Honeywell International Inc.

Operator: Thank you for standing by, and welcome to the Honeywell First Quarter 2026 Earnings Conference Call. [Operator Instructions]. Please be advised that today's call is being recorded. I would now like to hand the call over to Mark Macaluso Senior Vice President of Investor Relations. Please go ahead, sir. Mark Macaluso: Thank you. Good morning, and welcome to Honeywell's First Quarter 2026 Earnings and Outlook Conference Call. On the call with me today are Honeywell Chairman and Chief Executive Officer, Vimal Kapur; Honeywell Aerospace Technologies President and Chief Executive Officer, Jim Currier, and Senior Vice President and Chief Financial Officer, Mike Stepniak. This webcast and the presentation materials, including non-GAAP reconciliations, are available on our Investor Relations website. From time to time, we post new information on this website that may be of interest or material to our investors. Our discussion today includes forward-looking statements that are based on our best view of the world, and of our businesses as we see them today and are subject to certain risks and uncertainties, including those described in our recent SEC filings. This morning, we will review our financial results for the first quarter of 2026, provide guidance for the second quarter and discuss our full year outlook. As always, we'll leave time for your questions at the end with Vimal, Mike and Jim. With that, it's my pleasure to turn the call over to Vimal, who will begin on Slide 3. Vimal Kapur: Thank you, Mark, and good morning, everyone. Honeywell delivered strong results in the first quarter, building on the momentum from 2025, despite a complex geopolitical backdrop and temporary mechanical supply chain constraints in Aerospace. Orders grew 7% organically on the strength of our Building and Industrial Automation segment as well as in petrochemical and refining verticals in Process segment. Including the orders growth in Aerospace, we drove backlog to over $38 billion with book-to-bill above 1.1. Sales growth was robust across Electronic Solutions and Aerospace, [indiscernible] aftermarket services in Building Automation and gas and LNG in Process Automation and Technology bolstered by our innovation and new product engine. We expanded margin 90 basis points to over 23%, driven by pricing discipline, productivity and accelerated stranded cost removal ahead of the Aerospace spin. All of this drove 11% adjusted earnings growth in the quarter, demonstrating the strength and agility of the Honeywell operating system. We also made tremendous progress on the portfolio transformation that began in 2023. We announced the sale of our Productivity Solutions and Services and Warehouse and Workflow Solutions businesses, respectively, which we expect to close in the second half of 2026. We are also excited to announce that now we expect to complete the Honeywell Aerospace spinoff in the third quarter on June 29, marking the final step in our transformation. All of the acquisitions, divestitures, spin-off and simplification effort over the past 3 years have positioned both Aerospace and Automation for right future as independent leading industrial companies. Despite the strong start to the year, we are taking a prudent approach to our guidance given the uncertainties surrounding the conflict in Middle East. We remain confident in our ability to drive accelerating growth in the second half as our backlog supports a pickup in growth in Process Automation and Technology. We will continue to closely monitor the situation and provide any further updates if the situation changes materially. Before we get into the details, I want to thank all our employees for their focus, commitment and dedication throughout our multiyear transformation. The future is bright as we set both businesses and gear to thrive with the right strategic focus, and capital allocation priorities that will drive value for our customers, employees and shareholders. Let me turn to Slide 3 to discuss the progress on our portfolio transformation. As I mentioned, we are progressing on the final separation milestone with the Aerospace spinoff now expected to complete on June 29, just over 2-months away. The leadership team for both Honeywell and Honeywell Aerospace are in place and already executing for our customers today. In March, we successfully raised $20 billion of Aerospace spin financing while delivering strong investment-grade credit rating of A3, A- and BBB+ with a positive outlook from Moody's, Fitch and S&P, respectively. Proceeds from the financing will be used primarily to redeem Honeywell debt, the majority of which has been completed as of quarter end and to fund a cash to the Aero balance sheet. Aerospace also announced a groundbreaking supplier framework agreement with the U.S. Department of War to rapidly increase the production of critical dense technology through a $500 million commitment. Honeywell was among the first tier 1 supplier to sign an agreement of its kind, and we are honored to support the U.S. and allied forces with these increased production capabilities. This agreement demonstrates the criticality of Honeywell Aerospace to national security interest and supports a multibillion-dollar revenue opportunity. Turning to Automation. We amended an agreement to acquire Johnson Matthey'’s Catalyst Technologies business, which [ adjusts ] the total consideration and extends the date to close the deal to the end of July. We continue to believe the combination of the business with our capability in Process Technology will unlock future growth by broadening our portfolio, growing our installed base and creating a more integrated offering for our customers. As I mentioned, we announced -- we signed an agreement to sell Productivity Solutions and Services to Brady Corporation and Warehouse and Workflow business to American Industrial Partners, in two, all cash transactions. These businesses are well positioned to grow profitably under highly capable new leadership with deep industry experience. And for Honeywell, the sale allow us to further simplify our portfolio alongside the planned separation from Aerospace. Following these sales and spin, we will have a more cohesive portfolio focused on three principal end markets. [indiscernible] to share much more about our business with the investment community at our upcoming Investor Day for both Honeywell Aerospace and Automation business in June, both companies have exciting future ahead. Before we get into the details, I want to discuss our outlook for Process Automation and Technology in light of the current Middle East conflict, let's turn to Slide 4. In quarter 1, the Middle East conflict drove a roughly 0.5% impact to revenue for all of Honeywell, most notably in Process Automation and Technology given the energy exposure and presence in the region. Clearly the situation in the Middle East is evolving rapidly, and we hope for fast resolution to the conflict. However, our guidance assumes the conflict persists through the end of the quarter and the resulting logistics and shipment delays cost a roughly 1% impact to revenue. We continue to effectively manage through this with the safety and well-being of our employee being the top priority. Despite the conflict, demand continues to be strong for differentiated Process Technology on a global scale. We have secured over $2 billion in project wins over the past 3 quarters, including for LNG, refining and petrochemicals and sustainable aviation fuel across U.S., Brazil, Africa and Middle East. These wins include both rebuilding of the impacted facility with the key customers, including Qatar Energy LNG and new expansion projects helping further reinforce the growth outlook for PA&T, securing a long tail of high margin services and software opportunities. Notably, in November last year, Dangote Petroleum Refinery and Petrochemicals selected Honeywell to supply advanced technology services, proprietary catalyst and equipment to help double production capacity at Africa's largest refinery in Nigeria. In addition, Dangote will license Honeywell's Oleflex Technology, which converts propane to propylene and Honeywell's Petrochemical Technology to produce linear alkylbenzene or LAB, a key ingredient in detergents for household needs. With this agreement, the customer will nearly double its production of polypropylene which supports the manufacturing of packaging materials, consumer goods and industrial products and once at full production will operate once of the world's largest LAB plants. As a follow-up of this award earlier in April, we announced that Dangote also selected Honeywell to provide Connected Services, Advanced Digital Performance Monitoring and Operator Training at the same refinery. This will help customers like Dangote improve operational performance, increase asset reliability and enhance their workforce ultimately unlocking greater value for their facility. On LNG, we recently signed agreement to provide integrated liquified natural gas pretreatment and liquification solution for Commonwealth LNG planned export facility in Louisiana and next decade's Rio Grande LNG project in Texas through an agreement with Bechtel. We expect strength in our LNG vertical to continue given the additional projects we expect to be awarded in quarter 2. Longer term, we expect the favorable crack spreads in petrochemical and refining will generate incremental catalysts and services demand to maximize performance of our customers' plant in addition to needed repairs and modification related to rebuild. Once the conflict stabilizes, we expect the industry will benefit from pent-up demand and more stable feedstock supply, enabling better plant utilization rates. Despite the near-term disruption Process Technology orders increased double digit, driving a 22% increase in PA&T backlog. We remain on track on expected second half ramp as LNG and large modular equipment deals convert to sales in the back half of the year, which will be followed by new catalyst demand in 2027. So while we acknowledge the challenges the business faced over the last few quarters, we are encouraged by the resiliency of orders growth and backlog, which will generate a strong runway as we progress through 2026 and into 2027. I look forward to sharing more with you during the June Investor Day. Let me now turn to Slide 5 to talk more about Aerospace growth trajectory in 2026. We continue to see strong Aerospace demand across commercial OE, commercial aftermarket and defense space, which is driving sustained orders growth of 28% over the last 12-months, which drove roughly $19 billion Aerospace backlog, a 20% increase from the prior year and 1.1 book-to-bill in the first quarter. Against this backdrop, our mechanical supply chain over-delivered in the fourth quarter of 2025 enabling double-digit organic sales growth. However, certain critical suppliers experienced temporary constraints to start the year, which led to slowdown in January and February and lower output and sales growth. Output improved considerably in March, our highest revenue month for the quarter, making us confident that our supply chain efforts will produce better results moving forward. Given the significant amount of demand we see in Aerospace portfolio, Honeywell has invested more than $1 billion over the past 3-years into expanding the capacity and resiliency of our supply chain. Our 2026 guidance incorporates the continuation of this elevated level of spending focused on [ on-boarding ] new suppliers, developing internal capabilities and assisting our supply partner with engineering and operation. The strategy drove double-digit output growth for 14 straight quarters prior to quarter 1, and we are confident on getting back to the trajectory in the near term. Given the progress exiting Q1, our history of recovering from supply chain constraints and continued positive demand trends, we are maintaining our Aerospace guidance of high single-digit organic sales growth for the year. As you can see on this page, the outlook is consistent with historical linearity in the business, as we typically experience a sequential ramp throughout the year. To further support this ramp, Electronic Solution deliveries are meeting accelerating defense requirements, and we are investing in a new capacity necessary to ensure we can continue to do so. In the first quarter, Electronic Solutions sales grew double digit. With that, I will now turn the call to Mike to go through Honeywell's first quarter results and 2026 outlook in more detail on Slide 6. Mike Stepniak: Thank you, Vimal, and good morning. In the first quarter, we successfully navigated the difficult geopolitical and macroeconomic environment while exceeding expectations for both segment margin and adjusted EPS. Sales grew 2% organically, led by growth in Building Automation and Aerospace Technologies, and pricing and execution remains strong across the portfolio, fueled by new product introductions. On a segment basis, Building Automation surpassed our expectation once again in the first quarter with sales up 8% organically across both solutions and products. Sales growth was led by strong demand for new products and momentum across the high-growth data center and healthcare verticals. On a regional basis, sales in the Middle East and India were both up double digits. Building Automation also delivered strong orders growth, up 9% with double-digit growth in projects, services and fire products. Aerospace sales grew 3% organically, with commercial demand and increasing global defense needs, supporting growth in commercial OE, commercial aftermarket and defense and space. Underlying demand remains robust. But as we discussed on the previous slide, 1Q results were adversely impacted by temporary supply chain headwinds in mechanical products. On profitability, Aerospace segment margin expanded 20 basis points from the prior year to 26.5% aided by pricing, productivity and favorable mix. In Industrial Automation, sales were up 1% organically in the quarter. Solutions grew 7% led by robust Services demand in measurement and strong performance in Warehouse and Workload Solutions. Products declined slightly primarily in Productivity Solutions and Services, but was partially offset by continued strength in Sensing. Notably, Industrial Automation orders were up 10%, highlighted by strength in China and recovery in Europe. Finally, Process Automation and Technology sales were down 6% organically in the first quarter. This was driven principally by timing delays in refining catalyst reloads and automation service upgrades, including impacts related to the conflict in the Middle East. Project sales were flat as elevated demand in LNG was offset by delays in process automation. However, the orders momentum continued in Process Automation and Technology with double-digit growth in Process Technology in the first quarter, following very strong order growth in the fourth quarter of 2025. In total, Honeywell orders grew 7% organically with broad-based demand, resulting in book-to-bill above 1.1 and 15% increased backlog. On profitability, segment profit increased 6%, while segment margin expanded 90 basis points to 23.3% with margin expansion in all 4 segments. This was principally led by Industrial Automation, which expanded 260 basis points and Process Automation Technology, which expanded 200 basis points from pricing and productivity actions, a strong result in Process Automation and Technology despite the top line volatility. Adjusted earnings per share of $2.45 was up 11%, driven primarily by higher segment profit and lower share count. Foreign currency provided a modest benefit and below-the-line items were favorable primarily due to higher pension income. You'll find additional information on the first quarter adjusted EPS bridge in the appendix of our presentation. Running out the results, we ended the quarter with nearly $100 million of free cash flow, down from $200 million last year. The benefit of higher operational income was offset by timing of collections in the Middle East and inventory headwinds in Aerospace, given the mechanical supply chain dynamics. Collections have improved meaningfully in April, and we remain confident in our full year outlook. On capital deployment, we returned $1.8 billion to shareholders through roughly $1 billion of share repurchases and $800 million of dividends while funding over $220 million in CapEx to drive future growth. Let's now turn to Slide 7 to discuss our second quarter guidance. We anticipate second quarter organic sales growth of 2% to 4%. Aerospace should improve sequentially from first quarter, driven by ramping OE production rates and higher defense spend, supported by incremental improvements in the supply chain, while Process Automation Technology will be slightly weaker than first quarter due to incremental pressure stemming from the Middle East conflict. Both Building Automation and Industrial expect to be roughly in line with their full year outlook for these businesses. We expect segment margin to be in the range of 22.2% to 22.5%, down 10 to up 20 basis points, led by pricing and productivity actions that we expect will largely offset rising inflation and unfavorable mix in Process Automation and Technology due to timing of high-margin catalyst shipments and the impact from the Middle East. We are also seeing an acceleration in the stranded cost takeout ahead of the Aerospace spin. On the segment level, we expect strongest margin expansion in Building Automation, while Aerospace margin will be roughly flat. Adjusted EPS is expected to be $2.40 at the midpoint, reflecting a higher effective tax rate in the quarter, amounting to about $0.16 headwind. On a normalized tax basis, EPS in the second quarter would be roughly $2.55 at the midpoint of our guidance, driven by higher segment profit and higher expected pension income. Slide 8 provides a look at the second quarter dynamics, I just described. We expect growth from roughly $0.06 of higher segment profit, while lower below-the-line expenses will drive a similar benefit of $0.04 to $0.07 due to higher pension income, partially offset by increased repositioning costs. But the main item to note is the $0.16 headwind from a higher tax rate of approximately 21% versus 16% in the second quarter of 2025. Nevertheless, we still expect our full year tax rate to be approximately 19%. The impact from the share count reduction and foreign exchange translation will be roughly $0.01 each. Additional below-the-line details are available in the appendix of the presentation. With that as the backdrop for the second quarter, let's turn to Slide 9 to discuss our full year outlook. We're maintaining our organic growth outlook of 3% to 6% despite the temporary headwinds we encountered in the first quarter. We expect strength to continue in Building Automation, while Industrial Automation will continue to recover in Europe and China. Process Automation Technology should be roughly flat for the year as order visibility and robust backlog levels delivered a strong second half. Finally, in Aerospace, as I mentioned earlier, our full year guide of high single-digit growth remains intact, driven by improvement in our supply chain observed in March. We expect to continue to deliver strong operational execution driven by pricing discipline, productivity actions and earlier-than-expected stranded cost takeout. In the first quarter, this allowed us to deliver strong margin performance while navigating near-term volatility related to material cost inflation, mechanical supply chain headwinds in Aerospace and impact from the Middle East conflict. While we outperformed our expectations in the first quarter, the ongoing geopolitical situation warrants prudence. And we are, therefore, maintaining our full year segment margin guidance of 22.7% to 23.1%. Our guidance continues to include the results of PSS and WWS until the transaction close. It also assumes a continued ramp in Quantinuum investments. And while we expect to de-consolidate the results of Quantinuum in the second quarter, we are not adjusting our segment margin or adjusted EPS guidance at this time to reflect this. There is also no change to our free cash flow guidance for the year. Let me now turn the call back over to Vimal to wrap up before Q&A. Vimal Kapur: Thanks, Mike. We are pleased with our first quarter results with segment margin and adjusted earnings per share exceeding expectations. Looking ahead, we are successfully navigating an uncertain geopolitical backdrop with the strength of our resilient business model approach and rigor of our Honeywell accelerator operating system. We are tracking ahead of schedule on our separation milestone with the Aerospace spin-off now expected to be completed on June 29. I'm very excited to be on the [indiscernible] of this formation of 2 leading pure-play public companies and witnessed a long runway of value creation both businesses will deliver. We look forward to hosting investors at our upcoming Honeywell Aerospace Investor Day on June 2 and 3 in Phoenix and our Honeywell Investor Day on June 11 in New York City. These events will provide an excellent opportunity to share our strategy and long-term growth expectation. With that, Mark, let's take the questions. Mark Macaluso: Vimal, Mike and Jim are now available to answer your questions. [Operator Instructions]. Operator, please open the line for Q&A. Operator: [Operator Instructions] Our first question comes from the line of Nigel Coe with Wolfe Research. Nigel Coe: [indiscernible], this is the last quarter of Honeywell as is. But I just wanted to just maybe just try and get a bit more information on the supply chain challenges, especially in such a low volume quarter. So just -- it's obviously a very popular inbound question we're getting from investors. So any more details on that? And kind of measures in place to try and solve this problem? James Currier: Nigel, this is Jim Courier. Just to give you a little bit of color and commentary around the supply chain challenges. Typical historical patterns are such that we normally have a slower start at the first of the year, particularly as we exited a very strong fourth quarter at 13% output growth for Aerospace. What I would tell you is that the start of the quarter, however, was more acute in terms of the decline versus what we had anticipated. And we recognize that this issue at the end of January and early February, and it was a very acute transitory issue specifically with some key suppliers in the mechanical space that adversely affected both our engines business and our Control Systems business. And when I say acute, we can actually identify down to specific outlines within the portfolio that were impacted. The point being, however, is that we started to see the recovery as we deploy the resources accordingly and we started to see that recovery in the March time frame, and we're seeing that momentum carry itself over into April, which gives us the confidence in terms of our forecast that we have of mid- to high single-digit growth for the second quarter. Nigel Coe: Okay. That's great. And then just on the 2Q margins, you're forecasting quite a step down Q-over-Q. And you talked about some of the productivity and obviously getting ahead on the stranded costs. Just wondering any more details on how to think about margins by quarter, why they'd be coming down Q-over-Q? And I think you called out Aerospace flat year-over-year. I just want to make sure that was the case. Mike Stepniak: Yes. Nigel, this is Mike. So our margin expansion framework for the year remains the same. So we talk about [ 20% to 60% ] for the year. 50 bps to 90 bps expansion operationally. We have 30 bps drag from Quantinuum. What's happening sequentially versus the first quarter, first, operationally, nothing is changing. We're doing extremely well on stranded cost takeout, that's ahead of plan. Pricing will be above 3% again. So feel good about what we're doing on pricing and the teams are progressing well. What's happening in the second quarter sequentially, we have, I would say, a mix pressure from catalyst sales or lack of catalyst cells in the second quarter. And it also gives us a little bit of pressure year-over-year. But as you remember, last year, second quarter was our strongest quarter on catalyst sales in the year. So on total year, I don't see any pressure to what we guided. In fact, I feel more confident that we'll deliver that 20 bps to 60 bps. We just have to get through the second quarter. In Aerospace, we talked about roughly being for the year at 26%, and that's kind of where it's going to be for the year. Vimal Kapur: I'll also add that the loss of revenue we're having in Middle East is also high-margin revenue. So that just has associated margin pressure because of services software, which has impacted the most due to disruptions there. So that becomes the additional driver because it's kind of high dis-synergies associated with that. Operator: Our next question comes from the line of Julian Mitchell with Barclays. Julian Mitchell: Just wanted to start off maybe with the PA&T organic sales ramp through the year. Help us understand kind of how we should be thinking about that? It sounds like you're still thinking sort of flattish for the year as a whole on organic sales, which is consistent with your prior guidance, but obviously a much tougher first half. So maybe sort of flesh out for us some of the main moving pieces and how that organic sales growth trends from here in the year? . Vimal Kapur: So essentially, I think the only change since we provided the guide has been the Middle East situation and we lost revenue, as we indicated, about 0.5% of Honeywell total revenue in Q1 and about 1% in Q2. What we feel very strongly about is our backlog in the business continues to grow. Not only we had a strong booking in Q3, Q4 of second half of last year, but also printed a very strong orders number in Q1 of this year, and trends remain very, very robust for Q2, which gives us a very high confidence of second half ramp of the revenue of high-single or PA&T segment. Therefore, it's just going to be first half is, as you've seen the actual results of Q1 and then forecast for Q2, they get offset by strong performance in the second half. So net-net, the overall year being flattish, we remain very confident on that. The backlog supports it, the historic linearity supports it. So there's not much out of the way assumptions we have made in this forecast. Mike Stepniak: And Julian, there is also just continues to be more pent-up demand for the second half. We're seeing a lot of requests from customers in the Middle East. So I'm confident this demand is coming and like Vimal said, from a backlog standpoint, we still have a lot of conversion happening sequentially that's going to happen in the second half. So quite excited about that opportunity. Julian Mitchell: And then just secondly, back to Aerospace. I just wondered if you could give us some update on what you're seeing kind of real time in the commercial aero aftermarket side of things and whether you have moderated your outlook at all for the second half or Q2 on things like flight hours or departures that type of thing? That would be helpful. And on the supply chain issue, just lastly on that, is there any help you can give us on kind of specific product types that were most affected by the supply chain issue? James Currier: Yes. So specifically, Julian, to the product type, I'm not going to provide specificity around the actual outlines themselves other than say that it was very acute and we could attribute it to a couple of outlines specifically within the Engines and Power Systems business. As it pertains to the commercial aftermarket and any implications on a full year basis, right now, we saw no impact in Q1 as a result of the conflicts, and we see negligible potential impact in Q2 that's going to be overcome-able. I think the point that I would highlight, however, is that the demand is exceptionally strong, and our growth is constrained by supply and not demand across the board, and any impacts that we see in terms of flight hours in the Commercial segment tend to have a trailing impact in the Aerospace business, as flight hours go down, we start to see as it works its way through the ecosystem, it's anywhere between a 3- to 6-month delay before we would see something within the Aerospace business. Operator: Our next question comes from the line of Sheila Kahyaoglu with Jefferies. Sheila Kahyaoglu: Maybe just a follow-up on the last question. On the commercial aftermarket. Jim, any way you could delve into that a little bit more, talking about your Middle East commercial aftermarket exposure? How do we think about it on engine mix within business aviation, APUs on commercial, powered by the hour on that 3- to 6-month lag comment, where would you see the most volatility? And as a follow-up, on Aerospace margins, as we look at Q1 solid start, 26.5%. How much of an impact was the supply chain? And do we see any puts and takes from asset sales or mix in that Q1 figure? James Currier: Sheila, a couple of things I'll talk to you on the commercial side of the aftermarket, particularly out of the Middle East. Again, as I mentioned, our growth is limited by supply, and not about the demand. Now having said that, we are watching very closely fuel prices, the increase in fuel prices and how much longer they will persist across the board. But we're not seeing any related demand impacts. And power by the hour programs for us, there's a smaller revenue stream within the overall aftermarket portfolio, as compared to time and material and repair and overhaul portions of our business overall. The one point I wanted to highlight, and you mentioned it about business aviation we've actually seen very strong resilient growth in business aviation flight activity, even in light of the higher fuel prices, and it actually grew much better than what we saw in the commercial air transport. And as you know, that is a part substantial part of our portfolio in terms of business aviation within the aftermarket and part of the overall revenue of our Honeywell Aerospace. The one thing I would also add is just on defense. So as we see the conflicts that are occurring, the two key words to remember are going to be around replenishment and sustainment, replenishment around the aspects of missiles and munitions, furthering increasing the magazine capacity that exists not only for the U.S. but for our allies abroad. And then with the usage of aircraft in theater and how we are positioned, we're continuing to see very strong demand in terms of sustainment and support of those operations. Sheila Kahyaoglu: Great. Can I just add the margin question. Can we just -- can you talk about the solid Q1 margins. How much of an impact was supply chain? Was it negative? And any positive onetime items in there? James Currier: As you know, our mechanical business, we actually -- our mix was much more favorable Electrical versus Mechanical and that produced a tailwind for us in Q1, even despite of our lower volume leverage in the quarter. Now as our output will increase throughout Q2 and be more of a mix around mechanical due to the recovery that we anticipate will occur, you'll start to see that fluctuate, and you'll start to see it being a little bit more normalized. But the focus area I would apply is full year. You do see fluctuations quarter-to-quarter, very mix dependent. But on a full year, we expect modest expansion for Honeywell Aerospace. Operator: Our next question comes from the line of Deane Dray with RBC Capital Markets. Deane Dray: Good morning, everyone. I just want to say at the outside here, I don't recall any other time in Honeywell's history where you've had more portfolio moves at one time that you've been orchestrating as well as navigating all the geopolitical issues. So the fact that you can reaffirm guidance here is impressive. I did want to understand -- I know it's early, and I appreciate that you've -- you're assuming the conflict last through the second quarter. Can you size for us what the Middle East rebuild opportunity is at this point? Maybe not just give us some dimensions and qualitative what areas you'd be active in? Vimal Kapur: Yes. First of all, Deane, thanks for your comments on portfolio transformation. I would say that with the announcement of the firm date of the Aero spin on 29th of June and completion of transactions for both businesses, which were held for sale, puts us in a position now, Honeywell will be a pure-play automation company, well positioned for its future. So I really feel good about what we have accomplished over the last 2 years. To your question on Middle East, I would say that I see that coming up in three different phases. The first phase is obvious that the services required to get the plants up and running. That work has not yet started. The situation has normalized to a point that we are being requested for that. So there are a few facilities which got hit during this conflict. So they are still -- there's no real activity in those sites. Now after that phase is over, it probably will take -- typical plant start-ups can take 8 to 12 weeks then we really expect the refurbishment of some of the facilities, which have been impacted. The one where Honeywell equipment is there, specifically in Process Technology, we have some known issues. We are already working with the customer, and that can show us an incremental demand in second half of the year as the things become more normalized. And finally, as the oil price remain elevated to now $100 or above, the forecast generally suggests that the supply side disruptions won't end so soon because the normalization is going to take likely much longer, which then bodes well for the overall spreads for the product for our customers, which will -- which should support the more demand for services and catalyst in the times ahead. So all in, I would say the best way to put it forward is that near-term headwinds are already reflected in our numbers. And long term, the trend suggests that it's going to be a favorable outcome for Honeywell and more broader for the process industry. Deane Dray: That's really helpful. And just as a follow-up on that last point on the impact of $100 oil to UOP, in particular, there's -- were pushouts of catalyst reloads. But you also said that the spreads remain favorable. So just what's the impact on UOP near term? And then as we see some normalization? Vimal Kapur: Yes. So as you saw, I just mentioned in our earlier conversation that we remain very, very convicted on the fact that we'll have PA&T Process Automation Technology, second half at high single digits. That's driven by the two facts. One is our backlog is very strong due to the 3 successive quarters of order booking and then [ Q2 ] was also looking very, very robust at this point. And then we do expect the catalyst demand favored by the favorable spreads. So all things being equal, we remain very confident of the second half performance for Process Automation Technology business due to a combination of backlog and catalyst demand coming ahead. Mike Stepniak: The only to just add that the margins will improve as well in the second half for the business, given better mix, more volume leverage and strong pricing. Operator: Our next question comes from the line of Nicole DeBlase with Deutsche Bank. Nicole DeBlase: I'm sorry to beat a dead horse on this Aerospace issue, but I just have one more follow-up on this. Like when we look across the 3 subsegments of commercial aftermarket, commercial OE and defense and space, which were impacted by the issue in the first quarter? And how should we think about the path to improvement within those 3 pieces into 2Q? James Currier: Nicole, this is Jim. It actually impacted all of 3 end market segments. When I talk about specific outlines within our Engines and Power Systems business, it was both commercial and again, very acute. It impacted both Commercial and it also impacted Defense Engine outlines. And then some of that, obviously, being that the supply base is the same for commercial and defense and that same supply base is supporting aftermarket and R&O repairs as well. Those same outlines then were affected from an R&O standpoint in terms of being able to deliver into the aftermarket, both from a defense standpoint as well as on a commercial. And again, it was highly acute and highly specific in the engines and Power Systems business. But again, the mechanicals also affected us slightly as well on our control systems business. Nicole DeBlase: Got it. Okay. So the improvement into 2Q should be kind of broad-based across those 3 pieces? James Currier: That is precisely correct. Nicole DeBlase: Okay. Understood. And then just on the order trends, Curious what you guys saw in the 7% organic growth if you were to kind of parse that out across your shorter cycle and longer cycle businesses? And any interesting trends throughout the quarter? Vimal Kapur: Yes. So order -- the overall orders reported are 7% growth. Orders growth was led by Industrial Automation, up 10%, which is a combination of both long and short cycle. Building Automation also had a strong quarter, 9% orders growth. Process and Automation Technology was up 3% and Aerospace was up 6%. So I would say across the board, it's broad-based strength in the orders. On the short cycle, Nicole, I would say that specifically for Automation side, Building Automation performance remains exceptionally well. As you have seen that this is fifth or sixth successive quarter, we are printing high single-digit growth. Not only the demand remains robust. So it continues to perform well through our new product introduction and perform better than market. Industrial Automation also the demand is shaping up well. Initially, when the start of the year, we had expressed concern on demand of short cycle in China and Europe, that certainly is recovering, which is very positive for us. We'd also see short-cycle demand in U.S. I think that's where Industrial Automation business have some pockets where we have to do more recovery, but we are trending in a very right direction. And as we have observed the Industry Automation results, I do expect that business to start performing more like low single-digit growth. Once we take out the 2 businesses which were held for sale out of our revenue forecast, I'm just saying the RemainCo business it's trending very nicely towards low single-digit [indiscernible] second half of the year. So short cycle, I would say, overall strength is favorable. On the Process market, I would say it's being clouded by the war and the disruptions, and it's just hard to separate the reality of the demand versus the disruption caused by oil prices, supply shortages, ability to do shipment. It's hard to kind of separate the facts versus reality and provide an absolute comment there. Mike Stepniak: Yes. I would just add that we're expecting short cycle to accelerate in the second quarter. It will be mid- to high single-digit growth. So we feel good about short-cycle right now. Operator: Our next question comes from the line of Andrew Obin with Bank of America. Andrew Obin: Just a question on Building Automation. Clearly, it has been one of the best businesses for you for a while. At the same time, some of your competitors, I think, seem to be sort of waking up a little bit. How do you view a competitive environment in this market in areas like fire? And how sustainable is your leader -- clearly at AHR. I mean your software presentation was fantastic. Sort of -- I understand why you feel confident that maybe just expand what is we're seeing on Building Automation? How is competitive environment developing, as I said, given that some of your competitors are waking up. Vimal Kapur: Thank you, Andrew. I mean, I would say that, look, we remain in our guide more conservative because we always [ cite ] Building Automation at mid-single-digit plus and we are performing high-single. And as I had mentioned during our Q1 earning call -- in earnings calls in earlier in the year, that we don't want to always assume we will keep taking share. but we have been constantly doing that, which is good news for Honeywell. I would say the competition by our business model is sell product through channels. We actually compete with large multinationals on a very limited basis because projects business in Building Automation is just about 15% of the overall segment. So what the headline base is, some of the peers, which are publicly reported companies, our overlap with them from a portfolio perspective is not very large. Our competition is midsized companies, which vary by each region. We have set up companies we compete in fire and BMS and security in U.S. We have different set of people we compete in Europe, different set of people we compete in China, and that's the benefit in this business that we are benefiting from fragmentation of the market. We are going on the strength of our new products, and our common supply chain. And we believe that our organic growth engine, new product and innovation [indiscernible], including Forge is working extremely well. And the quarters are shaping quite well ahead. The near-term demand remains strong. So we do expect that the trend what you have observed over the last 4 to 5 quarters should remain intact in the times ahead. Andrew Obin: And with the divestiture of the Warehouse Automation and Handheld Devices I mean, clearly, the Sensors business is becoming much more core and front and center. Could you just sort of parse out what you're seeing there? And what are the trends in key verticals there? Vimal Kapur: Yes, Andrew. So clearly, now Industrial Automation is positioned as a Sensing and Measurement business. I'm really pleased on finally, we found a very clear strategy in the business. I would say that our position there in three broad end market sensing, in aerospace, medical devices, industrial equipment, that's position 1. Position 2 is our metering business in utilities and position 3 is gas detection on all environments, be it oil and gas, be it semiconductor and more broader in industrial. The end markets are strong in each one of these areas I mentioned. And our job is to benefit from these fragmented industrial automation market in Sensing and Measurement and build a better position as we did in Building Automation over the last 3 to 5 years. That's a task ahead of us. Our strategy is working. Our performance is improving every quarter progressively. And as I mentioned, that I do expect that second half gets slightly better, and we remain very optimistic on the performance for 2027. Operator: Our next question comes from the line of Andy Kaplowitz with Citigroup. Andrew Kaplowitz: Yes. Vimal, can you give a little more color into the improvement you saw particularly in IA margin in Q1. The margin improvement was impressive. I know you've talked about a bigger focus on productivity and [indiscernible] ahead of separation in that segment, and in PA&T. But a bigger fixed cost take out in IA. So maybe you can update us on what you've been doing and or how much improved pricing versus cost is helping as well? Mike Stepniak: Sure, Mike, I'll start and I'll ask Vimal to add some color to it. I think IA is going to be a margin expansion driver for us for the next year or so. With the separation of the [indiscernible] businesses. We saw a lot of opportunities structurally just to simplify the business from a cost standpoint. And the team got after that cuase quite early. So you'll continue to see the benefit as we go through the year. Also pricing for us has improved. I think the team has done a really outstanding job in terms of understanding the inflation, working with the customers to manage it and improving pricing. So that's the second piece. And then finally, I would say NPI, the team has been on NPI for the last 18 months, and we're starting to see those NPI hitting the market, and that's helping us recover share where we lost share. So all around, a really good story on Industrial Automation and will continue to be a source of strength for us this year and next year. Vimal Kapur: Yes. I mean, I think the only thing I'll add would be the pricing story is very strong in Industrial Automation, but also more broad-based and across Honeywell. We signaled the pricing between 3% to 4%, and it's more trending towards upper end, more towards 4% versus 3% and how inflation is shaping up I expect that trend to persist, which is going to help us continue to expand margin expansion as we have guided. But I overall performance, I think I have nothing more to add to what Mike said. Andrew Kaplowitz: And then, Vimal, maybe it's a little early for this question, but just focusing on some of your customer conversations as the Middle East conflict has played out here. And given your relatively big exposure now to LNG, do you sense a need for more energy security now or maybe more local-for-local investments. So maybe you have a more robust LNG cycle? Like what are your conversations like around that? Vimal Kapur: Very, very bullish on LNG cycle, I would say, Andy, the 2 businesses we acquired in the last 18 months Liquefaction business from [indiscernible] and Sundyne business, they're performing extremely well. The demand continues to remain strong by the fact we very correctly mentioned not only in U.S. there's more capacity being built to serve the known demand. There's additional capacity being asked now for diversification. [indiscernible] think about those demand being in places like Africa, which was not on the map of LNG business, but they have a lot of gas. So people are considering projects there. We have a lot of inbound requests from that part of the world. And clearly, the refurbishment will be required in Middle East to the damaged infrastructure, which will be the -- which was not a planned demand because this was not something we planned for. So all in, the LNG Liquefaction business and our overall Honeywell LNG story in terms of automation story, our software capabilities is there, with the Sundyne having very specialized equipment for compressors and pumps for LNG, we have a very neat proposition, and it is going to remain a highlight of RemainCo Honeywell. It will remain for next few years a high-growth vertical based upon the demand I have seen over the last few months. Operator: Our next question comes from the line of Joe Ritchie with Goldman Sachs. Joseph Ritchie: So I really like Slide 4. Obviously, it shows like how geographically diversified your project wins have been over the past year. I'm curious, as you kind of think about that high single-digit ramp in the Process side of the business. How do you -- how are you guys underwriting the potential risk to that second half implied guide? Vimal Kapur: Joe, these are very firm projects. There are -- sometimes the demand of these projects can get shifted due to FIDs happening and not happening. But in this case, the LNG backlog is very strong, in particular and some of the new demand, which have come from Africa for refining capacity, there's a natural case there to build more fuel infrastructure in Africa because it never had one, and there's a big refinery by Dangote, which is one of the largest refineries. So those are very, very firm demand, which makes us confident on a very, very limited uncertainty in our backlog. And that's why if you see our confidence factor on high single-digit growth for the overall Process segment is very high. We are not making any assumptions of unknown demand the linearity and supported by our backlog conversion is the basic fact on which we are forecasting this. Mike Stepniak: And Joe, we've been talking about it for almost a year now. We always had that backlog. The backlog improved. Those are all projects which went to FID, meaning they're invested, there is cash behind them and they're ready to go. So like Vimal said, this is a very solid backlog that's going to start converting in the third quarter. Joseph Ritchie: Yes, that's great to hear. And then -- and then maybe just touching on the Building Automation business. I just came back from being a data center [indiscernible] the last couple of days. And clearly, that's a part of the business that I'm sure is growing significantly. I'm sure we're going to hear more about this in June, but maybe just help kind of highlight like how you're thinking about the potential opportunity for your business specifically as it sells into data centers? Vimal Kapur: Yes. So we continue to improve our share of demand in data centers every quarter progressively. And where we have done a great job is really moving into Tier 2 data center providers. I think there's always a lot of conversation of hyperscalers, but increasingly, Tier 2 providers are becoming very, very relevant, not only in U.S., but I'm also talking about Europe and Asia, and that's where our segment performance is very strong. So I expect that we continue to ramp up our volumes in building automation and data center, but interesting development is not Joe, that we are actively working on liquid cooling for our Sensors business because if liquid cooling trend is true, it requires more sophisticated controls compared to the traditional HVAC air-based control. And that's where Honeywell technology is going to be very, very relevant. So our Sensing business is actively working with other liquid cooling providers, which names are well known. And we are also actively working for power generation for some of the data center, which are behind the meters. We have seen a trend where behind the meter power capacity is being set up and our traditional control and automation capability is very unique in that space, because think about it, we always did power plant within a refinery within a paper mill. That's not new for us. And now power plant happens to be in the data center, which is our natural capability. So I would say Honeywell penetration in data center now continues to improve, and we remain bullish on our revenue growth coming from the segment, not only in Building Automation, in the years ahead, it's going to help also Industrial Automation. And depending on some of the projects in the U.S., it may also help Process Automation business. Operator: Our next question comes from the line of Amit Mehrotra with UBS. Unknown Analyst: I wanted to ask a question on on Aero. Just the cadence of growth intra-quarter. I think you mentioned it being acute in terms of challenges in January, February. But obviously, the full quarter closed out at, I think, 3%, 4% organic growth. It implies maybe the exit rate in March is back to where you expected in the second quarter. I just want to get a sense of that. If you can just give us a little bit of that intra-quarter cadence. James Currier: Yes. This is Jim. A couple of comments around that. The cadence within the quarter, I think it's important to note that 50% of the quarter is actually delivered in the third month. And therefore, the momentum that we saw and which you saw in March and carrying that momentum going forward into April, the point being is that our starting point in terms of the first month is substantially better than what we saw in the first month of the first quarter, i.e., January. So as that momentum continues and has laid itself over into April, we expect to see that continued progression throughout the quarter. And even though it's early in the quarter, and as I mentioned, 50% of the quarter is delivered in the third month, what we're seeing in terms of recovery gives us the confidence in terms of what we expect in year-over-year growth for the second quarter. Unknown Analyst: Okay. And then just on the Process Automation side, we noticed, obviously, the aftermarket was down 10% in the quarter. Projects have been relatively stable. Just wondering if you could just talk about Process Automation aftermarket trends. I assume -- I think you said that Middle East conflict, nothing really embedded in the back half. Correct me if I'm wrong, but if you could talk about how that impacts the aftermarket of the Process Automation? Vimal Kapur: Yes. So most of our lost revenue was as a practical matter was aftermarket because this is where our ability to ship the product related to service migration project, lot of on-site services we provide, which are contractual, you can't just simply go there. So it got impacted incrementally by about $50 million round numbers in quarter 1, and we have forecasted about a 1% impact there. Overall, when we started the year, we had indicated the demand being very muted for services and catalyst in process thing got disrupted with a conflict, but the elevated oil price now supports strong demand on the other side of it. So we'll see how the business performs. But we think that the quarter 1 and quarter 2 were the bottom, and we should see more sequential improvement in the second half of the year in the business. Operator: Our next question comes from the line of Jeff Sprague with Vertical Research Partners. Jeffrey Sprague: Just one question on the portfolio, but I guess, multi-part. Something wonky in your calendar you're calling June 29, Q3. I'm wondering on the PSS sale, if you could give us a little bit of color on whether or not there's tax leakage, on warehouse. I'm wondering if you could tell us what the 2025 EBITDA was? And then finally, I think you said Quantinuum would be consolidated in Q3. I guess that implies your selling a stake or there's a round that you won't participate in that will take you below 50%? Maybe you could give us a little color on that also. Vimal Kapur: There were four questions there. I'll try to see wrap up here. So I think on the tax leakage part, PSS, I'd like to let Mike talk about it. Mike Stepniak: Sure. So there won't be any tax leakage related to these two transactions. And obviously, we'll have more more to share on that as we progress and complete the transactions. But probably, you'll see it in the third quarter. Vimal Kapur: Both these transactions, Jeff, I want to look ahead and not look back. These are behind us. These businesses are in safe hand with the rightful owners, and I think we have gone through a public auction process and found the best buyers for both of them. I think that's what I can share. On Quantinuum, I'll let Mark... Mark Macaluso: Yes. I think, Jeff, not a great answer for you, but we're subject to rules restricting our ability to share really any further details beyond what you've seen in the release from Wednesday. Jeffrey Sprague: Okay. Understood. And then on the date, so 29 was technically the third quarter for us? Vimal Kapur: So the first day of the quarter 3, happens to be on June 29. I know I was equally surprised by [indiscernible]. Yes, I was confused for a couple of days, but now I've settled. Operator: Our final question this morning comes from the line of Chris Snyder with Morgan Stanley. Christopher Snyder: Is the supply chain disruption that weighed on Aero growth in January and February, primarily a function of inability to ship because maybe some of your suppliers are struggling to keep up with the pace of demand? Or is it because your Aero customers overbuilt inventory towards the end of last year and they were effectively de-stocking early in the year? James Currier: Chris, this is Jim. It was absolutely not any de-stocking that is happening with our customer supply base. It was purely supplier-centric the lack of certain critical piece parts from high critical suppliers that did not achieve the volume outputs necessary to allow us to deliver the specific outlines within Engines and Power Systems and Control Systems portions of the business. Christopher Snyder: And then just a quick follow-up on Aero. Is there any color you could provide on back half margin expectation, just all the moving parts between the mix shift, obviously, some of the commercial OE price negotiations that you've talked about? And then maybe lastly, any sort of integration tailwinds from case just just kind of -- what do we expect there in the back half? James Currier: Yes. I mean, what I would say is, on an annualized basis, you will see us being modestly up on margin expansion. -- quarter-to-quarter, you do see variability largely driven by mix across the board and mix within the mix of what we are delivering. But on a full year basis, we'll be modestly up for Aero margins. Vimal Kapur: Okay. As always, I would like to thank all our shareholders, our customers and all the Honeywell future shapers around the world for the strong first quarter results you delivered. We remain confident in our path ahead, and we look forward to sharing more with everyone in the months to come. Thank you for joining us today, and we hope that you have a great rest of your day. Operator: Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.