <unk> related to the potential comprehensive resolution of ongoing <unk> matters more.

Formation on this can be found in our Form 10-Q.

Moving to cash we generated over $800 million of free cash flow in the quarter down 43% year on year, which is closely aligned to our expectation.

We continue to invest in inventory to deliver for our customers, which is driving elevated working capital in recent quarters, including Q2.

During the quarter. We also received the final payment to closeout, our agreement with Gareth, but still saw a year over year decline in <unk> payments due to an elevated $375 million payment in the second quarter last year.

We remain on track to deliver our cash guidance range of $4 seven to $5 1 billion for the full year.

Finally, as Darius mentioned earlier, we continue to leverage our strong balance sheet, the $2 3 billion in the quarter, notably we repurchased seven 5 million shares for $1 4 billion in the second quarter, bringing our first half total to $2.

$2 4 billion as we execute on our updated commitment to buy back $4 billion in shares in 'twenty two.

We also paid approximately $690 million and dividend and invested approximately $160 million in capex.

So overall, another strong quarter in which we delivered results at or above our expectations.

Executing well through challenging economic conditions and accelerated our capital deployment now.

Now, let's turn to slide six to talk about our third quarter and full year guidance.

While the environment continues to be volatile our demand profile remains resilient.

Our <unk> orders and are closing backlog of $29 $5 billion, both grew 12% year over year positioning us well for the quarters to come.

Supply chain constraints, particularly related to semiconductors improved slightly in the second quarter, and we expect modest sequential benefits to continue throughout the back half of the year, enabling us to unlock greater volume.

The aerospace supply chain has continued to face difficulties, but we're confident in the eventual recovery as tier three and tier four suppliers work to combat labor shortages.

Once again this quarter and throughout the rest of the year. We are staying ahead of the inflation curve with our strategic pricing actions.

As a result of rising interest rates and the strengthening of the U S. Dollar we are experiencing higher foreign currency impacts and we add in our prior guidance impacting sales and EPS that we are overcoming that operationally.

With that as a backdrop, we expect third quarter sales to be in the range of $8 nine to $9 2 billion.

Up 7% to 11% on an organic basis or up 8% to 12%, excluding the one point impact of our watch Russian sales.

We now expect full year sales of $35 5 billion to $36 1 billion.

Which represents a decrease of $300 million on the high end from our prior guidance incorporating higher foreign foreign currency impact.

However, we are raising the low end of our organic growth range now at 5% to 7%, increasing the midpoint versus our prior guidance and narrowing the overall range that represents organic growth of 7% to 9%. Excluding a one point impact of lower COVID-19 related mass demand and a one point impact of lots of Russian sales.

The difference between our reported and our organic sales growth guidance is two points driven entirely by foreign currency translation.

We expect our disciplined commercial actions will contribute approximately 8% to our sales growth in 2022, which is higher than we anticipated last quarter as we remain vigilant in addressing price cost dynamics given elevated inflation.

Now, let's take a moment to walk through the third quarter and full year expectations by segment.

An update on our 2022 and market outlook can be found in the appendix of this presentation.

In aerospace, we see ongoing flight hour improvement leading to another quarter of robust growth in our aftermarket business led by air transport aftermarket and.

In original equipment build rates continue to ramp driving growth in both air transport and business in general aviation.

Some states grew sequentially in the second quarter and we expect this trend to continue into the second half we anticipate the business will return to year over year growth in the second half as comps ease, but it will be down slightly for the full year.

As I mentioned earlier, the overall aerospace supply chain remains challenged and is partially offsetting strong end market demand, while our supplier decommit rate improved sequentially in the second quarter. The pace of improvement is slower than the higher end of our expectations as.

As a result, we now expect aerospace sales for the year to be up mid single digits compared to 2021 lower than our previous outlook of high single digits.

Original equipment mix headwinds were well telegraphed, but lower volume leverage will weigh on full year margin, which we now expect to be down modestly year over year.

In building technologies, where supply chain constraints, particularly around semiconductors have improved slightly each quarter. So far in 'twenty. Two we expect sequentially improved volumes and pricing actions will support continued growth into the second half of the year.

Energy efficiency and healthy building solutions remain a priority for our customers, enabling growth in our building solutions and healthy building businesses.

We now expect full year organic growth in the double digits trending better than our outlook at the end of the first quarter of high single digits to double digits.

Our operational excellence and additional volume leverage should allow us to build upon our margin expansion from the first half in the third quarter and throughout the rest of 'twenty two.

And performance materials and technologies that favorable outlook in our end markets and two consecutive quarters of double digit orders growth provide solid footing for the future and.

In process solutions, we expect sequential improvement in the third quarter with continued strong demand for thermal solutions, leading to year over year growth.

We expect sequential growth in <unk> throughout the remainder of the year largely driven by increased refining catalyst shipments with a heavier margin benefit in the fourth quarter versus the third.

As we discussed last quarter, Russia will be a headwind to year over year growth throughout 'twenty, two but we're optimistic about the potential capacity investments in the energy sector to offset Russian supply, especially in LNG and these investments provide support for our long term growth framework.

We expect the typical seasonality in advanced materials, as we exit the summer months, but pricing tailwind and solid demand support continued year over year growth in the back half.

For overall PMT, we now expect sales to be up high single digits for the year, an upgrade from our outlook last quarter of up mid to high single digits, and we expect segment margin expansion in the second half versus the first.

Looking ahead for Sps, we expect continued growth in advanced sensing technologies and gas detection as demand indicators have remained strong and these businesses are supported by a robust backlog and we expect modest sequential improvement throughout the back half of the year.

As we enter into the second half, we expect our personal protective equipment sales run rate to be relatively stable in the third and the fourth quarter.

In <unk>, we are encouraged by the improvements, we're making in our operational efficiency and strategic customer wins, which will enable greater profitability over the project lifecycle that said, we're seeing capital spending plans of our warehouse automation customers pushed to the right some of which has been broadly publicized.

While we remain very confident in the medium term growth rates, we expect 2022, Sps revenue to decline mid single digits for 2021 as deliveries slide to the right.

As I mentioned earlier segment margin in the second quarter was lowered by a one time inventory write down. So we expect significant sequential margin improvement in the third quarter and continued expansion in the fourth quarter through a combination of higher volume leverage some cost reduction and positive mix shift.

For overall Honeywell, we expect third quarter segment margins to be in the range of 29 to 21, 2%, resulting in year over year margin contraction of 30 basis points to flat.

Timing of high margin catalyst shipments in PMT and some mixed headwinds in aerospace.

Excluding the 40 basis point headwind from continuum, we expect margin to expand 10 to 40 basis points.

From a sequential perspective, our third quarter margin expectations are flat to up 30 basis points.

Turning to our other core guided metrics third quarter net below the line impact which is the difference between segment profit and income before tax is expected to be in the range of negative 20 to positive $30 million with a range of repositioning between 50% and $90 million in the quarter as we continued to fund attractive restructuring project.

We expect the third quarter effective tax rate to be approximately 24% and the average share count to be approximately 679 million shares as a result, we expect adjusted third quarter EPS between $2 <unk> and $2 20.

Up 4% to 9% year over year.

Turning to the full year, we expect organic sales growth of 5% to 7% up from 4% to 7% last quarter.

We are upgrading our segment margin expectations by 20 basis points to 30 to 70 basis points of year over year expansion at a margin rate of 21, 3% to 21, 7%.

This is supported by successful execution of our price cost strategies as well as our continued rigor on fixed cost management exclude.

Excluding the 30 basis point headwind from continuum, we expect margins to expand 60 to 100 basis points of the year.

We expect full year net below the line impact to be in the range of negative $150 million to negative $50 million, including capacity.

Capacity for $350 million to $425 million of repositioning.

We expect a full year effective tax rate of approximately 22% and we expect a weighted average share count to be in the range of 684 to 687 million shares for the year, reflecting our commitment to repurchase $4 billion of Honeywell shares in 'twenty two.

As a result of all of these inputs we have raised the low end of our full year adjusted earnings per share expectations to $8 55.

To $8 87 up 6% to 9% year over year.

Reflecting confidence in our ability to more than offset.

Offset a <unk> <unk> foreign exchange headwind versus our initial guidance in February as well as navigate evolving external risks.

We still expect to see free cash flow in the range of $4 seven to $5 1 billion in 2022 or $4 nine to $5 $3 million of $1 billion, excluding the impact of <unk> the.

The cash impact and timing of our Russia exit does remain uncertain and we will update you as that continues to develop as it is not contemplated in this guidance.

So in total we executed a strong Q2, despite supply chain foreign currency, Russia, and inflation headwinds and are raising the midpoint of our organic sales growth adjusted EPS growth and segment margin ranges, while holding our cash range, demonstrating our strong operational capabilities before.

Before turning it back to Darius, let's turn to the next page to discuss our ability to deliver in all economic cycles.

During our Investor day earlier this year, we talked about our track record of managing through the cycle.

Our execution through multiple downturns highlights our ability to move quickly and decisively to protect margins drive growth ensure liquidity and position ourselves for recovery.

As we continue to maneuver through changing economic conditions are favorable end market exposures robust orders and backlog position and diligent cost management will enable us to deliver differentiated results for our shareholders as we have proven in the past.

We believe our end market exposures will help us remain resilient during times of short cycle demand softness.

In fact, 65% of our sales address the commercial aviation defense energy and nonresidential end markets, which are all set up favorably to weather a potential recession in.

In commercial aviation pent up demand for leisure and business travel will continue to drive aftermarket demand, particularly as international travel resumes.

Defence will remain relatively stable as international budgets are poised to increase with restocking from NATO allies, adding upward momentum for this end market.

The energy markets are also gaining traction with higher relatively stable oil prices supporting an expected wave of capital reinvestment in LNG capacity additions, which are required to replace Russian gas supply and power of the energy transition.

Infrastructure build both domestic and abroad provide tailwind for the nonresidential sector sector.

Does increased customer focus on sustainability and healthy buildings as.

As I mentioned earlier, although we're seeing some near term softness in E. Commerce, we still believe the medium term growth is robust.

As Darius mentioned earlier, we ended <unk> with a record high backlog of $29 5 billion.

Up 12% year on year, approximately 60% of this backlog is one cycle, which grew 12% year over year led by growth in commercial aviation building projects and services and process solutions project.

Gives us ample runway to support growth for quarters to come.

Finally, our long track record of segment margin expansion through multiple downturns and recessionary period indicates our superior ability to streamline our fixed cost base.

Simplify and automate operations with our integrated supply chain transformation efforts and create efficiencies using Honeywell digital capabilities to standardize business models and use data analytics to optimize productivity and growth in.

In fact, Honeywell digital has proven very valuable over the last year. The tools. We have built are helping us methodically and strategically implement pricing, enabling us to stay ahead of the inflation.

This coupled with our rigorous and proven Honeywell value creation framework should provide investors with comfort that we will remain highly resilient perform in all economic cycles and consistently deliver superior shareholder return.

Now, let me turn it back to Jerry to talk about how we are leveraging our resources and expertise to positively impact our communities.

Thank you, Greg, let's turn to slide eight and talk.

More aspirational approach, we're taking to our ESG commitments at Honeywell, our commitment to improving the world beyond our product portfolio begins with our four pillars of corporate social responsibility inclusion diversity employees in action stem education and sustainability.

We're embedding inclusion and diversity into all of our systems and processes at Honeywell for enterprise why hiring protocols to our supplier diversity program. Our 9000 employees belong to one of the eight diverse employee networks and the number is growing every day.

Allowing us to provide opportunities for the education and Alex ship to all employees.

We believe discipline is not only the right thing to do but also a fundamental enabler of improved business results.

How do you want to set the guide rails for our culture of inclusion and diversity and our employees consistently go beyond what is expected and improve that culture. When Honeywell setup. The Ukraine relief fund to provide underground aid and employee support the generosity of our employees helped us reach over 1 million.

Our employees are active outside of work into local communities as well.

Alan tearing over 4000 hours in 2020.

Honeywell has also committed to improving our local communities through stem education to shape, the great minds of tomorrow.

Focusing on providing unserved students access to education will provide that will drive innovation.

Some of our initiatives include education and skill development programs in high growth regions colors College scholarships for students and staff.

The police and refurbished laptop distribution programs.

Other way Honeywell improves local communities.

Sustainability organizations to protect our environment and create a greener world.

Through our partnership with the <unk> Foundation in America Cares, India Foundation to help provide over.

10000, Indian homes with access to drinking water and solar electricity.

Each pillar has allowed Honeywell to use resources to create a long lasting positive impact in the lives of our employees and the communities they live in and around the world.

Now, let's turn to slide nine for some closing thoughts before we move into Q&A.

We continue to execute on our value creation framework.

Actively managing through ongoing external difficulties.

Over delivering on our financial commitments, we remain optimistic about our future, including our ability to deliver differentiated results through the cycle.

Raised the midpoint of our full year organic sales and adjusted earnings per share guidance as well as increased our segment margin rate.

Absorbing higher than previously anticipated foreign exchange impact.

Out of everyone at Honeywell is working hard to adapt and deliver in this challenging environment.

There is a heightened level of macro uncertainty at present, we continue to be confident in our ability to execute on the factors within our control that Sean let's move to Q&A.

Thank you Darius Darius Greg and in tourist and are now available to answer your questions.

Please be mindful of others in the queue my only asking one question.

Latif Please open the line for Q&A.

As a reminder to ask a question you will need to press star one one on your telephone please standby, while we compile the Q&A roster.

Our first question.

From the line.

Steve Tusa of Jpmorgan, Steve Tusa. Your line is open hey, guys. Good morning, Good morning, good morning.

Just on the defense business.

What are you hearing there and what are you expecting for the second half and into next year.

Yes, well, yes as you saw the business was still down in Q2, but if you look at if you combine the long cycle and the long cycle bookings for the first half.

Actually been up year over year, So things are looking better obviously as we look at the Ukraine situation and the focus of a lot of our NATO allies, we do anticipate some positive tailwind.

In the next six to 12 months so.

Similar to what some of the other.

Tier companies, particularly in defense reported we do expect that to be a tailwind as we head into 2023 and beyond obviously.

The headwinds so far this year.

And then what's just a follow up whats going on at <unk>, I mean, I would've expected.

And maybe a little bit more growth there, yes, well <unk> was as you think about one business that got hit disproportionately hard by Russia.

Youll see I mean, it was a substantial headwind I think it was.

We were down one in <unk> and at seven seven points of that is as Russia. So it's plus six yes.

Alright.

Got absorbed most of the Russia hit and actually we've got some very robust bookings for Russia, which were canceled for Ya.

Right. Okay, alright, thanks, guys I appreciate it thank you.

Thank you our next question.

Comes from the line of Julian Mitchell of Barclays.

Julian Mitchell your line Hi, good morning.

Maybe hi, maybe just wanted to try and sort of understand the firm wide sort of sales and margin construct so I think sort of sequentially in Q3, Youre looking at flattish sales and flattish segment margins and then into Q4, you have a three or 400 million revenue uplift in sort of 200 points.

Segment margin uplift.

So just trying to understand.

It really sort of Sps has that very big margin hockey stick at the end of the year and also within aerospace you did allude to some margin pressures.

And maybe help us sort of frame the scale of those and the factors behind them sure sure. So I think what youre going to see as we go through the remainder of the year is as you mentioned <unk> is going to look a lot like QQ broadly.

Broadly speaking.

And as we get into Q4, we're going to get.

Our normal sort of seasonal uplift in revenue, which brings along with that some nice.

Fixed cost leverage on top of that we're going to get some mix favorability, we expect European particularly it would be very strong in Q4, you know that our PMT margins can be pretty lumpy with.

Individual yoki catalyst shipments moving that needle.

We have a pretty pretty strong Q4 plugged in there and we're also taking some cost actions in Sps in particular, where we've talked to you about.

The relative challenges and in top line. So that's how I would think about the setup as we go into the back half. Yes June just kind of in summary is probably three primary things number one as PMT mix, particularly in <unk>, which is favorable and we know it pretty well because it's a long cycle business number two is some law.

Average and some cost actions, particularly in Sps, which will provide us margin favorability.

More volume leverage also in Q4, because as you kind of look through the year.

<unk> will shift from more sort of price gains more volume leverage as we get to Q4. So that's why.

Q4 looks a bit more with.

With higher in terms of margin profile.

This is very much in line with our original model, so theres nothing really dramatically different than what we expected.

And just as the follow up sort of any color on the arrow.

<unk> pressure you mentioned, yes, I would just say we printed something in the 26 ish range in Q2, and I would expect that to stay in that neighborhood through the remainder of the year.

Directionally will probably get again, a little bit of a lift in Q4 with some extra volume but.

Previously, we had thought that would be a little bit more robust with higher revenue profile.

As I discussed earlier, that's where we're probably on the lower end of our range of expectations of supply chain healing and output and so just a little bit of volume leverage loss.

Relative to the high end of what we had hoped.

And due to primarily very robust OE demand, which obviously is.

From a mixed perspective is negative, but really nothing there that's different than our expectations.

Great. Thank you.

Thank you.

Our next question comes from the line.

Scott Davis Melius research.

Good morning, guys, Hey, Scott Good morning, Scott.

Youre one of the few companies I think we're going to see this quarter with gross margins up.

We're up 60 bps.

Is that.

Would you characterize that because you are ahead of the curve on price costs. There was some mix, helping benefit I know that you keep fixed cost down and Thats helpful. Certainly when you have unit volumes, but I would imagine.

Net of price or unit volumes. This quarter were very positive. So can you help kind of.

Yes, sure absolutely let me help unpack that certainly we're trying to stay ahead of inflation that's been our playbook.

We're trying to get price, where we can.

And.

We have pretty good metrics and visibility exactly where inflation is how it's broken down by business unit.

We're seeing it.

Now we have embedded that into our operating system such that we can identify it act.

We do that in multiple ways.

Obviously price is one lever managing the mix of things that we know we can sell that are higher margin profile. We've done some redesigns, which are also net helpful also generate some cost benefit.

The thing I'm, particularly pleased about is I can tell you of all full transparency nine months ago that was not part of our playbook.

I think we've stumbled a little bit nine months ago.

I'm really thrilled because.

Now it's part of our operating system, we know what to do is underpinned by the fact, we have great data visibility great analytics.

One source of truth, which really enables us to take much more precise management actions.

Managed the headwinds we've seen in inflation.

Okay.

I'll pass it on to stick to my one question. Thank you and good luck. Thanks. Thanks Scott.

Thank you.

Next question.

Our next question comes from the line of Sheila <unk> Hello.

Jefferies.

Your line is open.

Hey, guys good morning, Gary and congrats thank you.

Okay.

Hey, guys. So all my arithmetic questions, so maybe on integrated and warehouse.

It was down sharply in the quarter as expected, but you've called out greater profitability over the cycle can you talk about some of the puts and takes and how youre envisioning that business will trend.

Yes.

Some of the.

We're always kind of overcapacity in the market.

<unk> been pretty well publicized so I'm not going to dwell on that I mean, obviously, we're seeing that through and.

Frankly.

That business grew at 50% 2021, and a similar rate in 2020 so.

I think that frankly, what it needs to happen is that some of the capacity to be absorbed.

Very very excited about the future of warehouse automation.

So this is a bit of a blip for the next few quarters. A mid term. We think that this is going to be still very good business and youre right from a mix perspective, although.

There is obviously the top line there is an impact.

From a mix margin mix perspective, this will be net helpful. Because our <unk> business is growing.

Projects that we are securing are at higher margin rates.

Net net.

This is not something we're particularly worried about I mean, we wished biz.

Business was there from a topline perspective, but overall I think that this is a slug that will be definitely warmer weather and we spent a lot.

The segment that we're in warehouse automation.

Great. Thank you very much.

Thank you.

Next question comes from the line.

Andrew <unk> of Bank of America.

Andrew Good morning is open.

Hey, good morning, guys, Hey, how are you.

Just a question on the new CLO overall and.

Could you just give us more of your thought process there.

And specifically you know historically, we've been getting questions on.

Well on M&A does that mean, the darris, you're just going to spend more time on strategic alternatives and does the world look any different now.

The market corrections on what's been happening there. Thanks.

Well I mean, I think let me just kind of talk a little bit about the CEO role and venmo specific lending as you can imagine.

We do a lot of the.

Operational outputs that we get both happened by accident.

It takes a lot of hard work and attention.

Data and so on.

Bob myself maybe.

More in the middle of that and maybe I want it to be maybe.

Maybe it gets good and bad.

And frankly some of these other aspects in M&A and BD is certainly one of those is an area that I, probably shouldn't be spending a little bit more timing, but I would add to that customer outreach and people development strategy and some of the other brand building things that frankly, I should be doing it.

To be very transparent I've talked about that openly to my own staff.

Couple of times, and I think the best way to kind of solve that.

Really partner with BMO.

To be the COO I mean, he's got a great track record at Honeywell.

It's been extraordinarily successful in running HPT is around <unk> run Pmt's got 33 Years' worth of experience there arent there aren't too many mysteries to nimble that he doesn't know what honeywell that kind of multi business experience in.

Multi continent experience because he's lived in Asia Europe .

In North America. So he is going to be a great partner for us to do things and I think this is going to be a net positive for Honeywell because.

It will allow me to do some other things that are going to be very beneficial and yes, BD and M&A is going to be one of those.

Yes.

Got you and then just a follow up question on strength in advanced materials came in a little bit stronger than I would've thought can you just comment what's specifically going on there and how sustainable it is thanks a lot.

Yes, we love our advanced materials business, I mean, youre seeing a lot of things are you seeing the strength of our.

Solstice business really picking up we kind of forget that we have enough.

Electronic materials business, probably the only electronic materials and chemicals business based in the U S. So you can imagine what kind of future that ads.

And the business is very robust we invested in capacity expansion and those capacity expansions are not even yet shown in our results and will really come to fruition in 2023. So not only are we excited about how the business is performing in 'twenty two things.

Things could get even better for 2003 so.

We're very thrilled with the performance.

Yes.

Great to hear and congrats to venmo.

Thank you.

Our next question comes from the line of.

Nigel Coe of Wolfe research.

And.

Congratulations to the demo.

Actually I was going to ask about the Seo rope.

<unk> also already but just maybe just.

Clarify Dennis is then we're going to continue to be the leader with PMT.

Is that going to transition over time.

My real question is.

Around the consumer.

Obviously video and kind of it took a lot of the consumer direct consumer exposure away from Honeywell.

In terms of your second half framework, just given the way that although it is a consumer facing fell to just blowing up.

The C June July are starting to see that impact so what extend have you done.

We could trends within I don't know refrigerants, such onex handhelds within Sps any any kind of concerns you're seeing that.

Yeah, Yeah. So let me kind of unpack because theres really two questions. Let me very quickly opened the PM that PMT question. So no we don't envision.

Be more holding onto both rose, but what we wanted to do is to make sure that it became clear that the PMT World is open because there is always when we have big roles like that opening we want to consider internal and external candidates and frankly, it's much tougher to recruit when our role as an vacated so he is going to serve in both roles as you can imagine early on here.

A lot of attention CMP, but as we filled that role he's going to take over more of the <unk>. So that's the first part.

Yes, we've seen some of the same same outputs on the consumer and Youre right. We don't have a lot of consumer exposure I mean, most of that consumer exposure went away with the two spin so thats brought on as well.

Yeah.

We see it a little bit indirectly I talked about it in the teen calibrated play because sort of this there were some level of assumption that sort of this consumer demand.

<unk> ongoing it's kind of slowed down and consumers have a little bit of a different behavior. So we see it there.

I would just say this.

If you go back to 2020 right. After the pandemic hit US we probably have one of the most.

Unfavorable pandemic portfolio you could have out there right I mean, our two biggest businesses were aerospace and energy and <unk>.

Frankly other than maybe hospitality.

Those got hit about as hard as anything else well I think we're kind of entering a little bit of a different cycle and I actually think that no matter what you count.

In terms of the recession period.

Don't see.

Stands for reduction in OE build rates for aerospace Air travel there is a lot of pent up demand and you see it you see it more on the consumer side and my bet is youre going to see it more and more on the business side Theres still a lot of pent up demand to travel and let's be honest the wide body lease international travel is nowhere near where.

It was in 2019, so I think we're entering a cycle here, which is actually going to have a very favorable market mixed market conditions.

That's underpinned by the kind of backlog position we have.

So we're cautiously optimistic that even in a recessionary environment, which may happen.

I think we're still going to do quite well.

That's great. Thanks. Thank.

Thank you.

Yes.

Thank you. Our next question comes from the line.

Joe Ritchie of Goldman Sachs.

So Richard your line is open thanks good.

Morning, everyone and congrats to everybody on the promotions.

My my.

My question is really just around pricing. So I think last quarter, you guys talked about five points of price coming through for the year.

Im curious whats the expectation now and then also clearly like you guys are building up a pretty pretty good war chest here is add ons almost $30 billion.

I just wanted to understand how you guys are thinking about.

The pricing that's in that backlog and with commodities deflating right now could you see a nice little boost.

In 2023, as you start to deliver some of that backlog.

Sure.

So youre right, we talked about 5% for the year quarter ago, we now see that as being more like an 8%.

Number for 2022.

So nice progress for the first two quarters.

And that kind of carrying through.

Pricing our backlog has been something that's been very important to us obviously, that's got a lot more challenges to it than new orders coming in but we have been successful in doing that in certain areas of the portfolio.

So we.

We expect to be able to retain a good bit of that pricing I think we found that our pricing has been very sticky.

Overtime.

And maybe Greg just answering that question on like the commodities deflating like how does does that does that impact your business at all this year is that more of like a 2023 event. If I. If we continue to see based on oil prices.

Stay at current levels, which has been on a downward trajectory for the last several weeks.

I'd say when we look at it there are some commodities that are seeing some.

Of that deflation, but overall for our total portfolio of direct materials.

That's sort of cherry picking and overall, we still see a net increase.

Okay.

Okay, great. Thanks.

Your theory is right that as some of these commodities come down we may have an opportunity as we get into 'twenty three.

For some margin expansion or it obviously varies by commodity some of them are index.

Some of them are not so.

But directionally.

Your assertion is correct.

Great. Thank you. Thank you.

Thank you. Our next question comes from the line of Andy Kaplowitz of Citigroup, Andrew Kaplowitz. Good morning, guys. Good morning.

So you raised HPT expected growth from high single digits to double digits to double digits are the primary markets in HPT growing that fast.

Or are these share gains at HPT continues to achieve maybe it's just a big uptick you are seeing in high growth markets and how you're thinking about hpt's European exposure.

I think it's a little bit of both.

I mean, certainly the business is growing I think.

I'm, particularly excited about is that HPT is the kind of solutions that our customers are seeking both in terms of energy conservation in terms of healthy buildings healthy environments.

Air.

Visibility to their energy usage.

Visibility to their carbon emissions all of these are either solutions that we currently have in our portfolio and there isn't a customer out there thats not interested in that.

Flex it and Theyre booking rates I mean, they are booking rates were pretty much double digits almost across the board for every one of their businesses. So the right portfolio rate solutions and.

And the business is doing very very well.

And just Theres Hpt's European exposure in general European exposure are you seeing anything there.

No not yet.

Frankly, our business in Germany, which is obviously the biggest economy was actually up significantly in Q2. So we're not seeing any signs yet of any kind of a pickup we're watching this as much as everybody else. We are as concerned as a video or on sort of the energy profile.

As Europe heads into the winter.

But so far so good in terms of what we saw here in Q2.

I appreciate it.

Okay.

Thank you. Our next question comes from the line.

Josh.

Steve.

Stanley Josh Propylene <unk>. Your line is open hi, good morning, guys.

Hey, Jeff.

Just want to follow up on on PMT I guess a couple.

Unique.

Drivers this cycle, maybe versus what we've seen in the past I guess on one hand, you have had refining margins blow out to the upside here pretty quickly and maybe some snap responses by those customers to drive spending this year, but it's still kind of a long cycle business hard to get too much going inside of a six or 12 months.

Period.

As much as it's good. This year are you guys pulling things forward potentially from 'twenty. Three is still building momentum here like how do you see kind of the unique aspects of this environment.

Driving momentum or duration versus versus other cycles. So that business. Yes. So we are certainly not pulling anything from 2003. So let's just be clear about that there was no pull ins, we don't need to do bonds.

The business is robust.

Excited about is the LNG cycle.

You see that investment taking place you see it in the Middle East you see it in the U S. We were participating in it youll piece participating we hit some very robust bookings that you saw in Q2.

We actually expect more robust bookings in the second half of the year and we're very much part of that LNG cycle.

Another really important data point, which is.

Don't know if this is well publicized but we are also the leading player in renewable fuels green fuels in the solutions. They're just this year our expectation is that the bookings in that segment to be up three X versus what they were in 2021. So.

We are we are very excited.

We're kind of playing on the both ends of the barbell when it comes to the energy infrastructure and I think this is exactly where you want to be the.

The world needs.

Energy right now and it's most likely going to come from natural gas and Theres got to be a build out there is going to be infrastructure build out.

E&P that takes place.

To supply the world with.

Natural gas you see that particularly pronounced in Europe , we're playing in that we're also playing on sustainability and renewables and renewable fuels.

Gave you the very specific data point on.

Green sustainable fuels, where we are.

Really a leader in that space, we're having more and more.

Wins in plastics recycling.

Have a pilot going on in battery storage. So just about every relevant I talked a little bit earlier on the earnings call about partnership and carbon capture.

Just about anything you want to do in sustainability and renewable economy of the future. We also do so we're going to benefit from both sides of this energy transition and you see it in the bookings this quarter.

Great color. Thanks best of luck guys.

With <unk>, we have time for one more please.

Yes, Sir our final question comes from the line of Deane Dray of RBC capital markets.

Your line is open thank you and good morning, everyone Hey, good morning.

Hey, just a couple of cleanup questions.

For Darius.

Good to hear that the semi conductor situation seems to be bottoming.

Some color on <unk> and your expectations for the second half.

Is it going to be a linear improvement do you expect it to be choppy and then for Greg anything on Russia in terms of other write downs.

They are excluded but just the wind down of Russia is that complete yet thank you.

Yeah, So maybe let me take the first one yes.

In terms of recovery on our supply chain.

<unk>, it's going to be very very gradual there's no sort of a magic unlock that's going to happen in one quarter and all of a sudden everything will now sort of gets flushed through our backlog and so on I think it's been very gradual sort of the decommit youre, probably referring to because I gave some specific numbers on that and.

Last quarter around aerospace and just to give you a little bit of an update on that.

Q1 was <unk>.

20 to 22 523 net range.

Q2 was better.

But it wasn't as good as we had hoped it came in at just a shade over 21% on the Decommit, so better than Q1, but we were kind of hoping something around the 2019% to 20 range.

But we saw improvement we expect that improvement to continue gradually we also saw about a 3% improvement in output Q over Q. So overall some level of progress.

But it's going to be gradual and thats kind of what we're penciling in for the next few quarters, which is gradual level of improvement both in the SME space as well as some of the aerospace supply chain, that's kind of what what our standard cases, we hope for the better we've deployed.

<unk> army into the supply chain, particularly in the aerospace segment to help our suppliers get up to rate.

But it's challenging because it's not sort of just the suppliers that are kind of let's call them tier three suppliers that really beat us.

<unk> four and even fewer parts suppliers that are struggling and this problem will be solved I have no doubt we installed.

But there is no instant gratification.

Yeah, and then on the Russia side, Dean I mean, I'd say, we have taken the bulk.

The write downs associated with our balance sheet as it relates to Russia in the first quarter that was really around.

Around our Unbilled receivables in the second quarter, we took down essentially all of our PP&E.

The other related assets down.

Essentially zero at this point, what we're really working through now is just the cash implications of all of that and it's going to be a legal matter that will probably take quarters and.

Well into 2023.

As all of the <unk>.

<unk> substation.

An export control compliance.

Comes into play so, it's just not going to be as simple as.

Simple wind down but from a write down perspective, I would say the bulk of it has happened at this point.

Thank you.

Deane as you know, we've absorbed sort of the FX impact as well into our.

Our guidance range, which was <unk>.

Nicole on the EPS range and on a year over year basis actually 14 cents headwinds so.

That's helpful. Thank you.

Okay.

I just want to thank all of our shareholders for your ongoing support we delivered strong second quarter results than typical Honeywell fashion, we have and will continue to overcome numerous external factors, we face of operational rigor and agility in order to drive superior shareholder returns. Thank you all for listening.

And please stay safe and healthy.

This concludes today's conference call. Thank you for participating you may now disconnect.

Okay.

The conference will begin shortly to raise Johan during Q&A you can dial one one.

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Okay.

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Okay.

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Yeah.

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Thank you for standing by and welcome to Honeywell's second quarter fiscal year 2022 earnings Conference call.

At this time all participants are in a listen only mode.

After the speaker presentation, there will be a question and answer session to ask a question. During the session you will need to press star one one on your telephone.

Now I'd like to hand, the call over to Sean Meacham. Please go ahead.

Thank you good morning, and welcome to Honeywell's second quarter 2022 earnings Conference call.

On the call with me today are chairman and CEO , Darius Adamczyk, and senior Vice President and Chief Financial Officer, Greg Lewis.

Also joining us as senior Vice President General Counsel, and Madden Senior Vice President and Chief supply chain Officer Torsten Pilz.

This call and webcast, including any non-GAAP reconciliations are available on our website at www Dot Honeywell Dot com forward slash investor.

Honeywell also using our website as a means of disclosing information, which may be of interest or material to our investors and for complying with disclosure obligations under regulation FD Accordingly investors should monitor our Investor Relations website. In addition to following our press releases SEC filings public conference call webcast and social media.

Note that elements of this presentation contain forward looking statements, which are based on our best view of the world and of our businesses as we see them today those elements can change based on many factors, including changing economic and business condition and we ask that you interpret them in that light.

We identify the principal risks and uncertainties that may affect our performance in our annual report on Form 10-K, and other SEC filings.

Thank you Sean and good morning, everyone. Let's begin on slide two the second quarter was another strong one for Honeywell, we over delivered on our commitments as a rigorous operating principles enable us to navigate a challenging backdrop and remain highly resilient amid ongoing supply chain constraints inflation headwind.

And geopolitical unrest.

Met or exceeded our second quarter guidance. Despite these challenges to adjusted earnings per share of $2 10.

Up 4% year over year, and <unk> <unk> above the high end of the guidance range.

Organic sales grew 4% year over year led by strong double digit growth in our commercial aviation building products productivity solutions and services advanced sensing technologies advanced materials on a recurring connected software businesses. This was partially offset by a three percentage point impact from a combination of the.

Wind down of our Russian operations, and lower Covid related mask sales as we lapped the height of demand in 2021.

And backlog strength continued in the second quarter led by Arrow, HPT and PMT as our end markets continue to recover given the confidence our demand outlook for the back half of the year orders were up 12% year over year and closing backlog was $29 5 billion.

While also up 12% year over year in terms of capital, we deployed $2 $3 billion to share repurchases dividends and capital expenditures, we leveraged the strength of our balance sheet to Opportunistically purchased seven 5 million shares throughout the quarter, reducing our average share count to 685 million shares.

And continuing to execute on our commitment to buy back $4 billion in shares in 2022.

Now, let's turn to slide three to discuss recent senior leadership changes.

This morning, we announced that the multiple <unk> has been appointed role of President and Chief operating officer effective immediately we are most currently the president and CEO of Honeywell performance materials and technologies and we will maintain as PMT role until his successor is named.

Honeywell is fortunate to benefit from a very deep bench of experienced leaders like nimble.

33 years across various Honeywell businesses.

A poll will work closely with me to drive the continued profitable growth of Honeywell's operating businesses. This.

This includes creating new solutions to help our customers drive their sustainability transformations.

And accelerate their digital transformation journeys.

Ramon will also oversee the continued integration of honeywell's operating system, which we call Honeywell accelerator.

<unk> is uniquely qualified for this role and improvement is operational capabilities capabilities across many different industries business models regions and business cycles.

This support and provides additional bandwidth to focus on strategy business development customer engagement and people development now.

Now many of you will recall that I served as CEO or once upon a time as well.

This announcement today is not a repeat of that playbook.

I won't be chairman and CEO of indefinitely I have no definitive plans to retire and we will continue to meet Honeywell <unk>.

<unk> appointment is going to allow me additional flexibility to focus on our overarching objectives.

Sheila expanded her role to include all digital transformation efforts become senior Vice President Chief Digital Technology Officer, Sheila joined Honeywell in January 2020, and has proven significant value working to modernize our it infrastructure applications digital capabilities and talent.

Suresh took an expanded role becoming senior Vice President Chief Technology, and innovation Officer.

So Russia has been of Honeywell almost 30 years MSR held a series of engineering and IP leadership positions, including CTO of Honeywell and Fps <unk> response for our new product development and introduction processes, including development for breakthrough technologies I'd like to congratulate demo.

Sheila and Suresh on their new roles and I look forward to working closely with them as they enter the next phase of Honeywell transformation.

Next let me turn to slide four to discuss other exciting recent announcements.

The aircrafts arches production aircraft will operate dense urban environments.

Critical precision from the aircraft flight controls and actuators a must for civil.

The 1 billion safety Honeywell.

Honeywell's actuary can accept hundreds of micro adjustments and commands per second from fly by wire computers, enabling precise navigation, which will enhance safety and accommodate the unique elements of archers electric vertical takeoff and landing aircraft.

Honeywell has a wide variety of ready now solutions that will create a more sustainable future for the aviation sector is a great example of that.

In addition last month, we announced a partnership ship Enlink midstream to deliver carbon capture solutions industrial scale <unk>, along the Louisiana, Louisiana Gulf Coast.

<unk> carbon capture and hydrogen purification technologies combined with Enlink is planned to pipeline transportation network provides a cost efficient solution for customers looking to reduce the environmental impact of their operations Lastly.

Lastly, we discussed in our Q2 leadership webcast unsustainable building technologies released a new carbon and energy management software focused on the energy optimization and carbon reduction of commercial buildings.

Commercial buildings currently account for almost a third of global energy consumption and 37% of global energy related <unk> emissions.

Building owners recognize that this issue needs to be addressed.

Tens of companies have voluntarily pledged to meet sustainability targets Honeywell's, new software offering enables building owners track and optimize energy performance down to a device or asset level.

Our carbon and energy management software Leverages, Honeywell's forge artificial intelligence and machine learning algorithms to economists Lee identify and implement energy conservation measures.

This makes it possible for building owners to reduce the environmental impact of their building while at the same time, improving the well being of their occupancy.

As you can see we are leveraging our expertise and culture of innovation to enable a more sustainable future now.

Now, let me turn it over to Greg on slide five to discuss our second quarter results in more detail and to provide an update on our 2022 outlook.

Thank you Darius and good morning, everyone.

As Gary highlighted we delivered second quarter results with met or exceeded the high end of our guidance, while navigating persistent macroeconomic uncertainties.

Second quarter sales grew by 4% organically or 7%, excluding the impact of lower COVID-19 related mass volume and the wind down of our operations in Russia.

While demand trends remained strong supply chain constraints continued to weigh on volume growth predominantly in Aero, HPT and Sps, causing our past due backlog to increase sequentially by more than $100 million in the quarter.

Aerospace sales for the second quarter were up 5% organically compared to the second quarter of 'twenty. One as we continue to face a challenge overall aerospace supply chain the ongoing recovery in commercial flight hours led to approximately 20% year over year sales growth in both air transport aftermarket and business in general aviation aftermarket sales.

Aerospace segment margin expanded 80 basis points in the second quarter to 26, 5%.

In building technologies sales were up 14% organically led by commercial actions and strength in both building products and building solutions.

Demand remains strong with orders up double digits for the second consecutive quarter led by building projects building management systems and our security products.

Backlog grew double digits year over year in the second quarter, giving us continued confidence in our 2020 outlook or.

Our healthy buildings portfolio remains robust with over $100 million of orders in the quarter.

Segment margins expanded 110 basis points to 23, 5%.

In performance materials and technologies sales grew 10% organically in the quarter, despite an approximately 3% headwind from Russia.

Advanced materials continues to stand out with 21% organic sales growth in the quarter as a result of commercial excellence and greater volume in specialty additives and electronic materials.

Process solutions grew 7% organically on increased demand for thermal solutions and lifecycle solutions and services.

<unk> system grew over 40% and was earnings accretive for the second consecutive quarter.

Process solutions orders grew more than 15%, including double digit growth in our projects business showing continued momentum.

<unk> sales decreased 1% in the quarter, including a seven point headwind to year over year growth from lots of Russian sales.

We continue to see strength in our higher margin catalyst business, which grew more than 20% and helped to offset lower equipment volume due to timing of larger projects.

PMT segment margins expanded 150 basis points to 22, 3% in the quarter.

Elevated COVID-19 driven mass demand in the second quarter of 'twenty, one led to a 5% year over year headwind for Sps in the quarter.

Advanced sensing technologies grew 25%.

<unk> solutions and services grew 19% and gas detection also grew organically in the quarter, all demonstrating excellent execution in a difficult supply constrained environment.

We continue to be impressed by the performance of these businesses.

This quarter marks six straight quarters of double digit organic growth and productivity solutions and services and three straight quarters for advanced sensing technology.

SPS also benefited from a licensing and settlement agreement to resolve patent related litigation with a competitor, which we entered into in the second quarter.

Honeywell received the first of these payments of $45 million in the second quarter and recognize the corresponding sales and profit in the Sps financial results with.

This incremental profit in the quarter was more than offset by legal costs associated with the agreement and a onetime write down of excess COVID-19 related mask inventory, which should close the book on that mass story.

Overall, Sps segment margins contracted 140 basis points to 12, 6%, primarily due to the lower volume and the PPE write down.

<unk> system connected safety and cyber all sub growth of greater than 25% year over year in the quarter.

So for overall Honeywell, we exceeded our sales outlets growing top line, 4% organically and we executed operationally to expand second quarter segment margin by 50 basis points to 29% meeting the high end of our margin guidance range with expansion in PMT HPT in aerospace.

This expansion is net of a 30 basis point year over year headwind associated with our investment in <unk>.

On EPS, we delivered second quarter GAAP earnings per share of $1 84.

And adjusted earnings per share of $2 10.

Which was up 8% year over year, despite a <unk> <unk> headwind from foreign exchange.

A bridge for adjusted earnings per share from <unk> 21 to <unk> 22 can be found in the appendix of this presentation.

Segment profit was <unk> 10, tailwind driven by strong commercial execution.

Share count reduction drove up <unk> year over year tailwind to earnings per share we saw a <unk> <unk> headwind from below the line items, primarily due to the lower pension income.

Higher effective tax rate 23, 4% this year versus 23% last year to have a one set headwinds.

In response to winding down operations in Russia, we recorded an additional charge of $126 million or 19 impacted GAAP EPS.

The company also took a $50 million noncash charge in <unk> related to the potential comprehensive resolution of ongoing ERP matters more information on this can be found in our Form 10-Q.

Moving to cash we generated over $800 million of free cash flow in the quarter down 43% year on year, which was closely aligned to our expectations.

We continue to invest in inventory to deliver for our customers, which is driving elevated working capital in recent quarters, including Q2 <unk>.

We remain on track to deliver our cash guidance range of $4 seven to $5 1 billion for the full year.

Finally, as Darius mentioned earlier, we continue to leverage our strong balance sheet to $2 3 billion in the quarter, notably we repurchased seven 5 million shares for $1 4 billion in the second quarter, bringing our first half total to $2.

$2 4 billion as we execute on our updated commitment to buy back $4 billion in shares in 2014.

We also paid approximately $690 million in dividends and invested approximately $160 million in capex.

So overall, another strong quarter in which we delivered results at or above our expectations executed well through challenging economic conditions and accelerated our capital deployment.

Now, let's turn to slide six to talk about our third quarter and full year guidance.

While the environment continues to be volatile our demand profile remains resilient.

Our <unk> orders and are closing backlog of $29 $5 billion, both grew 12% year over year positioning us well for the quarters to come.

The aerospace supply chain is continuing to face difficulties, but we're confident in the eventual recovery as tier three and tier four suppliers work to combat labor shortages.

Once again this quarter and throughout the rest of the year. We are staying ahead of the inflation curve with our strategic pricing actions.

As a result of rising interest rates and the strengthening of the U S. Dollar we are experiencing higher foreign currency impact than we had in our prior guidance impacting sales and EPS that we are overcoming that operationally.

With that as a backdrop, we expect third quarter sales to be in the range of $8 nine to $9 2 billion.

Up 7% to 11% on an organic basis are up 8% to 12%, excluding the one point impact of our loss Russian sales.

We now expect full year sales of $35 5 billion to $36 1 billion.

Which represents a decrease of $300 million on the high end from our prior guidance incorporating higher points foreign currency impact.

However, we are raising the low end of our organic growth range now at 5% to 7%, increasing the midpoint versus our prior guidance and narrowing the overall range that.

That represents organic growth of 7% to 9%, excluding a one point impact of lower COVID-19 related mass demand and a one point impact of loss Russian sales.

The difference between our reported and our organic sales growth guidance is two points driven entirely by foreign currency translation.

Now, let's take a moment to walk through the third quarter and full year expectations by segment.

An update on our 2022 and market outlook can be found in the appendix of this presentation.

In aerospace, we see ongoing flight hour improvement leading to another quarter of robust growth in our aftermarket business led by air transport aftermarket and.

In original equipment build rates continue to ramp driving growth in both air transport and business in general aviation.

Defense and space grew sequentially in the second quarter and we expect this trend to continue into the second half we anticipate the business will return to year over year growth in the second half as comps ease, but it will be down slightly for the full year.

As a result, we now expect aerospace sales for the year to be up mid single digits compared to 2021 lower than our previous outlook of high single digits.

Original equipment mix headwinds were well telegraph, but lower volume leverage will weigh on full year margin, which we now expect to be down modestly year over year.

Energy efficiency and healthy building solutions remain a priority for our customers, enabling growth in our building solutions and healthy building businesses.

We now expect full year organic growth in the double digits trending better than our outlook at the end of the first quarter of high single digits to double digits.

Our operational excellence and additional volume leverage should allow us to build upon our margin expansion from the first half in the third quarter and throughout the rest of 'twenty two.

In performance materials and technologies that favorable outlook in our end markets and two consecutive quarters of double digit orders growth provide solid footing for the future.

In process solutions, we expect sequential improvement in the third quarter with continued strong demand for thermal solutions, leading to year over year growth.

We expect sequential growth in <unk> throughout the remainder of the year largely driven by increased refining catalyst shipments with a heavier margin benefit in the fourth quarter versus the third.

We expect the typical seasonality in advanced materials, as we exit the summer months, but pricing tailwind and solid demand support continued year over year growth in the back half.

As we enter into the second half, we expect our personal protective equipment sales run rate to be relatively stable in the third and the fourth quarter.

While we remain very confident in the medium term growth rates, we expect 2022, Sps revenue to decline mid single digits for 2021 as deliveries slide to the right.

As I mentioned earlier segment margin in the second quarter with lowered by a one time inventory write down. So we expect significant sequential margin improvement in the third quarter and continued expansion in the fourth quarter through a combination of higher volume leverage some cost reduction and positive mix shift.

For overall Honeywell, we expect third quarter segment margins to be in the range of 29 to 21, 2%, resulting in year over year margin contraction of 30 basis points to flat.

Due to timing of high margin catalyst shipments in PMT and some mixed headwinds in aerospace.

Excluding the 40 basis point headwind from continuum, we expect margin to expand 10 to 40 basis points.

From a sequential perspective, our third quarter margin expectations are flat to up 30 basis points.

Turning to our other core guided metrics third quarter net below the line impact which is the difference between segment profit and income before tax is expected to be in the range of negative 20 to positive $30 million with a range of repositioning between 50 and $90 million in the quarter as we continued to fund attractive restructuring projects.

Up 4% to 9% year over year.

Turning to the full year, we expect organic sales growth of 5% to 7% up from 4% to 7% last quarter.

We are upgrading our segment margin expectations by 20 basis points to 30 to 70 basis points of year over year expansion at a margin rate of 21, 3% to 21, 7%.

This is supported by successful execution of our price cost strategies as well as our continued rigor on fixed cost management exclude.

Excluding the 30 basis point headwind from continuum, we expect margins to expand 60 to 100 basis points of the year.

We expect full year net below the line impact to be in the range of negative $150 million to negative $50 million, including capacity for $350 million to $425 million of repositioning.

As a result of all of these inputs we have raised the low end of our full year adjusted earnings per share expectations to $8 55 to.

To $8 87 up 6% to 9% year over year, reflecting confidence in our ability to more than offset offset a <unk> <unk> foreign exchange headwind versus our initial guidance in February as well as navigate evolving external risks.

We still expect to see free cash flow in the range of $4 seven to $5 1 billion in 2022 or $4 nine to $5 $3 million of $1 billion, excluding the impact of <unk>.

The cash impact and timing of our Russia exit does remain uncertain and will update you as that continues to develop as it is not contemplated in this guidance.

So in total we executed a strong Q2, despite supply chain foreign currency, Russia, and inflation headwinds and are raising the midpoint of our organic sales growth adjusted EPS growth and segment margin ranges, while holding our cash range demonstrating our strong operational capabilities.

Before turning it back to Darius, let's turn to the next page to discuss our ability to deliver in all economic cycles.

During our Investor day earlier this year, we talked about our track record of managing through the cycle, our execution through multiple downturns highlights our ability to move quickly and decisively to protect margins and drive growth and share liquidity and position ourselves for recovery.

We believe our end market exposures will help us remain resilient during times of short cycle demand softness.

In fact, 65% of our sales address the commercial aviation defense energy and nonresidential end markets, which are all set up favorably to weather a potential recession in.

In commercial aviation pent up demand for leisure and business travel will continue to drive aftermarket demand, particularly as international travel resumes.

Defence will remain relatively stable as international budgets are poised to increase with restocking from NATO allies, adding upward momentum for this end market.

Infrastructure build both domestic and abroad provide tailwind for the nonresidential sector sector as does increased customer focus on sustainability and healthy buildings as.

As I mentioned earlier, although we're seeing some near term softening commerce, we still believe the medium term growth is robust.

As Darius mentioned earlier, we ended <unk> with a record high backlog of $29 5 billion.

Up 12% year on year, approximately 60% of this backlog is one cycle, which grew 12% year over year led by growth in commercial aviation building projects and services and process solutions project.

Gives us ample runway to support growth for quarters to come.

Finally, our long track record of segment margin expansion through multiple downturns in recessionary periods indicates our superior ability to streamline our fixed cost base.

Simplify and automate operations with our integrated supply chain transformation effort and create efficiencies using Honeywell digital capabilities, the standardized business models and use data analytics to optimize productivity and growth in.

Now, let me turn it back to Jerry to talk about how we are leveraging our resources and expertise to positively impact our communities.

Thank you Greg.

Let's turn to slide eight and talk.

Inclusion diversity employees in action them education and sustainability we're in.

Betting inclusion and diversity into all of our systems and processes at Honeywell.

Enterprise wide hiring protocols to our supplier diversity program, our 9000 employees belong to one of the eight diverse employee networks and the number is growing every day.

Allowing us to provide opportunities for the education.

<unk> shipped to all employees.

We believe discipline is not only the right thing to do but also a fundamental enabler of improved business results.

Do you want to set the guide rails for our culture of inclusion and diversity and our employees consistently go beyond what is expected and improve that culture.

When Honeywell setup, the Ukraine relief fund to provide underground aid and employee support the generosity of our employees helped us reach over $1 million.

Our employees are active outside of work into local communities as well volunteering over 4000 hours in 2020.

Honeywell has also committed to improving our local communities through stem education to shape. The great minds of tomorrow are focusing on providing unserved students access to education will provide that will drive innovation.

Some of our initiatives include education and skill development programs in high growth regions colors College scholarships for students and faculty.

Ladies and refurbished laptop distribution program another way Honeywell improves local communities.

The inability organizations that protect our environment.

Create a greener world through a partnership with the Suites Foundation and America <unk>, India Foundation with help provide over.

10000, Indian homes with access to drinking water and solar electricity.

Each pillar as well with Honeywell to use resources to create a long lasting positive impact in the lives of our employees and the communities to live in and around the world.

Now, let's turn to slide nine for some closing thoughts before we move into Q&A.

We continue to execute on our value creation framework.

Secondly, managing through ongoing external difficulties.

Over delivering on our financial commitments, we remain optimistic about our future, including our ability to deliver differentiated results through the cycle.

Raise the midpoint of our full year organic sales and adjusted earnings per share guidance as well as increased our segment margin rate.

Absorbing higher than previously anticipated foreign exchange impact.

Howard of everyone at Honeywell is working hard to adapt and deliver in this challenging environment.

There is a heightened level of macro uncertainty of Brooklyn, we continue to be confident in our ability to execute on the factors within our control that Sean let's move to Q&A. Thank.

Thank you.

Darius Greg and in tourist and are now available to answer your questions.

Please be mindful of others in the queue my only asking one question.

<unk>. Please open the line for Q&A.

As a reminder to ask a question you will need to press star one one on your telephone please standby, while we compile the Q&A roster.

Our first question.

Comes from the line.

Steve Tusa of Jpmorgan, Steve Tusa Your line is open hi.

Good morning, good morning, good morning.

Just on the defense business.

What are you hearing there and what are you expecting for the second half and into next year.

Yes, well, yes as you saw the business was still down in Q2, but if you look at if you combine the long cycle in the launch cycle bookings for the first half it's actually been up year over year. So things are looking better obviously as we look at the Ukraine situation and to focus on.

A lot of our NATO allies do anticipate some positive tailwind.

In the next six to 12 months, so the similar to what some of the other.

Peer companies, particularly in defense reported we do expect that to be a tailwind as we head into 2023 and beyond obviously.

Headwinds so far for us this year.

And then just a follow up whats going on in <unk>, I mean, I would've expected, maybe a little bit more growth there.

Yes.

You should think about one business that got hit disproportionately hard by Russia. It was <unk> I mean, it was a substantial headwind I think it was.

We're down one in European at seven seven points of that is as Russia. So it's plus six yes.

Alright.

That absorbed most of the Russia hit an extra we get some very robust bookings or Russia, which were canceled for ya.

Okay, Alright, thanks, guys I appreciate it thank you.

Thank you our next question.

Comes from the line of Julian Mitchell of Barclays.

Julian Mitchell your line Hi, good morning.

Maybe.

Maybe just wanted to try and sort of understand the firm wide sort of sales and margin construct so I think sort of sequentially in Q3, Youre looking at flattish sales and flattish segment margins and then into Q4, you have a three or 400 million revenue uplift in sort of 200 points segment margin uplift.

So just trying to understand is it really sort of Sps that has that very big margin hockey stick at the end of the year and also within aerospace you did allude to some margin pressures.

Broadly speaking.

And as we get into Q4, we're going to get.

Our normal sort of seasonal uplift in revenue, which brings along with that some nice.

Fixed cost leverage on top of that we're going to get some mix favorability, we expect European particularly to be very strong in Q4, you know that our PMT margins can be pretty lumpy with.

Individual <unk> catalyst shipments moving that needle.

We have a pretty pretty strong Q4 plugged in there and we're also taking some cost actions in Sps in particular, where we've talked to you about.

The relative challenges and in top line. So that's how I would think about the setup as we as we go into the back half, Yes June just kind of in the summer. It's probably three primary things number one is TMT mix, particularly in <unk>, which is favorable and we know it pretty well because it's a long cycle business.

To us some leverage and some cost actions, particularly in Sps, which will provide us margin favorability and even a bit more volume leverage also in Q4, because as you kind of look through the year.

That equation.

We will shift from more sort of price gains to more volume leverage as we get to Q4. So that's why.

Q4 looks a bit more.

With higher in terms of margin profile.

This is very much in line with our original model, so theres nothing really dramatically different than what we expected.

And just as the follow up so any color on the Aero margin pressure you mentioned, yes, I would just say we printed something in the 26 ish range in Q2, and I would expect that to stay in that neighborhood through the remainder of the year.

Kind of Directionally, we'll probably get again, a little bit of a lift in Q4 with some extra volume but.

<unk>, we had thought that would be a little bit more robust with higher revenue profile.

But as I discussed earlier, that's where we're probably on the lower end of our range of expectations of supply chain healing and output and so just a little bit of volume leverage loss.

Relative to the high end of what we had hoped.

And due to primarily very robust OE demand, which obviously is.

From a mixed perspective is negative, but really nothing there that's different than our expectations.

Great. Thank you.

Thank you.

Our next question comes from the line of Scott Davis Melius research.

Good morning, guys, Hey, Scott Good morning, Scott.

Youre one of the few companies I think we're going to see this quarter with gross margins up.

They're up 60 bps.

Is that.

Would you characterize that because if you are ahead of the curve on price costs. There was some mix, helping benefit I know that you keep fixed cost down and Thats helpful. Certainly when you add unit volumes, but I would imagine.

Net of price or unit volumes this quarter Werent very positive. So can you help kind of.

Yes, sure absolutely let me help unpack that certainly we're trying to stay ahead of inflation that's been our playbook.

We're trying to get price, where we can.

And.

We have pretty good metrics and visibility and exactly where inflation is how it's broken down by business unit, how we're seeing it.

And now we have embedded that into our operating system that such that we can identify it act.

Do that in multiple ways.

Obviously price is one lever Manny.

Managing the mix of things that we can so that our higher margin profile on some redesigns, which are also net helpful also generate some cost benefit.

The thing I'm, particularly pleased about is I can tell you well, we'll transparency nine months ago that was not part of our playbook.

I think we stumbled a little bit nine months ago.

I'm really thrilled because.

Now it is part of our operating system, we know what to do is underpinned by the fact, we have great data visibility great analytics.

One source of truth, which really enables us to take much more precise management actions to manage the headwinds we've seen in inflation.

Okay, I will pass it on to stick to my one question. Thank you and good luck.

Thanks Scott.

Thank you our next.

Next question.

Our next question comes from the line of Sheila <unk> Hello.

Jefferies Sheila your.

Your line is open.

Hey, guys good morning, Gary and congrats thank you.

Okay.

Hey, guys. So all my arithmetic questions, so maybe on and calibrated and warehouse.

Yes.

Some of the.

We're always kind of overcapacity in the market.

Been pretty well publicized so I'm not going to dwell on that I mean, obviously, we're seeing that.

Frankly, we forget.

Business grew at 50% in 2021.

Similar rate in 2020 so.

I think that frankly, what it needs to happen is that some of the capacity to be absorbed.

Very very excited about the future of warehouse automation.

So this is a bit of a blip for the next few quarters. A mid term. We think that this is going to be still very good business and you are right from a mix perspective, although.

There is obviously the top line there is an impact.

A mix margin mix perspective, this will be net helpful. Because our <unk> business is growing.

Projects that we are securing at higher margin rates.

So net net.

This is not something we're particularly worried about I mean, we wished.

Business was there from a topline perspective, but overall I think that this will be definitely warmer weather and we spent a lot.

The segment that we're in and warehouse automation.

Great. Thank you very much.

Thank you.

Next question comes from the line.

Andrew <unk> of Bank of America.

Andrew Good morning is open.

Hey, good morning, guys, Hey, how are you.

Just a question on the new CLO all wrong and.

Could you just give us more of your thought process was there.

And specifically you know historically, we've been getting questions on.

Honeywell and M&A does that mean that Darius you're just going to spend more time on strategic alternatives.

World look any different to your now posted a market corrections on what's been happening there. Thanks.

Yes.

Well I mean, I think let me just kind of talk a little bit about the CEO role and venmo specific lending as you can imagine.

A lot of the operational outputs that we get both happened by accident.

A lot of hard work and attention.

Data and so on it.

Kind of bummed myself, maybe more.

More in the middle of that and maybe I want it to be.

It gets good and bad.

And frankly some of these other aspects in M&A and BD is certainly one of those is an area that I, probably shouldn't be spending a little bit more time, but I would add to that customer outreach and people development strategy and some of the other brand building things, which frankly I should be doing it.

To be very transparent I've talked about that openly to my own staff.

Couple times, and I think the best way to kind of solve that.

Really partner with BMO.

To be the COO I mean, he's got a great track record at Honeywell.

It's been extraordinarily successful in running HPT. These run <unk> Pmt's get 33 Years' worth of experience there arent there aren't too. Many mysteries took nimble that he doesn't know what honeywell that kind of multi business experience in.

Multi continent experienced because he's lived in Asia, Europe , and North America. So he is going to be a great partner for us to do things and I think this is going to be a net positive for Honeywell because.

It will allow me to do some other things that are going to be very beneficial and yes, BD and M&A is going to be one of those things.

Yes, no we love our advanced materials business, I mean, youre seeing a lot of things that you've seen the strength of our <unk>.

Solstice business really picking up we kind of forget that we have enough.

<unk> materials business, probably the only electronic materials and chemicals business based in the U S. So you can imagine what kind of future that ads.

And the business is very robust we invested in capacity.

The expansion those capacity expansions are not even yet shown in our results and will really come to fruition in 2023. So not only are we excited about how the business is performing in 'twenty two things.

Things could get even better for 2003, so we're.

Very thrilled with the performance of the pass through.

Great to hear and congrats to venmo.

Thank you.

Our next question comes from the line of nine.

Nigel Coe of Wolfe research.

And <unk>.

Congratulations to the demo.

Actually I was going to ask about the <unk>.

It's been also already but just maybe just.

Clarify Darius is then we're going to continue to be the leader with PMT.

Is that going to transition over time.

My real question is.

Around the consumer.

Obviously video and Garrett took a lot of the consumer direct consumer exposure away from Honeywell.

In terms of your second half framework, just given the way that although it is a consumer facing fell to just blowing up.

C June July are starting to see that impact so what extend have you done.

We could trends within I don't know refrigerants centronics handhelds with an Sps any any kind of concerns you're seeing there. Thanks.

Yeah. So let me kind of unpack because theres really two questions. Let me very quickly opened a P M.

PMT question, So no we don't envision.

Be more holding onto both rose, but what we wanted to do is to make sure that it became clear that the P&C World is open because there's always when we have big roles like that opening we want to consider internal and external candidates and frankly, it's much tougher to recruit when our role as an vacated so he is going to serve in both roles as you can imagine early on in <unk>.

A lot of attention CMP, but as we fill that role he's going to take over more of the seal. So thats the first part.

Yes, we've seen some of the same same outputs on the consumer and you're right. We don't have a lot of consumer exposure I mean, most of that consumer exposure went away with the two spin so thats spot on as well.

Yeah.

We see it a little bit indirectly I talked about it in the Indian calibrated play because sort of this there were some level of assumption that sort of this consumer demand.

Keep ongoing it's kind of slowed down and consumers have a little bit of a different behavior. So we see it there.

But I would just say this.

If you go back to 2020 right after the pandemic hit us.

One of the most.

Unfavorable pandemic portfolio you could have all right.

Two biggest businesses were aerospace and energy and <unk>.

Frankly other than maybe hospitality.

Those got hit about as hard as anything else well I think we're kind of entering a little bit of a different cycle and I actually think that no matter what you count.

In terms of the recession period.

Don't see.

Stands for reduction in OE build rates for aerospace Air travel there is a lot of pent up demand and you see it you see it more on the consumer side and my bet is youre going to see it more and more on the business side Theres still a lot of pent up demand for travel and let's be honest the wide body international travel is nowhere near where.

It was in 2019, so I think we're entering a cycle here, which is actually going to have a very favorable market mix market conditions. Obviously, that's underpinned by the kind of backlog position we have.

So we're cautiously optimistic that even in a recessionary environment, which may happen.

I think we're still going to do quite well.

That's great. Thanks.

Thank you.

Thank you. Our next question comes from the line, Joe Ritchie of Goldman Sachs.

So Richard your line is open.

Good morning, everyone and congrats to everybody on the promotions.

Mike.

My question is really just around around pricing. So I think last quarter, you guys talked about five points of price coming through for the year I am curious whats the expectation now and then also clearly like you guys are building up a pretty pretty good war chest here its platform is almost $30 million.

Just wanted to understand how you guys are thinking about.

The pricing that's in that backlog and with commodities deflating right now could you see a nice little boost.

In 2023, as you start to deliver some of that backlog.

Sure.

So youre right, we talked about 5% for the year a quarter ago, we now see that as being more like an 8%.

Number for 2022.

So nice progress for the first two quarters.

And that kind of carrying through.

So we.

We expect to be able to retain a good bit of that pricing I think we found that our pricing has been very sticky.

Overtime.

And maybe Greg just answering that question on like the commodities deflating like how it is that does that impact your business at all this year is that more of like a 2023 event. If we continue to see based on oil prices.

Stay at current levels, which has been on a downward trajectory for the last several weeks.

I'd say when we look at it there are some commodities that are seeing some.

Of that deflation, but overall for our total portfolio of direct materials.

That's sort of cherry picking and overall, we still see a net increase.

Okay.

Okay, great. Thanks.

Your theory is right that as some of these commodities come down we may have an opportunity as we get into 'twenty three.

For some margin expansion or it obviously varies by commodity some of them are index.

Some of them are not so.

But directionally.

Zero assertion is correct.

Great. Thank you. Thank you.

Thank you. Our next question comes from the line of.

Andy Kaplowitz of Citigroup and capital good morning, guys. Good morning.

So you raised HPT expected growth from high single digits to double digits.

Digits are the primary markets in HPT growing that fast.

Or are these share gains at HPT continues to achieve maybe it's just a big uptick you're seeing in high growth markets and how you're thinking about hpt's European exposure.

I think I think it's a little bit of both.

I mean, certainly the business is growing I think.

I'm, particularly excited about is that HPT is the kind of solutions that our customers are seeking both in terms of energy conservation in terms of healthy buildings healthy environments clean air.

Visibility to their energy usage.

Visibility to their carbon emissions. All of these are these are solutions that we currently have in our portfolio and there isn't a customer out there thats not interested in that.

Flex it and Theyre booking rates I mean, they are booking rates will pretty much double digits almost across the board for every one of their businesses. So the right portfolio rate solutions and.

And the business is doing very very well.

And just.

<unk> European exposure in general European exposure are you seeing anything there.

No not yet I mean, frankly, our business in Germany, which is obviously the biggest economy was actually up significantly in Q2. So we're not seeing any signs yet of any kind of a pickup we're watching this as much as everybody else. We are concerned is it really else around sort of the energy profile.

Europe heads into the winter.

But so far so good in terms of what we saw here in Q2.

Appreciate it.

Okay.

Thank you. Our next question comes from the line of.

Josh.

Morgan Stanley Josh Propylene <unk>. Your line is open hi, good morning, guys.

Yes.

So just want to follow up on on PMT, I guess a couple unique.

Drivers this cycle, maybe versus what we've seen in the past I guess on one hand, you've had refining margins blow out to the upside here pretty quickly and maybe some snap responses by those customers to drive spending this year, but it's still kind of a long cycle business hard to get too much going inside of six months.

Month period.

As much as it's good this year.

Pulling things forward potentially from 'twenty three is still building momentum here like how do you see kind of the unique aspects of this environment and kind of driving momentum or duration versus versus other cycles. So that business. Yes. So we are certainly not pulling anything from 2003, so let's just be clear about that.

There is no <unk>, we don't need to do bonds.

Because the business is robust.

Cited about is the LNG cycle.

You see that investment taking place you see it in the Middle East you see it in the U S. We were participating in it youll piece participating we hit some very robust bookings that you saw in Q2.

We actually expect more robust bookings in the second half of the year.

We're very much part of that LNG cycle. Another really important data point, which is I don't know if this is well publicized but we are also the leading player.

In renewable fuels green fuels in the solutions, they're just this year our expectation is that the bookings in that segment to be up three X versus what they were in <unk>.

<unk> thousand 21 so.

We are we are very.

Right.

We're kind of playing on the both ends of the barbell when it comes to the energy infrastructure and I think this is exactly where you want to be.

The world needs energy right now and it's most likely going to come from natural gas and Theres got to be a build out theres going to be infrastructure build out.

E&P that takes place.

To supply the world.

Natural gas you see that particularly pronounced in Europe , we're playing in that we're also planning on sustainability and renewables and renewable fuels.

Gave you the very specific data point on.

Green sustainable fuels, where we are.

Really a leader in that space.

Having more and more.

Wins in plastics recycling.

Have a pilot going on in battery storage. So just about every relevant I talked a little bit earlier on the earnings call about partnership and carbon capture so just about anything you want to do in sustainability and renewable economy of the future. We also do so we're going to benefit from both sides of this.

Energy transition then you see it in the bookings this quarter.

Great color. Thanks best of luck guys.

We have time for one more please.

Yes, Sir our final question comes from the line of Deane Dray of RBC capital markets.

Your line is open thank you and good morning, everyone Hey, good morning.

Hey, just a couple of cleanup questions.

For Darius.

Good to hear that the semi conductor situation seems to be bottoming.

Some color on <unk> and your expectation for the second half is it going to be a linear improvement do you expect it to be choppy and then for Greg anything on Russia in terms of other write downs.

They are excluded but just the wind down of Russia is that complete yet thank you.

Yes, it's a regular let me take the first one yes, I mean I think in terms of recovery on our supply chain broadly, it's going to be very very gradual there's no sort of a magic unlock that's going to happen in one quarter and all of a sudden everything will now sort of gets flushed through our backlog and so on I think it's been a very gradual sort of the decommissioning.

Youre, probably referring to because I gave some specific numbers on that in.

Last quarter around aerospace and just to give you a little bit of an update on that.

Q1 was at 20 to 22 523 net range.

Q2 was better but it wasn't as good as we had hoped it came in at just a shade over 21% on the Decommit, so better than Q1, but we were kind of hoping something around the 2019 to 20 range but.

But we saw improvement we expect that improvement to continue gradually we also saw about a 3% improvement in output Q over Q. So overall some level of progress.

But it's going to be gradual and thats kind of what we're penciling in for the next few quarters, which is gradual level of improvement both in this space as well as some of the aerospace supply chain, that's kind of what what our standard cases, we hope for the better we've deployed.

Army into the supply chain, particularly in the aerospace segment to help our suppliers to get up to rate.

But it is challenging because it's not sort of just the suppliers that are kind of let's call them tier three suppliers that really ddos to tier four and even fewer parts suppliers that are struggling.

This problem will be solved I have no doubt we installed.

There is no instant gratification.

Yeah, and then on the Russia side Dean.

I'd say, we have taken the bulk.

The write downs associated with our balance sheet as it relates to Russia in the first quarter that was really around.

Around our Unbilled receivables in the second quarter, we took down essentially all of our PP&E.

And any other related asset balances.

Essentially zero at this point, what we're really working through now is just the cash implications of all of that and it's going to be a legal matter that will probably take quarters end.

Well into 2023.

As all of the aspects of patients on <unk>.

Export control compliance.

It comes into play so, it's just not going to be as simple.

That's simple wind down but from a from a write down perspective, I would say the bulk of it has happened at this point.

Thank you.

Yes.

Deane as you know, we absorbed sort of the FX impact as well into our.

Guidance range, which was.

Nicole on the EPS range and on a year over year basis, its actually 14 headwind so.

That's helpful. Thank you.

Okay.

I just want to thank all of our shareholders for your ongoing support we delivered strong second quarter results than typical Honeywell fashion, we have and we will continue to overcome numerous external factors, we face with operational rigor and agility in order to drive superior shareholder returns. Thank you all for listening.

And please stay safe and healthy.

This concludes today's conference call and thank you for participating you may now disconnect.

Q2 2022 Honeywell International Inc Earnings Call

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