Q1 2024 Summary
Published Jan 10, 2025, 5:10 PM UTC- Honeywell's Aerospace segment expects commercial Original Equipment (OE) to grow double digits, maintaining strong growth trends, with demand from Boeing remaining unchanged. The company is confident in finishing the year strong, anticipating high single-digit growth in Defense & Space revenues, with strong order bookings driven by U.S. and international demand, indicating extremely favorable trends.
- High-growth regions like India, Middle East, and China are showing continued strength, acting as a tailwind for revenues. China grew high single digits, driven by strength in the aero and energy businesses. These regions remain a positive factor in overall revenue mix for Honeywell.
- Process Solutions business has strong booking trends and double-digit aftermarket growth for several consecutive quarters, with expectations to continue performing well. The business is also diversifying into new verticals like battery storage and gigafactories, which are becoming attractive growth opportunities, supporting robust future prospects.
- Warehouse automation business is facing weak order conversions, with the pipeline remaining strong but order conversion being weak, specifically in the project side. The business is currently in a trough, awaiting recovery.
- Aerospace margins are expected to remain flat for the year, with product mix and shifts between original equipment (OE) and aftermarket sales impacting profitability. Despite strong growth in commercial OE, margins may dampen due to OE mix.
- Energy and Sustainability Solutions (ESS) experienced margin contraction due to onetime factory restart costs, which are expected to continue affecting margins until stabilization is achieved later in the year.
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Portfolio Actions
Q: Do you anticipate further portfolio actions?
A: Vimal Kapur plans to take action on about 10% of the portfolio that doesn't align with Honeywell's three megatrends. These actions will be incremental, involving several small divestitures rather than one large one. Honeywell will continue to be its own activist and consider changes where necessary to optimize the portfolio. -
Margin Outlook
Q: How will margins evolve, especially in IA and BA?
A: Margin expansion in both Building Automation (BA) and Industrial Automation (IA) depends significantly on the recovery of short-cycle businesses, volume leverage, and productivity improvements. While Aerospace margins were strong in Q1, they are expected to be flattish for the year due to product mix and higher OE volumes. Honeywell anticipates stronger margins in the second half as product volumes increase. -
Aerospace Outlook
Q: How is Aerospace performing amid production changes?
A: Despite supply chain challenges, Aerospace is expected to continue strong growth in both OE and aftermarket, with commercial OE growth potentially accelerating. Issues with Boeing's 737 MAX and 787 production are not expected to significantly impact Honeywell due to their presence across multiple platforms. Aerospace margins are expected to be flattish year-over-year, with Q1 being the high point. -
Industrial Automation Revenue
Q: What drives the H2 revenue increase in IA?
A: The second-half pickup in IA revenue is attributed to recovery in short-cycle businesses, strong performance in Process Solutions (HPS), and growth in sensing and other product lines. Honeywell expects stronger H2 versus H1, with IA contributing significantly to the revenue ramp supported by order spacing and backlog. -
Defense and Space Outlook
Q: What's driving growth in Defense and Space?
A: Growth is driven by supply chain improvements and increasing demand from both U.S. and international markets. Honeywell expects high single-digit revenue growth in Defense and Space, with stronger orders and a positive outlook for the second half and beyond. The business is benefiting from not only domestic but also strong international demand. -
Quantinuum Monetization
Q: What's the timeline for monetizing Quantinuum?
A: Honeywell anticipates a potential monetization event for Quantinuum around 2025, contingent on achieving key milestones. Recent progress includes a pre-money valuation exceeding $5 billion and technological advancements in quantum computing accuracy, such as successful experiments with Microsoft demonstrating reliable results. -
ESS and UOP Outlook
Q: What's the outlook for ESS/UOP and green projects?
A: Honeywell remains very bullish on UOP, with strong traditional energy projects and a robust pipeline of renewable technologies. They expect strong orders and revenue growth in 2024 and beyond, with new technologies like producing sustainable aviation fuel (SAF) from biomass contributing to future prospects. The outlook for UOP is extremely positive, driven by both traditional and new energy segments. -
M&A Pipeline
Q: How is the M&A pipeline developing?
A: The M&A pipeline is very strong, with Honeywell remaining disciplined on strategic fit and valuation. They expect to continue taking actions to add new businesses to the portfolio and express a positive outlook on future acquisitions, indicating ongoing efforts to deploy capital effectively. -
Regional Performance
Q: How are different regions performing?
A: High-growth regions like India and the Middle East continue to show strength. China grew at high single digits, driven by Aerospace and energy businesses. Europe has stabilized, with positive trends, especially in short-cycle businesses, indicating that the worst is likely behind them. -
Process Business Outlook
Q: What's the outlook for Process Solutions?
A: The Process Solutions business is performing well, with strong bookings and double-digit aftermarket growth for several consecutive quarters. The business is diversifying into new verticals like battery storage and gigafactories, and expects to replicate 2023's high growth pattern, with a strong outlook ahead. -
Warehouse Automation
Q: What's the outlook for warehouse automation?
A: The warehouse automation business is currently in a trough, with weak order conversions in projects despite a strong pipeline. Aftermarket growth remains positive, indicating continued usage of deployed systems. Honeywell remains optimistic about the business prospects and anticipates a recovery in the future. -
ESS Margins
Q: Can you quantify ESS margin contraction due to restart costs?
A: The margin contraction in ESS is due to the restart of a major facility, which involves certain costs and operational challenges. The business, worth approximately $400 million annually, is expected to stabilize by the end of the year, leading to a strong exit rate into 2025. Honeywell anticipates improved margins as operations become more stable.