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

All right. Good morning, ever1yone, and thank you for joining us for the 2022 version of the Goldman Sachs Industrials and Basic Materials Conference. It's really nice to see some of you in person for the first time in a long time. So thank you for attending. We have the requisite disclosure statement on the slides right now for you to read. I'm not going to go through it in detail. With our first presentation kicking off the conference, we're really excited to have Honeywell's Vimal Kapur, who is the President and CEO of Honeywell's Performance Materials and Technologies segment. It's a segment that has a lot of real interesting things that are occurring, and it should be a really good growth driver for the years to come. I know Vimal has got a few prepared remarks, so he's going to go through some slides to start, and then we'll kick it off with some Q&A. Also for those in the audience right now, I will allow you guys to ask some questions as well. So feel free to raise your hands if you've got questions as we go through this. So with that, Vimal, thanks for being here.

Yes. Thanks for inviting and good to be back in person. Life looks back to normal after a while. I think it's -- all of us are bored of Zoom meetings. So a couple of quick comments. I thought it would get everybody up to speed on some of the baseline data for the PMT business. So PMT has 3 businesses within itself, the Automation business; the UOP, which is process licensing technology and catalyst business; and then we have a specialty chemicals business. So those 3 constructs constitute PMT. $10 billion revenue was 2021 last year. We had a pretty strong print in Q1 as many of you have seen. The business really -- one of the thing I always highlight is the 3 dimensions of the business. One is our markets. If you see our diversity of the market, it's pretty large. Our play in oil and gas is about 40%. When you add up upstream, midstream, downstream, petrochemicals, all that adds up to about 40%. So one of the thing effectively we have been able to do is to continue to diversify our business and make it much more broader industrial business. Our presence in manufacturing, pharmaceutical, utilities, construction has really grown. So it makes the business much more, I would say, deal with different cycles more effectively. Obviously, oil and gas has become more interesting since of late, and we always believe in petrochemical booms. I think that's there for long term. But we also believe now in gas and some -- a bit downstream, there will be a lot of activity here. From a geography perspective, again, very balanced. 35 is North America, a little over 20 is Europe, but very strong presence in all high-growth regions. And then kind of half-and-half mix of short and long cycle. That's interesting proof point was, last year, how strongly we recovered. We grew almost 7% after 2020 and pretty strong income expansion. And as this year comes in, we are building more backlog for long cycle, and hopefully, that's going to help us for next couple of years. We had Honeywell Investor Day in March 2022, about 2 months back now. And one of the things we did was we revised our algorithm for PMT, and many of other peers in Honeywell also did it. In PMT, we really believe our next few years are very good time ahead for us in terms of markets. And we do believe that now we have a momentum for mid- to high single-digit growth rates, we feel very confident about it. And on the margin expansion, we believe we have a pathway to 25% margin on a long-term basis. And that's really on the strength of our core markets, which I talked about, but also 3 focus strategy, which is in the middle of the chart. We're focused on sustainability. As our customers are looking at sustainability, and I'll come to that in a minute, we see a lot of growth opportunity here for our UOP business and also for our Process Solutions business. And also our core Specialty Chemicals, which is in the heart of sustainability. So that's like a very high CAGR. We have a very huge focus on life sciences. We're building our strong business in that space. And digitization helps our automation business. So those 3 growth drivers, when you couple that with base, really helps us to kind of grow higher than the run rate, and that's kind of our growth thesis, which we are executing. A minute on sustainability, something which is growing very rapidly. And this market is expanding. This is a market being defined as all customers want to decarbonize their assets, more and more technologies are going to come in and define the market size. We believe the market is like $12 billion, growing at double-digit rates. We had a sales of $200 million last year. We have a very, very high confidence that this will become $700 million in 2024. It means, of course, we'll go from a $200 million to a clip in 2022 and we'll get to that number. Around the reason we feel confident about is that we had a lot of core technologies in UOP for many years, which are becoming basis of creating this value, the technologies in membranes, the technologies in hydrogen, our renewable fuels. This is nothing new for us, but the world is becoming more amenable and adopting these technologies much more quickly, which is really -- this is my last chart, I just wanted to wrap up on this. That from sustainability technology, we have a play in a variety of offerings. And I think we have one of the most diversified offering base, starting from Net Zero solution. The Net Zero solution consists of renewable fuels business, our business in clean hydrogen and carbon capture. We are really seeing a great momentum in that. Just as an example, in renewable fuels, we have licensed 26 units, probably number is even higher since we built this chart. We keep winning here. So that's really growing a lot. We see a lot of momentum in hydrogen and carbon capture. We will make announcement of one of our big carbon capture partnership, hopefully next couple of days. So you will see the market coming back in real commercial [ business ] there. A lot of momentum in plastic circularity, something which we all have to learn, that how we -- while we all do a good job of putting our plastic waste separately for organic waste, the question is what happens after that. And that's the business we are trying to be able to work with the base collection companies. Energy storage, I'm very excited about it. indiscernible] wind and solar has to grow. And if you have to think about the baseload, storage is necessary to eliminate thermal power or gas-based power and the storage requires controls because batteries can't run without effective controls, which is core business of Honeywell. So we actively move to energy storage controls. Several wins we announced have been with Hecate Energy in our last earnings call. Very big contract. And we're expecting that business momentum to pick up. So all in all, we believe that sustainability is a real business for us. This is not something which is nice to talk. And we are using the strength of this and other growth factors to really drive our business growth. So in summary, we feel good about 2022. We think after a strong Q1, we'll continue to deliver. I think the only unexpected headwind as a business professional, I can say, was Russia situation. We had, of course, a large exposure to refining oil and gas. We had exposure there. But I think on an overall basis, there is enough activity to offset that on a midterm basis. So it's a near-term issue, but we are still holding our commitment for the year in spite of that. So with that, Joe, I'll hand over back to you.

Yes, Vimal, thanks so much. Look, you took a 3-year hiatus to go run HBT before coming back into the PMT business. As the last 2 slides showed, real incredible evolution and a lot of interesting stuff going on. I guess maybe just start off by like what are you most excited about in that business? And how has it evolved in the last few years?

I think since I left in 2018 to now, the last 4 years, that change has become the impetus on sustainability and digitization. I think I used to talk about it a lot in those days, but the adoption is real now. I mean the sustainability -- I mean, we're all aware, there's no company which doesn't have an ESG strategy or a public commitment. So that certainly is helping us a lot. Digitization adoption has matured. So that's helping us drive a lot of growth in Processing Solution business. And we took as a company a very mature and measured approach in life sciences and invested a lot. So I think those 3 things collectively have changed PMT to be a much better business, and we kind of will keep driving it to the next stage.

Yes. It's interesting. So let's unpack some of this, right? Because you guys, about a year ago, you put out an addressable market of like roughly $9 billion for these 5 different technologies. I think you've highlighted energy storage and carbon capture as 2 key wins. I think you just mentioned also that you're hoping to announce something on the carbon capture side soon. So maybe is that really where you're spending a lot of your time there, because they seem to be like the biggest opportunities? And then how do you win in those areas?

So we see different technology in different stage of maturity at this point of time. The highest interest we see in the 2 areas, renewable fuels and energy storage. We have an active business, and that was the basis of revenue, and that will grow even at a higher rate in 2022. Many customers have invested in renewable units and retrofits into their refineries. That's a big move. On energy storage, it's becoming real. As people are investing more in wind and solar, they're really realizing that energy storage controls is a necessary part of the solution. So those are actual revenue stream. It looks like kind of very close to business as usual. We made proposals. We go and review business opportunity with the customer. Then there are other areas which are more in the commercialization phase. I think hydrogen is in that space. We have a lot of activity going on in clean hydrogen projects with many refineries, both in U.S. in particular. And the carbon capture. I think, hopefully, some policy decisions which got held up, they move on quickly. That will just also give more momentum to carbon capture. So those are, to me, are more in commercialization phase will soon start expanding revenue. And then the other two are more mature. And final area is flow battery. We are investing a heavy amount of R&D effort to create new battery storage technology, because lithium-ion battery have limit on how many hours you can store. They're also susceptible for fire and, most importantly, are rare metal, which we all are dealing with. So our flow battery technology is based on exactly opposite. It's not rare metal, it doesn't catch fire, and it can store energy for longer term. So we are making significant R&D investments. It's again on the core sectors where UOP has a lot of know-how. And turning that into a viable project, we announced our partnership with Duke to test that technology. We're shipping them our first unit soon, and we are announcing -- are working with other utilities. So that's another segment which probably is 2025 onwards. So we're putting different seeds of growth to grow the business, both now, next year, 2 years from now, 3 years from now. So it's really exciting.

Yes, that's awesome. I like the way that you broke that up. Also, just the opportunities that you see today that are more mature on the renewable side. I know you guys have highlighted your Ecofining technology. And so maybe describe what that's doing for you in the market? And then also, just on the renewable fuels, what's the limiting factor? Is it infrastructure? Like how do you see this kind of evolving over time?

I think the market interest in renewable fuel is huge, a number of units we have licensed. Surprisingly, most interest for the last 6 months or so has come from Asian customers. And the reason for that is the foundational limitation in this market is becoming raw material or supply side. So for you to use renewable fuel, you use what we call fats, oils and greases as raw material. As everybody learned now, those prices have gone up. So the supply constraint is really the reason how many more units we can put in. So we are doing two things about it. One is we are creating more better catalysts so that you can use more diversity of these. So that's giving customer more optionality. So you have more choices. And then we are actively looking at next generation of raw materials. We announced our partnership with a company called Alder Fuels, which is looking at woody mass. Woody mass means not wood, but wood waste. So you can take wood waste and convert that into renewable fuels. And even more interesting options which we have not yet announced. So we are looking -- we know the constraint. It's supply side. And if we remove the supply side constraint, the demand for sustainable aviation fuel is very high. And green diesel was always a high demand there. So we think these markets will remain in a strong momentum for next couple of years.

Got it. That's super helpful. I want to move on to advanced plastics recycling. That's another one that you've talked about. I think you showed some examples of some customer wins. Just maybe elaborate what you're hearing from both petrochemical and waste management companies on your technology.

It's probably one of the most interesting segments, which is it's creating a new segment in itself. Because on one hand, we have waste collection companies which collects waste and then separate plastic, and they will use mechanical recycling. And they have a business model that they separate the plastic through mechanical recycling, and they have revenue stream, they know how much money they make. They are not -- they haven't invested ever in chemical recycling, and they neither know petrochemical customers who will buy the output of this unit. On the other side, petrochemical customers do not know these waste companies. So we are in intermediatory, which is trying to create a new industry to tell both people, "No, our unit technology works." So if you're a waste company like a public waste management, just an example, please invest money, buy the UOP technology and you can have chemical recycling. And here is the economics and relative to your mechanical recycling. So they kind of ponder over it. And then petrochemical companies, they want all the offtake as early as possible because of the consumer pressure. If those consumer goods company are committing more and more sustainable packaging, they are telling their converter, go and find plastics which are sustainable. And then they can go call to a petrochemical company to say, "I want that, give me that." So consumer pressure is going back to pet-chem companies. And any capacity we can put, I think the offtake happens in a matter of weeks. So it's an interesting segment. I think as economics settle, I do believe that this is going to become an important part of our revenue stream for licensing technology.

So you're becoming a broker?

We are essentially teaching people that this is workable. We're spending a lot of time with waste collection companies. We announced 2 partnerships, one with a Spanish company, Sacyr, and one with a Houston company who are headquartered in Houston. So that was an obvious one to partner there. And I think people are learning from there. They're saying, "Tell me more about it. I mean, how the math is working. Can you share?" So that's creating the desired interest. And we see strong interest in this business from China, from Europe. And it's very diversified. I would say Middle East. So everybody is trying to learn how to collect waste, how to separate waste and do the recycling. And recycling is new for maybe oil and gas industry, but it's -- think about steel industry. We have been recycling forever. They take old stuff and push it back. Glass is recycled. Paper is recycled. So there's nothing new about it, but I think the concept looks very intriguing. But if you look at the holistic picture, yes, many industries have been doing that for many years.

Do the petrochemical companies have to do anything on the back end to convert?

We are testing our, what's called virgin oil. And we have proven that without any unit modification, they're able to use it. Now if some unit modifications are required, we'll have to work on that, but we don't anticipate any major capital investments.

Okay. One last one on this, and then we'll move on to some more of the near-term stuff. But like the hydrogen opportunity, I'm assuming when you're talking about commercialization right now, it's really all about blue hydrogen. Like what needs to happen for -- to make like green hydrogen a reality?

Look, we are present in both segments, blue and green. In green, Honeywell has a participation by membranes, which will purify -- in electrolyzer, you need membrane to purify water and separate into -- so we have a play in both. So we want both of them to grow. So we don't have vested interest, A versus B. In electrolyzer, the limiting factor to your question is, for the electrolyzer to effectively produce a green hydrogen, the input should be green electricity. Because if you are powering electrolyzer from an input from a thermal power plant, then the very purpose of climate emission reduction gets defeated because it's very energy-intensive process. So till the time any city doesn't have excess renewable power, the case for doing electrolyzer by itself defeats the very definition of climate change. And that's the metric which really have to see that does that city or state -- I would say state, because grid operates at a state level. And we see that time is going to -- because the buildup of renewable is happening, it's going to take a while for buildup to come to the scale so that it become net accretive and you can set up electrolyzer. And then technology by itself, getting the value, the commercial proposition that it's close enough and attractive. So we believe that green hydrogen will scale, but probably more 7, 10 years from now. A lot of demo projects happening right now. We are absolutely part of it. But policy needs to support blue hydrogen because some of the incentives are necessary to make some of the projects more viable.

Makes sense. So you put all this together, right, and you take a look at the PMT growth outlook, long-term sales CAGR, mid-single digit to high single digit. How do you -- when you take all of this, how much is that expected to contribute to PMT growth? Can we think about it as like 1 point, 0.5 point, 2 points? How do you think about that?

I think if you look at all the 3 segments we have, between chemicals, automation and UOP, I think the -- what I talked about impacts both the UOP business and our Automation business. Automation business gets impacted due to energy storage controls. So we believe that automation business will grow in mid- to high single digit because of that momentum. Because automation typically grows at MSD. So that allows them to grow from MSD to HSD algorithm. UOP needs this wave to come so that the core refining petrochemical, which everybody was cushioning, will survive or not. This offsets that downturn, which was potentially imagined. But I think for near term, we don't see that. So I think a combination of sustainable technologies we are launching allows UOP to also grow at the same rate. Apart from the Catalyst business growth, the process technology grows into more sustainable technologies. So I think it all then comes together. And Chemical business is doing extremely well with the momentum in specialty chemicals in our refrigerant business. So I think all 3 businesses are really into the same range, up mid- to high single digit. So we're really not dependent on one particular segment to really outperform for us to maintain this momentum. And that's why we feel really confident on the forecast which we are giving right now.

I'm going to open it up to the audience in a minute, but I did want to ask you about the LNG opportunity. A lot of discussion, particularly with what's happening in the geopolitical environment right now. LNG is really at the forefront. Just talk about your offering in LNG, how you see kind of like this next wave helping your business over the next 5 to 10 years?

So we have 2 plays in LNG. We licensed technology for gas pretreatment, because gas has contaminants which you cannot push for compressions. You have to clean it up. UOP licenses technology in its typical model followed by sale of absorbent on a life cycle basis. So that business is a very stable business. As an example, Qatargas, which is a well-known LNG company in the planet, has been UOP customer for decades. And as the new companies are coming, they obviously are using the same technology or changing the business model and asking us to give more modular equipment for the pretreatment rather than just giving the technology. So our contract values get substantially higher in that case. The business model still remains the same. We are still going to get aftermarket, but the front-end value just goes up. Similarly, in Process Solutions, typically, customers used to give us only control system contract, but now the scope is becoming much more main automation contractor because they want risk management, want us to take more scope. We've proven that model very well in a couple of LNG projects. So I think both sides, we have an opportunity of, say, standard offerings and then extended offerings. And depending on the customer, I think we are seeing opportunity based on the segment, some customers like modular equipment, some like only license, some want bigger automation scope, some wants basic automation scope. And we just go based on what customer needs. The good thing about this industry is probably there are 20 customers, maybe 25. It's not very hard to go and have this engagement, have this conversation. And we're pretty excited about next 2022 and 2023 when all these decisions will get made. For the new investments in the next 3 or 4 years, this new capacity will get set up. So it's a pretty exciting time for our gas team to go and win all this business, and we'll win our fair share in the space.

That's helpful. And my follow-on question, as you kind of think about project evolution, right, UOP usually comes in early, HPS maybe comes in later. Talk about how that kind of helps with your visibility and your ability to go to these 20 customers and ask for the...

So for most of these segments, we actually have only one sales team. We don't have -- there's no necessity for us to go -- so we have our sellers, they book hand-in-hand and strategize. There are certain segments in which UOP has confidentiality and then HPS stays away until the time project is publicly announced. But for most part, we do have a very collaborative approach. Like in whole space of sustainability, we just work together as a team. So that certainly gives us sort of momentum. Our win rates, when UOP license this technology for automation business, is extremely high. it should be. I mean, shame on us if we lose it. I mean we should be cushioning our execution ability in that case. So we do a pretty good job. Not we won in 100% of the time, but it's pretty, pretty high numbers for our success rates.

One last one for me and then I'll go to the audience. Just when you think about your share of wallet in LNG, what's the kind of right way to think about your opportunity?

I think in each segment, number of players are quite limited. So I mean this is a very consolidated space. UOP will have limited number of competition in pretreatment. Actually, our opportunity for pretreatment is limited by the gas feed. If the gas is clean, we don't have opportunity to clean it. So actually our competition is the raw material in that case. If you go to gas feeds, like Exxon has Papua New Guinea, and those you need less pretreatment because gas is inherently clean. So UOP will have 1 or 2 competitors in this area. HPS, I would say, for a practical matter in the LNG space is only 1 competition, which probably everybody understands who it is. And I think it's a 2-leg race, and we both win. I mean nobody is going to give us all the business or them all the business. I think both have a fair chance to win a very high amount of business over the next couple of years.

Yes. That's great to hear. Going to the audience. Anybody have any questions? I think you've got a mic coming.

Just two-part question on automation. Number one, I'm curious to what extent supply chain issues are limiting your ability to serve or affecting customer demand. Number two, I'm curious about your perception of the sensitivity of automation to an economic downturn. So given some of the secular discussion points you made, if there's a downturn, does that affect automation demand or do customers view this as perhaps less discretionary than it used to be?

Sure. On the supply chain constraints, I would say, the disruptions have been -- we have been -- I would be careful to say we have been lucky not to see large disruption. Because in this space, anybody can get surprised for the supply chain, so nobody should claim victory. That, I don't have any problem. Nobody is excluded. What we have done effectively in Honeywell is to establish our relationship directly with the chip manufacturers, because we pretty much use similar chips in -- not in my business, but also in our Building Technologies business and also our warehouse automation business. They have very similar automation system. So think about you working directly with a chip manufacturer like, just give an example, like NXP, as an example, or ADI. So that's really helping us C to C level engagement to get to understand their challenges, our forecast. So that's how we are really mitigating that risk. This is here to stay. I mean, anybody can get any quarter, so we work extra cautious to make sure that we are planning 6, 9, 12 months ahead and making those kind of commitments. So that's how we are dealing with it. It certainly is impacting growth to a certain degree. We are capacity constrained, but not material enough to impact our financial results. We're missing a window of opportunity of extra couple of points of growth, but not scary enough for us that it just can push our results into big issue. On your question on sensitivity of automation. I think as you have seen the cycle of any industrial cycle, depending upon the process industry, which is in the front end of it, will impact the capital spend. And the way we are offsetting that is we are diversifying our automation business to much wider industrial base and much more exposure now to industries, which are much beyond oil and gas. We're very -- we have emerging presence coming up in pharmaceuticals, in specialty chemicals, in metal minerals. So that's really diversifying the business. And the whole thesis is that any cycle impacting any industry should impact us less. The interesting part of our automation business is our installed base. We have one of the largest installed base. And to your question, that is cyclical, because nobody shuts down their manufacturing because it's a downturn. It's very expensive. Those capital assets are -- everything starts with B, and you don't want to ship them off as we all know. So our aftermarket services business in automation is very stable. Even in worst time, I've seen 2 times now, in 2015 and 2020, it doesn't drop a lot. I mean it may have a blip for 2, 3, 4 months. It just comes back. So I think that's our strength. We have been pretty strong in building aftermarket business all the years, and that's a bigger part of our business. And that keeps our income stream very stable in HPS. But the same is true in UOP, our income stream and catalyst business is extremely strong. And again, the same argument there. I mean people continue to run their petrochemical units or refineries. They don't build a new one, but they don't shut down the existing ones and they keep buying aftermarket products from us for that.

Vimal, maybe on that point, can you talk about maybe some of the lumpiness we saw this quarter across the businesses? Because I think UOP was down 9 and fully recognized at 7 points, so that was Russia. But you saw much better growth across your other 2 key businesses. And so just maybe help contextualize why UOP was maybe a little lumpier this quarter?

So UOP business, I think the aftermarket segment is doing extremely strong there. I think we predict a pretty smooth year for that. For 2022, we have a very good backlog. The lumpiness is the projects business in the front end, and that's driven by the Russia, we have to wind down our operations there. So that, of course, took a big revenue hit. And then the timing of different projects relative to prior year. It's just the cycle. We had a lot of backlog conversion time. Q1 last year versus Q1 this year, it's just a different timing. We expect the timing plays out differently as the year passes. And we're also anticipating more projects getting decided. So we'll have more licensing and engineering revenue in the second half of the year. We do see more activity coming. And we are pretty hopeful that those are going to materialize. And because we are deeply engaged with the customers. So it's not a hope and a wish, it's based on facts. We know these projects are going forward. And when they announce it, then we can recognize a large amount of licensing revenue. So yes, so there is a licensing activity, which we anticipate to pick up a little bit and then some of the timing of our equipment orders, which are planned differently this year versus prior year.

Okay. And then I'll follow up with a question, go back to the audience. You put up roughly 6% organic this quarter. How much of it came from price? And then just like how does the pricing mechanism work across each of the key businesses?

I think pricing, we're getting across all the 3 businesses. I won't -- I mean our pricing in Chemicals business is highest because inflation also there is the highest, because we are seeing more inflation in commodities which we use as raw material for our Specialty Chemicals business. So pricing is also high there. But we're getting equally good price in HPS and UOP. So I would say Q1, we got larger amount of our growth in price versus volume. But as the year progresses, our comps are going to become more tougher for price because Honeywell has been cutting price since probably late Q3, Q4 last year. And we are going to get more volume as the year progresses and price will continue. I think we have shown 2 quarters in a row, PMT in particular, that we're able to expand margin in spite of tough inflation. You saw our print in Q4, you saw our print in Q1. We learned a lot on how to execute on price. It's a new skill, how do you measure, how do you know SKU level issues, how do you pass it on to customer, how do you train salespeople, how do you value sell. And it has been new learning. And I think it's going to help us to sustain price as a growth lever for many years to come. I mean, we all used to count 1%, 2%. We're all used to it. I think that paradigm has shifted. The paradigm has shifted forever, and I think we are all cushioning ourselves. Why we are happy with 1% or 2%? Maybe the algorithm could be higher. Because we are not really challenging that mindset of our organization, and that skill set is going to happen -- definitely help us for next several years.

Any other questions from the audience? Or I'm happy to continue. Let's keep going. Long cycle. So you guys, on one of your slides, your business is roughly 50% short cycle, 50% long cycle. Just talk to us, I think the long cycle business was up 20%, orders were up 20% this quarter. Outside of obviously LNG, which we talked about, where else are you seeing opportunities for that business?

Yes, the Process Solution had a 20% orders growth in Q1. Very strong orders growth across all geographies. I won't wake up any -- only geography we did not grow materially was Europe. But Russia is counted in Europe, so it's like -- it's not apples-to-apples comparison. Now we see strong growth in Asia, in Americas, in Middle East. So we had a pretty strong growth across all segments. And also in projects, in products and in services. So it was pretty secular growth across all segment. And we are expecting the momentum to continue. Our pipeline is very strong. Our win rates are pretty strong. We have a lot of momentum going on our side relative to competition. One of the things we have been successfully able to do in automation industry is continue to drive differentiation and narrow down competition to one player in every major geography. We have successfully been able to do that. So we deal with one player in every geography. And that model helps us to keep driving our growth because you kind of have more -- every customer have to make choice between A and B. That's easier versus A, B and C or A, B, C and D. And that evolution, last few years, we have been able to successfully do. So every country, if you ask me, I'll have one competition. So U.S., name will change. Middle East, different name. Europe, different name. China, a different name. Some of them are same. Some of them are different. And that dynamic, I don't think many people have understood how the dynamic has changed. Honeywell is a constant name, but whom we compete keeps changing.

And the margin, I guess, that you were putting into that backlog, you feel good about the projects that are going in. I mean this dynamic of being in roughly like a duopoly in most of the markets that you're in. I think...

It's duopoly in the sense that, yes, customers have made a choice to kind of restrict competition between 2 players. Sometimes 3, but I think majorly 2. The margin rates are pretty stable in our project's margin and backlog, which we track every month. No material shift, which should make -- I won't say it's better or worse. It's pretty stable. That's what we like. Because our model is that we want to make enough money to make project proposition viable and then our razor blade model really aftermarket kicks in for 25, 30 years, and that's how we make our business. So we're executing that pretty well.

And one last question for me. Long-term margins, 25%. You guys are in the low 20s today.

Absolutely. Absolutely committed to make that happen. I mean, I've zero doubt in my mind. I think it's going to be a combination of volume leverage. As we keep growing, we have a lot of fixed cost due to our manufacturing base for catalyst and specialty chemicals. So imagine volume leverage we get on fixed cost, we can continue to get better at price. And productivity. Productivity in our supply chain, automation, digital. So I think all the tools Honeywell use is -- I mean between -- absolutely certain about margin rates getting to 25% on a long-term basis. I mean quicker, the better. I know everybody wants that to happen as early as possible, and we'll like it to -- we like to surprise everybody. And we can't commit a specific year, but I think anticipate good news there than anything else. That's something which we, Honeywell, execute very well.

Vimal, thanks so much for being with us.

Thanks for having us. And thanks for everybody for listening to us.

Great to see you.