1 00:00:06,800 --> 00:00:08,920 Speaker 1: This is Wall Street Week. I'm David Weston. The COVID 2 00:00:09,000 --> 00:00:12,959 Speaker 1: nineteen pandemic has triggered some big changes in investment patterns 3 00:00:13,000 --> 00:00:15,520 Speaker 1: and supply chains around the world. To take us through 4 00:00:15,560 --> 00:00:18,319 Speaker 1: what his industrial company is doing. We welcome now. The 5 00:00:18,360 --> 00:00:21,400 Speaker 1: CEO of Honeywell is Vimal Kapoor. So Vim all, thank 6 00:00:21,440 --> 00:00:22,680 Speaker 1: you so much for being with us. Great to have 7 00:00:22,720 --> 00:00:23,040 Speaker 1: you here. 8 00:00:23,239 --> 00:00:25,480 Speaker 2: Thanks for having me, David, and it's pleasure to be here. 9 00:00:25,560 --> 00:00:27,560 Speaker 1: A lot of talk about supply chains. Give us a 10 00:00:27,600 --> 00:00:31,000 Speaker 1: sense from Honeywell's perspective, what has changed, if anything, since 11 00:00:31,000 --> 00:00:31,600 Speaker 1: the pandemic. 12 00:00:31,840 --> 00:00:34,560 Speaker 2: I have a think I would say, I mean, it's 13 00:00:34,560 --> 00:00:37,360 Speaker 2: been a biggest disruption in our business for the last 14 00:00:37,440 --> 00:00:41,320 Speaker 2: two years. It started with the disruption in electronics, which 15 00:00:41,320 --> 00:00:44,120 Speaker 2: we all well aware. And you don't get chips, you 16 00:00:44,120 --> 00:00:46,199 Speaker 2: don't get parts, and that was really I would say 17 00:00:46,200 --> 00:00:49,480 Speaker 2: about two years back. That's mostly healed for most part. 18 00:00:50,720 --> 00:00:53,200 Speaker 2: What's still left behind for US. Aerospace is the largest 19 00:00:53,200 --> 00:00:57,440 Speaker 2: segment for Honeywell, and then they're the healing has yet 20 00:00:57,480 --> 00:00:59,640 Speaker 2: to happen completely. We are in a midway and the 21 00:00:59,640 --> 00:01:04,640 Speaker 2: construy there is Tier three, Tier four suppliers. They moved 22 00:01:04,640 --> 00:01:06,399 Speaker 2: on with a lot of people during COVID and when 23 00:01:06,440 --> 00:01:09,400 Speaker 2: the capacity came back. Rebuilding the capacity of the people 24 00:01:09,600 --> 00:01:12,240 Speaker 2: has been a big challenge because these are certified skills, 25 00:01:13,240 --> 00:01:16,160 Speaker 2: not too easy to hire people, and that's the state 26 00:01:16,240 --> 00:01:22,039 Speaker 2: we are in. So electronics mostly healed on the mechanical side, 27 00:01:22,280 --> 00:01:25,160 Speaker 2: products in aerospace more in the midway, but we're making 28 00:01:25,200 --> 00:01:28,600 Speaker 2: progress every week, every month and continue to produce more. 29 00:01:29,080 --> 00:01:32,640 Speaker 2: Other thing I must bring in it changed is how 30 00:01:32,680 --> 00:01:37,560 Speaker 2: we think about insourcing versus outsourcing. That was I would 31 00:01:37,640 --> 00:01:42,039 Speaker 2: say we generally practice the strategy of local for local, 32 00:01:42,120 --> 00:01:45,160 Speaker 2: so produce for North America and North America for Europe 33 00:01:45,160 --> 00:01:47,600 Speaker 2: and Asia for Asia. So US live with not a 34 00:01:47,640 --> 00:01:51,080 Speaker 2: lot of moves. But when should you outsource and when 35 00:01:51,120 --> 00:01:53,760 Speaker 2: you should not outsource, because one thing we learned was 36 00:01:53,880 --> 00:01:57,800 Speaker 2: that when we control the supply chain, we healed quickly, 37 00:01:58,640 --> 00:02:02,400 Speaker 2: and when it was outsourced more, we healed slower. And 38 00:02:02,440 --> 00:02:04,520 Speaker 2: that kind of also raising the question on how should 39 00:02:04,520 --> 00:02:08,239 Speaker 2: we configure on the things we do outsourced, specifically electronic side, 40 00:02:08,720 --> 00:02:10,720 Speaker 2: and should that not be done by us to drive 41 00:02:10,840 --> 00:02:12,399 Speaker 2: more control and more execution. 42 00:02:12,800 --> 00:02:15,600 Speaker 1: So what about geography. There's been a lot of talk 43 00:02:15,720 --> 00:02:20,560 Speaker 1: with other companies about friends sourcing and on shoring things 44 00:02:20,639 --> 00:02:22,800 Speaker 1: like that. Has that been a shift for you? Is 45 00:02:22,800 --> 00:02:25,320 Speaker 1: most of your supply chain within the United States, you 46 00:02:25,480 --> 00:02:27,920 Speaker 1: have you taken it into other countries that will call 47 00:02:28,120 --> 00:02:29,480 Speaker 1: so called friend shoring. 48 00:02:29,960 --> 00:02:33,600 Speaker 2: So we always had a strategy of local for local, 49 00:02:33,840 --> 00:02:37,480 Speaker 2: and our North America supply chain always supported in US 50 00:02:37,520 --> 00:02:41,720 Speaker 2: and Mexico, and Europe was in Europe, and Asia was 51 00:02:41,760 --> 00:02:47,040 Speaker 2: primarily China. So for US, what change is certainly Mexico 52 00:02:47,080 --> 00:02:50,760 Speaker 2: has become more important. We always had a great presence there, 53 00:02:51,160 --> 00:02:53,519 Speaker 2: so probably we are doing some insourcing type of work 54 00:02:53,560 --> 00:02:57,400 Speaker 2: in Mexico, considering that to do moving forward. But we 55 00:02:57,440 --> 00:03:01,520 Speaker 2: see a lot of our customers moving into friend sharing. 56 00:03:01,600 --> 00:03:05,800 Speaker 2: We see activity in Asian countries like in Vietnam, Malaysia, 57 00:03:05,919 --> 00:03:07,799 Speaker 2: we see a lot of activity in Poland, we see 58 00:03:07,800 --> 00:03:12,760 Speaker 2: activity in Turkey. Mexico is probably top of the charts there. 59 00:03:12,960 --> 00:03:16,959 Speaker 2: So clearly people are making decisions to redo their businesses 60 00:03:17,040 --> 00:03:19,560 Speaker 2: to align more with the friend showing. 61 00:03:20,120 --> 00:03:23,040 Speaker 1: Honeymoon is a global company, and I know you're looking 62 00:03:23,080 --> 00:03:26,040 Speaker 1: to grow in places where the growth is most robust. 63 00:03:26,919 --> 00:03:29,000 Speaker 1: Right now, we have a lot of geopolitical conflict all 64 00:03:29,040 --> 00:03:30,880 Speaker 1: around the world. Some people think it's more than we've 65 00:03:30,919 --> 00:03:33,160 Speaker 1: seen in a good long time, whether that's in Europe 66 00:03:33,240 --> 00:03:35,640 Speaker 1: or in Asia, how does it affect your business? If 67 00:03:35,680 --> 00:03:37,200 Speaker 1: it affects your business at all. 68 00:03:37,400 --> 00:03:41,240 Speaker 2: It does. I mean the geopolitical situation being normal certainly 69 00:03:41,280 --> 00:03:43,600 Speaker 2: the tailwind for us and opposite is true are being 70 00:03:43,600 --> 00:03:47,120 Speaker 2: in headwind. So we have to make careful choices on 71 00:03:47,160 --> 00:03:49,160 Speaker 2: how should we think about the geography. So where we 72 00:03:49,200 --> 00:03:53,080 Speaker 2: stand today, our business is very global. Out US sevenue 73 00:03:53,080 --> 00:03:55,760 Speaker 2: is about fifty percent and a non hus svenue between 74 00:03:55,760 --> 00:03:57,760 Speaker 2: Europe and ust of the world is another fifty percent. 75 00:03:58,160 --> 00:04:02,440 Speaker 2: And it's a careful balance to drive execution. I mean, 76 00:04:02,800 --> 00:04:04,760 Speaker 2: case in point is we lost all our revenue in 77 00:04:04,800 --> 00:04:06,480 Speaker 2: Russia for the right reasons. We are not going to 78 00:04:06,480 --> 00:04:09,000 Speaker 2: support that cause, but we have to shut down our 79 00:04:09,000 --> 00:04:12,880 Speaker 2: operation after a Ukraine war and we lost our revenue 80 00:04:12,920 --> 00:04:16,680 Speaker 2: of nearly half a billion dollars industry. It's painful, but 81 00:04:16,760 --> 00:04:19,760 Speaker 2: it's a reality of the today's world. But there are 82 00:04:19,839 --> 00:04:23,640 Speaker 2: opportunities which are coming in. We see growth in other 83 00:04:23,680 --> 00:04:26,359 Speaker 2: parts of Asia which are offsetting some of the last 84 00:04:26,360 --> 00:04:28,760 Speaker 2: growth there, and it's a constant balance we have to 85 00:04:28,760 --> 00:04:29,360 Speaker 2: do all the time. 86 00:04:29,600 --> 00:04:31,120 Speaker 1: Just we're going to ask where do you see the 87 00:04:31,160 --> 00:04:33,640 Speaker 1: greatest opportunity for growth at this point. 88 00:04:34,160 --> 00:04:36,200 Speaker 2: From our business to the segment, I can answer the 89 00:04:36,240 --> 00:04:39,680 Speaker 2: question I ler to do the segment Honeywell serves, so definitely, 90 00:04:39,720 --> 00:04:42,960 Speaker 2: we see a great growth opportunity for us in India 91 00:04:43,040 --> 00:04:46,440 Speaker 2: and in Middle East. The reason is what those regions 92 00:04:46,480 --> 00:04:48,039 Speaker 2: or countries want to do as a great fit for 93 00:04:48,080 --> 00:04:52,280 Speaker 2: our portfolio. India wants to be big in airlines, that's 94 00:04:52,320 --> 00:04:55,080 Speaker 2: a big business for us. We're building a lot of infrastructures. 95 00:04:55,080 --> 00:04:57,840 Speaker 2: We have automation businesses in industrial and building, so that's 96 00:04:57,839 --> 00:05:01,240 Speaker 2: a big opportunity for us. Those countries need a lot 97 00:05:01,279 --> 00:05:04,000 Speaker 2: of energy, so we have energy transition business. So portfolio 98 00:05:04,080 --> 00:05:07,160 Speaker 2: fit to the country's strategy objective is stronger fit, which 99 00:05:07,320 --> 00:05:10,359 Speaker 2: just makes us well positioned for growth in those regions. 100 00:05:10,600 --> 00:05:12,680 Speaker 1: You have said more than once you're pursuing now one 101 00:05:12,880 --> 00:05:15,480 Speaker 1: two with three mega trends as you call them for growth, 102 00:05:15,720 --> 00:05:19,440 Speaker 1: one being automation and aviation and energy. Your acquisition from 103 00:05:19,520 --> 00:05:23,920 Speaker 1: Carrier falls clearly in the AutoMotion character category. Give us 104 00:05:23,920 --> 00:05:26,560 Speaker 1: a sense from your point of view why this particular 105 00:05:26,640 --> 00:05:28,719 Speaker 1: deal made sense for Honeywell. 106 00:05:28,760 --> 00:05:34,080 Speaker 2: Thanks, David. Look, the as you laid out, Honeywell is 107 00:05:34,120 --> 00:05:39,320 Speaker 2: really centered around three mega trends, automation, aviation, and energy transition. 108 00:05:39,839 --> 00:05:45,080 Speaker 2: Automation is the biggest segment, and this deal really compounds 109 00:05:45,080 --> 00:05:47,920 Speaker 2: the growth of our building automation business. We have a 110 00:05:48,000 --> 00:05:51,400 Speaker 2: six billion dollar business in building automation. We lead with 111 00:05:51,480 --> 00:05:54,720 Speaker 2: critical products which are acquired in the building. We are 112 00:05:54,800 --> 00:05:58,640 Speaker 2: leaders in two of the product lines in building management 113 00:05:58,720 --> 00:06:02,359 Speaker 2: systems and fire systems. We have a business in security 114 00:06:02,360 --> 00:06:05,719 Speaker 2: controls access control, but we have a moderate position. So 115 00:06:05,839 --> 00:06:09,480 Speaker 2: this deal for the strengthens our capability in security, which 116 00:06:09,520 --> 00:06:12,480 Speaker 2: I believe is a high growth category. So it fits 117 00:06:12,600 --> 00:06:15,279 Speaker 2: right in the heart of our building automation business and 118 00:06:16,279 --> 00:06:18,400 Speaker 2: prepares it for higher growth rate in the future. 119 00:06:18,960 --> 00:06:22,599 Speaker 1: There's a substantially advanced Honeywell's position within that category. I 120 00:06:22,600 --> 00:06:24,000 Speaker 1: won't call it a market. I'm not sure it is 121 00:06:24,000 --> 00:06:26,000 Speaker 1: a market. But in the category, what does it do 122 00:06:26,120 --> 00:06:28,760 Speaker 1: in terms of your position visa VI your competitors. 123 00:06:29,120 --> 00:06:33,080 Speaker 2: I mean, you know it's a very competitive market. You 124 00:06:33,120 --> 00:06:37,359 Speaker 2: know this question I can answer two ways. In building automation. 125 00:06:37,839 --> 00:06:41,720 Speaker 2: It improves our position from a portfolio standpoint, because we 126 00:06:41,760 --> 00:06:45,600 Speaker 2: continue to improve the quality of our portfolio and this 127 00:06:45,680 --> 00:06:50,120 Speaker 2: addition makes us more distinctive. Portfolio compared to our peers. 128 00:06:50,440 --> 00:06:53,680 Speaker 2: The competition set doesn't really changes because we compete with 129 00:06:53,680 --> 00:06:56,560 Speaker 2: a certain set of peers today. Some of them are 130 00:06:56,920 --> 00:07:00,479 Speaker 2: you know, publicly listed company like Eligion, JCI. Some of 131 00:07:00,520 --> 00:07:03,560 Speaker 2: them are privately held companies. So there's no much change 132 00:07:03,560 --> 00:07:07,120 Speaker 2: in the competition profile. But from a Honeywell perspective, quality 133 00:07:07,120 --> 00:07:10,480 Speaker 2: of our portfolio gets better and we have more content 134 00:07:10,520 --> 00:07:13,000 Speaker 2: of the product to sell to our customers. 135 00:07:13,440 --> 00:07:16,360 Speaker 1: What about from the financial point of view, how did 136 00:07:16,400 --> 00:07:19,200 Speaker 1: you determine what the right price was for Honeywell to pay? 137 00:07:19,400 --> 00:07:22,080 Speaker 1: And by the way, address the diluted versus a creative 138 00:07:22,120 --> 00:07:24,880 Speaker 1: because Honeywell said is going to be a creative from 139 00:07:24,920 --> 00:07:26,600 Speaker 1: the first year, and then some analysts are saying, no, 140 00:07:26,640 --> 00:07:27,400 Speaker 1: actually it's diluted. 141 00:07:28,000 --> 00:07:29,680 Speaker 2: I don't know what analysts are saying. I didn't have 142 00:07:29,680 --> 00:07:31,880 Speaker 2: a chance to look at it. I mean from our perspective, 143 00:07:31,920 --> 00:07:34,240 Speaker 2: our metric is that a deal has to be a 144 00:07:34,280 --> 00:07:37,880 Speaker 2: creative within one year of close, and it is absolutely creative. 145 00:07:37,920 --> 00:07:40,920 Speaker 2: I can confirm you that the deal for us works 146 00:07:41,040 --> 00:07:45,160 Speaker 2: very well because this property is a higher growth rate 147 00:07:45,360 --> 00:07:49,360 Speaker 2: to compare to our core business, which is demonstrated. It 148 00:07:49,400 --> 00:07:53,120 Speaker 2: brings much higher gross margins. It further improves a business 149 00:07:53,160 --> 00:07:55,800 Speaker 2: mix for us. So it really hits all the metrics, 150 00:07:55,800 --> 00:07:59,040 Speaker 2: and not only it's strong fit in the strategy. It 151 00:07:59,120 --> 00:08:02,520 Speaker 2: hits all our financial goals, which is a Christian and 152 00:08:02,560 --> 00:08:07,400 Speaker 2: the year one for EPs after the close, getting us 153 00:08:07,760 --> 00:08:11,240 Speaker 2: IRR of greater than ten percent and cash returns of 154 00:08:11,280 --> 00:08:14,080 Speaker 2: ten percent after year five, So we hit all the metrics. 155 00:08:14,120 --> 00:08:18,000 Speaker 2: We don't do deals which are not meet up financial goals, 156 00:08:18,000 --> 00:08:20,800 Speaker 2: and that's a strong principle which we always practice. 157 00:08:21,360 --> 00:08:23,480 Speaker 1: So I don't want to get ahead of myself here, 158 00:08:23,520 --> 00:08:25,040 Speaker 1: But what comes next? I mean, you said in the 159 00:08:25,040 --> 00:08:27,520 Speaker 1: past you're interested in bolt on acquisitions. This looks like 160 00:08:27,560 --> 00:08:30,520 Speaker 1: a significant bolt on acquisition. Should we expect more? And 161 00:08:30,640 --> 00:08:33,000 Speaker 1: if so, is it more likely to come in automation 162 00:08:33,320 --> 00:08:34,680 Speaker 1: or aviation or energy. 163 00:08:34,960 --> 00:08:38,080 Speaker 2: Our pipeline, David, is across all the three segments. I mean, 164 00:08:38,160 --> 00:08:41,160 Speaker 2: one of the point I've been stating consistently is that 165 00:08:41,760 --> 00:08:46,199 Speaker 2: portfolio revitalization, keeping it contemporaries part of my goal that 166 00:08:46,280 --> 00:08:48,679 Speaker 2: requires us to have an active pipeline. And our pipeline 167 00:08:48,760 --> 00:08:51,480 Speaker 2: is active in all the three spaces. It's active in 168 00:08:51,800 --> 00:08:57,559 Speaker 2: energy transition, in automation, and in aviation. Of course, every 169 00:08:57,600 --> 00:09:00,760 Speaker 2: deal have its own life, it had its own competitiveness, 170 00:09:01,120 --> 00:09:04,680 Speaker 2: but our activity is across all three and I would 171 00:09:04,720 --> 00:09:08,120 Speaker 2: say that if the deal meets the strategy and it 172 00:09:08,160 --> 00:09:11,199 Speaker 2: meets the financial goals, we will do the deals. So 173 00:09:11,240 --> 00:09:16,440 Speaker 2: this is a good indication of how Honeywell would behave 174 00:09:16,679 --> 00:09:19,360 Speaker 2: in the times ahead. I don't want to sound that 175 00:09:19,360 --> 00:09:22,199 Speaker 2: we're going to be very acquisitive company, but acquisitions are 176 00:09:22,200 --> 00:09:24,400 Speaker 2: going to be important part of how we want to grow, 177 00:09:24,760 --> 00:09:26,960 Speaker 2: and that right balance is what we're trying to drive 178 00:09:27,040 --> 00:09:27,679 Speaker 2: in Honeywell. 179 00:09:28,040 --> 00:09:30,480 Speaker 1: How do you assess the growth potential here? Because you 180 00:09:30,559 --> 00:09:32,640 Speaker 1: have said you want to be in growth areas. Those 181 00:09:32,679 --> 00:09:34,840 Speaker 1: three mega trends are growth areas, But how do you 182 00:09:34,880 --> 00:09:37,400 Speaker 1: assess the growth specifically respect to security? 183 00:09:38,000 --> 00:09:40,960 Speaker 2: So security, the way to think about it is that 184 00:09:41,200 --> 00:09:44,319 Speaker 2: when you and me grew up, the security was thought 185 00:09:44,320 --> 00:09:48,800 Speaker 2: about managing people and keeping them secure. So we all 186 00:09:48,800 --> 00:09:51,280 Speaker 2: were given badges and we badged ourselves in a lot 187 00:09:51,280 --> 00:09:53,480 Speaker 2: of offices. So a lot of us a view of 188 00:09:53,520 --> 00:09:57,600 Speaker 2: security equals to people security, which hasn't changed. But what 189 00:09:57,640 --> 00:10:00,520 Speaker 2: has got added here is that not assets, scurity has 190 00:10:00,559 --> 00:10:04,760 Speaker 2: become more pivotal, more critical. That's where these businesses are 191 00:10:04,760 --> 00:10:07,520 Speaker 2: moving to so think about an asset like data center, 192 00:10:07,960 --> 00:10:13,080 Speaker 2: an electronics manufacturing fab, a pharmaceutical plant. They need sophisticated 193 00:10:13,160 --> 00:10:17,440 Speaker 2: access controls to protect their intellectual property to manage their operations. 194 00:10:17,840 --> 00:10:20,160 Speaker 2: And that's where this business has a higher growth rate 195 00:10:20,240 --> 00:10:24,960 Speaker 2: because those segments are not only growing higher than GDP rates, 196 00:10:25,200 --> 00:10:27,959 Speaker 2: but at the same time, the requirement of security is 197 00:10:28,000 --> 00:10:32,440 Speaker 2: becoming more critical. Add to that the fact convergence of 198 00:10:32,679 --> 00:10:36,160 Speaker 2: cybersecurity with the physical security. More and more customers are 199 00:10:36,200 --> 00:10:40,560 Speaker 2: looking at common system at enterprise security level and that 200 00:10:41,559 --> 00:10:43,640 Speaker 2: factor will also play out in the times to come. 201 00:10:43,640 --> 00:10:47,240 Speaker 2: So when we put it all together, we believe that 202 00:10:47,640 --> 00:10:50,560 Speaker 2: it's going to be mid single digit to high single 203 00:10:50,600 --> 00:10:54,719 Speaker 2: digit growth segment. That's without sales entergies Honeywell will bring in. 204 00:10:55,480 --> 00:10:58,640 Speaker 2: We do believe we have capabilities which are incremental and 205 00:10:58,640 --> 00:11:01,120 Speaker 2: we're going to add to that this portfolio, but we'll 206 00:11:01,120 --> 00:11:03,880 Speaker 2: have to do that work. You know, as we complete 207 00:11:03,920 --> 00:11:08,599 Speaker 2: the customary processes of approvals, will be more prepared to 208 00:11:08,640 --> 00:11:11,440 Speaker 2: think about sales energies, which which we are very confident 209 00:11:11,520 --> 00:11:13,040 Speaker 2: of to bring to this portfolio. 210 00:11:13,600 --> 00:11:16,319 Speaker 1: Viimo, you are pursuing these three mega trends at the 211 00:11:16,320 --> 00:11:18,720 Speaker 1: same time you are emphatic. You are not a conglomerate. 212 00:11:18,960 --> 00:11:21,920 Speaker 1: So what is the common denominator? What draws these three 213 00:11:21,960 --> 00:11:22,680 Speaker 1: lines together? 214 00:11:22,760 --> 00:11:26,880 Speaker 2: For Honeywell, So our operating system is really you know, 215 00:11:26,920 --> 00:11:31,080 Speaker 2: which binds us together. Operating system is not only processes, 216 00:11:31,120 --> 00:11:34,480 Speaker 2: but it's also the digital backbone on these processes are built. 217 00:11:35,160 --> 00:11:39,319 Speaker 2: Think about these processes for supply chain operations, for commercial operations, 218 00:11:39,360 --> 00:11:43,120 Speaker 2: for customer experience, and that's a common backbone on how 219 00:11:43,160 --> 00:11:47,480 Speaker 2: we run Honeywell. All the businesses are run consistently using 220 00:11:47,520 --> 00:11:50,800 Speaker 2: the same tools, using the same framework, using the same 221 00:11:50,840 --> 00:11:53,959 Speaker 2: set of KPIs, and our businesses are enabled on that. 222 00:11:54,280 --> 00:11:58,000 Speaker 2: So that's one common element of operating system. The second 223 00:11:58,120 --> 00:12:03,400 Speaker 2: is what I call enable organization. Honeywell brings to it businesses, 224 00:12:03,640 --> 00:12:06,640 Speaker 2: enabling organization by which businesses can grow more. 225 00:12:07,040 --> 00:12:08,560 Speaker 1: Ben Well, thank you so much for joining us on 226 00:12:08,600 --> 00:12:11,160 Speaker 1: this very busy week. For you and for Honeywell. That 227 00:12:11,320 --> 00:12:13,600 Speaker 1: is Bimi Kapoor. He is the Honeywell CEO.