Honeywell International Inc at Jefferies Industrials Conference Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Sheila Kahyaoglu - Jefferies LLC - Analyst : Jim, maybe if you could just start. Aerospace has been a leader within broader Honeywell, really driving revenue growth as well as earnings growth with all three end markets up double digits in Q2 and margins above 27%. How do you balance the second half just in terms of order trends and expectations for factory output?

Question: Sheila Kahyaoglu - Jefferies LLC - Analyst : That's great. And we'll get into some of the comments you just made. But let's start off with Commercial OE. You said Commercial OE is still continuing to be strong, but it's hard not to touch upon the supply chain. Although yesterday, at the conference, it was less of a topic than I expected it to be. Your output increased 14% in the second quarter. Where does output need to be to migrate to demand? And what part of the Aerospace portfolio has been most impacted?

Question: Sheila Kahyaoglu - Jefferies LLC - Analyst : And maybe on that mechanical versus electronics, just a follow-up there. What's the split of parts versus labor? And where do you see the most labor constraints? Is it regionally or...

Question: Sheila Kahyaoglu - Jefferies LLC - Analyst : Great. Some of those guys are here, so maybe we could follow up with them. And then just maybe keeping with the OE, what are you seeing in the market today? I mean, it's a question we get very often, given volatility in Boeing's production rates. What are you operating at perhaps across your different platforms? And how do you think about that output progressing throughout the year? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 05, 2024 / 12:05PM, HON.OQ - Honeywell International Inc at Jefferies Industrials Conference

Question: Sheila Kahyaoglu - Jefferies LLC - Analyst : Any numbers you could give us on where you are on the MAX and the 87 perhaps?

Question: Sheila Kahyaoglu - Jefferies LLC - Analyst : Production per month.

Question: Sheila Kahyaoglu - Jefferies LLC - Analyst : Any thoughts on where you're capacitized for in terms of labor?

Question: Sheila Kahyaoglu - Jefferies LLC - Analyst : Got it. And let's talk about bizjet. I think most people forget that Honeywell has a spectacular business jet business both on the avionics and engine side.

Question: Sheila Kahyaoglu - Jefferies LLC - Analyst : Maybe if you could remind folks how much it represents? And how does -- how are you thinking about growth rates in that business and potential share of this?

Question: Sheila Kahyaoglu - Jefferies LLC - Analyst : Can you remind folks what you do on the 700 and the 800 and in the 400?

Question: Sheila Kahyaoglu - Jefferies LLC - Analyst : Yeah.

Question: Sheila Kahyaoglu - Jefferies LLC - Analyst : Great. And then maybe on the ATR side, can you touch upon your ATR exposure -- air transport?

Question: Sheila Kahyaoglu - Jefferies LLC - Analyst : Sorry, I meant regionals. I apologize, I know the verbiage is always different.

Question: Sheila Kahyaoglu - Jefferies LLC - Analyst : No, no, it's okay. Transitioning to the Aftermarket. You made some comments earlier about Aftermarket continuing to grow. We've been very bullish on the Aftermarket. So maybe if you could give us your thoughts on the 17% growth you saw in Q2? Where you see some runway versus where you're maybe seeing some potential slowness?

Question: Sheila Kahyaoglu - Jefferies LLC - Analyst : Sticking to the Commercial Aftermarket, what percentage of your sales is locked in through service agreements? And maybe if you could talk about what those service agreements entail? And what percentage is book and ship?

Question: Sheila Kahyaoglu - Jefferies LLC - Analyst : And is there -- can you give us any further exposure, whether it's different types of aircraft? Are you more of those on the narrow-bodies, wide-bodies, anything you could parse out? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 05, 2024 / 12:05PM, HON.OQ - Honeywell International Inc at Jefferies Industrials Conference

Question: Sheila Kahyaoglu - Jefferies LLC - Analyst : Maybe as you think about -- remind folks what your 2024 guidance is for Commercial Aftermarket? And then how do you plan for 2025 growth? How does your team internally come up with that figure?

Question: Sheila Kahyaoglu - Jefferies LLC - Analyst : And in terms of that, just if you could maybe give us any thoughts on utilization of aircraft. We have the luxury of covering airlines in the US and we've seen capacity come in even month-over-month. We're seeing about 1 point of come out of the US market. Do you see that impacting your Aftermarket revenue streams at all? And any thoughts on domestic versus international trends?

Question: Sheila Kahyaoglu - Jefferies LLC - Analyst : And then maybe one more on the Aftermarket. So as we think about 2025 because I'm a big bull in the Aftermarket, what would you say is the best way for financial analysts to kind of think about the growth rates there?

Question: Sheila Kahyaoglu - Jefferies LLC - Analyst : And maybe if you could talk about price. How does price play into your Aftermarket growth? How do you do price increases? How do we think about pricing since 2020?

Question: Sheila Kahyaoglu - Jefferies LLC - Analyst : A few more price questions. How do you think about price since 2020? How much has price been -- on a gross basis been helpful?

Question: Sheila Kahyaoglu - Jefferies LLC - Analyst : And is it -- given the algorithm, how does it work? Is it on the catalog that updates frequently? Or do we see old school price increases at the start of the year, every six months? How does that happen? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 05, 2024 / 12:05PM, HON.OQ - Honeywell International Inc at Jefferies Industrials Conference

Question: Sheila Kahyaoglu - Jefferies LLC - Analyst : And maybe if you could talk about has the algorithm changed in any way as you think about raw material prices fluctuating a lot more since the pandemic? Are there things that you should watch? And are there different elements that -- this was a theme that came up yesterday as well on how different raw materials have really fluctuated in aerospace and the market has to be more dynamic.

Question: Sheila Kahyaoglu - Jefferies LLC - Analyst : Anything to watch, any raw materials in particular?

Question: Sheila Kahyaoglu - Jefferies LLC - Analyst : That's super helpful. Let's talk about Defense & Space a little bit. You talked about the inflection. Remind folks of the growth, because I don't know it off the top of my head, that you've seen this year and how you expect to trend going forward.

Question: Sheila Kahyaoglu - Jefferies LLC - Analyst : I'll get into the investment that you guys have made in Defense. But first, I want to go back to the double-digit growth and sustaining mid-single-digits. What do you think has driven that double-digit growth? Maybe if you could parse your Defense exposure with domestic versus international. What's been helpful from international versus outlays kind of the floodgates opening up there?

Question: Sheila Kahyaoglu - Jefferies LLC - Analyst : Got it. So it's been more content based than -- internationally based rather than supply chain -- a little bit of supply chain alleviating, I guess, and...

Question: Sheila Kahyaoglu - Jefferies LLC - Analyst : What has that defense investment been? Does that mean you send Honeywell folks up to smaller suppliers? Does that mean you buy them? Does that mean you build the production lines in yourself?

Question: Sheila Kahyaoglu - Jefferies LLC - Analyst : You know what question I'm going to ask next because you baited me here. What does CapEx as a percentage of sales look like for -- maybe Mike should be answering this, but he's off the hook today because he has another job. How do we think about CapEx as a percentage of sales for Aerospace and working capital on a normalized basis and conversion for the sector versus these investments? How does that change that potentially?

Question: Sheila Kahyaoglu - Jefferies LLC - Analyst : In terms of just -- let's talk about the capital deployment Aerospace has done. You guys have been actually quite active in the capital allocation space in terms of deals. You just closed a deal, I think, yesterday, Civitanavi, right? Was it yesterday?

Question: Sheila Kahyaoglu - Jefferies LLC - Analyst : Okay. Sorry. I can't keep up. So maybe give us an update on CAES because it was quite a big acquisition, $1.9 billion. What made you attracted to the asset? How does it fit into the portfolio? And then if you could expand on...

Question: Sheila Kahyaoglu - Jefferies LLC - Analyst : That makes sense. Maybe if you could talk about all the investments you're making, whether it's products like Anthem and when's the launch of that? And how you think about UAM longer term?

Question: Sheila Kahyaoglu - Jefferies LLC - Analyst : That unannounced gets me excited on bizjets because it's great to see that there's continued investment happening in that end market. And that 5% to 8%, just to clarify, that's all company funded?

Question: Sheila Kahyaoglu - Jefferies LLC - Analyst : Oh, wow. So that brings me to one of my last questions in terms of profitability, wrapping it all together, margins have been running ahead of plan and continue to do so. How do you think about profitability as we head into the second half, given CAES mix? And how do we get to that 29% operating margin goal?

Question: Sheila Kahyaoglu - Jefferies LLC - Analyst : Great. Well, thank you so much, Jim, for doing this. And thank you, Honeywell, for participating. Appreciate it.