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

Okay. Thanks, everyone, for joining us for a kickoff of our Industrials Conference this year. Great to have everybody here. Before we start with Honeywell, I just want to remind everybody, and I feel like an idiot saying this, but we have a panel at 2:00 this afternoon on AI. And it's basically the Head of AI at JPMorgan. We're doing a lot here. And I think it's actually going to be super interesting, better than prior year panels. So hopefully, you can take some time and [ sit on at it ] at 2:00. But before that, we have a bunch of companies lined up here. And we're very pleased to start with Honeywell. We have Greg Lewis, CFO; and Sean Meakim of Investor Relations. Greg, thanks for being here. And I don't know if you want to kick off with just a little bit of an update on what you guys are seeing so far here through the beginning of March and then I have a few questions.

Sure. So first of all, thanks for having me. It's been a while since I've been here with you. Just super quick, just a couple of quick pages, then we can get into the Q&A. Maybe first and foremost, we're 2 months-plus through the quarter. Our guidance is in the back of this document, but certainly here to reaffirm that we're on track to our guidance for the first quarter. I'm excited to see -- I'm excited for a new year. I'm excited for the platform that we've built here at Honeywell and certainly what Vimal is bringing to the table in terms of an enhanced focus on growth. And we're excited about the mega trends that we are decked up against. You've seen this before. But certainly, we're getting closer to closing on the acquisition with Carrier. We've said that, that was expected to close sometime in the third quarter. The timing of that, of course, will be what it will be. But we also had the raise for Quantinuum, which again, importantly, a $5 billion valuation on that with a $300 million raise. And there's been a lot of talk, of course, about our capital deployment overall. This year, just with the closing of the Carrier deal, massive as we're going to deploy $10 billion of capital, which is the highest that we've done in a number of years and certainly will take us to over our $25 billion-plus 3-year commitment. So you can see that the acceleration is there. We're excited about the financial algorithm that we have to bring to bear for the company, 8% to 12% EPS growth, given both our organic growth algorithm, what we've continued to do in terms of our 1% minimum share repurchase and again, of course, adding on to that, M&A, and we're not done with just one deal last year. And I think as you've seen before, we've demonstrated our ability to deliver on our algorithm year-after-year through ups and downs in the environment that we've seen. And we'll continue to do that as we go forward from here. So very excited about the platform that we've built in Honeywell over the last 20 years but particularly the last 5 to 6, and looking forward to really leverage that with the -- Vimal's focus and pivot towards a bigger growth agenda. So maybe with that, I'll turn it over to you for comments or questions.

Greg, thanks. So you guys reaffirming the guide. And anything moving around within the businesses, puts and takes, anything that it's better or worse in the near term here, short cycle versus long cycle or...

Yes, I think Q1 is probably going to look a lot like Q4 did. So I don't think anything materially different has evolved. Again, we're only a couple of months in. And as you know, a large portion of the quarter happens in the last 2 to 3 weeks of the third month, so still a lot to be unfurled. But as it sits here today, we're leveraging the long-cycle backlog that we came into the year with. We're seeing short cycle stable but not pivoting up yet. That's not unexpected. We think that's more of a second half versus a first half dynamic. And we're doing all the right things to prepare for that, including again getting ready for closing and beginning the integration around Carrier as well as continuing to work the pipeline.

Just geographically, what's your take on what's going on in China from your dashboard?

Yes, so we actually have a very healthy growth rate in China that's -- it's supported a lot, of course, by the aero business and just return to travel in aerospace. The China economy is muted. I was there late last year. We continue to have a big presence there and are traveling there fairly often. And I'd say the economy itself is going through a bit of a restructure, if you will. But we still have a lot of confidence that we're going to be able to grow our business mid-single digits, not maybe the double digits that we had expected in the past. But we've got a great business there. And we're going to continue to take advantage of our positions in that business.

You guys have a pretty strong backlog, a great collection of long-cycle businesses, one of the few companies that continues to grow backlog. How do you see backlog playing out this year? Book-to-bill has been pretty solid. So where do you see kind of finishing the year from a -- just a comparable perspective?

Yes, I mean, I wouldn't be surprised if our backlog grows throughout the course of the year. We continue to have our past due backlog in aerospace grow quarter-over-quarter and even within the months of the quarter at this point because that's -- as you know, that's going to be a multiyear story on the unlocking of that supply chain. And that's not going to -- I don't think we're going to see that past due backlog start to burn until perhaps next year. And that's such a big part of our business. So that's going to influence our overall company backlog pretty meaningfully. In the short cycle, where most of the past due backlog challenges are -- have been flushed through, there's a couple of spots where we're still working through some challenges. But for the most part, that's worked its way through. So book-to-bill, we're going to be in that 1:1 range, plus/minus, as I see it right now.

And when you think about the more commercial businesses, the non-aerospace businesses in that backlog, aside from what you're not able to ship, is the demand running in and around the shipments? Or is that -- what are you seeing there in kind of more commercial businesses, long cycle?

Yes, long cycle. Actually, the buildings business, very strong. And I would say orders are outstripping sales at the moment. So we're building some backlog in the HPS business, which is good. We're going to see a little bit of decline in the equipment business in UOP. And again, that's just because of the cyclicality of some large projects, particularly around LNG, that run through it. But the catalyst backlog, very healthy there. HPS has had a very good 2 years, frankly, and continues to see healthy orders. So -- and the one spot that we all know very well about is the warehouse automation backlog, which has come down significantly, given the warehouse automation pinch in that market. But other than that, I think, some pretty healthy dynamics.

So on the topic of backlog, early short-cycle stuff, you definitely have, like you said, a bit of a step-up from 1 half to second half. I guess, when we look at normal seasonality, you definitely have a step-up from 1Q to 2Q this year. I believe the comments have been a bit muted but still up. Can you maybe just refresh us on just the high level of what you've said from the trajectory on EPS and revenue for 1Q to 2Q in a kind of directional sense?

Yes. The way I would think about the year is you're going to get a marginal step-up from 1Q, 2Q and then 3Q and 4Q will be a bit more substantial off of the 2Q base. So it's not like there's going to be a huge inflection in the second quarter that we see but a bit more of a moderate improvement sequentially from quarter-to-quarter. And EPS and revenue growth are going to, on a percentage basis just each quarter, get a little bit better. So it's going to be a little bit of a stair step-up as we go throughout the course of the year with again the back half. Remember, some of that is the absolute growth rates and some of that is just the comps are going to become more favorable in the back half versus the front half. And we should have a pretty healthy exit rate overall for the business.

And you're talking about year-over-year growth, right? Sequentially, do you think you'd be able to grow earnings faster, leverage, revenue growth -- grow earnings sequentially a little bit faster than revenue growth?

Yes. And again, in the second half, that should pick up.

And that should accelerate. But even in 1Q to 2Q, a little bit better revenue...

Yes. A little bit better revenue and leverage on top of that would give us a little bit better EPS.

Sequentially. Okay, great, appreciate that. Sorry, we've got to get the -- for the sequentialists, we've got to get the sequential stuff out of the way. So just on the businesses, you guys recently restructured some of the reporting. IA is a big segment. So maybe we could just kind of like delve into that one in the different segments. And I guess, we'll start with warehouse automation. Where do we stand in that cycle? How do you see the recovery playing out there? And anything to point out as far as the future drivers?

Yes. Yes, so I guess, what everyone knows where the industry is. So there's nothing differentiated for me to tell you that you don't already know about the squeeze in terms of the growth rates on the overbuild that occurred. What I would tell you, and what's important to know about Honeywell and about IGS, is a few things. Number one, our business has been repositioned in a very healthy way both from a supply chain footprint and cost perspective as well as an execution focus. I think we've done a lot of work to increase the -- our capabilities around execution. And the third part of that is just the -- remember, when we bought this business, the whole point was win installed base, create a very healthy aftermarket service business. That's now approaching a $600 million part of the portfolio, so fairly substantial aftermarket at very high rates. So we're poised for leverage as growth does return. We still feel like the overall macro trend of e-commerce and warehouse automation is a positive one. And while we're not happy with the close rates of deals as we sit here right now, it will happen. And as it does, I think the leverage prospectively is really the important thing to be mindful of. And again, keep in mind, too, this is 4% of the portfolio from a revenue perspective, less than that from an EPS point of view. So while it's interesting, it's not the biggest driver in the Honeywell value creation story. But I'm still excited about what we've done and where it goes from here.

Is this a strategic asset? I mean, is this something that you guys want to reinvest in now that it's gotten small is where -- is this part -- can this be a platform really for you guys going forward?

Yes. Yes, listen, I mean, that's why when you think about the Industrial Automation segment now as it is, there are clearly going to be synergies with our technology across both that and HPS. Obviously, there's synergies around the supply chain, which we're going to delve into. So it fits right into software. You mentioned AI a few moments ago. AI is important to us as well. I think there's going to be some interesting solutions that our technology teams are creating that, I think, can help on the maintenance assist side. So there's some really good use cases for us. So I think it's nicely into the kinds of things that Honeywell does well with our controls platform and background. And again, prospectively from this point forward, it has a very nice thematic growth path in the future. We've gotten the business really well structured to take advantage of that as that happens.

So I guess, when we think about a combination of project selectivity and you moved some supply to low-cost regions, these are kind of like structural changes, that ultimately as it comes back, it won't be that you guys will be nipping at these tough deals and you can really leverage the business as it comes back...

Yes. Yes, I mean, listen, we learned a little bit of a lesson around overconcentration. And so I don't think you'll see us do that again in the future. So I'm very excited about the forward leverage for the business as it does return to growth.

And sorry, one more on just the pipeline. We were down at this show yesterday and everybody is saying that these warehouse pipelines are definitely expanding, but the close rates are relatively a challenge. I mean, is that something that you would expect to hit in the second half, like perhaps a little loosening of that pipeline or we just don't know if...

Yes, I mean, I wish -- if I knew that, I'd be in Vegas probably placing bets because it would mean I knew more than I do. We'll see how that goes. It really -- everybody has got a different point of view as to what their appetite for investment is. The thing I will tell you though is everyone is struggling for people. And when you think about warehouse automation and the number of people that have to touch packages and when you look at some companies who have had to sign on to pretty substantial labor inflation clauses in their own operations, I don't know that anybody would argue that there's going to be a need to do important things in this space. So whether that happens in the second quarter, the third quarter, the fourth quarter or early in 2025, I really can't tell for sure. But those are real thematic problems that people have to go solve. And we're going to be part of that solution.

Moving on to handheld business, we'd like to start with the kind of negative comps and we'll finish with aerospace, so...

You promise?

Finish on a -- yes, yes, we will get to aerospace. This business has obviously seen some really dramatic destocking, pretty clear destocking. I know one of your peers has been relatively more positive recently. The orders were, I think, pretty good in the fourth quarter. What are you guys seeing there? And why can't that business maybe surprise a little bit potentially in the near term?

Well, I would tell you that, that is one of the businesses that we have a bit more optimism around. In the fourth quarter, its book-to-bill was over 1, somewhat meaningfully relative to others who were kind of a little bit above but just around. And so we do think that there is going to be an inflection coming. The business is operating reasonably well. And again, this is one of those businesses that has a very high variable contribution margin. So as you see growth, the leverage associated with that is going to be very meaningful. So we are optimistic. And yes, this is a business that we're looking forward to providing some of the juice that's going to help us here as we progress through the year.

Is there anything unusual about the fourth quarter, like timing of a price increase or anything like that, that would have driven those orders? Can those maybe sustain into the -- into at least the first quarter, if you don't ship it, it's at least some orders that you're building a little backlog or not really?

Yes. If I think back to the kinds of things you're referring to, are people buying ahead of a price increase, that would have been much more meaningful '22 into '23 as opposed to '23 into '24. We talked about the fact that we did 10% price '22, 4% in '23. And our number this year, we think, is going to be in the 3% range. So it's not like there's a big, heavy thing for any customer to go try to avoid. So I'd be surprised if that were...

So the point is that order number is indicative...

I think it's a solid order number that should be indicative of the future. We definitely -- this is one of the businesses that we have the clearest visibility into channel inventory. That channel inventory seems to be back to sort of a normalized level. So we would expect like real demand increases would then flow through pretty evenly with our overall profile.

And would you have visibility on that by the time you -- like when you report first quarter, would you have visibility, more confidence? Or is it just so short cycle that your visibility there would...

I mean, that's a very short-cycle business, so we'll probably have a little bit better view of Q2. But again, when you get into the -- when you get into some of these products businesses, 90 days out is kind of the limit of what you can have a lot of certainty on.

Yes. And you do have the Zebra headwind in 2Q on revenue?

We do, yes. That's right, well-known. I mean, yes, that's not news. It was an 8-quarter event. And the first quarter of this year is the last of those 8 quarters. And then that will matriculate out of the P&L.

Yes, makes a lot of sense. And then lastly, on the sensing business, always tough to tell what the real -- what the drivers are there. What are you guys seeing there? And how do you see that playing out?

Yes. Well, again, think about there's a number of drivers. I mean, industrial, health care, aerospace. Health care, aerospace are very solid. Industrial, probably low single-digit-type kinds of numbers. Again, this is another business where the stocking levels are coming back into alignment. We're getting better visibility on that. I'll just make a quick plug for Accelerator for a second. Because when we talk about our Accelerator operating system, this is one of those areas when we talk about aftermarket services or products-based business models, we're getting more on-purpose visibility into our channels as a way of operating, right? So that wasn't the truth across every single business. Now we're making that a capability that we're digitizing. So we get better visibility to that on purpose. We're doing that here. And we're starting to see those stocking levels also come down to a bit more normalized rates. So that gives us a bit more confidence we head into the back end of this year as well.

And that business, I know, is a business that you guys like and worth talking about maybe adding to at some point. Is that still -- it's still kind of a platform...

Yes, 100%. I mean, the sensing business, everything that is going to automated requires some level of sensing. And so this is an area that we would definitely like to add on to the portfolio.

And then lastly, the newcomer there, HPS, what are you guys seeing there? And also, it was a very strong margin year for them. Maybe talk about what drove that? And ultimately, is that temporary? Do you see that continuing on HPS?

So again, HPS, not probably, is our most mature projects and services operating -- business model combination in the whole company. And it had a terrific year. In fact, it had 2 great years in a row in both '22 and '23. And a big part of that is they're making a lot of hay in the aftermarket, whether it's our software solutions coming through HCE on the industrial side or whether it's our regular way aftermarket business. It's probably the best aftermarket business outside of aerospace in sort of the traditional Honeywell portfolio. And that's also driving strong margins, right? So if those things are growing at -- think about a double-digit growth rate in services, that is creating some nice margin leverage. And we expect 2024 to be very similar. We expect positivity in the project side, not massive on the top line from a percentage basis but also a very good pull-through on the aftermarket services. That's why Vimal probably spoke about it. We talked about it a little bit at the earnings release. As we think about 2024, a lot of what we're trying to do is self-help, aftermarket services, that Accelerator engine that we're working on across all the businesses there, taking something like the success we see in HPS extending it across the others. You know our story around HGR, which has always been a strength for us. So these are the kinds of self-help levers. HCE continues to have strong double-digit growth on the top line, again off of $1.5 billion-plus base, so not huge in the context of Honeywell but still nicely accretive to the top line. Again, that's also embedded in HPS as well.

But I think the backdrop at HPS is also pretty good, right? I mean, process CapEx is okay. Any concerns around the LNG noise that's going on out there and the kind of project delays and all that?

Yes. I would say the way -- I mean, with LNG, in particular, the way I think about that is it's going to happen somewhere. And if it doesn't happen in the U.S. and it winds up in a different spot of the world, we're going to be there. Because we're such a global business and our reach is what it is. So that demand, I think, is going to be satisfied in one form or another across the globe. And we're going to be a big part of that wherever it happens to land.

But the point is that's not like an impact on your near-term growth rate or a cycle killer or anything like that?

No, no, no.

Still a pretty good cycle demand-wise then, right?

Yes, yes, for sure.

Okay. Just moving on to the Building Automation business. That one is always tricky because a lot of us think of nonres spending. It's a global business. There's solutions and products. Maybe on the product side, there's definitely been a destocking for everyone involved in fire and security products. When is that -- any visibility on when that's coming to a mend and how do you guys look at demand there this year?

Yes. I mean, we're feeling it, too. Again, I would call our demand profile stable but not growing on a year-over-year basis. And I think again that's a little bit of what we're seeing here in Q1 is a bit of a continuation of that. If I had to call the end of destocking and some of those channels, it's probably Q1 maybe a little bit of a bleed-over into 2Q but not really much beyond that. And then I would expect to see again sort of demand, like real demand, recouple with our sales growth rates from sort of the latter part of 2Q into 3Q.

I know you guys have a lot of solutions and software. I'll get to that in one second. But like the pie chart for us from an end market perspective is always tough to see on this one. Should we think about it as similarly like the nonres data the government puts out there, where there's some office, some education? Like are there any verticals you're overly exposed to? And would you have some content in these manufacturing plants that are going on -- going up here in the U.S.?

Some, yes. But that's the, I would say, the beauty of Building Automation. We talk about people do, to your point, go, "Oh, commercial building equals BA." And that's not it. I think we're something like 20% exposed across our entire portfolio to just commercial buildings. And also, we play heavily in retrofits. So it's not all about a new construction thing. To be honest with you, the best indicator we've had as we look back has generally been GDP. And we think about our growth rate should be GDP-plus in that business overall. So there's not any one vertical that I would be -- we're into data centers. We're into hospitals. We're into schools. We're into commercial buildings, a little bit into manufacturing. So I think that's actually a good thing for us, the broadness of where we play.

And this is one of the more mature software businesses you guys have, great controls platform. What are some of the Forge KPIs you're looking at? And you guys have been at this for a couple of years now. Anything to point to like the success...

Sure. I mean, the two biggest parts of HCE are in buildings and in industrial. And again, both of those businesses are growing healthy double digits. And so whether it's energy management-related offerings coming out of Forge, whether it's building occupancy-related, we're now getting into -- with ESG, there's -- people have to measure greenhouse gas emissions. So we've got some solutions around that as well. So those would be probably the two or three things that I'm really excited about. I think the other thing you're going to see is we're going to get a little bit more deeply into the small- and medium-sized market. I think as we can make applications like Forge more attractive to small- and medium-sized businesses, you should expect us to be looking for solutions that will fit that end of the market as well. Because I think there's a lot of demand in that space, which we haven't, to this point, cracked the code on. But that's something that we're working on that could expand our [ TAM ].

How do you count? Is it subscriptions? Is it seats? Is it -- how do you measure success there from a unit kind of volume per...

Yes, I mean, we're trying to get to a place where ARR becomes a more relevant metric for us. And we're learning, and that's not necessarily our usual way that we had traditionally thought about it. But again, as we're doing our software Accelerator launch as the fourth of the four business models that's happening right now, we're putting a lot more emphasis and energy around that specifically. But that's ARR, I think, is where you're going to see us starting to go to try to put a point on it.

Yes, that's a helpful metric when it's actually ARR. Companies report ARR, it doesn't really matter, seemingly matter. Just on the margin side, that business has been unbelievable, very strong mid-20s, even with the product destock. Is that a mix dynamic? And can that continue?

Yes, I would say if you think about all the things that we have tried to do at Honeywell, they've been leading in a number of them. They're the furthest along in the supply chain rationalization. You could -- I mean, they have more than three factories. But you could think about a large percent of their volume is coming out of a regional factory in each one of the three main regions. So we've created a lot of scale on manufacturing. One of the things that every -- never let a good crisis go to waste. With all of the challenges that we had in semis during the supply chain constraint, well, what do you think we did with our R&D team? We went back to reconfiguring to fewer boards, newer boards on our platform. So we're creating some scale there that we maybe didn't have before. And like I said, they've got one of the two largest parts of HCE, which is growing quite nicely. So there's a number of elements that have helped us drive that business to a much more streamlined, lean operational model. And as -- again, as the products business returns to growth at fairly high margin rates, we expect that to continue to have room to run. So we talk about a 27% long-term target. We've already printed something around 25%. And I'm very confident in hitting that number as we go forward from here.

Yes, it's pretty attractive. On ESS, maybe talk about the -- what's going on in advanced materials, refrigerant prices are moving around a little bit. There's this transition. That business had a nice margin in '22, went down in '23. What's happening on the advanced materials side? You've also got electronics coming off the bottom. What big parts there?

Yes, I mean, if you think about sort of the three big pieces of AM being fluorines, the chemicals business and electronics, I think what you're going to see is almost like it's going to be a little bit of a one, two, three, I think. I think chemicals will start having some growth early, perhaps as early as the first quarter, then I think electronics, second, third quarter and then fluorines, third, fourth quarter. So it's going to be a little bit of a stair step as the orchestra comes back into balance with one another. Nothing really new on the quota and the pricing side in fluorines. So I think that dynamic is pretty well understood by most people. So we'll see the quota come down, but we'll have some other applications that we think we're working on to kick in to try to offset that to some degree. But this business should be heading towards a nice growth path as the year progresses as well. And we'll get some nice leverage on those margins as the business grows.

The R-410A price, is that still important to you guys? Is that something we need to watch and...

Well, I mean, it's always important. The volatility, I would say, has lessened over the last few quarters. And so it's something that we'll always pay attention to. But it's not something that we're concerned about at the moment, I guess, I would say.

Yes, okay. And then lastly, just on the sustainable technology side, how big is that business now? And where can that go in the next couple of years? And you talked about orders, but...

Yes, I was going to say orders is probably in the $400 million range in 2023, sales, a little bit behind that. But again, that's growing at a very healthy double-digit type of a rate. So really excited about what Barry Glickman and team are doing in that area. Again, we talked about from a zooming out from a long-term perspective, the energy transition is going to be a long-term theme. And the things that we bring into play there for separation technologies, for carbon capture, sustainable fuels, I mean, all of those things are going to be with us for some time. So we talked about that getting to being a $700 million business over a few years' time. I think that's -- our growth expectations remain very bullish on that area.

And then lastly, just on UOP, I don't have any specific questions there. But what are you guys seeing? And how do you expect that to play out sequentially as you move through the year?

Yes, I would say what you're going to see, you're going to go, "Oh, the top line is not as strong as I thought." Well, no, that's not really the case. I mean, we're going to have a little bit of the LNG projects that flowed through the back half of last year or, I should say, during the course of last year. So we'll probably have a little bit of a lighter equipment growth rate early in particular, both orders and revenue. But that was again creating installed base for catalyst. And the catalyst business should be very strong.

And that's positive for margins, I would assume, on that one.

You bet, absolutely.

All right. And then getting just to aerospace, all the good stuff from a demand perspective. Where do we stand on supply chain? You said that the past due backlog actually is expanding a bit. Does that mean supply -- because it seems like you guys are on a nice, steady trajectory. Does that mean supply chain is kind of like you've -- it's stalled again or getting...

No, it's -- again, I know everyone would like this to be over fast. And if I'm here a year from now, we'll probably be having the same conversation again and we'll talk about continued, sequential, modest improvement. And that's what we're getting. And so the reason why the past due backlog continues to go up -- and again, not massively at this point. We're not going up by $0.5 billion in any given quarter. But it's creeping up still every quarter because the demand remains very strong. And we are continuing to get that little bit of incremental each and every quarter, which on a year-over-year basis, is delivering strong Vs. And that's going to happen this year, going into next year. This -- back to automation, AI, et cetera, I mean, the supply chain in aerospace is very exposed to labor shortages. That's not solved yet. I don't -- and that's going to have to have some other solutions to it. It's a very disaggregated supply base for the whole industry.

So if I'm a customer, should I be bitching as much as I was a couple of months ago, more or less?

Well, I would say when you go all the way up the chain, everybody wants everything now. So they're never -- like I don't expect our customers to be having dinners for us and celebrations anytime soon. But what I would tell you is we have a very active dialogue with our customers. Vimal, Jim Currier, top-to-top, those relationships are very active. So there's no mystery about where we are between any of us. We would like it to unlock faster. They would like it to unlock faster for their own growth. And we're all kind of arm-in-arm in this together to try to achieve that. But I don't think the level of stress is going to be with us for some time.

And certainly not, your growth rates are still pretty strong, by the way. So you guys are printing it especially in aftermarket. Just on the defense side, that was a little weak or it's been slower than we would have expected, still a nice trajectory there. How do we think about that?

Yes, I mean, I think the world is not safer tomorrow than it was yesterday. And so I think the demand for defense is going to continue to be healthy. And we're going to play a role on that. So I don't -- again, I don't think that's going to be a 1 year up big and then flattens out. I think that's going to be a nice growth path for us for a number of years to come. I don't see any reason why that would change any time soon. The conflicts that we're experiencing today are very active. None of us like that, but that's true. And so I would see in the foreseeable future that, that's going to continue to be a very strong driver of demand for us.

And then on the margin front, there's a decent amount going on here. The aftermarket is obviously very accretive to you guys -- but the OE stuff. How much is this margin burdened by these -- how active you're being in trying to remedy these supply chain issues? Obviously, that's not going away. So we're not -- that doesn't flip. But like is there -- I'm sure you, as an accounting guy, have a number in your head on how much cost -- extra cost.

Yes. No, listen, we are spending extra money in the form of people. The -- if you think about we have a supplier recovery program with humans that are aligned to different outlines that we're producing and the supply base that goes along with that. They're partnering very closely with suppliers, trying to help in cases where maybe we have to leverage to bring to bear, either the access to talent or adding capital, where perhaps we're going to buy capital, own tooling that might sit in some of those suppliers. So there's a variety of things that we're doing to create this unlock or support the creation of this unlock in the supply base. It's not just happening by the passage of time. And yes, that's -- there is -- that is measured in tens of millions on a run rate basis. And it's gone up, from '22 to '23, '23 to '24, we continue to invest and expand that program. And so it is definitely burdening margins. But we're also gaining leverage. So if you think about it, we're investing in R&D. We're investing in the supply chain recovery. We're battling the mix challenges that come along with OE and aftermarket. But we're also getting some really nice leverage with mid-teens top line growth.

I think that's a pretty -- anybody have any questions on the actual businesses before we go to like portfolio? Yes, I think that was a pretty comprehensive discussion of the businesses, appreciate it. Just on the portfolio, you guys have talked about selling some stuff, maybe less than 10% of the portfolio. I mean, we just walked through all the businesses. It sounded like you were pretty committed to each of them. Maybe there's a couple of things here and there. But is that still -- is that a plan that you guys -- and when will we have any kind of -- is that in the next couple of years, in the next -- timing-wise, how should we think about any announcement there?

Yes, I would say, again we just walked through the whole portfolio. It's a $37 billion portfolio. We probably hit on $27 billion of it, I don't know. So it's not like we touched on every single thing in the portfolio. There are certainly things that, as time passes and change happens in markets, perhaps don't fit quite as well as they once did. We know what those are. We go through a refresh of that portfolio assessment each and every year. And it's an evergreen type of a thing. We always talk about we're our own activist to make sure we understand what's happening and how we see both -- how the thing fits in the portfolio but also what the receptivity to separating something might be, right? So you don't want to be -- even something may not fit, but it may be a bad time to separate that thing from you in order to gain value. We're not really just willing to give things away. So I would just have that in mind that we're always working on the things that we think are -- just like we have a pipeline of incoming things we hope to execute on, we also have a pipeline of outgoing things. And when the two things meet in terms of business performance readiness and market readiness to get appreciable value, then you would expect us to start talking about any individual property at that point.

And then can you just remind us on the financial impact of Quantinuum? You guys recently had some news there. But what's running through the P&L and the cash flow statement today from that asset that's should be a positive but that's treated as a negative in your valuation?

Yes, if you think about it just on the face of the financials, what you see when you look at the K or the Q, it's about $150 million burn rate in corporate. So if you just think about that as -- just think about it as cash flow for simplicity's sake, both earnings and cash flow. But from an EPS perspective, then knock that in half, right? So relative to our EPS, it's probably a drag of, I don't know, $0.06, $0.07 on an EPS of $9.16 last year. So I would call that de minimis, which is one of the reasons why it gets a little frustrating sometimes when people are like, "Why are you doing that thing?" And we're saying we're doing that thing because we think it's got a pretty big option value and it's not a huge investment in our financials to create that option. And we're pretty bullish on what that could turn into. Again, I'll go back to you mentioned AI. AI eats data. There's going to be more and more high-powered analytics that are going to need to be done. Quantum computing is going to play a role in that kind of thing, so -- and we feel very bullish again on our technology and its capabilities.

So how does that dovetail with like these data centers with all these GPUs? I mean, is that -- I guess, I could ask Drew this afternoon. But like is that -- are they competitive technologies? Or are they...

I wouldn't think so. I mean, I think data centers power these things, right? So I think those -- it's part of the portfolio of things that are going to be needed to take advantage. And we're going to play in that value chain.

As far as the impact of the election is concerned, I mean, are you guys at all talking about -- there's obviously a pretty stark contrast between the two potential administrations. Are you guys talking at all in the boardroom about any changes in approach on anything if there's a change in the administration?

Yes. So we're always mindful of it, as I'm sure you could guess, I mean, Anne Madden and her team do a great job in government relations of making sure that we, as a company and our executives, stay plugged in and tuned in and also providing input wherever we can to be helpful as things evolve. I mean, who knows what's going to happen? And this is -- again, this is -- it's going to be an interesting time between now and November to see what shakes out. When I think about certain things as it relates to geopolitical tensions or changes, tariffs, that type of thing, I mean, the good news is our local-for-local strategy has always been very helpful to us. And this is another place where that's going to be true because we're not super exposed to any one region serving another. And so when you think about trade agreements and tariffs and that kind of thing, it's not that it doesn't matter. But it's not so material that we don't know how to deal with it. When the tariff regime was going through, we had very clear visibility as to what that was. Again, we were able to pass that through to the marketplace. I would expect we would do that again if that were to be the evolution of it. As I mentioned earlier, I think when you think about things like the energy transition specifically, those things are going to need to get addressed, whether it's a Republican or a Democrat in the White House over the period of time we're talking about, which is again a medium- to long-term threshold. That is going to be -- need to be addressed. And we're going to be a player in addressing some of those big challenges. What happens in the very short run? I think we'll all have to wait and see how this year plays out. I mean, something like 50% of the world's democracies are going to the polls this year. So it's the U.S., but it's actually quite a few different places are going to be having elections this year. So this will be a pretty consequential year overall on that topic.

Yes, every year seems consequential, every day actually these days. And then just lastly on AI, what are you guys doing internally? Are you doing anything? Is that -- are there any initiatives there? And are they accelerating? What pace are they at? I kind of have to ask that question to everybody.

Yes. No, listen, I think we're trying to do from both angles, both trying to bring it into some of our solutions as well as -- that we're offering as well as using it internally. A big part of what you hear about is engineering and coding efficiency. We're definitely seeing that and doing it. So that's adding capacity and/or allowing us to perhaps bring some costs down. So that's a positive. And we have, as I'm sure you would probably expect in our plan, we have a cost-down target associated with creating some efficiencies in a number of areas. Finance is another one where that's going to be relevant as well. But anywhere that you have data transactionally needing to be addressed, there's opportunities there. So we're doing it both on the cost side and we're also doing it in our solution sets. Again, I think about AI and generative AI, in particular, as a learning device. And so whether it's -- I'm -- again, I mentioned technicians. I'm a technician. I need to learn what my next best action is or how I might go about doing something and I want to learn it fast. AI can be part of that solution and our software solutions can bring that to bear. So that would be the thing I would just try to leave you with is again AI eats data and what we have created in Honeywell both for ourselves internally as well as in our IoT platform that we bring to the market through Honeywell Forge is a data backbone for these things to sit on and work on. If you do not have that data backbone, you're probably going to be talking about hype cycles and it will be interesting. But your -- a company's ability to execute on that, I think, will be challenged without that data backbone. And that's what we've spent the last 7 years building both for ourselves as well as for our customers with the Forge platform.

And internally, the initiatives and business models you're pursuing to make yourself more productive, is that getting reflected in higher spend within IT budgets or more CapEx on, on-prem data center? Like how is it influencing your spending on the ultimate infrastructure that's supporting you guys? Or it's so efficient, you don't even see it, it's...

Well, there's -- I would think about there's a marginal cost of some of that, but it's not -- again, we've already spent, I've talked about this for the last number of years, over $1 billion in creating our own digital infrastructure for Honeywell. We've spent a substantial amount of money creating our IoT platform. Those investments are done. Like we're still adding -- we're at the add to it and refinement stage now. So things like AI for us, yes, there is a marginal cost of perhaps a certain AI license for a thing or a partnership with someone perhaps in certain use cases to help make a particular thing go. But those are like small marginal costs relative to the benefits that we think will come from them. So we don't feel constrained by that. We want them to pay for themselves real time. But you're not going to see -- again, you're not going to see like a big blip in our P&L. And I'm not going to come to you 1 quarter and go, "Oh, our expenses were up by $100 million this quarter because of AI." That conversation is not coming.

We got our GPUs this quarter. We're [indiscernible]. All right. I think that's it. Thanks, everyone. Thanks, Greg. Appreciate it.

Yes, thank you.