Good morning, everyone, and welcome to the Goldman Sachs industrials and materials conference. My name is Joe Ritchie. I cover the multi-industry sector. I also help co-run the industrials and materials business unit. So thank you all for coming today. Before we get started, I'm required to read certain disclosures and public appearances about Goldman Sachs' relationships with companies that we discuss. The disclosures relate to investment banking relationships, compensation received or 100% or more ownership. We're prepared to read and allow disclosures for any issue or upon request. However, these disclosures are available in our most recent reports available to you as clients on our firm's portal. So with that, we are really excited to start and kick off the conference with Honeywell. We have Mike Stepniak, Honeywell CFO. Mike, thanks so much for joining us today. Thank you for having us. So look, why don't we get into it, and why don't we revisit the last year? It's been about a year since you took over CFO. A lot has been in the works. Just in terms of progress that you've made across the past year, maybe just point us to some things that you're really excited about, and then clearly the focus for the upcoming year. Sure. It's been a great year, I would say. Very busy year for the company, for our employees. Going into the year and taking on this role, my big priority was to really make sure that investors have confidence in our guide, and going through the year, we were able to beat and raise three times in a row, so super happy with progress in terms of our cadence as far as being able to beat and raise and provide reliable forecasts. Internally, as far as how we're focusing the teams, my goal has really been to pivot the team to growth and pivot the team to growth through NPI. So we spent this year one reinvesting in R&D where we needed to, and we had pockets of areas where we needed to reinvest, and then really making sure we have a better connectivity between our engineering teams and PI teams, offering management, and our product gets to market faster. And we can see the fruits of that work already. You can see our step up in revenue and organic growth. So I'm pleased with the progress here. And then finally, the third thing is really utilizing or leveraging the separation to simplify the company. And you've seen a lot of work we've been doing behind the scenes on preparing for the separation, but also preparing for new Honeywell. And that's a lot of things we've done in terms of structurally simplifying Honeywell. We've done the asbestos liabilities recently. We're progressing on our Quantinuum. We had a very successful raise recently. And I'm really focused just on taking out cost and preparing teams to operate as leaner, more focused companies. With that said, I will also just go into year-end. We had a really strong third quarter. Orders were up 22%. We'll see good progress in the fourth quarter. Nothing, I would say, alarming as far as the order rates, et cetera. So we're quite excited about 2026 as we finish up strong here. Okay. Great. Bunch of different places to go from that initial statement. So let's just start with all of the stuff that's happening, right? You've got your spins, your divestitures, M&A, the capital raise, Quantinuum. It's a lot. What does Honeywell look like a year from now? Very different, and I would say we obviously see the hypothesis of separating into three companies is really to allow us to be more focused, so we've done Solstice, I would say, from a spin standpoint, successful. Investor day to start trading. They have a very good, I would say, prospects going to 2026. Good positioning, even in nuclear side, and we see nuclear coming back, so really excited about that business. And the big one is obviously aerospace and automation, and what my takeaway is that looking, whether you look at the sum of the parts or looking just at the business and how the business run, those businesses will be much more focused. Much more, I would say, we'll have much more flexibility as far as investment, much more focused to their end markets. I think they will operate better, and automation will be much simpler. We're spending a lot of time on simplifying, like I said, structurally. We reorganized our segments recently. This is once again to help our investor base be able to analyze and unpack Honeywell, and also for us to be able to operate more efficiently. That makes sense. So let's pull on that thread a little bit. So automation is going to be much simpler, right? If you take a look at those three businesses today, you have the portion that is under strategic review right now, which is the warehouse and productivity business. You have the process automation side of the business, and then you have your HBT business or your building automation business. When you think about those three together, is there any reason why those three need to be together? And then is there an opportunity to continue to simplify by making those three stand alone? I would say what emerges after Aerospace separation is a pure-play premier automation company. It is as pure automation as you get. We chose to, based on our history and how the business evolved, we chose to participate in buildings, in process, and in industrial. But within those, they're pure play. As far as synergies or dyssynergies, and the question whether the business have to be together, in order to be able to operate in markets that we operate in, which is high barrier to entry, high technology, you have to be specked in or you have to be certified. In these markets, scale matters, and we leverage our scale predominantly around our engineering resources. We have over 10,000 engineers that we use across the world to support these three businesses. And as the business and the market is shifting to outcome services, if you will, annual recurring revenue for software, that's where our platform, Forge platform, comes in. We spent the last five years investing in Forge, and we have really good outcomes as far as connected, being able to connect our install base, being able to deliver to the customer insights that have very high ROI for them as far as productivity. So I think there's something to be said about scale. And I think for the line of work we're in, that scale matters, and we need those businesses together in order to be able to get that scale and get that leverage. Okay. Just on the portion that's in strategic review today, do you want to give an update on how that is progressing? It's progressing well. I would say I don't have anything incremental to say today, but we will have an update at the end of January when we do our 2026 guide. Okay. Sounds good. There's a lot of conversation just across the space around the pricing environment, particularly as it relates to tariffs. How much pricing is potentially going to carry over into 2026? If tariffs are repealed, what happens to pricing? Is there a way to kind of think about the pricing that you're getting in your business today and how to think about that as we head into next year? Sure. I would say maybe just to set the background is we will finish probably a year on 5% growth. 2% will be from volume vis-à-vis, I think we guided initially 0%- 1%, and then we'll get about 3% of price. That 3% of price, I would say on a 12-month basis, covers our tariff exposure. And how the year played out, I think our building automation business was very quick to get the price and the short-cycle businesses in general. Where we were behind was around aerospace. We have a lot of OEM contracts, which are long-term. They don't have provisions for tariffs, et cetera. So it took us a little bit longer to negotiate these tariffs, and the aero team took them a little bit longer to get it. I would say going into next year, that's becoming a tailwind for aerospace. Then in ESS businesses, particularly in UOP, we got a really good price in Sundyne. We're getting a really good price in the LNG business. On the other hand, if you think about the catalyst, there's just no demand right now. So the pricing is low as we're just destroying the demand by driving more price. So it's mixed bag. But I would say generally going to 2026, things are stabilizing, and I'm confident we'll be able to offset the price, sorry, offset the tariffs with price and other options. So can we talk about aero for a second? It is by far like the number one question I get after every call. Aero margins, are they bottoming? Where are we going from here? The comment around pricing and aero lagging this year, as you think about 2026, does that become margin accretive for the business? How well has that organization done at actually repricing those contracts to make sure that you guys are at least margin neutral, maybe margin accretive? Sure. Aerospace is a long-cycle business. It takes a while to change things, adjust things, et cetera. Looking at 2025, I feel the business bottomed out in the second quarter as far as the margins, and the margins should continue to expand through next year. Going to next year, the team has many more tailwinds than headwinds, I would say. The first one, CAES acquisition, which should be materially accretive through integration, and that business should start accreting as far as the margins to our normal defense and space margins, so that's a tailwind. Second, like I said, pricing, especially around the OEM contracts, should get better. We have OEM contracts that are expiring or coming for renewal in 2027, but knowing how our OEMs work and how we partner with them, I assume some of the price should start coming through in 2026 or the second half of 2026. So the pricing will be a tailwind as well. And I think on the tariff side, like I said earlier, the team has figured out how to offset those. And the third one, big one, is really productivity. Our positive backlog is still extremely high, but the team has been able to output double digits for the last 13 quarters in a row. And my guiding, I would say, principle in terms of health of the supply chain is really looking at days of supply that we have in inventory. And the team this year, this is first year in three years, the team has been able to reduce days of supply. And the days of supply will come probably 10 days better vis-à-vis the start of the year. So it tells me that supply chain is getting healthier. We're starting to push through, process more inventory through the system. It's also consistent with our revenue growth. So the team has a lot of tailwinds, and obviously, they're working for it. I'm confident they will expand margins next year. Vis-à-vis the framework of us getting to 29%, I'm 100% that I'm a believer that that's going to happen. But I think this is more of a discussion for 2028, 2029. The team has to really get that full productivity out of the supply chain. Got it. That's super helpful. Sticking with aero for a second, when you talked about the supply chain issues, my understanding is a lot of that was happening in the defense space. Maybe it was in the OE space as well. When you parse out your organic growth this quarter in aero, low double-digit organic growth, aftermarket was up almost 20%, defense was up double digits, OE was up 2. As you head into next year, mix is going to shift a little bit, right? So talk to us about the mix dynamics. Is that an impact to margins at all next year? And also from a supply chain standpoint, was I right in thinking it was mostly in the defense side? Yeah. So I would say our supply chain issues, where they remain, is on the mechanical side. So if you think about anything that is relating to castings, forgings, high precision machining, et cetera, that's the part of the supply chain that across the industry is still, I would say, behind, and there's more recovery to do. Electronics, control systems, et cetera, we're already on PO and have been for many quarters. If you think about the progression of our OE business, commercial OE specifically, where I think we're down in the second quarter, like you said, we're up 2% in the third quarter, we should be up high single digits in the fourth quarter. What it means for next year, I would say that these ratios as far as OE to aftermarket should normalize and be more consistent. So all parts of the business should grow at high single digits. Defense and space, that's where we have a lot of our positive backlog. It really depends kind of on the availability of parts, et cetera, in the business as far as how they go. But I think they would just levitate around that high single digit growth for a while. So if all subsegments are growing around the same clip, from a margin perspective, you don't expect to see much of a headwind? I do not. OE obviously creates margin headwind. But you have to realize that you look at the aerospace portfolio, it's very balanced. We have a lot of business in business aviation. We have a lot of business in defense and space, aftermarket. Our commercial OE with the big OEMs is about only 15% of our business. So even that commercial OE side of the business is growing faster, putting pressure on margins, I don't think those pressures are quite pronounced. That said, though, it's a great problem to have. Obviously, we're installing base, and that creates new install base, creates new opportunities for aftermarket revenues. Great. You mentioned earlier that your orders were strong this past quarter, up 22%. I think on the conference call as well, you expected the order momentum to continue into 4Q. I I think you made a comment earlier that things have kind of played out as you'd expected, but just any other further comments? I would say October was strong. We're just getting the data for November, and these orders look in line with our expectations. Well, I'm sure we'll talk a little bit about later, but looking at our UOP business, our UOP business, I would say, is a mixed bag from a revenue standpoint, a margin standpoint, as we don't have these catalyst sales and project delays. That said, though, the UOP business has the strongest, I would say, order book that they have seen in a very long time. So I'm really, I would say, excited about the prospect of the business, especially going into the next year and second half of next year as some of these big projects translate from orders to revenue. That's helpful. So let's just talk about UOP, right? Because you've called it out in the quarter, right, that margins were going to be down pretty substantially, right? And the number I have in my head is like around 20%, maybe a little bit lower. Yeah, it's about 100 basis points for the year. Yeah. Okay. So that seems like on the margin, it doesn't seem like things have gotten any worse this quarter, or have things? Yeah. So I would say if you unpack our business, you look at acquisitions, first of all, to start with acquisitions, is performing extremely well. They're accretive to growth. They're accretive to their own performance. And they're accretive to margin. So both on LNG and Sundyne, the demand is extremely strong. That part of the industry performing very well, and we're doing extremely well. When it comes to kind of call it the rest of UOP, where we don't see a lot of demand yet is on the petrochemical side. There is just, I would say, oversupply. The macros are not great. We start seeing, like I said, just a lot of orders. And I would say the pipeline translating to orders, which is great. But this is a long-cycle business. So by the time you engineer, you sell licenses, you supply catalysts, it's going to take a while. But we see strong demand. Business is working through restructuring, cost restructuring, et cetera, to position itself for the growth. But we'll feel some pain in the fourth and first quarter. Okay. Those orders that are coming in now, is it fair to assume that's outside of the petrochemical industry? So what end markets are coming in? No, it is petrochemical. Oh, it is petrochemical. It is petrochemical. So those are big contracts. I mean, those are usually investments for our customers in billions of dollars. And these contracts, they've been in the pipeline for a while and now start converting. The big one that was just in the press, it's Dangote in Nigeria, big petrochemical complex that come in. We obviously won it. And there are a few more like this coming in. Right. But these are multi-year projects. Multi-year projects, et cetera. Okay. Understood. That's helpful. I guess we started going down the path of the aero segment, the automation segment. Let's maybe talk a little bit more broadly about the 2026 framework and how you guys were thinking about it initially. Yeah. So we'll provide the guide here in about a month and a half. But exiting 2025, I'm quite positive on 2026. Orders are great. Our backlogs in most of our businesses are the highest they've ever been. I'm doing a lot of work personally on cost out and structural cost to minimize and accelerate the stranded costs and stand-up costs for aerospace. And the teams are performing extremely well there. We have really good, I would say, discipline on price and NPI. So a lot of things are pointing to a great 2026 for Honeywell. Great. And that's one follow-up question to that. And then I'm also going to open it up to the audience in case the audience has any questions. So I'm listening to the trends ending the year from an order perspective, how you've executed throughout the year. As I kind of put that in the context of your long-term framework of 4%-7% organic, 40-60 basis points of margin expansion, it sounds like you feel at least today pretty comfortable that next year should be at least within those ranges. Look, what I would say is that the framework that we set out, it holds for us, and I think 2025 for us was a low point. If you remember, we were separating the company. There are a lot of things going on, but we're working as fast as we can to position ourselves for a strong 2026 and even stronger 2027. And I know there are a lot of things going on right now. It's hard to, I would say, unpack everything. But every step we take is to really aim and putting together a stronger Honeywell for separation. Okay. Great. I'll open up to questions from the audience. Anybody have any questions? Shy bunch at 8:00 A.M., so I'll continue. So let's go to building automation. Sure. Right? Look, it's been a great piece of the story all year, right? It accelerated to high single-digit organic growth in most recent quarters. Maybe just talk a little bit about the end markets that are driving this. And then as you think about access solutions, I know it's now embedded within the organization. Is that going to be accretive to growth in 2026? Sure. So I would tell you I'm really proud of what the building automation business and that team has done. I started my Honeywell career in building automation in 2020 just as COVID started. And at the time, a lot of questions were very similar to your question today. It's like why building automation should be in Honeywell, just sell the pieces, et cetera. Fast forward five years, it's a crown jewel of the portfolio. And I think what the team has done there and what's really driving the performance is really focused on the NPI. It's focused on Forge and Connected and focused on software. I think that team within Honeywell is probably the most ahead on the journey as far as providing outcome-based services to our customers inside and leverage the Connected and software to drive outcomes. As far as where the industry is growing, it's obviously data center. Demand is extremely high and investment in AI. We participate in this as well. That's probably our strongest growing end market. We're continuing to build scale in there. After that is really not commercial buildings, if you will, offices, but it's hospitality, hospitals, life sciences, places like that where there is, I would say, once again, the high level of specification and certification needed, and that grows for us. Building automation for us is, I would say, the most global business that we have. We see growth in the Middle East. We see growth in Europe. As we talked about earlier, Europe used to be, I would say, a drag for us. Now it's becoming a tailwind. Business started to grow very nicely there. Asia is growing as well. That's good. It's been It's been great to see it, to be candid. You look at the margins of that business. I always start to get somewhat concerned when margins get close to 30%. Segment margins here are 27%. How are you thinking about the levers outside of clearly volume growth that can get margins higher? One Access Solutions is accretive. It's accretive from the margins. The business has now been, I think, over a year in the portfolio. You see that accretive growth and translation to margins is showing up as organic growth and organic margin expansion. Like I said, Access Solutions, like most of our acquisitions, is performing above pro forma. We'll see a lot of tailwinds there. Second is really just leverage on the top-line growth. If you're growing at 5%, 7%, you get much better fixed cost leverage. That's what the team is doing. The team is not lazy, I would say. The team is really focused on making sure that they're productive and they invest in NPI, but also have a very strong say-do on new offerings. Yeah. I don't know that I'd ever describe anybody I've ever met at Honeywell as lazy. Not part of the culture. Okay. Transitioning over to the industrial automation business. So we talked a little bit about hopefully getting an update by the next time we hear from you guys on earnings on the strategic review. But let's talk about process for a second, right? That's been roughly flat the last three quarters. So maybe talk about what are you seeing across the growth trends in that business going forward? Sure. So maybe just before I go there, just talk a little bit on portfolio review, et cetera. I think once we are past the portfolio review on Intelligrated and PSS, materially, I would say we're done with the portfolio review. I don't see any businesses in new Honeywell that do not belong there. They're all material scale. We'll continue, though, to focus on continuing to build our pipeline from M&A standpoint. And we, I think, have proven to ourselves that doing smart M&A as far as looking for assets or even carve-outs. We've done a lot of carve-outs, which naturally belong to Honeywell as the owner, if you will, and fit to the portfolio well and accretive from a growth standpoint, a margin standpoint. Those are good areas to focus. But obviously, we're conscious about how much we're spending on M&A and then what multiples. So we'll continue to be focused on that. Back to your question just on the process business, I would say HPS itself has a very similar dynamic to ESS as far as part of the business growing extremely well. Other parts, not so much. So I would say the big projects, we don't see as much volume there. Now, on the other hand, we see a lot of demand and continued demand in the lifecycle. So in the aftermarket, OpEx spend is there, et cetera. So feel good about this business going into year-end and next year. Sensing business is performing very well. And that will continue. We're actually building our capacity there to stimulate demand. And demand is really in life sciences and A&D. So we'll continue to invest there. And then I would say IGS and PSS, it's a mixed bag. IGS was slow in the first half. Now we see post-terms settling, if you will, and the environment becoming more clear. We're starting more demand, more projects, and PSS is just mixed bag. It's almost a little bit like back to the future with HPS being reunited again with the UOP business. I know that you're resegmenting. How do we think about the right margins leftover in the industrial automation business going forward? As far as the size of the business? Yeah. Yeah. With the size of the business, what the margin profile is, and then you're in the process of strategic review. I know that depending on what happens there can also change the profile, but how do we think about this business going forward? I would say this is a self-help story for us. This business feels to me a little bit like BA felt five years ago. We spent a lot of time this year focusing the business on parking our product lifecycle journeys in the various businesses there. We reinvested in NPI, started seeing results there. We upgraded the leadership team as well, and I think that business, it's really a focus for us as far as one organic growth and then inorganic focus. But I think before we get into inorganic focus, the team has to prove they can grow organically, and that's what we're focusing on. So a lot of the restructuring that you're doing this year, is that going into this segment? Most of it is in that segment and in UOP. Okay. I want to talk about, before we got on stage, I mentioned that I had to literally look up all the different deals that you guys have done over the last two to three years. It's been incredible. You've been very active. How are you thinking about the pipeline going forward? And then of the deals that you've done recently, maybe just give some color on how they're performing. Sure. And I think we all, the investor community, kind of an update on how those deals are doing. We'll do it, whether it's part of the investor day or maybe part of the earnings, but acquisitions are performing extremely well, so I think the team's done a really good job, one, just managing and pruning the pipeline and cultivating it, and then having the right assumptions, if you will, in our pro formas and how it worked out, and then execution has been quite strong across the board, so I think we've done six deals, material deals, and going forward, I think what you continue to see from us is really more bolt-on acquisitions. If I look at the portfolio, I feel like the building automation portfolio is well provisioned. We've done a lot in UOP and ESS, and we still have Johnson Matthey Catalyst Technologies to finish. That should happen in the first half of this year. Then from there, it is very clear that industrial automation and HPS probably are candidates for some bolt-ons. But I would say we will be thoughtful on it. Pricing matters to us. And like I said earlier, being accretive from a revenue standpoint, a growth standpoint, and being accretive from a margin standpoint also is important. You've been active in Aero, but I didn't hear you say Aero when you were talking through. So look, I would say Aero is tougher. The team has a lot of good prospects, but I think Aero is tougher too, and we want to make sure we're thoughtful there. They've done Civitanavi, and they've done CAES. So they've done two deals. I think coming out of the gate, Aero will have capacity to do M&A as well as some portfolio trimming. Knowing Jim, I know he will want to do some portfolio trimming there as well around the edges. We should give them more capacity to do M&A. So, I know I've waited till the end of the conversation to ask you if AI, that was purposeful. But I'm just curious, just as you kind of think about the opportunity maybe thread across your businesses. On AI? On AI. Yeah. It's here, and it's just making sure how you make it, how you make sure how you get the ROI on it. I just had my [CFO] send me yesterday an email with essentially three agentic robots talking to some of our customers on managing past dues. It is incredible what it can do. First, you listen to a conversation; it feels like you're talking to a real person. The second, in terms of those robots being able to discern as far as what information we need, where we need it, how to ask the questions, et cetera. There's a ton of productivity there. We're doing it across the company. I think big productivity for us is in proposals. We've been using AI in proposals and estimates as far as being able to get through higher volume of transactions and RFPs. From a tax standpoint, we're using AI in terms of returns, et cetera. That's helpful. And that's all productivity for us. Engineering-wise as well, actually, that's probably the biggest area of productivity for us in terms of drawings and recreation, et cetera. And engineers love AI. So a ton of productivity there. It's just a question, like I think everybody else is, as a CFO, how you quantify it, where you see the productivity, where you see cost savings coming in from it, make sure that you don't have redundancies. Yeah. Super helpful. Going back to Quantinuum for a second, can you just look at the valuations of the quantum stocks have rollercoastered, but they're certainly higher than they were 12 months ago. How are you thinking about the timing for that IPO? So maybe if you step away just from the hype of Quantinuum and all these different companies running around, we're really pleased with our maturation of technology and the progress. And I'm extremely proud of what the team has been able to do on drumming up demand and having tangible outcomes and tangible customers as far as growing their orders pipeline, their revenue pipeline, et cetera. So the maturation and commercialization of the product, I would say, is outstanding. Now, if you see the valuation and who came in from the valuation, players like NVIDIA, J.P. Morgan, et cetera. So this is really all aimed at having commercial applications in these technologies. And I feel like over the next 24 months, we'll be in a position to have some kind of high ROI monetization event in the business because I don't think we're a natural owner of the technology. But nonetheless, we're continuing to fund it and stepping up funding to mature the products and develop the customer base. And I'm really excited about the prospects of Quantinuum. So Mike, we're going to be bumping up on time. Just any parting thoughts for everybody? It's been a transition year. Seems like the light is at the end of the tunnel with reshaping the portfolio. Just any thoughts? That's right. I think we're getting into the critical stages of separation. 2025 was bumpy as far as the amount of work we're doing and everything that we're throwing at our investors and our internal teams. But we're trying to get as much done as possible before the separation. So we have cleaner, more focused businesses after the separation. I'm really proud of where we're finishing '25 and what the team has accomplished. And like I said, 2026 should be an even stronger year for us. Great. Mike, great to see you. Thanks for coming. Thank you very much. Thank you for your Thank you for your time. Okay. That's great. Thank you.