Here. Okay. Yeah, wait a minute. All right. We started that out. All right. Thank you, everybody. I'm Chris Snyder, a US multi-industry analyst here. You know, no better way to kick off the conference than with Vimal Kapur, CEO and Chairman of Honeywell. You know, thank you for joining us. Thanks for having me. Just maybe starting off high level, can you update us on the separation journey? Has there been any surprises or unexpected challenges or anything that's just kind of noteworthy that's come up in this process? First of all, thanks, Chris, for having me here, and welcome everybody, and good morning. I would say the spin perspective, they're progressing on schedule. We'll have our Solstice business spun off in Q4 this year. The investor day is on October 8th, so those interested definitely should attend. ERO's spin will be the second half of next year, about a year-ish time from today. No major surprises there, I would say, from an execution standpoint. The AM spin gave us a little bit of a warm-up of doing a spin, and ERO's complexity is high, but we have a separate project team which executes that. There's a lot of work, I would say. What surprised me to your question is the opportunity set. As I've been more focusing on my new role as the CEO of Remain Core Automation, the opportunity set in automation with the confluence of cloud, data, and AI is way bigger than I had hypothesized when we made a decision to separate. It was known that something will happen. Fundamentally, cloud is providing us the ability to connect, which means that our ability to service our customer and serve the vulnerable market is growing because friction to connect is basically zero. If I was not able to serve a market, that's kind of a basic table stakes. There's a benefit of able to serve my customers better, hopefully pick up more gross margins because cost to serve reduces, but I'm also able to connect enterprise versus a couple of plants, warehouses, or buildings. It's a new dimension. We were not able to do that three years back. If somebody says, "Give me visibility of 40 buildings," and we can just roll up our eyes because there was no technical solution to deliver. Now we can do that. The big picture which is emerging is not these two. It's really as we are connecting. Chris, we have now 20,000 customers connected. Wow. The data which is coming and the data science behind it, which I'm also learning, ontology, which cuts data across different sources and builds a new wide outcome, it's a total eye-opener. I was not a strong believer myself on the opportunities it will create, but what has happened over the last six months and the customer success we are getting has also made me a convert, which is making me excited to your question. That's a fundamental shift on the confluence of cloud, data, and AI, the opportunity to create. It's going to transform the automation industry in my view, and we'll see how we participate and take benefit of that. Is that really the value that's created in the separation? You guys can now maybe better or more effectively identify opportunities, invest, and capture that? Absolutely. I mean, the thesis is each company is not programmed for its own future. Its capital structuring is to enable it to execute its own strategy, whether it's aerospace or advanced materials or automation, with its own management team which is focused on that. I think the thesis that separation brings more focus clearly is valid. I've been very conscious that we also maintain the scale while we are becoming thematic as an aerospace or automation in particular. We don't want to lose the scale and capability the scale brings. I'm quite pleased on where we have accomplished that. Each entity, aerospace, and automation will be about $20 billion revenue roughly, not precisely. It positions us very well to go from that platform to create a higher scale and momentum. Maybe last one on the separation. You guys have remained busy on the portfolio this year, both buying and selling. Is there anything big or material that we should be thinking about between now and the spin? With that, anything that you would talk about on continuum? Yeah, sure. I would say that one of the unique features of Honeywell spin processes is we are simultaneously also doing the portfolio work, which can sound a bit risky to say why we are onboarding more work while you already have this work. My conviction is that we don't want to sit here a year from now and say, "While we have done the spin, now we have to do portfolio work," right? The portfolio we are building specifically for automation is built upon a premise that we are moving towards common outcomes. What we have observed is over the last few years, customers have moved around from hardware and products to common outcomes. They want to drive energy efficiency, productivity, operational excellence, safety, cybersecurity, and so on. How do we have a portfolio which can drive common outcomes? We pick a few. We can't pick up like 25 outcomes. We probably pick five. There's a commonality that this outcome applies in these verticals. We have a higher amount of replication, and more so with the power of data, the impact of that is going to be higher. A lot of our portfolio work was focused on that. I think where we sit today, after we completed our existing personal productive equipment business and announced a strategic review of our productivity solution and warehouse automation, we are largely done on our current portfolio from any exits which were acquired. On an onboarding perspective, we have made six acquisitions. Four of them are in automation, two are in aerospace. I won't say on additions we are done. Obviously, there'll be more opportunities which may come in, but we are not predicated on that. Our earnings growth is not counting on some big acquisitions we are going to make. You can feel that we're going to be more stable on the platform, on the portfolio work. Our goal is then when the spin occurs, our portfolio work, this innings is also completed, and we are able to then focus more on driving execution. The last point you made on quantum, I would say we did complete the quantum fundraise. You should have seen the press release, $600 million. We want to go up to $700 million or north of that. The good news is we are able to get many new investors. That's what's unique about this round is money is fine. We, of course, need money to progress our cause, but the number of investors which have come in, that shows that interest in quantum is going from modest to more people want to participate in this. Now, I really see the next step up for us is given that we got the funding we needed and we completed the phase one of our journey on having a hardware platform, which we have proven works. That's why people are putting money, is now onboard customers which can use quantum to do applications which classic compute can't do. This is a moment now. The three verticals our quantum team is focused on are research and life sciences, how to discover molecules faster, banks, and governments for cybersecurity on encryption. Each of these three customers in that sense, probably in the next 12 to 18 months, work with them on our platform and get that proof point to say traditional compute can't do this, quantum can do that. That'll become then the point which we are all waiting for. That's a point to say the business is ready for a new future, whether it's IP or other form of capital raise. We think in the next inning of this, and earlier the better for us as a Honeywell, we have been very committed. That's what we want to do. We obviously do not want to run ourselves and get returns for our shareholders. I feel very pleased that we got $10 billion valuation. The goal obviously is we sustain this or we get to a higher level. Yeah, appreciate that. Maybe moving to the businesses, you mentioned that you would be running Remain Core, the automation business. A lot of questions and interest on the AERO side. Can you just maybe talk about the process in identifying the management team there and maybe when we could expect some updates? Yeah, so I think one of the big decisions for me and the Honeywell Board is to now decide the management team of Aerospace. We are really looking at a combination of three roles to satisfy three stakeholders because any decision we make impacts three stakeholders. Of course, our shareholders want to know who is going to be the management team. The customers, because they deal with the same people, since it's a very narrow set of customers—there are 10 OEMs and a couple of defense primes, right? This is not a very large universe. Then employees, there are 30,000 plus people. They want to know who's going to run the company. We have to satisfy these three stakeholders. There are three positions. We're looking at it to feed the interest of three diverse stakeholders: Non-Executive Chairman, we think that this company will benefit from having an experienced Non-Exec Chair for a period of time, the CEO, and CFO. For each of these roles, we are looking for options. All three internal, obviously a bad idea. All three external, obviously a bad idea. There will be a balance between the two approaches. We do expect that we should be able to make an announcement of this in the next 90 days, which will be about nine months ahead of when we think spin will occur, give and take. You don't want to do it so early that it's irrelevant. You don't want to do it so late that people don't feel comfortable not to know the management team. We are in the process. That's what I can share. When we are ready to announce all of these three roles or some of this, we'll communicate that. Appreciate that. Maybe just kind of turning to the business itself, you know, staying with AERO, obviously, you know, great growth the last three to four years. I guess how long do you think the industry can grow above trend or above normal? How much visibility does Honeywell have into the AERO growth? I mean, this question, what you're asking, Chris, today, I asked that question to myself in late 2023. What we found at that time was the cycle is up for a long time. AERO business will become $30 billion in about less than 10 years, about eight, nine organically. I'm just not talking, this is purely organic. To answer your question, the growth is more longer term. We believe that we do say mid-single to mid-to-high single. The question raises, when we are so convicted, why you put mid in front of it? I think that's really a question of supply chain constraint, which occasionally shows up. It's nearly impossible in my view to show quarter after quarter double-digit growth perpetually. There is going to be some quarter in which you may not be able to do that given the complexity of supply chain, specifically on the mechanical side. Fundamentally, our belief that this business will perform on long term is very strong. All the vectors, whether it's the OE growth, is playing well. Defense has certainly become a new dimension of growth. Advanced air mobility is taking shape. We have a big amount of wins in our backlog in that. All factors are progressing in the right direction for that business. Appreciate that. On the margin side, the margins there have stagnated over the last three to four years. Obviously mixed acquisitions, tariffs. You guys do have a, I think, a 29% segment target out there, and maybe that changes post-spin. In general on that margin expansion, I guess how do you see that trajectory? How do you see the cadence of margin expansion there? The margins for the business have been bouncing around between 25%, 26% this year. I think I would divide the margin drivers in two buckets: what's more transitionary, more in the near term, and what are long term. There are two different drivers. The transitionary drivers are, first is very simple, which will be over next year. We acquired CASE. It defends business. It has about 100 basis point of contraction on margin because of onboarding cost and all that. We telegraphed that right in the earnings calls. There's nothing new there. That's a known factor, which will go away next year. That's an easy one. The two additional ones, which are transitionary ones, is the OE mix continues to be unfavorable to the overall mix. Given the OE margins are lower than aftermarket, that obviously plays as a headwind. The last one, which was not there at the start of the year, which came in, is tariffs. This business is able to pass along the pricing for aftermarket very effectively because either contracts are linked to some indexes or if it's a spot price, you can obviously reprice it. The OE contracts are long term, and the term of the contract will determine when we get the price. It's an important point. We are going to get the price, but timing may get delayed because contractually, it's not due till, and hypothetically, for example, February of 2026. What should have come in Q2 or Q3 is not going to appear in 2026. It's just out of synchronization. It's not that business is not going to get it. It's an industry structure. I jokingly tell my team that somebody else's margin is inflated artificially and ours deflated artificially. Those three transitionary factors are occurring, which made the margins more closer to which was 27% to toggle around between 25% and 26%. We think that's going to remain stable. There are two incremental points in addition to three transitionary points, which kind of makes the case for our 29%. First is our R&D spend is up. I'll say why that's a long-term trend and why it matters. Our backlog is up to $70 billion. If you have to deliver that backlog, I'll just take an example, the commitment we made to Bombardier last year, our $17 billion win. We have to do some engineering work. We don't have to invent any new product, but the engineering work has to be done to repurpose the product for that OE that requires money. That delivery or shipment may not happen till 2028 or 2029, but if I don't do the work today, that shipment will occur. In a way, the R&D cost is going up. It's a positive signal for a business which is long cycle because this is not pie-in-the-sky projects. These are contractually bound deliveries for which we have to spend money now because the cycle is three years and stuff like that. The final point, which is long term, is the investments made by us in supply chain. They were necessary. They are necessary in the stake we are in. We are getting the results of volume growth consistently, 10% for 12 quarters, 13 quarters now. We have spent extra money from our pocket to get that volume, even though we are not bound to spend that money. At some point, the volume leverage of that will come in. When you unpack it, it looks like all the things are coming together, literally. That does create some bit of anxiety. Is the margin story not there? Fundamentally, the foundation is very, very strong. It is just events coincidentally coming together, which just makes margins look more static at this point. Near term, the earnings growth at AERO will be predicated by revenue top line growth. Longer term, it'll become a combination of both top line and margin expansion. If I could maybe follow up on the tariff price cost. It sounds like you guys are confident that you'll get the price. Obviously, the contract in nature means it comes through later. Maybe there'll remain some pressure there, but the rate of change is positive. You guys are kind of closing that gap. Yeah, absolutely. It's not a, the gap keeps shrinking as you approach a particular milestone. It's just a time lag issue. It's an industry structured that way. I wish we can change it, but I think every OE will go through the same, every provider like us will basically go through the same cycle. Yeah. Just kind of staying with some of the more near-term AERO dynamics, the OE de-stock caught the industry by surprise. You know, a lot of companies were impacted by that. Production rates are going higher, so it doesn't feel like it'll be long duration to that. I guess how do you see that side of the business shaping up into the back half, and what kind of visibility do you guys have on that? I would say what we mentioned during our earnings call, there was a synchronization between shipments we made to OEs, specifically in the U.S., versus their shipments. It was specifically asked by these OEs not to stop our shipments, even though when they were not shipping. That created a synchronization. That's why the cycle looked a little out of sync. That's behind us after H1. You would see the cycle converging in the second half of the year. Now from this point onward, there'll be much more similarity on the OE growth rate. It won't be exactly the same. If OE grows, the curve will be similar shaped. We can be below the curve. We can be above the curve depending upon how many ship sets they already have from us. If they have less, we will be above the curve because they need more from us. If they have more, the shape of the trajectory will be, if somebody is growing 14% trajectory, you will expect from us a similar rate moving forward. That's definitely behind us. We are observing that as quarter three is progressing. We'll see as the results come in for Q3, we'll share the additional details. Appreciate that. Maybe moving over to the automation business, which you will run. You know, you guys have announced a couple of big divestitures, warehouse, you know, the scanners business. You sold Safety a couple of months back. I guess how do you feel about the scale of that business as it becomes a standalone entity? Are there any areas in the portfolio where you see opportunity to add? I mean, I would say that the scale portion, obviously, as I mentioned, how do we find balance between the scale and thematic? When we were going through this process, I talked to many of my peers who have gone through a similar process because many industries have gone through this. I think one advice I got was we should not come to a point of thematic that we become irrelevant. What is the finer point? That's a balance we have been trying to do that has scale and commonality. I would say in the state, we will basically serve three broader end markets, industrial, process, and buildings. What binds all of us together is the outcomes in these three are highly common. All customers are looking for operational excellence, looking for safety, they're looking for productivity, and we are focusing on commonality of outcome, which binds us together through our offerings. The thing which did not fit well in those outcomes, we felt we are not the best owner. Let somebody else own it. Our future portfolio will be actually driven by two drivers. One, can we strengthen an outcome? For example, we acquired Excess Solutions. We were not strong in security outcome, which clearly feels more and more customers need that. We should strengthen that, right? It's a more outcome-driven driver. Or a market participation, which is higher growth. In these verticals, there are some higher growth end markets and some not so higher growth markets. LNG acquisitions, both from our air products, LNG liquefaction business, followed by Sundyne high-speed compressors and pumps, are in our belief that gas is going to be a critical fuel of the future, and LNG will be a big play. Therefore, those acquisitions add to our strength in those verticals while it sustains our business model. I think fundamentally, that's essentially our mindset is towards that. Our principle remains Bolt-On. We are not looking for any transformational deals. We have worked very hard to simplify Honeywell. From this point, we do not want to divert and go into some different direction. Bolt-On will remain our primary theme. Some tuck-ins too. Tuck-ins in my mind is more around an asset buy in which, you know, we did a couple in cybersecurity, a couple in fire detection. Those are, you know, more to improve the organic growth of our core portfolio. That will primarily remain our themes around it. Maybe, you know, following up on the building side, really good turnaround there over the last year. It seems pretty Honeywell specific. We haven't seen other companies in the space inflect like that. I guess what's driven that is the Access Solutions. Is that providing revenue synergies and just improving the overall business? What have you learned in that turnaround process that you think could be applied to the industrial side? I think the buildings is an interesting story because we started working on it since 2019. We spun off our residential business in Q4 of 2018, and our history is instructive. It's about seven years back. Since then, we have been looking to transform the business, which is fundamentally the strategy of New Honeywell. We really believe in growth in three ways. One of the three ways. Either you pivot your business more and more to high growth verticals so that your natural participation and more activity, CapEx or OpEx, whatever the case may be. That's lever one. Lever two is how do we mine our install base more and more through recurring services or software, more so software with the power of data and AI, which I talked before. Third, how we drive new products to participate in these verticals or participate in software, but also protect your core. If you can protect your core and take some share, you will grow even faster. Those are the three measurements we have: a mix of high growth verticals, a mix of software and services, and new products growth. Building automation is doing all of them well. Our participation in high growth verticals there is definitely in data centers, which should not surprise anyone. We started late, but we have a good position in both safety and security in that business, but also participation in healthcare. The world is building a lot of hospitals. It's not a well-known, well-advertised fact, but a lot of hospitals under construction and entertainment, hotels, casinos. People want to travel more, so there's a lot of consumption, so they are growing more. Their activity or participation in those three have increased a lot. They're far ahead in our connected strategy. That's the business which is leading the charge in Honeywell and connecting the install base and monetizing the data for new applications. I'll give an example. We have more than 10,000 of our customers in fire business connected, and our channel partners in this case can configure a fire system from their office. Why that does matter? I mean, what's the big deal about it? They don't have to travel. They have extra hours to do more work. This is a small business with 20, 30 people. For them, every hour is precious. They really love this product. This capability we did not have two years back. It not only gives us the recurring revenue to license that software, but also buy more of my hardware. It's kind of a knock-on effect, right? Certainly, they are far ahead in that. That's just one example. There are many examples like that. Their new product performance is very impressive. I think all that is coming together. To your second question, the Access Solutions business, our thesis of sales synergy is playing out extremely well. Our direct channel, which we consider because the building's whole business model is through channel, we have our own in-house channel. They're pulling a lot of Access Solutions business and the customers, specifically in data centers. That certainly is becoming a big advantage for us. Sales synergy is playing there quite strong. Overall, the business is performing above our financial commitment already in the first year of completion, primarily driven by sales synergy. Cost synergies, large companies will execute well. That's kind of a table stakes. Really, ROI, really returns come from that. Overall, I would say I just want to make a finer point on all the M&As we have done, the six acquisitions, the net multiples Honeywell paid, net of cost synergies is 12, really, without any sales synergies. I have not approved any deal in which there is no sales synergy. We are not interested because we are not adding true value as a company. Net multiples will be obviously lower than that. We are truly creating value for our shareholders in a very responsible manner versus running for an idea. That's certainly quite playing well. These acquisitions are accretive to our organic growth. Things like CASE acquisition made in AERO are growing high double digits, and it'll stay there for a long time. Access Solutions, we talked about very strong growth in LNG business, Sundine business. They all are really helping to propel the Honeywell organic growth rates. Four out of six are accretive to margins already. It's a great story. I think the capability we are building, and we believe that will help us to shape our portfolio moving forward. What we have done in buildings is the same strategy we are doing in process industrial. Focus on high growth verticals, focus on aftermarket services, both through services and software, and then new products. That's going to be a story of New Honeywell. We are ahead in a few verticals, kind of work in progress in a few others. As we come into 2026, I'm pretty excited on how our fundamentals are shaping up, and we are getting ready for the next year. Appreciate that. The industrial business and the building automation business, they both showed better organic growth in the first half of the year. I think you guys were the only company I covered to guide some of those shorter cycle businesses actually softer in the back half of the year. It sounded like maybe some conservatism with whether macro uncertainty, maybe uncertainty around what's in the channel. Can you just maybe talk about what you're seeing on those businesses into the back half of the year? Was there some conservatism there? Yeah, look, the business is performing on expected lines as we signaled during the second quarter earnings call. We feel very confident on the revised guide we gave of $10.45 to $10.65. I believe we are going to deliver that, just to reaffirm that point. The short cycle businesses are trending in the same way. Where we were cautious was the secondary effect of the current economic environment. As the tariffs get applied to countries specifically which are export-oriented, what happens to their domestic economy? I'm not an economist to figure that out, but clearly something is going to go wrong or something is going to be negative. Similarly, the oil price hanging into $60 has a consequence of the spend of the energy company on the capital cycle. The secondary effect, I would say, was less clear when we did the earnings call. They were essentially saying, "We don't know what we don't know." Therefore, we are kind of suggesting H1, H2 very similar or how things are progressing. That's what factored in our guide. We are progressing well. I think we learn more as the impacts of the tariffs really settle because they are really in vogue for like 45 days or something like that, right? These are not deeply entrenched. It's to be determined how this really impacts the different economies, which are on the receiving end of it because we cannot just look at it from the U.S. economy because Honeywell has 50% non-U.S. revenue. We really have to look at it from the receiving side and how will they react to it. Yeah, I certainly share the same view on all those international markets. Yeah. I guess maybe can you talk about the pricing environment? You know, tariffs, we saw the latest 232 go higher. Does that impact Honeywell's gross tariff expense? Any commentary on the pricing environment? Do you think it's harder to get price today than maybe it was in the spring? Maybe just excluding AERO on all that. Yeah, I mean, look, we've learned a lot during our pricing cycle of 2022 when inflation hit us on our face and we all kind of rushed through price raises. I think this year's approach had been, how do we protect our margins while we protect our volume? When the tariff discussion started coming, we basically went to our customers and said, "What's your suggestion?" rather than saying we want to do price increase. Most people then agree, I think some price increase is necessary. I think our approach to that has been, we have been able to protect our volumes because what we have learned is that longer-term volume sustenance is more critical, even with a lag in pricing by one quarter or two quarters, like in AERO example. You may have some margin pressure for 90 days, but if you protected your volume, you will get the tailwinds eventually. Fundamentally, I would say the market acceptance on tariffs is there is no real pushback, I would say, if you have the right set of conversations. In our calculator, we are also factoring the productivity which we are getting so that our margins are protected, right? We are not kind of hoping singularly as cost increases by tariff. You have to pass so much that you have to retain your margins. I also have to be conscious our productivity is strong. I do have that lever. Maybe I need not pass all 100. I'm happy with 80, and you know, that still meets my financial objectives because volume protection is the key here. I think that strategy is working well. My view is that the inflation, the industrials typically thought about pricing as 1%, 1.5% if you're lucky. It's more in the zip code of 2% to 3% or maybe 3% and a change because inflation is not only on the materials we say, but labor inflation continues to step up. I have not seen any data which convinces me the labor inflation will come down. That's going to remain stubborn, which means that's input to our product development, product cost, right? That's part of the cost too. It will remain in the similar zone in 2026. I have not seen anything which convinces me that the direction of travel will be changing. I think our customers are appreciative. It's all about bringing transparency and being more accommodative when necessary. Yeah, I mean, I agree with the point on labor inflation. It does kind of reinforce what you were talking earlier about, you know, the value of efficiency and providing efficiency to a lot of these companies. When you kind of took over in the role, a big focus was to spend more on R&D, you know, as a true, like, you know, organic growth engine for the company. Maybe on the automation side where, you know, I would imagine that that, you know, pays dividends quicker than on the AERO. How soon could we start seeing, you know, some payoff on the top line from the R&D? In a way, if you see our organic growth rate was 5% in Q2, and three businesses grew at about that rate. Fundamentally, I would say the direction of travel is started. The cycle for us is typically from inception of a product to a commercial scaling is about 18 months. It's not, yeah, it's not like AERO in which it's five years. I do believe that you will observe the impact of that in different businesses across the board. One thing which I feel confident we have transformed in Honeywell is our ability to drive organic growth through new products. That made us make sure that fundamentals that we are not wasting any money, they're unproductive products. That's kind of table stakes. Really focusing on the right set of ideas, focusing on services and software, taking share in some categories. I think all that momentum is really building. We do believe that new product growth is going to be the signature of this company. You kind of mentioned back to mid-single digit growth, even with headwinds in AERO. We have some of the growth accretive M&A turning organic R&D. I guess, what's your confidence that the company can maintain this mid-single digit growth, maybe not every quarter, but over the medium term? I mean, my job is to create a foundation. I would say that fundamentally how we are building Honeywell with the three drivers I talked about, vertical mix, mining install base, and new products, we are preparing every business to grow mid to high single. The variable will remain the markets. If markets are normal or favorable, of course, we'll deliver that. If markets are unfavorable in a cycle, of course, that becomes a variable. Fundamentally, the company we are building is towards that because we do believe for us to get attention of shareholders, we need to be at least second quartile. You know, we want to believe more in multiple secular trends versus just go after one for a long-term basis. We are well positioned towards that, I believe it. We're up on time. Thank you so much. Thank you very much, Chris. I appreciate that. Thank you, Hank. Thanks, Hank.