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

We're going to get started again. Appreciate everyone joining us. For those of you who aren't at our first meeting, early risers, again, welcome to Citi's Global Industrial Tech and Mobility Conference. We are very excited to have Honeywell with us. We've got the Vimal Kapur. Vimal is the CEO of Honeywell. Vimal started at Honeywell in 1989. So he's been around for a little while. Vimal, I know you have some prepared remarks, so I'm going to let you take it away and then we'll get into questions.

Absolutely. So good morning, everyone, and I would say, 8 months into the role and feel excited about what's ahead for us in Honeywell. I think the strategy we have laid out is we're going to deliver good results in 2024, as we have guided, but I feel very confident for the times ahead. So a few quick comments. I laid out 3 strategic priorities, and I'm sure, Andy, we're going to talk about each one of them. Making progress on each one, whether it's our organic growth vector, something I'm very passionate about. Honeywell is well set up to -- with its macros of aerospace, energy and automation. And how do we play in those spaces with the innovation playbook, but also monetizing our installed base and high-growth region is something we are executing, and I expect that to deliver results for us. Operating system, always been a strength of Honeywell, the second priority. That's something which positions us well to operate this company as integrated operating company. One thing I'm proud of is both my predecessor did a lot of work to position us not to operate as a conglomerate. There are set up processes, which are heavily digitized; and capabilities, which give us a scale and the rigor we can run, and we will continue to improve upon that. And finally, the optimizing of the portfolio. I absolutely understand that we need to revitalize our portfolio. Bolt-on acquisition is our primary strategy. I believe that keeps the portfolio refreshed and also position us well. So across all the 3, we're making meaningful progress. Specifically on the priority 3 on the portfolio, the strategy is actually unfolding. You saw us making announcement on Carrier acquisition late last year. We expect to complete that during course of 2024. Right plays in the fairway of what acquisitions we really talk about, $1 billion to $7 billion of enterprise value. This was $5 billion. It aligns to our core of building automation. It compounds the growth of the core itself while it's a mid-single-digit growth, proven segment in it. And we're going to add value because this is what we do. And then 13x EBITDA, this doesn't take any sales synergy into account. That's just pure-play cost synergies. I mean I'll argue that we will do some and that's going to make this a very attractive proposition for us. And then Quantinuum, we made progress. The pre-money round valued Quantinuum at $5 billion. It's an exciting step in the journey of Quantinuum, more so as AI is becoming more and more prominent. If AI is true, Quantinuum is true. One of them is wrong. One has to make a choice which one is wrong because with the compute power acquired with the AI, you need quantum computing. And we're making progress in terms of the subsequent steps after the pre-money and we'll continue to execute to make it as an independent company in the times ahead. And if you see our capital deployment, it has been on an average $8 billion for the last several years. And this year, just on the fact we have to complete the Carrier acquisition, on a run rate basis will be $10 billion of capital commitment. I just wanted to remind that this is kind of our strategy on a page focused on 3 megatrends, automation, energy and aerospace, which really gives our algorithm of 4% to 7% organic growth and 40 to 60 basis of margin expansion gives us 6% to 10% of EPS growth just on the segment profit itself. Add to that, the share buyback, add to that accretion happening through smart M&A. 8% to 12% is our long-term commitment to our shareholders, that's what we believe is the adjusted EPS growth we can deliver and that's with our dividend. We've done that, and we'll continue to deliver on that. That's my job. So you can count on me and that's what I'm really working on to do that. And that's what I did -- this is where I really wanted to finish this chart, gives you the top is where our commitments are in terms of long-term targets on 4% to 7% organic growth; margin -- gross margin of 40%; and greater segment margin of 25%-plus; free cash flow margin of mid-teens; and adjusted EPS growth, which I talked about, 8% to 12%. And if you see our 2024 guidance, it's right in the range of each of those commitments and so is our '23 results. So the long-term flywheel is working and it will continue to perform in the times ahead, which excites me. So with that, Andy, I'll open up to you.

Vimal, thank you for that. So you mentioned you've been CEO over 8 months now. Maybe update us on where you made the most progress on your initiatives? You talked obviously in the prepared remarks about Honeywell Accelerator. Obviously, you've been focused on Honeywell Connected Enterprise. And then has there been anything that's been a little more difficult for you than you planned to make an initial impact?

I would say the first thing I did was, which we announced in October last year, simply where the Honeywell portfolio into 3 megatrends. One can argue, but that's Honeywell, what it was. We just readjusted some businesses. But to me, simplification is a pre-step towards growth. For us to grow and our organization to get clarity, what are the growth vectors, both organic and inorganic, you put it at North Star. So we started that. So that made a meaningful progress. The organization is up and running into these 3 trends and 4 businesses. Automation is too big to be run as one monolithic segment, so we have Industrial and Buildings as 2 distinct segments. So that I believe is a good progress. On organic growth, we are doing a lot of work on organic growth. And to your -- probably I'm going to steal the second part of your question, moving an organization of our size with 100,000 people to pivot towards organic growth is not going to happen in 3 months. It's not going to happen. But we are making foundational changes on how do we invest R&D dollars, how we do the product launches, how we create capability of the people to think about new products. And that's making progress and we'll see results of this as the time comes ahead. I feel excited about from an organic growth perspective on our focus on aftermarket. It's a very large part of our installed base and putting focus on launching offerings on aftermarket is going to be another playbook, part of our playbook for organic growth. And finally, the third element of our organic growth strategy is continued focus on high-growth regions. That represents 25% of the Honeywell revenue and double-digit growth there. We have delivered that for several years and that compounds our growth. So those are the 3 growth vectors, new products, monetizing our installed base and high-growth regions, and we're making progress on each 1 of them. On operating system, I really have pivoted to think about operating system by business model, and I'll spend a minute on that. Every time when you think of operating system, the immediate comes to your mind is this company is going to have strong operating system for supply chain, lean principles or procedures for commercial excellence, how we manage the sales force, which is pretty logical. And Honeywell did that over the last 10 years. What struck to me was when I started my role as Chief Operating Officer and all large companies have 3 or 4 business models, our revenue is concentrated largely in 4 business models. Projects is about $6 billion to $7 billion. You create installed base. Aftermarket services is about $11 billion. You monetize the installed base. Software is another $1.5 billion, again monetizing the installed base. And the products is the balance of $17 billion to $18 billion. When you think the business by business model, you can create a lot of value. As an example, aftermarket business is $11 billion. Now how do you -- what's the metric for monetizing an installed base? We have 8 businesses, which does that. They actually -- we have an aftermarket service business formerly in 8 segments. So how should I measure their performance? Their penetration rate in installed base is enough? Do they have installed base, so I can click a button and I can see it? So when you think about operating system in context of business model, that's the additional lever of creating value. And that's something I'm passionate about and that's the next chapter of Honeywell Operating System and that's where we are making progress. And finally, on the portfolio side, I shared the update. We continue to improve our pipeline, both on the addition and the subtraction side. So all in all, I would say making meaningful progress. The difficult part is -- or longer part is, I won't say it's difficult. It's more around the time it will take to turn towards both growth orientation and deliver the results.

Vimal, just one follow-up on that. Like Darius already was focused, I thought, on stepping up organic growth. Is there any sort of sea change in culture? Is this just more an evolution that you need to do there?

I -- look, there is no one action, which changes the company from one step to another step. And what we are -- what I'm constantly doing is that making those changes, which enables the organization, you have to free up the time to do something else. The question is, where are you going to free up the time to focus on something else? And then where do I and my staff spends time? I think that's a fundamental model shift to say if I spend 40% of my time on growth-oriented tasks, seeing customers, looking at new products, meeting with the offering manager, it changes the dialogue. So it's not question of is it a dramatic shift, it's a question of how we operate as a company. And that's what I'm doing right now and my staff is doing.

That's helpful, Vimal. So obviously, it's only been a few weeks since you reported, but you did say that the timing of the short-cycle recovery is a key swing factor when you guided to 4% to 6% growth. So can you give us some more color into whether you've seen any changes in the macro since you reported? Evidence of short-cycle stabilization recovery, maybe continued momentum in longer cycle? And do you have any concerns from certain customers that they may hold back on spend from the elections? A lot in there.

Okay. Yes, a lot in there. So I would say, look, we reported results just about 3 weeks back, so I don't have much to share incrementally. And we only have 1 month of results out, so it's not enough data point to share additional. But what can I share with you is that if I look at the year, as we guided, long cycle is half of our revenue. Our backlog is up 8%. So the confidence on long cycle doing well, whether it's in Aerospace and commercial aerospace and Process Solutions and UOP, they all have solid backlog for us to progress well for next year. The short cycle is a swing factor, and we have a moderate growth plan in that in the second half. And the reason I feel confident about it is there are 2 reasons. First of all, we are not looking for some major turnaround. It's a moderate shift, which gives us the upper end of our algorithm versus lower end of the algorithm. Just as a fun fact, if aero grows 10% and rest of the Honeywell grows 0, we grow 4%, just as a simple calculation. So just -- therefore, I'm not saying 4% is in the bank, but I just want to put things in perspective. But for us to go to 6%, some inflection is required in short cycle. And the reason I feel the inflection is possible in the second half is there are 2 foundational fact. First is the comps are easy. We grew much higher in the first half of last year. The second half became more -- leaner. So we are going to be comparing against lower comps, which positions us relatively easier. And the second is the self-help actions, which I talked about earlier, new products, pricing execution, aftermarket service, they will give us some help as the year scales. So we don't need to have some dramatic turnaround. So if economy behaves the way it is behaving right now, we should see that inflection. But what I feel confident is our finishing position in this year. What about I'm watching is sequentially we improve every quarter. Q1 is better than 4Q last year. Q2 is better. What it does is our finish this year is likely going to be at a very attractive point that positions us well for 2025. So all in all, I think that's where we guided for it, 4% to 6%. And if the economic cycle remains the way it is, there's a high probability case we can deliver on the upper end of the equation. But not a forecast teller, so we'll see how things shape up and we'll report to you in our earnings how things are progressing.

Got it. And customers really haven't said anything to you about upcoming elections, all that kind of stuff? Like they are just kind of...

Elections, I would say, I mean that's a bigger part of the economic cycle. To me, the way we have guided, we have factored the uncertainty or the dimensions of elections, which come in. And as we all know, it's not only here, it's many other parts of the planet are going through elections. So there's a certain element of it. But I think that's factored into what we have guided unless some dramatic shifts happen, I mean, which I would say will impact greater than what we have done right now. But for now, I think we have counted on it under normal circumstances.

So Vimal, stepping back, like I get this question for you guys, like we understand the need to be conservative, especially to start the year. But you mentioned several of your short-cycle businesses already muted, but your long-cycle businesses are strong. You had 8% backlog growth. So why didn't you guide to your longer-term algorithm of 4% to 7%? I know 4% to 7% is not that different than 4% to 6%, but -- and 40 to 60 basis points of margin expansion, especially as you talked about, you're ratcheting of new products, you're scaling your software business. Why didn't you?

I think it's consistent. First of all, the long-term algorithm is a guide. If we don't have to guide every year, then we don't need a quarterly earnings call. We can just read 4% to 7% and 40 to 60 and I can go home. So there's going to be small variability to that. So we have guided 4% to 6% and 30 to 60. And to your point, is the guide conservative? I'm not going to opine on that. I would say that if our views change for positive or negative as the year progresses, we'll update in our quarterly earnings call. At this point, we believe that based on the facts we see, this is the most robust guide we can provide at this point of time. Would I like to deliver on the upper end? Of course, I'd like to deliver on the upper end. But it's hard to give a specific commitment at this point of time.

That's helpful. And then digging into the 30 to 60 for margin expansion in '24, we know you've been talking about significant positive impact from direct material productivity and AI. Where are you in that progression in '24? And while we know you've talked about slightly positive on price versus cost, why shouldn't price versus costs get more green versus less green if you're doing all this stuff?

Yes. So let's first start with the price/cost. The price next year probably is going to be more in the range of 3% versus we delivered 4% this year. So the inflation has muted to a certain degree, but not gone away, and I've been consistently saying that gone are the days when price will be 1%. That era is definitely over. So probably it's going to be range bound to this number moving forward. Price/cost will not be a drag, but will not be a massive driver for margin expansion. So it's more of a neutral to slightly positive driver at this point based upon inflation. So where the margin expansion is going to come from for us this year? I think there are 3 factors. First is our largest margin business is going to grow the most. Aero is going to grow, as we have guided, double-digit. So that certainly helps, it's at 27% margin rates. Honeywell is at 23%. The more it grows, better it is from a mix perspective. Direct material productivity, we see back coming to normal levels since Q4. We had a strong Q4 for direct material productivity. As you saw our Q4 results, we were slightly light on organic growth, but margin expansion was strong and one of the driver was direct material productivity was favorable. So we expect that to continue. And we made a lot of investment to diversify our spend in multiple regions by setting up a lot of front-end procurement offices in many parts of the world. So that has been a big driver for that. And finally, I'm excited about AI from operational productivity perspective, and we're going to get tens of millions of dollars this year in '24 in our P&L from that. And it's in range of functions: it's in product development, product testing, customer service, technical support, legal. This technology is definitely transformational. Somebody shared with me, which is kind of a good anecdote to say, this is a movement of locomotive for industrial. Like locomotive was so broad, engine changed our life whenever it was invented, 200 years back. So you can do 100 things with the engine. This is something similar. You can do so many things with it and it costs nothing. That's the beauty of it. It costs very little and you can do a lot. So that's a source of productivity. So when you add those 3 together, the Aero mix being favorable, direct material productivity shaping up well and then productivity new elements opening up with AI, it just positions us well for our 30 to 60 basis points of margin expansion. And that's where Honeywell operating system really plays well. We are able to scale a strategy, maybe it's why I feel so confident about AI. Because our operating system has standardized processes across Honeywell enterprise at scale. We can deploy at scale at a much quicker speed. I don't have to argue with multiple people what to do and how to do it. Like product testing, we do all our product development in Honeywell Technology Solutions, which is our tech organization, which serves all our business units. We have a large body of people, right, from Mexico to China and India and Czech Republic, Poland. So they are adopting AI at scale. They don't need anybody's advice. They're just 1 organization, 1 process at scale. When you drive the machine, the machine works at a much higher pace. And that's where the Honeywell operating system coming into play: it helps us drive that higher level of productivity, which I'm really talking about.

So I want to open up to the audience in a second. But Vimal, you've already mentioned that Honeywell is on track to deploy more than $25 billion over 3 years. But as you know, Honeywell, at least when Darius was CEO, only was engaged, I'd call it, at a moderate level of M&A. So my question is, does Honeywell, in your view, have the necessary muscle to handle sort of multiple "Carrier-type" deals at the same time? Or maybe what changes have you made in your M&A-focused organization that could support increased activity?

I would say Darius really shaped the organization to create a much stronger backbone by which our ability to do acquisition is much easier, also add value given the operating system backbone we have, which is heavily digitized. So that certainly enables it. To your point on capacity, certainly in each segment we have active pipeline. And given that we have 4 segments, we have capacity to do acquisition in each one and that gives us more headroom. Carrier acquisition is in Building Automation. We have active pursuits in other segments, too. So I would say that we remain active, both on addition and subtraction. And our capital redeployment will be biased towards M&A, all things being equal. That's something which we are working on right now. And pipeline remains good. I mean activity level is good. We all are aware of competition from PE is in a different ball game today versus what it was 2 years back. I wouldn't say it's gone, but it's a different intensity and that puts strategic like us in a different position. So certainly, that's an element, which helps us in this environment.

Any questions from the audience? Any questions? One of these days the audience will help me out. Okay. So on Aerospace. You mentioned that anecdote, if it grows double digits, it really helps the company. So you generated 15% overall growth in '23. You guide to low teens for '24. But I think -- you talked, I think, at the Paris Air Show about widebodies being a bigger sort of contributor and they have significantly more revenue. So why couldn't you do sort of similar growth in '24 than '23? And just maybe the separate questions about Defense. The Defense slowed a little bit, as you know, in Q4. Do you worry about supply chain there? Are we past that? How do you think about that?

Look, the Aero growth is continuing to remain constrained by supply side versus demand side. It's a -- our demand is -- our backlog is -- remains very robust. Our booking remains very robust across all segments. So real constraint is -- and that specifically the supply chain constraint is not really narrowed down to mechanical supply chain. So think about machining, casting, bearings, these are certified products. So I can't even change supplier because if I change supplier, I have to change the whole product and recertify it, which is not hard to do, but of course, extremely time-consuming. So that's where the fundamental constraint is. So whether Aero will grow same rate as we grew in '23, first of all, levels are way more elevated. So comps are now at a growth rate we delivered. So -- but it's -- I won't say it's ruled out. Its supply chain constraints can play in either way. And what we guided is a high confidence case. Is there a case for further enhancement? I think as the year progresses, we can report that. Defense, in particular, yes, Q4 was -- had -- saw some constraints in the Defense supply chain, which has further nuances. But sequentially, it was better than Q3. And our bookings remain strong in Defense, specifically, we're excited about the new segment opening up for international defense where the bookings remain strong. We have expanded a lot our sales footprint in different countries where there's a lot more demand for this. And I think the overall Aero will remain a strength of Honeywell in 2024 and I will presumably say for a few years ahead, given how the backlog and bookings are for that segment.

So Vimal, you still feel good about Defense high single-digit growth even with continuing resolutions and all that kind of stuff?

Yes, it will be -- I mean, I think if any surprise will occur, it is how supply chain behaves within the defense sector. But I think fundamentally, we should see a high single-digit growth in Defense. But overall, the Aero growth will be double digit in 2024.

So I wanted to ask you about Aero margins, right? This is going to be the third year in a row, I think, you're around 27%, which is obviously still really good. But you do have this 29% target out there and you were up a little in '23. So why can't you again be up a little in '24? And what are the conditions that you need to see to get closer to that 29%?

Look, the Aero margins are -- the gravitational pull is around 27% as we saw in '23 and the fundamental factor is -- there are 2 factors. One is the mix continues to be biased towards OEM, which longer term is good news because we are creating more installed base, and installed base is getting created at a higher pace than history. So it means future of aftermarket is even more secure. But it comes at a cost of a mix headwinds, which we are facing at this point. Plus the investment we have made in supply chain. We didn't grow volume 20% accidentally last year, and we're going to grow volume in double digit again this year. That requires investment. We are hiring people for our suppliers. Sometimes we pay bills for that. We have a fair bit of investment of our supply chain folks across different elements of supply chain. So that certainly impacts the margin rates. And we continue to invest in R&D in the business. It's not that we are pulling that back because we have to protect our future. But if I pull the time forward, the reason we feel confident about 29% margin for Aero and we haven't changed our guidance is because this is not a permanent event that mix will always remain OE-biased. It will wind down to normal, which will give us the tailwind. The supply chain cost will wind down at some point when these things heal. And that's the case for a 29% margin. You can look at Q4, we delivered 28% margin. So it's not -- this is not something, which is a distant dream. It's a question of how the market is operating right now and some of that. But look, we are giving a double-digit earnings growth in Aero for 2 years in a row. That's what -- at 8% to 12%. It's doing -- I mean, last year, we grew our earnings by 14% in Aero. So at 27% margin rate. So it remains the -- one of the best franchise in the industry in terms of its end-to-end offerings from nose to tail and diversified end market coverage from commercial aerospace to business jet to defense and now urban air mobility. So that gives me confidence why Aero story is going to be good for many years ahead for growth as well as margin expansion.

So I just want to stick on the topic of margins. As I think about '24 and beyond, really Building Automation expecting to deliver your highest margin improvement again, has been the case really. And I think you ran that business, maybe it was you who started that. But like what makes it easier for Honeywell to generate margin expansion in that business? And can you translate that to the other segments, maybe to the new Carrier asset and get more cost synergies? Like how do you think about that?

The synergies come -- the margin expansion come in Building Automation by just using the playbook of Honeywell Operating System. Fundamentally, this business have deployed the Honeywell Operating System at more scale. And therefore, it gets the most leverage from operating margins. We started the business in 2018 at 18%. We finished close to 25%. And our long-term guide is 27%. Specific dynamics of 2024 is going to be new products, which have a higher margin than the base case. So that certainly helps. The supply chain leverage, this business has pretty much all volume coming from 4 factories, the $6 billion business, which gives us a lot of cost leverage depending on how the volume moves. So that certainly is a point which plays to its favor. The Carrier acquisition, the reason I feel excited about it, it's right in the fairway of what we do. Just to spend a minute on our Building Automation business model, we are a nonequipment-based business model. We work on products, which are specified in a building. That's our business model. These products are agnostic to the equipment. So think about we have leading position in building management system, which manages the environment in a building, HVAC controls, et cetera, and then fire systems. Security, we had a moderate position, but with the Carrier acquisition gives us a $1 billion enterprise. So we're going to have a good position in 3 segments in a building: security, in fire system and building management system. And that's our business model. We have a solution business in Buildings, but the solution business' sole purpose is to pull products to create installed base to get aftermarket. We do not install anybody else's product. We'll never do that. We are not an integration shop. This business, it pulls its own products into [ massive ]. It's the biggest customer of its product businesses. That's why you exist. So tell me how much products you bought, and then you create installed base, which is in billions of dollars. And then you mine the installed base. So the whole business is built upon product business model, which are specified. And we can add more to this franchise to keep thinking about what else is missing in a building. Can we add more products, which are not equipment related? And that's why this business model is very scalable and very profitable. And 27% margin looks very achievable. The growth rates will come back. We are a bit muted in the growth there for a while, but the growth rate will come back. And I feel excited about Building Automation business.

Vimal, maybe somewhat related is I know you've continued to emphasize a focus on high-growth regions. So maybe just stepping back and asking you about high-growth regions and then some of your other regions. You mentioned China still expected to grow mid- to high single digits this year. Double-digit growth with 25%, that's HGRs. And separately, you mentioned Europe is going to be neutral and negative. So like just update us on what you're seeing in HGRs versus Europe versus the U.S.

So 25% of the Honeywell revenue come from high-growth regions. And when we say high-growth regions, the immediate that comes is, oh, it's China. China is an important part of it. China represents 7% to 8% of the Honeywell revenue. So a high-growth region for us is also Middle East, also India, also Eastern Europe and Latin America. So those all constitute high-growth region for us. If I look at '24, I know there's a general distress signal on China, but we grew high single digit in 2023. The reason is our exposure to the segment, which are still seeing moderate growth in China. Aerospace, the air travel still hasn't returned back to normal in China. So that's certainly the travel hours and how they really shape up certainly helps. Energy sector, China is still investing, specifically on decarbonization. China is definitely doing its bit on decarbonization. So that certainly helps. And infrastructure segment is not muted. So net-net, China is gone are the days it grows double digit, but it's not a drag. We are not going to see shrinkage in China. So our growth -- where does our growth come from? So what's the new magnet of growth in high-growth regions for Honeywell? It's Saudi Arabia and India. These are growing exponentially. We have good position in both of them. And why we have a good position is these 2 countries need 3 things. They're big in Aviation, they're buying a lot of planes. We happen to be in aerospace business. They have to care about energy, either sell it or buy it. That's what we do. And they are building infrastructure. So automation. So just the fit of Honeywell portfolio with these 2 countries is so strong, it naturally positions us well. So that's kind of the overarching story on high-growth region. I'm confident we're going to deliver a double-digit growth in '25 -- in '24, I'm sorry, in high-growth regions. Europe remains muted. Certainly, we all read about the economic conditions in Germany and U.K. and we have large exposure to both these countries. So it certainly remains a headwind in overall growth rates for us. And U.S. is mostly solid in most of the businesses except some short-cycle tail headwinds we saw. But I do see recovery in some pockets coming up there, and we talked about it earlier. That will determine our final algorithm for the year.

Vimal, do you know approximately how much Saudi and India or -- as a percentage of sales, would you say?

I would say about -- let me do the math. Collectively, we should get to the revenue between those 2 countries close to China by next year, those 2 countries put together.

That's interesting.

Yes. So that's kind of how we are thinking about it. I mean, this is my rough math. Can we get to China level of a little over $2 billion revenue from these 2 countries in 2025? I think we are going to be at a very close edge of that. If we don't get there, we'll be close enough there.

So I wanted to shift to industrial automation, guided flat for the year. HPS grew double digits in '23. I think some people worry that process or hybrid will slow down a little bit, but I think you guys have been pretty confident that it won't. So maybe you can talk about that. But if HPS doesn't slow down, it means that you're still projecting that your short-cycle businesses are down. So maybe talk about why we've had such a prolonged downturn when you think in the short cycle stuff?

Look, I mean, the way to think about IA is that it's a combination of process and discrete in 1 business. So process is presented by Process Solution. It's a larger body of that business. And then the legacy SPS businesses were primarily in discrete side of automation cycle. And the combination of the 2 gives us that math of flattish growth in 2024. And the driver for that is primarily short-cycle, how it will pace up. Process Solutions, we feel confident of another good year in 2024. We are less capital biased in that business. Our aftermarket business is bigger than our projects business there. And aftermarket is less contingent upon CapEx cyclicality in U.S. and other parts of the world. So Process Solutions will continue to be an enabler. The swing factor there is the short-cycle growth. But we saw some green shoots in our scanning and mobility business. We call it PSS in Q4. Thankfully, our competition also reported good guide for 2024, so it kind of reflects our position, how we -- all industry is looking at it. So this is going to be the swing factor. How much short cycle recovers or it doesn't recover across different segments we play in IA in 2024.

And then I want to focus on Warehouse and Workflow Solutions for a second. You mentioned pipeline is up 30% year-over-year in January. But honestly, it feels like we've been talking about a stronger pipeline now, let's just say for a little while. So what is it going to take for that business to pick up and move from pipeline to actual revenue?

So the first fact is that now Warehouse Automation represents 4% or less actually of Honeywell revenue. And we get questions -- 40% of our questions comes on 4% of our revenue and so it's...

I waited a lot before I asked the question, Vimal.

No. Three things are important. First is this segment is a growth segment. I'm absolutely convicted that Warehouse Automation, we met one of our ex colleagues just on a hallway while coming in, it's no-brainer that the world needs labor productivity. I don't have to fight this with a customer to say, do you need to see labor? Do you need productivity? I don't think that's a point of debate. But the unique thing about this business is lumpiness. There are a few people -- there are about 20 companies because they have scale, each one of them. Think about Walmart, think about Amazon, think about logistics company like FedEx and UPS, they're all very big. So they decide in chunks. Somebody says, I'm going to do x and then they do lots of it. So that's a little bit, I would say, the dynamics of this business that the decision comes in chunkiness. To your question, our pipeline is strong. One decision can turn it in one quarter and get a lot of volume in the projects. What we have done is 2024 is not going to be earnings drag for Honeywell in Intelligrated business. So why is that? I mean, are we confident in the volume growth? The top line growth may not occur. We may see another year of muted growth or lack of it in '24. But what's different is now aftermarket is nearly going to become half of the business in '24, which is the margin driver. And therefore, my confidence that it's not going to be earnings drag is strong. Plus, we have put our supply chain in a more favorable cost location, so we are going to get productivity of that in '24. So operations side, confidence factor is high. It's going to be an earnings accretion to Honeywell on a year-on-year basis. Top line is driven by the market forces and lumpiness can be changed by -- one customer can decide a massive deal and we can be reporting to you here to say, okay, we won this. So -- but diversification in the business is good. We play now in e-commerce, in post and parcel, in retail industry, in logistics companies. It's a diversified business. And I remain confident that the world needs more automation in warehouses. It's a matter of time.

So before I run out of time, I want to make sure I ask you the question I'm going to ask all companies and I asked Honeywell last year. What are the top 2 or 3 innovations and structural changes affecting your company over the next 5 years? And are there any emerging industry trends that are perhaps being overlooked in the current discourse?

I would say our 3 megatrends. The reason we picked it because they really are longer term. In aerospace, the big thing is electrification. The aerospace industry in our lifespan will get electrified, and that's what excites me. We are doing a lot of work in, think about fuel cells, think about cooling the plane with a non-fossil fuel, think about electric actuation. So that's all innovation happening in aerospace and the first proof point of that is going to be urban air mobility. That's where all this technology goes in a package. And as and when the certification of these platform happens. So that's innovation in aerospace is all about electrification. Innovation and automation is AI. I firmly believe that the industrial world is heavily constrained by skills. And the best way to solve the skill problem is that AI becomes an assist to the people who are doing the work. And leveraging AI at scale positions us very well because we invested in IoT platform. All industrial companies announced an IoT platform in 2018. At one count, I used to count it, it was more than 100. We are probably one of the last men standing, which kept on investing and I'll give credit to Darius for that. He never went away from investing in Forge. We have the IoT platform, which we are monetizing to leverage our installed base. And because we have the data, we can use AI. AI needs data. You can't do AI on vacuum and that positions us well. So that's a megatrend I see in automation. And in our Energy business, more and more green molecules, that's the business we are in. We have scaled SAF. Many of you would have seen we have licensed 50 projects in sustainable aviation fuel. I see inflection coming up in blue hydrogen/blue ammonia. There are some kinks in the regulations. But when they get to move, the pipeline of the project is strong, carbon capture. So I see that inflection coming in, in green molecules. So all the 3 segments, we are well positioned. That's the Honeywell story that our megatrends are here to stay forever, and our tech investment positions us well to deliver that 8% to 12% earnings growth I talked about earlier.

Well, Vimal, thank you very much for coming. We appreciate it.

Thank you very much.