Honeywell International Inc. (HON) Earnings Call Transcript & Summary

Okay. Great. So we're on to our second presentation of the day. And this is Joe Ritchie, who runs the multi-industry team at Goldman. Super excited to have Darius Adamczyk, the Chairman and CEO of Honeywell, with us today. As you recall, Darius became CEO back in 2017, and he was elected Chairman in 2018. And Darius, thanks so much for joining us today here virtually.

Joe, glad to be part of the group and be included.

Great. So maybe before we kind of get started. First off, just thanks also for all the work that your team is kind of doing behind the scenes to increase production of N95 masks as kind of I mentioned in our initial discussion just a few minutes ago, I'm actually in the great state of Rhode Island right now. So thanks again.

All right. Least we could do.

Yes, yes. And so maybe just kind of starting off, Darius. A couple of weeks ago, you highlighted that more than 90% of your sites and suppliers are operational. Are you currently experiencing any bottlenecks or just increased costs from your suppliers? Or are you experiencing any issues with employees being able to get back to work? So any update on the COVID-19 would be great.

Sure. No. I think the good news for us right now -- and I emphasize the word right now because the situation is dynamic and literally can change on a daily or weekly basis. But literally 100% of our facilities right now are operating, which is great news. Not all of them are operating 100% capacity because we have some people that are out, and I think that either due to taking care of family members or there's a level of discomfort. We've done tremendous amount of work to make sure that our employees are safe, protected. They're social distancing, providing PPE, taking temperature checks and so on. And we've been very successful particularly in protecting our manufacturing employee base. But nevertheless, there is a pool of people that are -- have some level of discomfort. But the good news is right now, and we had some challenges particularly in Mexico for a little while, 100% of our manufacturing facilities are operating. I have not heard of major bottlenecks issues. There's a couple of challenges on the supply chain. So, so far, so good. But again, this situation is very fluid. If you talk to me 3 weeks ago, I would have told you a little bit of a different story because things were much more challenged in April than they are today. And as we move forward, who knows? Hopefully, the world continues to emerge from kind of the stay-at-home state and we continue to make progress, there aren't further outbreaks and we can continue to get better and more efficient on a week-after-week basis. But so far, so good, and I'm pleased with where we are today.

Darius, no, that's good to hear that things are at least improving. And I guess maybe you can just talk a little bit about the reopening in China. What lessons are you learning from that reopening that you think will kind of be applicable to developed markets as the U.S. and Europe starts to reopen as well?

Yes. It's -- China had a nice kind of -- as you recall, January, February were essentially shut down. March was better. April was a little slow. I think probably the one thing that I would take away from the China recovery that I don't expect a V-shaped recovery to happen in the U.S. I don't -- for some of the markets, maybe. But certainly, some of the ones that we operate in particularly in the commercial aerospace segment, oil and gas segments and those things, I don't think that this is going to be a V-shaped recovery. And that's probably one of the things we learned in China. The second thing we learned in China is we've been very cautious about when we send our employees back and protecting them and so on. And we've had a very good healthy track record. So they've sort of led the way in terms of how we return. We took some best practices from that. And obviously, we made a lot of the global and local decisions about how to do that. We have nearly a daily call on kind of return to work, so some of those best practices we've learned. And then we learned how to operate in this. I mean my point of view is that we're going to be in this kind of environment for a while. And what's a while? I mean I think it's going to be measured in quarters, hopefully not years. But certainly, it's going to be, I don't know, 3, maybe 4 quarters where we're going to operate like this. And we're going to have to be effective in operating in this environment. And obviously, China has been leading the way both in terms of out and in, out of the COVID crisis. And also how do you contain it? How do you make sure that it doesn't reoccur? How do you protect your employee pool? And how do you continue to operate safely? Also, one of the things we learned from the China team particularly on the commercial side is how do you continue to drive demand? Because Honeywell knows how to reduce costs. And hopefully, all the investors out there have a level of trust and know that, that's something we know how to do. We've done it before in the other recessions. It's a playbook that's well understood and refined at Honeywell. I don't think there's a lot of risk of us not knowing how to do it, act decisively and quickly. But the thing that's really different is that I've really insisted and I emphasized the word insisted, is we've got to continue to drive demand to the extent that's out there. And not just in the same areas of the business where we operate in, but really driving new demand, things that are a little bit more applicable for this crisis. And I'll give you a few very specific examples. So whether it's PPE and John Waldron's business and SPS, whether it's the healthy building offering that we're going to be launching in HBT, whether it's healthy air solutions for the airlines and healthy passenger solutions that our aero business is launching, whether it's the Rebellion cameras that SPS just launched, I believe, yesterday, which give not only data regarding temperature checks but also wearing PPE and are an incredibly powerful solution for any office or manufacturing environment and much better than anything that's out there today. Those are the things that I'm overemphasizing is how do we continue to drive demand that's really applicable for where the world is today. And I think that's the part of the business that's probably different now versus the '08, '09 recession.

No. That's super helpful, and that makes a ton of sense. Before I kind of get to my next question, I just want to remind investors that if they do want to ask any questions, they can ask -- they can submit their questions via the web link or feel free to just shoot me an e-mail at [email protected]. So maybe going back to some of your comments. So clearly, like the most topical end market right now, I think, across all of industrials, is commercial aero. It's been such a good end market for the better part of like the last 2 decades. And now like there's images of parked planes at airports, and it's pretty staggering. So you gave really good details on your earnings call regarding what commercial aftermarket is doing. But I know it's hard to have like a crystal ball here, but like how are you thinking that this kind of plays out longer term? You just mentioned, hopefully, quarters, not years, but how are you thinking about this longer term?

Yes. I mean number one is I think we can debate when commercial aero gets back to normal. And I think -- frankly, I think there's a lot of guesses out there. I think probably the more aggressive maybe educated guess just take it to the -- probably the second half of 2021, a little more conservative one to kind of take it and say, well, it could be as late as 2023. I think about this differently. I think about it in 2 dimensions. The first dimension is it's going to be -- I'm not going to give you specific answers because I simply don't know, but I'm going to tell you sort of what the signs are. I think we as Honeywell have an obligation. We have an obligation to help the airlines and the airports, and we're, by the way, in both of those businesses; create solutions, which will make passengers that much more likely to travel, gain a level of comfort, be protected. And that's why our aerospace business as well as our SPS business is working with the airlines, the airport to both protect the potential passengers and then provide a safe environment on the aircraft themselves. So I think that's point one. The second one, which we can debate when they're going to be available. But back to me, and this is my opinion, the linchpin in us getting to a breakout from the COVID-19 situation is going to be a broad availability of a vaccine. That's really it because probably the second-best thing would be a very effective therapeutic, which go a great way to making people feel comfortable to fly again. But until we have a vaccine that's broadly available, I think we're going to be somewhat limited in how many people feel a level of comfort in flying. And that's why we're offering some of the other solutions to the airlines, the airports because we want to try to maximize that number while still providing a healthy environment for flyers. So I think a lot of that. So I think that the point of all that is it's tied to when we believe a vaccine will be broadly available. And I think based on what I've been reading and hearing and so on, you can say at some point in 2021, whether some availability, hopefully in Q1, broader in Q2, Q3 and Q4. So that's sort of the way I think about it. And probably a return to normal in 2022. And I think if you would go back to 9/11, there were a lot of concerns about people will never fly again, et cetera, et cetera. And I think we've gone a year or 2, people were back at sort of normal levels of flying. So this will happen. People will be flying again. We can debate as to exactly when, but that's how I think about it.

Yes. No, that makes sense. And I know that to some degree, it's a little bit of an unfair question because no one really knows. But I guess maybe just sticking -- yes. I mean but maybe sticking on just commercial aero, maybe just some of the experience that you've had in the past. I know there's no perfect corollary. But I guess how do you think about the margin on this business? So specifically, you probably will see some acceleration of retirements of older aircraft. That typically has -- tends to have like a higher margin from an aftermarket perspective. Like just how do you think about the margin trajectory of this business kind of longer term, just given some of those dynamics?

Yes. I think it's a little bit too early to tell because there's a couple of different theories. One is maybe you could accelerate the retirement of older aircraft and reduce your capacity, although I think that the current capacity will be needed as we talked about in the prior question at some point in time. The second question is do the airlines really want to spend the cash that they'll have because obviously they're in a cash-constrained position. Or will they want to sort of maximize the fleet that they currently have? And I think that, that's a little bit of an open question as well in terms of when that will happen. So I think the short answer to that is probably a little bit too early to tell. I mean obviously, we want the OEs to be successful, too. That's a very important part of our business. We've seen a few cancellation of aircraft. It hasn't been widespread yet. Hopefully, that won't be the case. But I think we're going to be able to learn as the airlines come back up in terms of what's their mode of operation going to be? I mean I would expect them to operate the most efficient aircraft first. That only makes sense. But then are they going to be taking deliveries of the new aircraft? Or are they're going to push those out to not spend the cash? I think that's a little bit more in the wait-and-see kind of a mode. And the big -- the other big unknown is business aviation. My point of view is that actually business aviation will recover faster than commercial aviation. I think that those that can fly business or private will, and that segment might even expand because more people maybe stretch into that. They have a greater level of safety and comfort in terms of flight. So those dynamics are a little bit too early to tell. I think we kind of need a little bit more of an emergence from the state that we're in to really exactly figure that out. I mean we've modeled out 3 different scenarios in terms of what we see. But until we see real data, that's sort of speculation.

Okay. No. That's totally fair. And I guess maybe in thinking about aero, Defense and Space is about 40% of your aero portfolio, and that business was up, I think, 7% in the first quarter. So can you maybe talk a little bit about the visibility that you see here? I think you guys are calling for continued growth to maybe help some -- offset some of what you're seeing in commercial.

Sure. Yes. I mean I think clearly, at least as we look into this year, we have a good backlog. We've seen good activity. That business should continue to grow for us. So I think in terms of 2020 visibility, I don't think there's a new story out there. As you get further out, we have to see. There's a few kind of unknowns. The election is an unknown budget. Deficits are an unknown. We have to see the new budgetary proposals. But given the state of the world, and there's still a lot of conflict and so on, I don't -- I actually don't anticipate a dramatic cut to defense budgets, no matter who you believe will get elected in November. I just think that the world is in a state where you have a defense buildup to some extent going on. You see tension across the globe, across many different countries, whether it's the Middle East, China, et cetera. And unfortunately, the world is not as stable as all of us would like it to be, and I think that's going to continue to get reflected in spend on defense.

Yes. That makes sense. And Darius, maybe just switching gears right to PMT. You ran this business during the 2014 to 2016 downturn. I guess maybe just starting off broadly, like what are some of the kind of similarities or differences that you're seeing today versus during that time frame?

Well, I think the biggest difference is that this actual phenomenon is deeper and more pronounced than in '15, '16. I mean I never saw a negative price for barrel of oil. I mean that is kind of a onetime thing that I don't know if we'll ever see again, but that was interesting. I think a few days, it was literally negative. So it's a sharper decline than anything that we've seen in '15, '16. But I also think it could be a sharper reemergence. Because if you think about PMT being -- having, let's call it, roughly 60% oil and gas exposure, there's a substantial portion of that tied to refineries and petrochemical and so on. But one of the things that -- and again, this is sort of an educated hypothesis is that I actually think the use of automobiles and personal vehicles is going to go up, not down. I think that there's going to be a resistance. And by the way, this is something we have seen in China. So this is another back to your -- one of your prior questions, Joe. This is something we've seen where the use of personal vehicles is going up, not down after the reemergence. And I actually think we're going to see that. And the use of mass transit is going to reduce, which means that the refining sector may come back actually very strong as the world returns to work. The automotive sector might actually do relatively well here. That bounce back can be fairly quick. That's correlated to when the world stops working from home, and goes back to the offices, the manufacturing centers, et cetera. So I -- although this is going to be a deeper hit from a PMT perspective and probably a much more pronounced revenue drop, I also think the recovery could be faster. So I talked about I don't anticipate a broad-based V-shaped recovery. If there's a place that we may see it, a V-shaped kind of recovery, would be in the refining sector where as the world comes back, it's going to need the gasoline, fuels, et cetera. So that's probably how it's really different. There, it really lasted the course of 6 to 8 quarters. Here, it could potentially have a faster recovery particularly if we have a medical breakthrough.

Now that's super interesting. For what it's worth, I think your educated hypothesis is spot on. So we were contemplating recently going down to see our in-laws down in Charleston via auto. So -- but anyhow, I -- so maybe just kind of maybe delving into that a little bit further and on the refinery side. What are they basically saying to you right now? Are they -- or is basically outage season done for the second quarter and as you kind of head through the next couple of quarters because a lot of it requires kind of on-premise that, that's going to essentially be shut down for now? And then I guess your expectation would be that they start to pick back up maybe a few quarters from now and start with the catalyst reloads again? And is that kind of the way to think about it?

Yes. I think there's -- especially on the fuels, there's going to be a very, very strong correlation to return-to-work policies. So as you start to see facilities, manufacturing centers open back up, we see a strong correlation to what's going to happen to our refining business. And that's how our customers are thinking about this as well. So unlike maybe the commercial aerospace segment, which I think is going to take a bit longer because the dynamics are different, and then you're traveling with 100, 200 other people and the level of discomfort is much greater, the personal auto situation, it's a whole different ballgame. So I think that the correlation there is going to be very close to a return-to-work environment. And we think we could see some upticks coming back. And it's, as you correctly pointed out, I mean especially in April, we saw some refurbishment work, some of that kind of activity taking place. But some of the fuel and jet fuel operations have been shut down or mothballed for a while because obviously there is a need. So we anticipate some level of recovery here as we head into the summer and the fall.

And then maybe just touching on HPS for a second. You've had really good backlog. It's been building the last few quarters. Are there projects within the backlog that are being delayed or canceled? Or do you expect like a pretty decent burn this year?

Yes. No. Actually, that's been pretty good news. I think out of entire backlog, we had something like $26 million of total cancellations, which I view as next to nothing. So there's been a few -- there's been certainly a little bit of pushout but very few cancellations. And actually, if I kind of compare the level of cancellations that we had in the '16 time frame versus at least now, it's been better. I mean this time has been better. And I recall back when I ran PMT, our level of cancellations was much higher. Now we're not out of this by any means, and maybe it will grow, but I think so far, so good in terms of the number of cancellations. There's obviously been some pushouts, access to some facilities constrained. So the -- although the backlog is still there, our level of execution of some of those projects, both on the project side as well as service side, has probably been a bit slower than we would anticipate and we would like just because access is somewhat limited. But the good news is there haven't been broad-based cancellations at all.

Got it. Darius, maybe just switching gears a little bit and talking through the cost actions. You guys announced a pretty big restructuring plan this quarter. About 60% is expected to be structural. Just maybe talk a little bit more about what the structural element of this plan is. You guys kind of -- you mentioned that you put it together fairly quickly, decisively in March. Maybe just talk a little bit about the structural piece of this.

Yes. I mean I think, obviously, as we look at the structure part of this, this is where -- because I'm kind of relooking at our whole strategic plan, and -- whether it's the 4 objectives of enhancing organic growth, expanding margins, better cash conversion, more aggressive capital deployment, all those 4 things will still apply. And then kind of the 3 things that underpin our strategy, which is Honeywell Connected Enterprise, our transformation to a software industrial, Honeywell Digital and an ISC transformation. Well, the only thing that I wish about those 3 initiatives is that we were further along because they are extraordinarily applicable to the environment we're in. And one of the things that we're now able to do is accelerate some of the benefits of things like Honeywell Digital. And that's where we've been able to take out some of the structural costs because we're automating some of the more -- some of the labor-intensive tasks. We've been able to reduce some G&A because of that. Where we're protected from a structural perspective is our growth investments. I mean other than one project that I can think of that frankly is going to get delayed in terms of demand, we have taken zero CapEx reductions on growth capital. And one of the things that I've been very clear about to all the businesses is that we're not going to be -- we are not going to be taking funding away from the growth areas of our business. And we've been able to do primarily through G&A, through indirect cost, which has been by readjusting a lot of our indirect overhead to our volumes. That's kind of where we've been taking a lot of the structural cost out. But -- and then some of, I think, an opportunity to kind of refresh the bottom tier of performance and so on. So that's kind of how we focused in terms of the structural cost reductions. And I can tell you that Phase 2 that we're working on right now is going to be primarily structural. Because the temporary stuff, things like furloughs and so on, I mean those are great, and sometimes they're the fastest things that you can enact in quickly. And that's what we did in Q2 because we knew we had that quickly, and structural cost reductions take more time to execute, to go through all the legal proceedings and so on. But the problem with temporary ones is they come back and they become a major headwind for you in 2021. And we're trying to really -- we're not just thinking about Q2, Q3 and Q4. We're really thinking about how we position the business for a robust recovery in 2021 with growth and attractive margin rate expansion.

No, that makes sense. I guess maybe 2 follow-ups to that. I guess the first one being when you think about the benefits coming through of the plan that was already announced, call it, Phase 1, should we be thinking about, call it, 70% to 75% coming through in the second half? And then as you think about segment margins, I mean does that basically imply that your segment margins could be potentially up in the second half of 2020?

Well, that's hard to say. I mean that's volume dependent. Like I said, we lifted our guidance for a reason because I think it's just too hard to tell. But what we're trying to do is we're trying to protect the margins as much as we can and minimize the level of decrementals. That's really the core objective. As you think about Q2, Q3 and Q4 of this year, obviously, Q2 is the -- when we put the plan into action. So I think the level of benefits that you're going to see in Q2 will not be high versus Q3, will be a lot more in Q4. We should see just about most of it, if not all of it. Phase 2 of our plan will -- like I said, we're in the midst of actually creating that plan. It should be completed certainly before the end of Q2, if not sooner. And we're going to be implementing it in Q3, Q4, and some of it may even bleed out into Q1. But -- so I think it's reasonable to assume that the impact from Q2 will be relatively small versus what we'll see in Q3 and Q4 because some of those actions can't be implemented immediately.

Got it. And then I guess just as it relates to Phase 2, I know that it's in progress, and you mentioned it was going to be kind of deployed by the end of June. So I guess just from a size perspective, like how does it compare to the Phase 1 plans? Or what can you tell us about Phase 2 that you're ready to disclose at this point?

Yes. Phase 1 plan was $1.1 billion to $1.3 billion, call it, 30%, 40% was temporary in nature versus structural. I think Phase 2 will be primarily permanent in nature and not as big as Phase 1 for sure but still several hundred million dollars in impact.

Okay. Okay. Fair enough. And then maybe switching gears, we haven't talked about SPS yet. Just a lot of interesting dynamics happening this quarter, given growth was down but Intelligrated backlog up 40%. So I know you expected Intelligrated growth to kind of reaccelerate here in the second quarter. I guess how much of that is dependent on just being able to access facilities? And just line of sight that you have to that growth?

Yes. I mean that is the limiting factor because as you saw in the Intelligrated business, our backlog is continuing to go up. If there's a business that's benefiting, it's probably -- I would say there are 2 core businesses that are really benefiting from this, maybe 3 from this pandemic. One is Intelligrated, obviously. E-commerce and supporting e-commerce around the globe is going to become even bigger growth opportunity, and it was already large. You saw the kind of backlog we had. So the only limitation is the execution of that backlog. Yes, and there have been some challenges around getting the right trades to the warehouse sites and so on. So I'll expect a few bumps, but the good news is that the opportunities and the growth opportunities continue to be there. If anything, they're accelerating. I think it's going to be a very exciting business for us. The second part of SPS which is just taking off at an incredible rate is our PPE business, and it goes beyond just N95 masks. I mean that's a big part of it. But when we look at gloves and face shield, eyewear and a lot of the other PPE, that's really taking off. I talked a little bit about the Rebellion cameras, which we're introducing for the healthy work environment that we just literally launched that yesterday. We think that, that's going to be a really nice opportunity. And the last one, and although it's not a big part of the SIoT business, our sensing business, we do make the sensors for the ventilators. And I think -- we think that, that's going to drive a lot of demand and is driving a lot of demand here in the near term, although I don't think that, that's going to be ongoing. I think the world is producing a lot of ventilators right now. There's going to be this big spike in production, which is probably going to happen over Q2, Q3 and maybe into Q4, but I think we're probably going to have ventilator. So those 3 businesses, we're seeing some very, very aggressive demand. And that's going to really help us not just in the second half this year but will really carry over substantially into 2021.

That's good to hear, and I appreciate the details there. Maybe with -- given we have a few minutes left, I did want to kind of touch on balance sheet and cash flow as well. You completed your full year buyback in 1Q, but you did leave the door open for some additional deployment just depending on the market environment. So I guess I'm just wondering from your perspective, like what would have to happen in order for you to be a little bit more opportunistic?

Well, like I said, as I talked about in our earnings call in April, I mean I think it's probably best to take a little bit of a pause and a wait-and-see approach here in Q2. I don't anticipate we're going to be particularly aggressive on buyback, et cetera. But I -- we certainly wouldn't be afraid to look at that in the second half of the year. I think, obviously, our stock price is at an extraordinarily attractive level right now. And I think it's -- it doesn't reflect the kind of execution, the kind of growth potential that we can still do even in this troubled time. So I wouldn't have any hesitancy at all to continue our buybacks programs. But I also want to look at M&A because for a couple of years now, I've been talking about how it is a seller's market, not a buyer's market. But that calculus may change in the second half of the year. And I think it could become a bit more of a buyer's market and the valuations may be better and different. And that's something that we want to partake in. And I think the strength of our balance sheet is going to be a tremendous advantage now more than ever because whether -- even in this middle of this pandemic, we have a pension plan that's overfunded. We've got plenty of liquidity. We're going to continue to generate cash. And I think that, that is a big, big differentiator for us to be able to be active and continue to deploy cash and return it to shareholders, whether it's in the form of buybacks or M&A and so on. And I think that's -- I think it's a big opportunity for us. Maybe not so much Q2. But as we look at the following-on quarters, we think that, that's going to differentiate Honeywell in the marketplace.

Makes sense. I think just real quickly on cash flow. I know that you basically suspended guidance for the year. But when you think about free cash flow, is the expectation that you can still kind of convert in this environment close to 100% of net income?

Well, I could tell you what's challenged. I mean receivables are challenged. I mean we spend a lot of time on our receivables because getting a lot of the industries that we serve are challenged right now. Obviously, I'm talking about aerospace and oil and gas, and that receivables have been a challenge. So that's something we're very aggressively managing. It's something that even gets all the way up to my level to manage because I think we have to be very efficient. So I think that, that's going to be the challenge for us this year. We're also aggressively adjusting our inventory levels to kind of the new reality and of the reduced volumes that we're going to see. But I would tell you that the biggest -- single biggest challenge right now -- and by the way, this is not unique. We see this in every recessionary environment. I saw it in '15, '16. I saw it in '08, '09 is that whenever things occur like now, you get -- you have trouble with collections. And we haven't had any write-offs yet. We're staying on top of that. We're getting into payment plans with our customers. We're aggressively engaging. We're not waiting, one of the things you don't want to do. You don't want to continue waiting and say, well, you hope you get paid. We're engaging in constructive discussions about how we get paid yet still support our customers. And similar thing, by the way, with our supply base. I mean we've had -- in some instances, we've asked for some help from our supply base. In other instances, we actually try to support it to make sure that we can support ongoing operations. So that's -- we'll see how that continues. We certainly hope that there isn't bankruptcies, that there isn't businesses going out of commission. That's obviously detrimental. But we even have a health scorecard, both on our suppliers. And we're having the same thing on our customers to help us manage payables and receivables.

And we're very close to bumping up on time, but I did want to ask you one last question to end this. Does the backdrop at all kind of change any timing of the priorities that you've kind of laid out before, being more of a software-oriented company, expanding your margins longer term? And maybe you touched on this a little bit, but you talked a little bit about kind of like emerging areas and demand as well. Just -- maybe just touch a little bit on how the backdrop has kind of changed or not changed any of those things.

Yes. I mean like I said, a lot of our core -- the 3 core things that we talked about, whether it's Connected Enterprise, ISC transformation and Honeywell Digital, I said they couldn't be more perfectly aligned with this pandemic. The only thing I'm disappointed by is I just wish we were further down the implementation theme. I wish that we had a couple more years under our belt. But on the other hand, some of the things that we're doing, especially on Honeywell Digital, are enabling us to take some of these structural cost reductions. So we're already seeing the benefits of that. But -- so it's not going to be some major shift in our strategy. I will tell you that kind of safety, EHS-oriented types of businesses that SPS participates in, I think that's going to be overemphasized. I think automation, greater use of automation, both in an office environment and manufacturing environment, could be something that we're going to be exploring sort of even -- we've always kind of had a regional-for-regional or local-for-local supply chains. That's -- I wish that was even more pronounced. I mean we're very aligned that way, but it's something that we're going to be emphasizing that much more and really aligning it much more that way. So I'm not sure that we're going to have a dramatic change in our strategy and then acyclicality. I mean I've always valued acyclicality. So from a portfolio perspective, I would always do a portfolio assessment, but I value businesses that can be less cyclical versus ones that are more. And obviously, that's going to -- it's going to cause us to reassess about the kind of new normal and looking at those kinds of businesses that can be -- cause us a bit less pain in a recessionary environment. Those are kind of the summary points of the strategic implications. So I don't think it's going to be a dramatic shift for Honeywell. But I can tell you that it is going to be probably a doubling down on some of these elements, particularly the digital ones.

Darius, thanks so much for participating with us today. It's great talking to you, and then I hope you have a great rest of your week.

Thank you, Joe. Enjoyed the conversation.