Q4 2024 Honeywell International Inc Earnings Call and Business Update
Thank you for standing by and welcome to the Honeywell fourth quarter 2024 earnings Conference call. At this time, all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session. Please.
Please be advised that today's call is being recorded.
I would now like to hand, the call over to Sean Meakin, Vice President of Investor Relations. Please go ahead.
Speaker Change: Good morning, and welcome to Honeywell's fourth quarter, 2024 earnings and 2025 outlook Conference call.
Speaker Change: On the call with me today are chairman and Chief Executive officer of their bulk of four <unk>.
Speaker Change: Senior Vice President and Chief Financial Officer, Greg Lewis and incoming CFO, Mike step back.
Speaker Change: This webcast and the presentation materials, including non-GAAP reconciliations are available on our Investor Relations website.
Speaker Change: From time to time, we posted new information that may be of interest or materials for our investors on this website are.
Speaker Change: Our discussion today includes forward looking statements that are based on our best view of the world and all of our businesses as we see them today and are subject to risks and uncertainties, including the ones described in our SEC filings.
Speaker Change: We will review our financial results for the fourth quarter and full year 2024 discuss our outlook for the year share our guidance for the first quarter and full year 2025, and provide an update on the comprehensive portfolio evaluation as always we'll leave time for your questions up yet with that I'll turn the call over to chairman and CEO level before.
Speaker Change: Thank you, Sean and good morning to everyone. Joining us today, we finished 2024 on a positive note exceeding or meeting the high end of our guidance for organic sales growth.
Speaker Change: Adjusted earning growth in the fourth quarter, while navigating and uneven operating environment.
Speaker Change: During 2024, and we deployed over $14 billion of capital, including foreclosed acquisitions for approximately $9 billion.
Speaker Change: Remaining on track to surpass our commitment to deploy at least $25 billion of capital through 2025.
Speaker Change: We also delivered on our promise to exit non core lines of business with the planned spinoff of advanced materials and the sale of our personal protective equipment business in the quarter.
Speaker Change: Turning to 2025, we are excited by our progress from a future shaping innovations to growing our global installed base that said, we are aware that the evolving geopolitical situation.
Speaker Change: Global macroeconomic conditions and temporary demand expectation in some end markets may pressure, our near term momentum.
Speaker Change: As a result, we are offering a realistic baseline for 2025 performance based on current end market conditions and without assuming a recovery in short cycle demand.
Speaker Change: While the current operating environment presents some near term challenges. We continue to believe in the strong through cycle growth potential of our best in class businesses now, let's zoom out from the near term dynamic to discuss an important step in our journey to transform Honeywell following of our year long comprehensive business portfolio evaluation.
Speaker Change: We have decided to pursue a full separation of automation and aerospace technologies.
Speaker Change: We believe the results of our strategic assessment provide clear direction for the future of Honeywell <unk>.
Let's turn to slide three to discuss today's portfolio announcement in more detail.
Speaker Change: As many of you know Honeywell has performed portfolio valuation systematically for many years evaluating various way to potentially unlock value as conditions evolve about a year ago I initiated a process to look even deeper at different structures, including fluid separation of our largest businesses.
Speaker Change: Following the completion of this in depth internal portfolio review and prepare.
Here to share with you today that the Honeywell Board of directors has concluded that the separation of automation and aerospace is the best interest of Honeywell shareholders. This step coupled with the previously announced plan to spin advanced materials will result in three industry, leading public companies with tailored strategies.
Speaker Change: And growth drivers so.
Speaker Change: The formation of these three distinct companies that enable greater strategic focus.
Speaker Change: Operational independence, and financial flexibility to pursue growth opportunities unlocking significant value for our stakeholders, including shareholders customers and employees.
Speaker Change: From a timeline perspective, we expect to complete the separation in the second half of 2026 and in a manner that is tax free to Honeywell shareholders.
Speaker Change: In between we remained very focused on delivering on our commitment and will continue to identify ways to further shape, our portfolio and create shareholder value now, let's turn to the next slide to discuss why we think this is the right time to separate into three publicly traded companies.
Speaker Change: The decisions based on the operational and digital Foundation, we have created over the past two decades and the Cds of strategic actions, we have taken over the past year to dramatically simplify Honeywell.
Speaker Change: Our accelerator operating system is mature and will be a source of strength for each company. Looking ahead, we see increasing divergent strategies pathway for automation and aerospace.
Speaker Change: This is the logical next step to bring the portfolio to the next phase of transformation and unlock incremental value with that lets turn to slide five to talk about strategic rationale behind today's announcement.
Speaker Change: We believe the planned separation of automation aerospace and advanced materials will benefit all stakeholders and position all three standalone companies for long term profitable growth. The path will enable three pure play companies to pursue simplified go forward strategies that are clearly aligned to the unique.
Speaker Change: Each business and to address the specific needs of their end markets with.
Speaker Change: With this clarity of strategy and incentives and enhance financial flexibility that comes with being an independent public company Honeywell automation, Honeywell aerospace and advanced materials will be able to meaningfully drive innovation throughout investment cycles that.
Speaker Change: That distinct investment profile of each company and an improved ability to customize capital allocation strategy will unleash the full potential of each company's strong balance sheet, creating the best path forward for an enhanced commercial success.
Speaker Change: Third based technology innovation and increase customer intimacy, each business will be able to build on their existing for a powerful foundation with our guidance our focused board of directors and management team that has deep domain expertise and clear vision for the future.
Speaker Change: We are committed to strong investment grade credit rating for both automation in aerospace and a strong non investment grade credit rating for advanced materials positioning all three to successfully compete for capital among their respective peer sets.
Speaker Change: Now, let's turn to page six to talk about what it means for each of these three stand alone companies.
Speaker Change: We are creating three scale pure play public companies that have leading positions in their specific categories with a distinct competitive advantage and compelling long term end market growth drivers.
Speaker Change: Each has a strong set of competitive advantages built and sustained over decades.
Speaker Change: Talbot cohesive strategic direction and compelling secular growth drivers.
Speaker Change: Support attractive top and bottom line growth Honeywell automation will be a pure play automation leader driving digital transformation energy security.
Speaker Change: And increased industrial economy globally.
Speaker Change: Honeywell aerospace will be a diversified premier aerospace technology and system provider or all forms of aircrafts with some of the most compelling financial metrics and all of the aerospace.
Speaker Change: Advanced materials will be sustainability focused specialty chemicals and materials pure play with a strong IP portfolio and set up unique growth investment opportunities.
Speaker Change: Let's turn to the next page to talk to the value proposition of Honeywell automation.
Speaker Change: Cutting edge controls and automation technology have been the foundation for Honeywell for a century, we have a leading market position across process industrial energy and building a market that go back decades, creating a vast installed base globally Honeywell technologies used in over $10 billion building 17000 process plants.
Speaker Change: Providing a powerful platform to enable growth through our services and software Honeywell.
Speaker Change: Honeywell revision brands are highly valued and well recognized across the globe and we have numerous long lasting customer relationships.
Speaker Change: As a standalone $18 billion business Honeywell automation global scale deep domain expertise and long lasting technology leadership positions can tackle the world's most complex problem and power digital transformation on a global level Honeywell automation current segment margin of 23% is supported by our track record.
Speaker Change: Driving continuous improvement in operating efficiency to our accelerated operating system.
Speaker Change: We anticipate that the secular growth such as chronic labor scarcity increased funding for capital projects, both public and private energy security and supply chain resiliency will all stimulate further growth the rapid advancement at automation technologies is enabling the manufacturing sector to us.
Speaker Change: Valuable new sources of efficiency through cloud connectivity and advanced analytics. These trends are compounding as we speak with the progression of industrial AI evolving from purely into reality transforming automated facilities into autonomous facilities.
Speaker Change: An automated facility machine with pre programmed instructions and deterministic outcomes, Gabon, the industrial process, but in an autonomous facility systems or machine can analyze years of historical data and make recommendations and decisions that adapt to new conditions changing environments are.
Speaker Change: And anticipated problems.
Speaker Change: We believe this momentum will only accelerate in coming years and continued to drive increased demand for high quality sensors controls processing software technology, all of which are right in Honeywell Beadhouse in fact, a leading software base Honeywell Forge Iot platform is already improving asset performance enhancing labor.
Speaker Change: Productivity and increasing cyber security for our customers as well as driving valuable recurring revenue streams for Honeywell, increasing energy demand requirements to reduce emissions and heightened energy security concerns are driving the need for significant investment in emerging energy verticals infrastructure.
Speaker Change: <unk> four fortifying traditional energy sources.
Automation is uniquely positioned to help meet ward need on both fronts with leading innovation from renewable fuels technology to LNG building, our largest installed base our process technology for the energy sector.
Speaker Change: As an independent automation pure play Honeywell automation, we'll be able to anchor the direction of the company to build on a powerful foundation and focused capital allocation strategies on deepening our presence in high growth verticals.
Speaker Change: We believe this will drive differentiated performance for both customers and shareholders.
Speaker Change: On the next page, we'll talk about Honeywell aerospace in more detail.
Speaker Change: Moving to aerospace Honeywell has a 100 plus year heritage as a crucial innovator in aerospace and defense with a diverse portfolio of technology and system that spans nearly every major commercial defense and space platform worldwide.
Speaker Change: As a standalone business Honeywell aerospace will be one of the largest publicly traded pure play aerospace supplier with our global scale and the highest value and most critical areas across the value chain.
Speaker Change: For example, aerospace has delivered over 100000 auxiliary power units a technology we invented.
Speaker Change: And 72000 engines is $19 69, and is triggering 90% of global aircraft use Honeywell avionics on its own it will pursue tailored capital deployment priorities to position the business to continue driving growth delivering.
Speaker Change: Delivering reliability to customers and positioning the business for the future of aviation through increasing electrification and autonomy a flight.
Speaker Change: With an annual sale of $15 billion and a streamlined cost structure, yielding best in class segment margin of 26% Honeywell aerospace as a solid financial profile, which can support continued growth and investment in new innovations, while maintaining industry leading profitability.
Speaker Change: Aerospace also has significant expanding high margin revenue stream from retrofits modifications and upgrades for our abuse. These new value propositions are purpose driven to serve customer needs within our installed base and offer a source of growth that is decoupled from OEM build rates our flight hours another key.
Speaker Change: <unk> is a differentiated financial performance.
Speaker Change: Aerospace <unk> technology has deep end market penetration and global scale and aircraft propulsion cockpit navigation system and auxiliary power units with a robust Honeywell funded R&D investment profile of approximately 4% up sales and customer funded R&D of approximately 7% of the sale of our business is well positioned to benefit from <unk>.
Speaker Change: People years ahead of unprecedented demand within traditional aerospace and defense.
Speaker Change: Aging fleet with a lengthy backlog for replacement increasing defense budgets, given geopolitical uncertainty and higher flight activity in high growth regions provides support for healthy commercial and defense OE investment up cycle alongside aftermarket strength.
Speaker Change: At the same time, the industries and the dire need for a new electrification and sustainability offering to meet Steve global carbon reduction initiatives.
Speaker Change: Already now integrated electric propulsion systems, combined motor controllers power and cooling system with honeywell's unrivaled expertise and fly by wire avionics, including the next generation and on slide deck, making the future of aviation save quiet and appreciate it.
Speaker Change: Honeywell Aerospace electrification and autonomous driven technologies also leading innovation that will transform travel and delivery services as well as how country defend themselves.
Speaker Change: This is creating a significant new source of revenue for arrow in the decades ahead as evidenced by over $10 billion in advanced Air mobility Vince.
Speaker Change: Independent Aerospace company of this scale and global presence will benefit from our focused strategy well capitalized public company structure, a dedicated board with deep domain expertise and targeted high return investments, both organic and inorganic to deliver the future of aviation.
Speaker Change: Let's turn to slide nine to talk about advanced materials.
Speaker Change: And finally for advanced materials as we discussed last October we announced the spin we are very excited about the opportunity to create a leading sustainability focused specialty chemicals and materials pure play.
Speaker Change: We believe that as a standalone specialty chemicals and materials business. The company will benefit from greater financial flexibility to pursue its own growth agenda and associated investment choices.
Speaker Change: This include distinct opportunities in Nextgen sustainable refrigerant.
<unk> electronic materials and highly engineered solution for healthcare application.
Speaker Change: The business generated approximately $4 billion of sales in 2024 with sector, leading EBITDA margins of about 25% on an estimated standalone cost basis.
Speaker Change: With over $1 billion invested over the past eight years <unk> has built a robust economic mode with an efficient supply chain and a global customer base in a highly regulated verticals.
Speaker Change: And solid competitive positioning stems from a differentiated IP portfolio made up of over 5000 active patent applications created by a deep bench of more than 400 highly specialized technologists and engineers.
Speaker Change: <unk> Standalone and we'll be able to continue to focus on developing new more sustainable solution through next Gen chemistry, and this pure play business with a compelling investment profile is uniquely positioned to benefit from strong macro trends.
Speaker Change: Now, let's turn to slide 10 to talk about progress on transforming our portfolio.
Speaker Change: And a little over a year, we have made tremendous progress on optimizing and simplifying the portfolio.
Speaker Change: In the fall of 2023, we announced plan to reorganize our business around three mega trends during.
During 2024, we announced a total of four strategic bolt on acquisitions, plus a handful of smaller but strategically important technology tuck ins committing $10 billion of capital and adding about $2 billion of run rate revenue are growing at accretive rates.
Speaker Change: In addition to these ads. We also are executing on simplification of our portfolio with the pending sale of PPE business.
Speaker Change: This announcement to separate automation in aerospace coupled with the planned spinoff of <unk> marks the beginning of the next phase of our transformation.
Speaker Change: We remain committed to and excited about the prospect our continuum.
Speaker Change: Lastly, Softbank announced a partnership with continuing to explore ways to unlock innovative quantum computing solution that will overcome the limitations of classical AI and explore quantum data center business model, just the latest validation of our technical progress.
Speaker Change: <unk> continues to make great strides in both technical and commercial progression and we look forward to eventual IPO for this business.
Speaker Change: We will continue to make M&A, a consistent part of our operational rhythm seeking to acquire accretive bolt ons that further shape the portfolio and enhance the value proposition of each business during the pendency of the separation process.
Speaker Change: We are confident that our dynamic capital deployment strategy, including acquisition further share repurchases and optimizing our operation will lead to an enhanced financial profile for Honeywell that is more attractive to investors.
Speaker Change: And finally, we are committed to reducing our share count by at least 1%. This year net of dilution, which equates to more than $3 billion of capital deployed over the next 12 months.
Speaker Change: It reflects our conviction and the future value creation of our strategic plan near term momentum in the business performance and what we believe to be a stock trading at an attractive valuation.
Speaker Change: Let's turn to slide 11 to talk about the next steps.
Speaker Change: In terms of the path forward, we remain on track to complete the spin of advanced materials by end of 2025 and or in early 2026.
Speaker Change: The planned separation of automation in aerospace, we announced today is expected to be achieved in a manner that is tax free to Honeywell shareholders and targeted for completion in the second half of 2026.
Speaker Change: We will leverage our rigorous operating principles underpinning our accelerating operating system to prevent business disruption and manage the onetime cost of one $5 billion to $2 billion associated with the separation of both automation and aerospace as well as advanced materials expense.
Speaker Change: This operating playbook is a deeply ingrained part of Honeywell culture and will carry on inside each of these two powerful franchises. We will provide you with updates on process towards completing these separations.
Speaker Change: Importantly, we will maintain a steadfast approach to executing on our commitment to our customers shareholders and employees as we enter this next phase of portfolio transformation.
Speaker Change: Now before I turn it over to Greg on slide eight to discuss our fourth quarter and full year 2024 results in more detail our tank him personally for his leadership and partnership in my first two years as CEO, Greg Stylus referred as CFO over the past seven years have been instrumental in transforming Honeywell.
Greg I wish you all the best in your next chapter.
Greg Stylus: Thank you for those kind words them all it's been a privilege to lead this iconic company alongside you and Darius and.
Speaker Change: And good morning, everyone.
Speaker Change: We will finish 2024 on a strong note, beating the high end of our organic growth and adjusted EPS guidance in the fourth quarter, Despite a still challenging macroeconomic environment cash.
Speaker Change: Cash flow was also a positive coming in at the high end of guidance in the fourth quarter.
Speaker Change: Importantly, during the quarter, we announced the landmark agreement with Bombardier one of the largest business jet Oems globally to provide the next generation of technology for current and future aircrafts and avionics propulsion and satellite communications.
This includes the first deployment of our Nextgen anthem avionics at scale and comes with a lifetime value of the partnership of $17 billion.
Speaker Change: While the related investments lowered our reported performance in the fourth quarter. The long term economics are compelling and there's no impact on 2025 performance where.
Speaker Change: We're proud of the enhanced partnership we're building with Bombardier and excited for the opportunity to lead the industry into the future of aviation.
Speaker Change: Turning to the fourth quarter, we ended the year positively with sales and earnings per share exceeding our prior guidance range.
Speaker Change: Overall sales increased 2% organically or 6%, excluding bombardier with year over year organic growth improving five points sequentially and both IAA NPA from the third quarter.
Segment margins declined 70 basis points from the previous year, when excluding the Bombardier impact of 280 basis points.
Speaker Change: Adjusted earnings per share grew 9%, excluding Bombardier with segment profit growth more than offsetting higher below the line costs.
Speaker Change: Fourth quarter free cash flow declined 27%, mostly due to the cash contributions related to the Bombardier agreement.
Speaker Change: Honeywell is backlog reached a record level of $35 3 billion in the quarter.
Speaker Change: <unk>, 11% year over year.
Speaker Change: Excluding acquisitions backlog was up 6% year over year, and 1% sequentially with particular strength in DSS.
Speaker Change: Fourth quarter orders increased 11% organically from the prior year growing in all four segments.
Speaker Change: For more details on the drivers of our fourth quarter and 2024 results, including year over year bridges. Please look in the appendix of today's presentation.
Speaker Change: To wrap 2020 for honeywell's full year organic sales increased 3% or 4%, excluding the impact of the Bombardier agreement as double digit organic growth in our longer cycle aerospace and building solutions businesses more than offset softness in the products businesses in industrial and building automation.
Speaker Change: 2024 acquisitions contributed over $800 million of sales at accretive growth rates, while integration efforts are proceeding well.
Speaker Change: Full year segment profit grew 1% with margin contraction of 90 basis points in 2024, excluding Bombardier segment profit grew 6% with 20 basis points of margin contraction.
Speaker Change: Margin pressure in the year was driven by contraction in industrial automation with Aero roughly flat excluding Bombardier.
Speaker Change: <unk> roughly flat NPA.
Speaker Change: We believe our accelerator operating system will continue to enable us to expand margins over time with the patient expansion can be uneven, especially when coming off a 150 basis points of combined improvement in 2022 and 2023.
Speaker Change: 2024 adjusted earnings per share grew 4%.
Speaker Change: Four 9%, excluding and Bombardier.
Speaker Change: We also generated $4 $9 billion of free cash flow.
Speaker Change: $5 $5 billion, excluding Bombardier at the high end of our most recent guidance range.
Speaker Change: We deployed $8 $9 billion towards M&A closing four acquisitions this year.
Speaker Change: In total we allocated $14 $6 billion of total capital, including $1 7 billion to repurchase 8 million shares $1 $2 billion to capital expenditures and $2 9 billion to dividends, which we raised again for the 15th time in 14 years.
Speaker Change: So before I hand, it off to Mike to discuss our outlook for the year I want to thank BMO all of my fellow Honeywell future Shapers in my family for supporting me during the past seven years as CFO.
Speaker Change: I am proud of the transformation Honeywell has undergone optimizing our portfolio and greatly increasing our digital capabilities.
Speaker Change: I also want to reaffirm my confidence in Mike as the next CFO of paywall.
Mike: Talking with him on this transition over the past five months has only confirmed the decision. We made was a great. One he has all the skills and commitment needed to bring Honeywell into the next phase of growth and I'm excited for the future So Mike over to you.
Mike: Thank you for the support Greg Palm oil contributions to Honeywell, let's turn to the next slide.
Mike: Looking at our major end market exposures entering 2025, we see underlying long term secular strength being met with near term challenges in the macroeconomic backdrop and heightened geopolitical tensions in aerospace commercial fleet growth in replenishment continue and defense investments remains elevated with some natural moderation from the Doug.
Mike: Double digit growth rate for the past three years.
Mike: We benefit from public and private spending on infrastructure projects and ongoing push for more automation investments addressing chronic labor shortages and inflation by demand for short cycle products remained muted in the near term.
Mike: Energy investments in a number of verticals, we will continue to support our sustained backhaul, while growing demand for digitalization of processes across many end markets enabled the potential for increasingly AI enabled offerings to boost our customers' productivity.
Mike: Breaking down our 2025 market future graphically high growth regions in the U S will be drivers of organic growth, partially offset by weaker demand for automation products in Europe and China.
Mike: End market and regional views combined with the headwind from the strengthening U S. Dollar temper our outlook for 2025, we are working to determine the magnitude of the pending impact on our business from new tires, which are not currently included in our guidance.
Mike: Overall, <unk> is well positioned to navigate the near term challenges and our accelerated operating system will help alleviate margin pressures from business mix and integration costs.
Mike: Now, let's turn to the next slide to discuss specifics of the first quarter and full year 2025 guidance.
Mike: For 2025, we anticipate sales of $39 six $246 billion.
Mike: Which represents organic growth of 2% to 5% or 1% to 4% when excluding the prior year impact of the Bombardier agreement.
Mike: Our sales guidance assumes a mid year exited the by our PPE business, but does not include the spin of advanced materials, which we remain on track to complete by the end of 2025 four in early 2026.
Mike: Our baseline outlook for 2025, assuming a continuation of current industrial demand environment throughout the year and does not assume a recovery in our end markets are.
Mike: Most base will once again the growth for the company followed by MBA in DSS.
Mike: Acquisitions from 2024 will contribute approximately $2 billion in sales this year growing accretive rates and becoming part of the organic growth towards the end of the year for.
Mike: For the first quarter, we expect sales of nine 5% to $9 7 billion.
Mike: Flat to up 2% organically.
Mike: In addition to the normal seasonal step down in revenue from <unk>.
Mike: We will see some headwind in product businesses from fewer comparable selling base segment margin for the year is expected to be up 60 to 100 basis points or down Pat.
Mike: <unk> up 30 basis points, excluding Bombardier as productivity auctions and commercial excellence are partially offset by cost inflation business mix.
Mike: Automation businesses will lead margin expansion for the year SBA.
Mike: Volume leverage from recovery building products sales in <unk>.
Mike: <unk> benefits from mid yourself PD.
Mike: Aerospace margin declines primarily driven by the impact of the lower margin <unk> acquisition and its integration will mostly offset improvements in average three segments. Excluding <unk> the remaining portfolio and experienced margin expansion in products projects and after market services and software while the internally foster growth.
Mike: And projects will create a mix headwind.
Mike: We expect this dynamic to hold until we see a broader acceleration a higher margin short cycle product and markets.
Mike: The first quarter segment margins are anticipated to be in the range of $22 five to 22, 9% down 10 to 50 basis points year over year.
Mike: We assume a modest acceleration in organic sales growth through the year is 2024 acquisitions reach their anniversary aerospace supply improves to unlock additional sales and the selling based pressure reverses in products. However.
Mike: Quarterly progression will look similar to historical patterns and growth rates are not expected to deviate materially from the full year range, let's turn to the next slide to walk through our 2025 out of our business.
I'll walk through our expectations by segment the high level. However, additional details by SBU are covered in the commentary section of our slides.
Mike: Aerospace technologies will remain the predominant topline driver for Honeywell in 2025 and supply chain outlook continues and we worked through our robust backlog, we expect organic sales growth in the mid single digit to high single digit range for 2025, when excluding Bombardier.
Mike: Our acquisition of case will drive accretive sales and segment profit growth, but generate margin headwind due to integration in the full year of ownership.
Mike: We expect core Aero margins to remain in their recent neighborhood around 27%, but roughly 100 basis points decline in 2025.
Mike: When excluding bombardier to around 26% due to the impact of the case acquisition.
Mike: In the first quarter, we expect to see mid single digit growth in sales year over year as we continue to improve our output with particular strength in commercial aftermarket in industrial automation to 2025 sells off through remains largely dependent on the timing of recovery in products and customer <unk> decisions, but we are seeing reinsurance in some end.
Mike: We expect <unk> sales to be down low single digits compared to 2020 for margins should expand as we benefit from commercial excellence and favorable mix impacts, including from our expected sell of PPE.
Mike: First quarter sales will be down low single digits year over year as growth in our core processing sensing business is offset by demand softness in safety Smart energy and terminal solutions.
Mike: We're building automation, we expect to see growth led by our solutions business as we capitalized on strong project order rates in 2025 with particular strength in data center airports and hospitality, we expect overall VA sales growth and low mid single digits on a year over year accounting basis.
Mike: We anticipate margins to continue to grow in 2025, driven by productivity actions and the benefits from our Fox solutions acquisition.
Mike: In the first quarter, we expect sales growth to be up low single digits, while building solutions outpacing building products.
Mike: In 2025 energy and sustainability solutions will be supported by a robust pipeline and strong global demand for energy projects, we expect DSS organic sales growth in the low single digit range for the year margin will expand as improved volume leverage and meaningful attrition from the LNG acquisition offsets.
Mike: Inflation.
Mike: In the first quarter, we expect sales to be down low single digits as we work through challenging comps in flooring products. However, we expect solid growth in <unk> supported by strengthening our equipment projects as well as conversion of our robust backlog in SCS.
Mike: For the year, we expect earnings per share of $10 10 to $10 50 up 2% to 6%.
Mike: <unk>, 2% to up 2%, excluding Bombardier, we walk through the puts and takes for EPS in greater detail in few minutes.
Mike: Moving to free cash flow, we expect growth at least in line with earnings when excluding the impact of Bombardier capital expenditures anticipated to increase by roughly $100 million as we seek to invest in high return projects, notably and advanced materials ended prefers to operate as a standalone company.
Mike: This increase in spending will be funded by improvements in working capital efficiency with a strong focus on aerospace inventory.
Mike: Putting all this together free cash flow is expected to be between $5, four and $5 8 billion.
Down 2% to 5% ex Bombardier you.
Mike: You can find it in 2025 free cash flow bridge in the appendix of this presentation.
Mike: In addition to Capex and dividends will continue to deploy additional capital in a manner. There is both disciplined and dynamic in 2025 balancing and promising acquisition pipeline with our desire to repurchase our shares at attractive levels with more than $3 billion plan to reduce our share count by at least 1%.
Mike: In summary, we're setting a realistic outlook, taking under consideration macroeconomic and geopolitical factors now, let's turn to the next slide to walk through our EPS bridge to 2025.
Mike: Starting from our adjusted EPS, Excluding Bombardier 2025 has a number of puts and takes leading to EPS down slightly year over year at the midpoint of our guidance organic segment profit drop is expected to add 22 per share at the midpoint of guidance driven by higher volumes and productivity net of inflation.
Mike: We expect our segment profit from 'twenty to 'twenty four acquisitions that contributed roughly <unk> <unk> per share in 2025.
Mike: Benefit includes some integration expenses as we utilize our accelerated playbook to set the stage for future growth and margin expansion in these businesses and we are pleased with their performance thus far.
Mike: Our exit from PPE business will reduce 25 earnings by five.
Mike: Assuming a June 30 closing date.
Mike: The divestiture will be accretive to growth and margins.
Mike: The rise in the volume of the U S dollar versus global currencies. In recent months is forecasted to reduce reported sales and adjusted earnings per share by approximately $400 million and 12, respectively utilizing yearend 2020 foreign exchange rates.
Mike: We anticipate below the line items, which are the differences between segment profit and income before tax to create 52 of negative pressure on earnings versus the previous year at the midpoint of guidance.
Mike: First we expect pension income to be approximately $550 million in 2025.
Mike: Down approximately $50 million year over year because of the previously communicated one time item in Europe.
Mike: Next we see repositioning expenses, increasing to a range of $150 million to $250 million as we returned closer to our long term targeted repositioning range after like 2024.
Mike: Finally, our below the line expenses are expected to be between one three to five to one 375 billion.
Mike: $275 million to $325 million year over year, primarily because of higher net interest expense.
Mike: We expect our 2025 effective tax rate to be 20% in line with 2024, and our first quarter rate to be 22% average share outstanding are anticipated to decline from $655 million to around $649 million, adding 10 to 2025 bps in the first.
Mike: We expect shares outstanding of approximately $654 million combining all the puts and takes weeks, we anticipate the full year adjusted earnings per share to be between $10 and then.
Mike: And $10 50 up 2% to 6% year over year or down 2% to up 2% excluding Bombardier.
Venmo: Now I'll return the call back over to Venmo for closing thoughts.
Venmo: Great 24 was a productive year for Honeywell as our portfolio optimization efforts kicked into high gear and we kept our focus on executing on our commitment and delivering for our customers. While we may have gotten into last year with too much optimism for a recovery in our short cycle businesses, we have adapt.
Venmo: <unk> demonstrated resilience and ended the year by delivering organic growth and adjusted EPS results above our targets.
Venmo: We will continue to do so in 2025.
Venmo: Recognizing the uncertain macroeconomic and geopolitical backdrop in front of US, we will spur growth with innovation and relentless dedication to productivity.
Venmo: And we are focused on delivering on our commitments.
Venmo: While we face an uncertain operating environment, we have incorporated that into our outlook for 2025.
Venmo: Our guidance will serve as a prudent baseline for performance that we have a strong conviction, we can achieve with potential upside if underlying demand improves.
Venmo: Further with today's portfolio announcement, we believe the planned separation of automation aerospace and advanced materials will position all three standalone pure play companies for long term profitable growth and generate significant value for all stakeholders, including shareholders customers and employees.
Venmo: With that John let's move to Q&A.
Venmo: Thank you Remo Remo, Greg and myself are now available to answer your questions. We ask you. Please be mindful of others in the queue filing asking one question and one related follow up.
Venmo: Operator, please open the lines for Q&A.
Venmo: Thank you if you'd like to ask a question. Please press star one on your telephone keypad.
Venmo: <unk> tone will indicate your line is in the question queue you.
You May press star two if you'd like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.
Speaker Change: Our first question comes from the line of Julian Mitchell with Barclays. Please proceed with your question.
Julian Mitchell: Hi, good morning, and congrats on getting the strategic review.
Speaker Change: Completed and thanks, Greg for all the help.
Speaker Change: Wish you well.
Julian Mitchell: Thanks Julien.
Julian Mitchell: Maybe just a first question around the separation news if you could give us any help around the stranded.
Julian Mitchell: And stand up costs that might be needed for aerospace and automation initially out of the gate and also if you could give us any help on the free cash flow conversion or margin profile of the pieces.
Julian Mitchell: We can see the segment margin color, but wondered if there was anything on the free cash flow differ.
Julian Mitchell: Differences.
Julian Mitchell: Sure. So maybe I'll start with the free cash flow so <unk>.
Julian Mitchell: Space shoot.
Julian Mitchell: It should be around 100% free cash flow conversion.
Julian Mitchell: The business should be operating at that level.
Julian Mitchell: For our automation businesses that free cash flow is also expected to be around 100% free cash flow conversion. So that's that's what we're aiming for as far as going through this year and then next year.
Julian Mitchell: And on the.
Julian Mitchell: On your question Julien on the stranded costs and onetime costs, you've integrated one time cost.
Julian Mitchell: One $5 billion to $2 billion, obviously, thats a finer bond.
Julian Mitchell: The structuring we do so it's an initial estimate as we do work as it gets more refined.
Julian Mitchell: We will update you the stranded cost.
Speaker Change: We are not going to.
Speaker Change: I'll put a precise number at this point of time, we have to do more work and that's why we have.
Speaker Change: I'll put a second half 2026, because we will have ample time to understand it and execute it.
Julian Mitchell: Yes, the only thing I would just add to that Julian as we expect to grow into that.
Julian Mitchell: Between the growth of the company and taking those stranded costs over time.
Julian Mitchell: Inside of probably two years.
Julian Mitchell: That should certainly normalize itself, that's just based on our prior experience and everything that we see with advanced materials.
Julian Mitchell: Quite doable.
Julian Mitchell: We see those costs, leaving us within 18 to 24 months Bovespa post spin.
Speaker Change: Thanks, a lot and then just a second question would be around the operating or segment margin guidance. It's flattish. This year I think it was down slightly 20 bps underlying in 2024 one.
Speaker Change: I wondered if that had made you think about maybe doing a more aggressive repositioning cost out program in 2025.
Speaker Change: And I'll kind of Hawaii.
Julian Mitchell: Great Julien So I would say a couple of things first of all I think what we saw in the fourth quarter in the second half was quite quite encouraged by.
Julian Mitchell: The margin projections and what we expect to see over the next 24 months. If I look at the repositioning costs, we are expecting to add about $100 million of repositioning cost this year year over year, which will help fund fund margin expansion, but the bigger point here is.
Julian Mitchell: Really if you look at our segments.
Julian Mitchell: Three segments with exception of aerospace will expand segment margins this year, which is quite encouraging.
Julian Mitchell: Acquisitions are helping with us, especially in the second half with respect to aerospace work.
Julian Mitchell: Getting a lot of leverage from volume.
<unk>.
Julian Mitchell: And that's that's helping us expand margins, but in the short term, meaning 2025, the thing that puts arrow on the back foot as far as margin expansion is really the case acquisition.
Julian Mitchell: <unk> acquisition from.
Julian Mitchell: Margin.
Julian Mitchell: Margin standpoint is dilutive.
Julian Mitchell: And this is the first year of acquisition and we have a lot of integration costs that we have to absorb and move out. So really it's a story of arrow north not expanding margins, but really staying flat on core and then case pressuring in all the three segments, where it's been.
Julian Mitchell: Margins and Julian This is Sean just to remind you. We said many times is the case acquisition, while dilutive to the margin profile in 'twenty five is going to grow very nicely at accretive rates to aerospace and therefore will be accretive to segment profit growth and 25 and beyond.
Julian Mitchell: Great. Thank you.
Julian Mitchell: Thank you.
Speaker Change: Thank you. Our next question comes from the line of Scott Davis with Melius Research. Please proceed with your question.
Scott Davis: Hey, good morning, guys.
Speaker Change: Good morning.
Scott Davis: There's a lot of puts and takes here but.
Speaker Change: First question just to clean up item one what are you thinking timing.
Speaker Change: To name the management teams of the of the different pieces and will there be an external search for aerospace or when you felt that internally.
Scott Davis: So Scott I would say that.
Scott Davis: We will announced the management teams as the time progresses, but we expect that the current Honeywell leadership team to continue we'll let the board decide.
Scott Davis: The leadership of the remain co Honeywell and Honeywell aerospace so more to come as we do more work here over the next 12 to 18 months.
Scott Davis: Okay.
Scott Davis: Alright, I'm just looking at slide 16, so you've got 52 cents of below the line items.
Scott Davis: And you've got 33.
Scott Davis: <unk> profit contribution from M&A that is and I think your comment was most of that 50 <unk> is actually higher.
Scott Davis: Higher interest expenses.
Scott Davis: And did I hear that right.
Scott Davis: I'm sorry go ahead Mike.
Mike: I can break it down for you.
Speaker Change: If you look at 50%.
Mike: <unk> III is interest expense.
Mike: Expense, which is predominantly driven by the M&A interest expense, we had expense of incremental repositioning.
Mike: And then we have a couple of other items, one item, which is really weighing on us in the first quarter is the reduced pension income which relates to a curtailment of the pension plan in Europe that we communicated last year and then we have a couple about <unk> of corporate costs that were working on already so does the 52.
Mike: Okay. So then the M&A is a net neutral in 2025.
Mike: Correct, we talked about 1% to 2% for the businesses and 25 and that still holds and this guidance. Okay. Okay fair enough. Thank you guys. Good luck pass it on thank you.
Speaker Change: Thank you. Our next question comes from the line of Steve Tusa with Jpmorgan. Please proceed with your question.
Steve Tusa: Hi, good morning, and congrats echoing julians congrats to you all.
Speaker Change: Thank you I appreciate it.
Speaker Change: So I'm just doing the math on cash and in this year I think you have like $8 50, a share and free cash.
Speaker Change: As per your guidance I believe.
Speaker Change: And that's like 83% conversion can you just help me bridge to the 100% you just talked about for.
Speaker Change: Automation Aerospace and then I'm, just curious, which one of those is going to be the remain co.
Speaker Change: So I'll answer the remain co question I look at this point.
Speaker Change: The specific legal structuring we haven't really determined.
Speaker Change: There are both options exist legally so we'd have to do more work to be more precise.
Speaker Change: Between the two vehicles, it's been aerospace are.
Speaker Change: Automation, but they will be separate companies that that's a firm decision and Mike you want to answer the charts on cash Steve that we're guiding five 4% to $5 eight which is not going to be 100%, we're going to work ourselves to the 100% over next 24 months and the big Big unlock in our cash is really.
Speaker Change: Working capital and that's predominantly driven by us being able to reduce and move our width and finished goods inventory in aerospace is the biggest envelope forward cash and as far as getting to 100% over the next 24 months.
Speaker Change: Got it and then what happens to these like below the line items like pension income does that kind of stay with whatever the remain co is that any of those other like environmental liability costs et cetera, et cetera, like what what happens, particularly the pension income.
Speaker Change: So we were working our way through it it's really too early to comment through it but we obviously have advisers in working through for those particular, these and we'll communicate that as we go through the process and we're ready to push our business with you.
Speaker Change: Alright, great. Thanks for the color.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question comes from the line of Sheila.
Speaker Change: With Jefferies. Please proceed with your question.
Speaker Change: Good morning, everyone and congrats Greg.
Greg Stylus: Thanks, Mike.
Speaker Change: Whoever wants to take this but two questions on <unk> first I guess, if you could provide some end market color, particularly on the aftermarket.
Speaker Change: Mid teens aftermarket growth in 2020 for some of your peers have called out a deceleration to high single digits to low double digit from 25, how are you thinking about your OE versus aftermarket assumption for commercial Aero and 25.
Speaker Change: Sure So Sheila I would say.
Speaker Change: The our sort of stabilized and from an aftermarket standpoint.
Speaker Change: As expected similar profile as it was last.
Speaker Change: Last year, I believe it's going to be decelerating.
Speaker Change: Just because of the hours stabilizing our supply chain is catching up.
Speaker Change: As far as.
Speaker Change: <unk> aftermarket mix, we have if we look at our backlog and especially if you look at our positive backlog, we have a much higher positive backlog.
Speaker Change: In OE, so we expanding continue.
Speaker Change: So essentially ex expand on our OE and an installed base growth So I would.
Speaker Change: I would expect on a year basis, the OE to outgrow aftermarket.
Speaker Change: So I think not not very different than that.
Speaker Change: Our peers.
Speaker Change: And then maybe.
Speaker Change: Come back to the margin profile of Aerospace you mentioned better.
Speaker Change: A question for Stan or more of a fine once I get lots of questions around Bombardier and opinion that there with $385 million in Q4, So how do we think about that.
Speaker Change: The return on that investment and any other margin. This principle thinking about in terms of long term investments within aerospace.
Speaker Change: So look.
Speaker Change: The Bombardier agreement is a long term agreement it was showing through on revenue streams four to five years from now and again that these long term contracts. So we are super excited about this possibility wind portfolio avionics as well as for the engine and investments on ERO are going to continue.
Speaker Change: Ramping up our investments in R&D, because we see more opportunities.
Speaker Change: And we will remain active in the M&A market if opportunities are available. So you will not see any lack of momentum what we have demonstrated in 2044 in aerospace investments in the next.
18 months ahead.
Speaker Change: Alright, thank you.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question comes from the line of Nigel Coe with Wolfe Research. Please proceed with your question.
Nigel Coe: Thanks, Good morning, everyone.
Nigel Coe: Just wanted to take another crack at the margin question. So the 10 basis points at the mid points.
Nigel Coe: Spansion, so it looks like a 100 basis points of.
Nigel Coe: M&A dilution at Aerospace and then maybe I think 80 90 basis points expansion elsewhere in automation just want make sure that math is correct.
Nigel Coe: Maybe just provide some.
Nigel Coe: Just overall kind of quota.
Nigel Coe: The discussion on which which segments do you see above and delivered up opex.
Nigel Coe: So I would say this.
Nigel Coe: Your math is directionally correct and a lot of it will depend just how how our products short cycle products grow. This year right now we have a lot of projects mix, but and but we also have for that.
Nigel Coe: Acquisitions coming in and helping expanding expand margins in the second half. So we can we can follow up on that with you and give you more particulars on that but I would say.
Speaker Change: Marcus direction correct.
Speaker Change: Okay. Okay, and then I know you sorry, I know you addressed the question on R&D investment in aerospace, but I think than what you've been talking about.
Speaker Change: You know pricing.
Speaker Change: <unk> spending in R&D across the whole portfolio. So I'm just wondering are we seeing that coming through.
Speaker Change: And in 'twenty five.
Speaker Change: Maybe just talk about capital allocation during this process through second half 'twenty six.
Speaker Change: You talked about the share buybacks and 25, but what's the appetite to really scale up cap allocation why we.
Speaker Change: Through this process.
Speaker Change: So R&D investment we did mentioned in some of our conversations that we expect that to go up absolute dollars, but theyre actually maintain the percentages.
Speaker Change: But you will see that increase coming up as we publish the results of 45 minutes a material increase.
Speaker Change: It was a few million dollars that wouldn't have mentioned it and our goal is to prepare each business for growth in the future, while maintaining our margins and we are maintaining that.
Speaker Change: Therefore, our balance on capital allocation as Mike mentioned in his comments, we do expect to do $3 billion of share buyback.
Speaker Change: To maintain our share count down by 1% and will remain active in M&A market across all segments. We have active deals in motion in automation.
Aerospace and energy.
Speaker Change: And like any other amended Eli conquer material when they will happen and if they will happen, but we're going to do hard work to do our best to.
Speaker Change: Get some deal done so that our portfolio is well positioned for growth in the times ahead.
Speaker Change: And.
Speaker Change: The progress we have shown that the beads, we have done in 2024. All those these are working extremely well we are on or above our goals, there and that gives us more and more conviction that our strategy of portfolio transformation is working and we should continue on that while we execute on separation of aerospace and automation.
Speaker Change: Thank you.
Speaker Change: And I would just add that we still have a lot of capacity in.
Speaker Change: Our balance sheet on M&A, which will continue to be doing and.
Speaker Change: And insurance sold so we feel really good where we are at this point and obviously are not not stopping everything that we've been doing thus far.
Speaker Change: Thank you. Our next question comes from the line of Chris Snyder with Morgan Stanley. Please proceed with your question.
Chris Snyder: Thank you maybe been more just kind of stepping back on the separation clearly this is something that you've spent a lot of time thinking about over the last year.
Chris Snyder: Is the primary driver of the decision a view that a separation will unlock some of the parts value or do you believe the businesses will perform better as standalone entities, rather than within the Honeywell conglomerate.
Chris Snyder: Yes.
Chris Snyder: Chris.
Chris Snyder: I'm just going to go back a little bit to answer your question I started with.
Chris Snyder: October of 2023 to say Honeywell should be operator into three mega trends <unk> aviation automation and energy transition.
Chris Snyder: And we started doing the work to build strategy of each of the three pillars.
Chris Snyder: Part of it was organic growth, but big project was inorganic actions that you saw for acquisitions last year spinoff PPE business.
Chris Snyder: But it was so clear to me that as we did work that the strategies for aerospace and rest of Honeywell and automation where diverging.
Chris Snyder: Host based acquire far more attention on capacity expansion supply chain transformation.
Chris Snyder: Electrification and automation business wants to focus really on AI digital transformation energy security.
Chris Snyder: And that made us team and welcome to the board that we are better off to be a separate company. So that we can drive growth in each portfolio.
Chris Snyder: In a purposeful manner invest the capital have the focused strategy. So it's primarily driven by our conviction that there is a more growth momentum and more value to create as a separate company now some of the part of the math on number of debated is right or wrong I mean, we are.
Chris Snyder: Our aiming for higher value Bye bye bye earnings growth and.
Chris Snyder: And by delivering more compelling proposition.
Chris Snyder: Thank you and then maybe just kind of following up on that the better growth.
Chris Snyder: We saw a pretty nice positive rate of change on some of the short cycle end markets.
Chris Snyder: That have weighed on the company the last couple of years, specifically industrial automation and building automation.
Speaker Change: Turning nicely positive in Q4, I guess is there anything specific to kind of call out on that pickup in growth that you guys are seeing I don't know if theres any tariff pre buy in those numbers because the guide does call for both of those both building automation and industrial automation to have worse growth in 'twenty five than what we just saw.
Chris Snyder: In the Q4 exit rate. Thank you.
Chris Snyder: That's right. So we are quite encouraged by the fourth quarter, both on the auto side and on revenue or bottom delivered really.
Chris Snyder: Outstanding results now.
Chris Snyder: Going into the guide for this year.
Chris Snyder: Come in I really want to give the guide.
Chris Snyder: That is I would say in line with what we see and not really betting all now on the end markets in the industrial products, improving and I think thats prudent to build given with everything thats going on just like you said yourself, but we don't know exactly whether it's pre buy or is the trend et cetera. So so.
Chris Snyder: The one point of the of the guide and deceleration in the first quarter, specifically also in the first quarter.
Chris Snyder: Our dealing with fewer days versus the fourth quarter, which it has impact for us in our short cycle product sales and then theres a little bit of Lumpiness in in aerospace, especially in defense and space as we exit the fourth quarter and go into the first quarter. So I think the guidance is prudent and we obviously are encouraged by what we're seeing but I.
Chris Snyder: <unk> for the first quarter, we need to be careful.
Speaker Change: Appreciate that thank you.
Speaker Change: Thank you. Our next question comes from the line of Joe Ritchie with Goldman Sachs. Please proceed with your question.
Joe Ritchie: Hey, guys. Good morning, Greg Thanks for all the help try not to nitpick too much.
Speaker Change: Sure.
Speaker Change: Yeah.
Speaker Change: The first question and look I know you guys have had a lot going on.
Speaker Change: But when you when you thought about breaking up the company.
Speaker Change: These three entities how much thought did you give could potentially maybe even breaking things down further because you can make an argument that the automation business could be separate businesses as well I'm just curious like the thought process behind that.
Speaker Change: Yes.
Joe Ritchie: Thanks, Joe.
Speaker Change: We look at.
Speaker Change: No I've been looking for.
Speaker Change: Lucas on what doesn't fit into Honeywell portfolio.
Speaker Change: And the portfolio work, which we have done now.
Speaker Change: Splitting into three companies aerospace automation and specialty chemicals.
Speaker Change: On automation, we believe there are multiple common thread so I'm going to give you a one minute answer and then we meet next time I'll give you a 15 minute answer the one minute answer is business model on automation, followed the business model upgrading installed base and mining that installed base from services and software number to the strategic priorities are very similar.
Speaker Change: Yes, we need to focus upon digitalization.
Speaker Change: The branch of AI and Thats means common thread between the businesses and technology offerings are highly shared between these businesses.
Speaker Change: Sure.
Speaker Change: The amount of.
Speaker Change: Common products could be half as an example, our core product and building automation call. It at EI platform and process automation colleagues experienced platform. This year. The court of tens of millions of lines, we don't publicly share that earlier, but thats the back because of heightened the dependency of technology and more recently Iot platform.
Speaker Change: <unk> is a common across all businesses.
Speaker Change: So where we sit today these common elements bind us together and I am not going to that territory of people in on that because that could be big debatable.
Speaker Change: But I have been all businesses. Another point, just because it's natural given that the minority of those businesses, we do share a lot of that into cross dock.
Speaker Change: The conviction that the meaningful Honeywell has a strong binding force is extremely strong and we're going to demonstrate that value creation. As we go ahead because of this conviction here.
Speaker Change: Got it that's helpful. Yes look forward to the longer version as well but.
Speaker Change: My quick question on the fundamentals.
Speaker Change: I know that you guys had a tough comp.
Speaker Change: <unk> <unk> from a from a margin standpoint, this past quarter, but I'm trying to just maybe.
Speaker Change: Maybe get a little bit more understanding on.
Speaker Change: What drove the margins down this quarter and fully recognize that there is the refrigerant transitions and so I'm guessing that had something to do with that but just any color on what happened this quarter on USS margins.
Speaker Change: You mean sequentially year over year or or.
Speaker Change: This year year over year was down and it.
Speaker Change: Little bit below that.
Speaker Change: The performance was a little bit below what we were expecting for the quarter. So I'm just trying to understand like what the Delta was.
Speaker Change: Yes. So the first one is really the cabo itself in.
Speaker Change: In our <unk> business that's that's.
Speaker Change: That's a big driver and that will.
Speaker Change: That will actually reverse itself in the second half just this project as you know tend to be lumpy.
Speaker Change: And when they happen, they're quite I would say material. So so that's the biggest driver.
Speaker Change: And then other than that like we talked about there's a little bit of deceleration going on.
Speaker Change: And we just still don't have the confidence in our industrial products recovery business, which is short cycle and that will continue to monitor it and when it happens it's going to be more will be just massively accretive I would say to the performance and then from the below the line standpoint, there are a couple of things happening Pax rate, even though for the year.
Speaker Change: 20% in the first quarter is.
Speaker Change: As a pressure vessel, Bob <unk>, and then like I talked about we have a little bit of pressure from pension.
Speaker Change: And curtailment Thats about <unk> and those are the big drivers for.
Speaker Change: For the reason why you see the EPS the way the way you during the first quarter, Yes, Joe as Mike is spot on in that and remember we've talked about this over the years with even when it was PMT not to really get too excited in any one quarter about the margins just given the.
Speaker Change: Magnitude that.
Speaker Change: Catalyst shipments.
Speaker Change: Half in a given quarter and so I would say now ESF smaller than PMT right that was that was true for $10 billion PMT now for $6 billion DSS.
Speaker Change: Oss that amplitude is even larger so.
Speaker Change: Mike's point I wouldn't get.
Speaker Change: Two anchored on any one quarter.
Speaker Change: Okay. Thanks, guys.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question comes from the line of Andy Kaplowitz with Citigroup. Please proceed with your question.
Andy Kaplowitz: Good morning, everyone great. Thanks for all your help.
Andy Kaplowitz: So just focusing on <unk>.
Focusing on price versus cost you mentioned prices normalizing in 'twenty five and it seems like you mentioned cost inflation a lot really at all of your segments when describing the margin impact in Q4, maybe except for building automation. So could you give us a little more color on what exactly happened is I don't I don't think material costs spiked in Q4, how are you thinking about price versus cost in <unk>.
Andy Kaplowitz: Five, especially considering tariffs may impact the business.
Andy Kaplowitz: Sure. So I would say from a we had a good year on price last year, let's just start with that and what I see for this year and what are we guiding on on the enterprise level will be above 2% on price.
Andy Kaplowitz: Now the price strategy for us will differ depending on what's going on in each of the business each of the businesses.
Andy Kaplowitz: What I see this year and what we've been working for the last 12 months is really on having more optionality and more levers on our cost side and Thats will be in bulking. In addition, the price. So I think price cost will be positive overall, but unlike maybe.
Andy Kaplowitz: The last few years. This year, we just have much more opportunity to work on all material productivity direct material productivity and the cost side as well so we'll be balanced on price, but it will be above 2% for the year. So I need a bullet here is for us to do margin expansion during the balance between price cost and productivity.
Andy Kaplowitz: And unlike in Ben.
Andy Kaplowitz: There was a high inflation in 'twenty, one 'twenty two we had a single liver price now we have an equally big lever on productivity, we have done extremely well on productivity in 2024, and therefore to Mike's point, we are very conscious on how to dial the two levers because we want to get price at the same time, we want to get volume and it will vary by business.
Andy Kaplowitz: Because some business we have more opportunity, we could not able since via et cetera. So overall.
Andy Kaplowitz: My summary will be 25 looks more like 24, very similar pricing, maybe productivity slightly higher and that's the basis of our guide at this point.
Speaker Change: That's helpful guys and then maybe just a little more color, how you're thinking about revenue growth by geography in 2005, I know you mentioned some headwinds in Europe, and China. So China is still be a growth market for you in 'twenty five and you've talked in the past about enduring growth tailwind in regions, such as Middle East India.
Andy Kaplowitz: What are you seeing overall.
Speaker Change: But overall I would say the dynamics.
Andy Kaplowitz: Have been very steep.
Speaker Change: Stable over the last 18 months.
Andy Kaplowitz: Sure.
Andy Kaplowitz: If I look at aerospace business, it's growing globally.
Andy Kaplowitz: Given how much of the past.
Andy Kaplowitz: <unk> students, we have and the drivers of flight hours.
Andy Kaplowitz: Obviously with the energy business because the growth is less driven by region and more driven by the timing of the demand of catalyst.
Andy Kaplowitz: Our new projects I think an automation business.
Andy Kaplowitz: The growth in U S growth in India growth in Middle East those are the regions. The Chuck Taylor brings and we continue to see.
More pressure both in Europe, as and that's China. That's one of the reason in industrial automation business, we've guided low single digit downward.
Andy Kaplowitz: Progression because that business is most exposure to China and Europe in Honeywell portfolio. So so I would say our current guide assuming more of the team we are not counting on any European recovery, we are not counting on any China recovery in context of.
Andy Kaplowitz: Automation businesses.
Andy Kaplowitz: So that's how I would summarize.
Andy Kaplowitz: All the color.
Speaker Change: Thank you. Our next question comes from the line of Deane Dray with RBC capital markets. Please proceed with your question.
Speaker Change: Thank you good morning, everyone and add my congratulations.
Speaker Change: I appreciate it wanted to thanks, Steve I wanted to.
Speaker Change: Just to revisit the credit ratings and leverage targets for automation narrow youre, saying look for strong investment grade ratings just kind of.
Speaker Change: Tack on a leverage range you would expect and then just clarify on the below investment grade four.
Speaker Change: Vance materials, thats, not surprising, but just kind of frame for us what you are expecting there.
Speaker Change: Sure. So let me first answer investment.
Speaker Change: Be very high below.
Speaker Change: The investment grade level.
Speaker Change: So thats kind of where we're going going towards and honestly I cannot comment more right now as far as the remaining two entities, we're going forward, but given where the business is today they will be investing.
Speaker Change: Investment grade and we will have competitive and compelling.
Speaker Change: The equity story silica occam EBITDA so at this stage.
Speaker Change: Yes, Thank you and just.
Speaker Change: No tariffs Scott mentioned earlier, but is there anything specific that you have baked in or specifically not baking in for the 25 guide.
Speaker Change: Yes. So there are no tariff impact in the guide now looking at tariffs.
Speaker Change: If we look at the China, and Canada, they're not normal material for us.
Speaker Change: Given just local for local and how we are.
Speaker Change: Our business, our position and we're working through for Mexico and try to understand.
Speaker Change: What determines mean and like everybody else just just thinking through it.
Speaker Change: Its something Thats definitely manageable.
Thank you.
Speaker Change: Thank you.
Speaker Change: Thank you, ladies and gentlemen that concludes our time allowed for questions I'll turn the floor back to Mr. Kapoor for any final comments.
Kapoor: I want to thank our shareholders for your ongoing support and our Honeywell colleagues, who continue to enable us to outperform in any environment and many customers that work with us to help shape a better word our future is bright and we look forward to updating you on our progress as we execute to our commitment. Thank you for listening and please stay safe and healthy.
Kapoor: Thank you. This concludes today's conference call you may disconnect. Your lines at this time. Thank you for your participation.