Honeywell Technologies (HON) Q3 2026 earnings call transcript

Thank you. Good morning and welcome to Honeywell Technologies' third quarter 2026 earnings conference call. Joining me today are Honeywell Technologies Chairman and Chief Executive Officer, Vilma Kapoor, and Senior Vice President and Chief Financial Officer, Mike Stepniak. This webcast and the presentation materials, including non-GAAP reconciliations, are available on our Investor Relations website. From time to time, we post new information on the Investor Relations website that may be of interest or material to our investors.

Our discussion today includes forward-looking statements that are based on our best view of the world and of our businesses as we see them today, and are subject to certain risks and uncertainties, including those described in our recent SEC filings. This morning, we will review our financial results for the third quarter of 2026 and discuss our updated 2026 guidance. And as always, we'll leave time for your questions at the end.

With that, it's my pleasure to turn the floor over to Vimel, who will begin on slide three.

Thank you, Mark, and good morning, everyone. Our first quarter as a standalone pure play automation company was a clear demonstration of the value creation strategy we laid out during Investor Day in June with broad-based organic growth, strong margin expansion, and higher free cash flow conversion. And I'm very pleased with the result our teams delivered. This quarter showed the breadth and quality of new Honeywell Technologies portfolio with strong results across all segments. We delivered 7% organic sales growth above the high end of the targets we unveiled at Investor Day in June.

Demand across the portfolio was broad-based, which drove short-cycle orders growth of 8%, excluding our divestitures, led by industrial and building automation. Additionally, the growth inflection we expected in process automation technology is occurring, with the business growing 8% organically in third quarter. As I will talk more about shortly, we believe P&T is beginning a multi-year growth inflection fueled by a robust project backlog and continued capital investment in the energy sector, especially in Africa, Middle East, and U. S. On profitability, we expanded margins by 370 basis points to over 21% through strategic pricing, productivity actions, and the continued reduction in the stranded cost. Importantly, with accelerated progress this quarter, we now expect to eliminate all remaining stranded costs by end of 2026, just six months after the aerospace spinoff demonstrating our strong execution capabilities.

Together, this combination of profitable growth and the fixed cost productivity drove adjusted EPS of $2.27, up 34% year over year. To round out the story, the cash conversion accelerated to 95% for the quarter, and we expect to be above 100% conversion in the fourth quarter. As a result of our strong execution this quarter and momentum heading into fourth quarter, we are raising our full year 2026 guide across all metrics.

The growth inflection is in P&T and the turnaround in industrial automation are well underway, compounded by eight straight quarters of our performance in building automation. Mike will talk more about our stronger outlook for Q4 and the full year in a few minutes. Our transformation into a pure play automation company is complete. As our third quarter results have demonstrated, we have strong position in growing end markets, differentiated offerings, and clear competitive advantage in higher growth verticals like LNG and data centers.

We are instrumenting the business to outperform both in 2027 and over the long term with strong short cycle demand, a backlog of nearly $19 billion, and momentum across the portfolio. This gives me and the leadership team great confidence in delivering of our 2029 targets. Let's now turn to slide four to talk more about the order trends in the business.

The key takeaway is that demand remains strong across most of our portfolio. We saw growth across our short cycle businesses led by sensing and measurement in industrial automation and double digit growth in building automation product businesses. Orders in data center vertical were up over 100%. In P&T, we saw strong refining catalyst demand consistent with our expectation for a second half recovery.

And on original basis, we saw strength in India, the Middle East, and Africa. In process automation and technology, we are navigating tough prior year comparison due to the two strategic low carbon energy and LNG awards in third and fourth quarter of 2025, which were each $700 million. From time to time, large awards like this do not always correlate with underlying market demand we are seeing, which is why we have elected to present a normalized view of the demand.

Excluding the impact of Q3 award last year, total company orders were up 3% organically. Furthermore, book to bill in this quarter was 1.0, which drove ending backlog to nearly $19 billion, up 7%, excluding our devastors. In P&T specifically, the backlog was up double digits driven by these large project awards. We continue to believe that the ongoing transition to LNG and renewable as priority fuel, increasing pipeline activity from refurbishment and rebuilds in the Middle East, and the refining build-out in Africa will drive a meaningful energy upcycle over the next several years.

Looking ahead to the fourth quarter, we expect orders to grow in the high single-digit range, excluding the large LNG award shown in the chart on slide four. This will be driven by demand in Middle East, India, and Asia Pacific in process technology and building automation, continued short-cycle demand in building automation products and sensing and utilities in industrial automation, and momentum in our high-growth verticals.

Let us now turn to slide five to discuss the favorable dynamics we are seeing in the global energy value chain reinforcing our growth outlook for process automation and technology business. On a global basis, we continue to see activity increasing on large energy projects, including over $1 billion in process technology orders since quarter one of 2026. P&T backlog is over 10% higher than a year ago, supported by Wainacross LNG, refining and petrochemicals, and low carbon energy projects. The breadth of these orders is important too. We are seeing investments across North America, the Middle East, Africa and Asia rather than a single region. LNG remains strong in U. S. and internationally while refining and petrochemical orders include major projects in Africa and continued activity across Middle East and Asia.

Low carbon energy remains a small part of the business overall, but it's growing at a strong double-digit rate with wins in areas such as sustainable aviation fuel and carbon capture. And we continue to believe that longer term, this will be a growth driver. These orders expand our install base and create opportunities beyond the initial project win. As these facilities come online and operate at high utilization rate, they will drive future demand for catalyst, automation, digital modernization, and lifecycle services. Overall, the strength and global diversity of the orders give us confidence in the outlook for continued growth of T&T segment as we enter 2027. In conclusion, we are seeing robust backlog growth and commercial momentum across our business, and we expect 2027 organic growth to be at or above our long-term growth algorithm.

Let me now turn it to Mike to discuss the third-card results and our 2026 outlook in more detail.

Thank you, Vimal, and good morning. In the third quarter, Honeywell Technologies delivered strong results that surpassed our expectations across most metrics. Sales grew 7% organically with strength across all segments.

Process automation technology sales grew 8% organically, led by double-digit growth in projects and return to growth in aftermarket, led by refining catalyst demand. Project sales grew 14% year-over-year, led by strong LNG and petrochemical backlog conversion. The momentum in building automation continued with 8% organic growth. our eighth straight quarter of high single-digit growth, evidence that we continue to gain share in the market.

This was principally driven by 11% organic growth in products, led by both the fire and security businesses, while solutions also grew 4% organically, driven by strength in services. On a regional basis, we saw double-digit growth in both India and Asia Pacific, with continued strength in the markets.

Finally, in industrial automation, organic sales were up 4% in the third quarter, led by double-digit growth in solutions, principally in industrial measurement and utilities. Product sales were roughly flat, with sensing and industrial measurement demand offset by industry-wide deferrals in meter deployments across the utility segment. On profitability, segment profit grew 23%, and segment margin expanded 370 basis points to 21.3% driven by productivity, accelerated strength and cost elimination, as well as strategic pricing actions and volume leverage.

This more than offset rising inflation, headwinds from the mix of projects versus aftermarket, and the acquisition impact in process automation technology. By segment, in industrial automation, price and productivity actions in the core business drove 350 basis points of margin expansion, with the business firmly on path to deliver 22% segment margin in the fourth quarter. In building automation, segment margin expanded another 30 basis points to 27% driven by volume leverage and pricing actions that more than offset rising inflation.

And in process automation technology, margin contracted as expected, driven by mixed headwinds steaming from higher project growth and dilution related to the acquisition of Johnson & Maddy's Catalyst Technologies business.

Adjusted earnings per share was up 34%, driven primarily by 23% segment profit growth and lower interest expense, which more than offset a higher adjusted tax rate in the quarter.

Finally, free cash flow was up 15% to roughly $690 million, while our conversion increased to 95% in the quarter. We expect free cash flow conversion to be above 100% in the fourth quarter as we drive working capital improvements, including strong receivable collections. Let's now move to slide seven to discuss the third quarter segment margin and adjusted EPS bridges. Starting with margin, we're delivering stronger incremental margin in our short cycle businesses, driving roughly 70 basis points of volume leverage. We're also continuing to effectively mitigate high inflation with strategic pricing actions, productivity, and a reduction in stranded costs. We expect inflation to remain at these levels at least into the first half of 2027. Our strong market positions, installed base-driven business model, and the mission-critical nature of our offerings give us confidence in our ability to successfully navigate this inflationary environment.

On adjusted EPS, earnings growth in the third quarter was personally driven by a strong operational performance in all three segments, which allowed us to overcome the operating loss from our divestitures. Below segment profit, interest and other expenses declined year over year, while our tax rate was slightly higher. We're making good progress against commitments we outlined at the Investor Day in June. Our focus on offsetting inflation, delivering productivity, and aggressively eliminating stranded costs for transformation is having a meaningful impact.

This provides a strong foundation for 2027. Let's turn to slide 8 to provide an update on our leverage commitments. As I discussed at the Investor Day, we're committed to reducing our gross leverage to less than three times this year by lowering our gross debt balance from $18 billion in the second quarter to under $13 billion at the end of 2026.

This will be enabled by the acceleration in free cash flow that we expect to continue in the fourth quarter. We expect our year-end cash balance to be approximately $3 billion, resulting in a net debt of around $10 billion.

Importantly, the cash generation and continued reduction in our leverage will increase our capital allocation flexibility, including capacity to pursue disciplined M&A. Let's now turn to slide 9. As you can see here, we have made considerable progress reducing fixed costs related to the portfolio transformation, and we expect this to continue in 2027. We're implementing a cross-functional shared services model across the company with a simplified and more flexible corporate structure.

More importantly, during this time, we continue to invest in our businesses to drive future growth. The progress on stranded cost reduction underscores the pace of execution across the organization and the progress we are making in building a simpler, more focused company. This will position the company for long-term profitable growth. Executing stranded cost takeout within six months of the aerospace spins demonstrates the strong operational execution capabilities of Honeywell Technologies.

Let's turn to slide 10 to discuss our revised full-year outlook. Today, we're raising our full-year organic growth, adjusted earnings per share, and free cash flow guidance, as well as tightening our margin guidance around the previous high end. We now expect full-year organic growth of 4% to 5%, up from 3% to 4% previously, driven by our execution in the third quarter and stronger outlook in the fourth quarter. By business in the fourth quarter we expect to see continued strength in buildings and cross both products and solutions high single digit growth in process automation and technology led by project backlog conversion and higher catalyst volumes and continued sensing and industrial measurement demand in industrial automation. As a result, we expect to deliver 5% to 6% organic growth.

With the performance today, we expect to be at the high end of our full-year margin range at 20.5% and at approximately 22% for the fourth quarter. for the fourth quarter. This will continue to be driven by pricing, productivity, and volume leverage, overcoming higher inflation and anticipated mixed headwinds in process automation technology, driven by higher project activity and dilution from the catalyst technologies acquisition. Industrial automation should be at 22% margin in the fourth quarter, while building automation is expected to expand margins 70 to 90 basis points, and process automation technology will end the fourth quarter around 21.5%. We now expect full-year adjusted EPS in the range of $8.40 to $8.45, which represents a 23-cent improvement at the midpoint.

Notably, the low end of our guidance range is now above our previous high end. This results in full-year earnings growth of approximately 30%. Lastly, our free cash flow guidance is up $100 million to $2.1 billion given the higher income conversion. You can find additional information on our 2026 Outlook in the appendix of our presentation, which includes estimates for corporate and below-the-line items.

Thank you for your time today. Let me now turn the call back to Vimul to wrap up before the Q&A.

Thank you, Mike. We are proud of our results in the first quarter as a standalone company. We surpassed our expectations across most metrics, and we see encouraging demand signal in many key end markets. We believe P&T is at the beginning of a multi-year growth inflection coinciding with an upcycle in global energy markets. We are also encouraged by the turnaround the team is driving in industrial automation, and building automation continues to execute on all fronts.

We're also launching new offering on our Forge platform, both in building automation and process automation technology, creating a robust foundation for future growth. With our performance this quarter and backlog of nearly $19 billion, we are confidently raising our 2026 outlook across all metrics, setting up for a strong start to 2027. Thank you for joining us today. And Mark, let's now take some questions.

Wilma, Mike, and I are now available to answer your questions. We kindly ask that you please be mindful of others in the queue by asking one question and one related follow-up. Operator, please open the line for Q&A.

Yeah, so far, Nigel, the first three weeks of October has been trending on and above expectations, so that certainly is a good data point. And we look at our statistical performance against pipeline, our wind rates when we forecasted. We also provision for some adequate contingency for things which cannot, you know, happen as projected. So, overall, our confidence to what we are stating on high single-digit orders growth in quarter four, less of the low carbon energy, LNG order, I'm sorry, which we booked last year, which was several hundred million dollars. We remain highly confident on that.

Right. So it's a little bit early yet, and we'll talk about it in February. But for next year, just like we talked about, I think, before, we plan for our corporate cost to be about $400 million. And then we're instrumenting the teams, obviously, to productivity and margin expansion north of 60 BIPs, like we talked about. So I feel we have a really good setup. Like you said, we're ahead and that has implications as far as us having a really good momentum going to next year and we'll work with that.

Thank you. Thank you.

So overall, Julian, for IA, we remain very confident on continued performance in both top line recovery and margin rate expansion.

The reason for that is the basics are improving, as we talked about it in yesterday very rapidly. Our own time delivery now is, it used to be just shy of 40%, is now 60%. Our past use are down 18%. Our new product launches are being highly accepted by our channel partners and our OE customers. So those foundations have turned the business from a negative territory to now more low single digit.

And we do expect that it will continue to progress and find it pathway to more mid-single digit growth as we lap from 26 to 27. So we remain very convicted. Same is true on the margin rate. We expect the year to end at 22%. Primarily, it's a higher quality business now. And from this baseline, as we continue to execute our pricing action, productivity action, we remain very confident on the margin expansion and also achieve 25% goal by 2029. So overall, sensing and measurement, building a unique segment in industrial automation, that's our pathway. and we remain highly convicted. This is a high-quality business as part of our portfolio.

Yeah, so versus where the team finished at the 22.2%, I would say next quarter, 21.5%. And then in the first half, I would say probably something similar. But next year, P&T is going to expand margins. And what's happening there is, one, we have a catalyst mix that's starting to mix up. That volume is going to grow. that's going to help the project volume mix is going to abate. And as you know, we obviously are integrating CT. So in the second half, we will be substantively past CT integration.

We see a really good margin expansion into the second half of 2027. And I just remind you, like we talked about, this is a multi-year cycle. In 2028, there is a significant margin pickup again as we're counting on catalyst volume. So we have very good visibility to this cycle. We have proven it cycle over cycle over multiple decades, and we're extremely confident on the progression of the business in that fashion.

Morning, Steve.

Sure. So you're exactly right. I think on quarter, about 40% incrementals. Price to cost in the third quarter was about 30 bps net positive. So the 350 BIFs that you see on inflation is a little bit higher versus the first half, but also our price is higher. We are averaging about 3.5% price in the first half. We'll average about 4.5% in the second half, 4% for the year.

That's going to be on the year basis maybe 10, 20 BIFs of, I would say, margin expansion from price cost. And we see, obviously, inflation elevated. we expect that to continue into year-end and then starting to abate in the first half. Everything we get from our teams as far as planning for next year, we see inflation coming down a bit. So the price will move with that, but it's still around that 3% to 4%.

No, not at all. Pricing costs is, well, we manage price in the third quarter to account for year end. It's really just mixed. So, revenue is coming up, and like Vim will talk, the products are performing extremely well. We don't see anything changing in products. On the other hand projects is doing better and CTE outloubles better and they're dilutive to our overall mix and that's what's dragging our margin to that 400 basis. Still, I would say at the high end of our guide for the year, 20.5%, it's about 300 bibs margin expansion for the year. Really good setup for next year.

I think the fundamental is our higher cycle of new product introduction, coupled with the mixed change of the end markets. So we continue to amplify our new product introduction and maintaining a very high vitality by which we then gain share from a competition. Forge is playing a very important role. Fire business was the first out of the door to build a connected solution by which you can configure our fire panels remotely. We introduced that almost three years back. So what it does is, Scott, that while the software content is low, it pulls the core product.

And that value proposition is very compelling for our channel partners because they save significant commissioning time, inspection time, and improve their P&L.

Also, we have had benefiting from data center growth. We have some unique products in FHIR for data center growth for early detection of FHIR in a very unique environment because you have a lot of electrical cables, a lot of servers. So there's a unique way we detect fire there. We have differentiated product line. We also introduced some unique new products for detecting fire in batteries as more and more lithium-ion batteries are being used. On the security side, we're benefiting from very premium position of LENLS2.

They continue to perform double-digit growth rates across the world, and Honeywell added a lot of value in that business by globalizing it. We talked about that hypothesis when we acquired the business, and we clearly see growth of that business outside the U. S. with a lot of synergies we are bringing in. So all in all, I would say we maintain the momentum in this business, and we see no reason that we won't perform at this level in the foreseeable future.

I mean, how do you guys go to market with it and get value for it, or is it just more of a tool you use to, again, to be able to gain share because you've got another kind of… So there are, no, very good question, Scott. There are three sales motions for ports today. So it you know our recurring revenue is now coming close to a billion dollars in 2026 just shy of that the first phase motion is for just sold along with our service contracts so we make our customers connect to forge change the pricing of our service contract because we are able to provide higher value outcome so that's a motion one says motion two is there are unique applications built in to make our existing offering better like I gave an example of fire panel so they are now even though we sell it as a standalone offering but it goes hand in hand with our core products and then the third is a standalone offering of Forge which we launched I would say 18 to 24 months back first in buildings where we can connect standalone buildings of even competitors apart from Honeywell install base to get better insight into you know customers energy consumption predictive maintenance emissions and we launched a similar offering for process and earlier this year.

In that scenario, it's sold as a standalone SaaS software. So all three sales motion are in place. And as we talked about in Investor Day, we expect our ARR to grow. Our aspiration is 15%. We want to have high aspiration. This year probably will be slightly shy of that, more like 12, 13. But we'll continue to work our way through to get closer to 15% every year.

Thank you, guys.

So we see, I mean, the growth in process automation technology, technology both on the project side and on the aftermarket in services and catalyst side. The project side, if you see the chart we added into our prepared remarks, we see continued investments in LNG. So our backlog is very strong for LNG. We also see investments in Africa and Middle East and Asia on traditional refining, which is helping us a lot in our backlog. And And finally, we also see activity in low carbon energy projects. Just as a reminder, we have licensed 100 projects so far in sustainable aviation fuel, and only about 20 percent of those have been built so far.

So there's a lot of runway people coming back to us with FIDs, which then turn into a significant revenue stream. So project activity remains very robust and very diversified. Then on the aftermarket side, we expect, you know, second half of 2026 catalyst growth to be double digit. It's double digit in Q3. It's going to be actually mid-teens growth in Q4. And given the higher margins our customers are making on the finished products, we expect Atlas demand to remain strong in 2027, more normalized year. And on the automation side, we see strength in our services portfolio, cybersecurity, our forge offering, we call it plant cognition. so that offering is also getting strong customer reception. So across the board, as Mike laid out, we see this as a multi-year cycle in which the project strength will provide us a top-line growth and will maintain our margin with a high mix of catalysts and services and software as we progress.

I would say, Amit, the setup for 2077 is very strong. First, for starters, our midpoint of the guide for 26 is up by 23 cents. So we are starting at a higher baseline. On the top line, we remain very confident on performing at upper end of our 4% to 6% guide. Our backlog is very strong. Our short cycle momentum sustains itself, and we continue to maintain our share or gain share through new products. So that's going to continue. On the margin rate, we have done a good job to manage inflation through price costs. It's slightly positive. We expect to maintain that. And we have maintained our fixed costs by elimination of stranded costs ahead of time.

So when you see the setup here across the board, top line, margin expansion, and fixed cost, we expect a strong print in 2027. I can't tell you specifics because I'll be giving you a guide, which I think we'll have to wait for February when we plan to come back there. But final comment I'll make is, directionally, we are on the road to deliver $12 or better, our long-term 2029 guide we set up in yesterday.

Morning.

I would say probably this is just more conservatism than anything else. Like we said, I think on the short cycle orders, they're extremely strong. On product side, both BA and IA booked in third quarter, high single-digit, double-digit growth. So we feel good about that. And then projects are incrementally better. So I think it's just more mix. And like we said, we'll do 4% to 5% for the year and 5% to 6% in the fourth quarter. And as we stand today, we're probably on the higher end of the five.

So it's incrementally, I would say, we feel better about the fourth quarter.

I think it's fair to say, Nicole, we don't see any change quarter on quarter. I think the revenue mix can be different within a quarter for projects. But other than that, fundamentals of the business remains very strong quarter over quarter.

Yeah, I think that's more of an upside opportunity for us in 2027. We've introduced some very new technology, both for gas meters and water meters. Gas meters, unlike electricity meters, have not been upgraded at a large scale by utilities over the last decade. So our technology being new is being tested by multiple utilities. and each utility done their testing by themselves, you know, rather than, you know, this being a common, you know, testing protocol, which just adds time. So we are in the process of working with our, you know, testing of our new gas meter with several utilities. And once they complete that cycle, which could be six to nine months, we expect them to turn into a major rollout 27 onwards for several years.

So actually, the low growth in our metering business is actually already factored in, in 26 and potentially in 27. But looking ahead, it's going to turn into a tailwind when these adoption rates will take up, you know, in the period ahead.

Yes, I'm good, Andrew.

I mean, I won't call it headwinds. When you grow at 8% and then you grow subsequent quarter probably at 7%, I may not call it headwinds. I would simply call it the cycle of the projects. I can't control the milestone when they have to be achieved, so they come at a certain timing. So I would say, broadly speaking, the P&T revenue profile on organic growth basis is very similar between Q3 and Q4. Q3 was slightly higher versus Q4, but not substantially different. You are talking a narrow range here.

Catalyst demand is very strong in quarter four, sequentially better than quarter three. We were double digit, and we are going to go towards mid-teens growth in catalyst. For example, in quarter three, our refining catalyst growth was up 80 percent. And so we expect to maintain high rates there. Services growth also remains strong in automation, more like low to mid-single digits. So fundamentals are very robust in this business.

I think the change you see is just the sequencing of the projects within a quarter.

Directionally speaking, and if you observe, we have been turning this business to slow growth. Now we are at low single-digit territory right now. I would also like this to go to mid-single-digit territory. And we expect that to occur in, you know, 2027 moving forward. I think the drivers of fundamentals are the same. I talked about improving customer service, better delivery, improved, you know, fast-due rates. That's certainly already happening.

New product launches and its penetration takes time. I think that's the only variable. as some of them gets more penetration, we expect to continue to perform better in this segment. So there's no doubt in my mind. I think it's just the timing as we go from low single digit to mid single digit in this portfolio, in this business in 2017.

And, Andrew, I would just add that the third quarter orders for industrial automation core were up 15%. So this is a business that's going to the next year probably with the best backlog it has seen in over five years. We're quite confident about finishing. And we expect fourth quarter orders to be up high single digit. So there is a lot of momentum here. It's just the cycling of the business going from one phase to another phase.

Certainly, you know, we always talked about data centers, mid-single-digit business for BA, building automation, we are now turning to a point with the change in demand of the customer.

We continue to see this can become actually at some point mid-single digit of Honeywell. So we, because now we see the demand in process automation, we saw year-to-date orders growth of more than 100%. Based upon the pipeline visibility we have, we expect very high growth in 2027 also.

It will be mixing up not only the building automation, but even some process automation order for Power Island, you know, for controls, for energy storage, that solution is being mixed up. One interesting thing which is occurring in addition to this for the last, I would say, six months is liquid cooling. As liquid cooling will take more penetration, we expect our you know share of spend to further go up we are working with customers for sensing for liquid cooling from our sensors business and our Sundine pumps are a premium solution to circulate those liquid cooling those will be as we can imagine those are going to scale in future probably more post 27 but what I see is something we started with a very modest content in building automation.

Now we added process automation and now we are adding even our content from process technology and industrial automation. It's truly becoming a pan-honeywell strategy and we continue to improve our content. Our last comment I make is as we grow as data center growth is happening outside U in Europe and in Asia particularly in Korea and India we expect to continue to do well because of our global presence and global execution capabilities So I think you or Mike mentioned that you'll get net leverage down under 2.25 by the end of the year and so and I think you also mentioned at that point you could pursue I think you said disciplined M&A so how do you characterize the environment right now obviously it's the new company or the new Honeywell technology.

I mean, our highest priority is for us to get our leverage ratio 3 or below and continue to work it way down as we get into 27 and generate more cash. We want our leverage to further improve. I think from an M&A perspective, it's an optionality. As you know, our $20, $29, $12 commitment is all organic. So we have no compulsion. We have no need to wake up and think about an M&A to meet our organic earnings commitment. Having said that, we're looking at options three ways.

Highest priority being industrial automation. How we look at adding more content in measurement and sensing, that's the highest priority. Second area we're looking at it is higher growth verticals. How can we add more content to further top grade our portfolio? And finally, we never overlook some of the frontier technologies. You know, there are always tuck-ins which can change the profile of our businesses.

And we look at these mid-sized small businesses in addition to that. But all said, I think near term you will see us staying very disciplined on our debt paydown. and we'll work our pipeline for M&A for 27 onwards.

I would say just quickly maybe two or three, which stand out the most, and that's obviously a focus for us as a company. One is we're moving more into lighter headquarters and more of adoption of short services across the company, which is obviously will help us continue to focus on productivity, which is value engineering, component engineering. That's more from a supply chain standpoint and how we think about NPI. That's a significant opportunity for us. And finally, we're obviously working through adoption of AI. All of our teams are either already trained or being trained on AI.

Everybody has access to the models we're using across the company, and that's really an opportunity for us in terms of manage OEF. And it's not as far as reduction OEF, but manage the OEF growth or staying flat on OEF while we obviously grow mid to high single-judication operation.

Two points I'll add to what Mike said on the self-help side. First is on the catalyst technology business, as we integrate the business, we are seeing higher cost synergies than we have forecasted. So that should certainly help us in our 2027 planning. We are also working on sales synergies, building pipeline, but that you can imagine that takes time to convert into a real revenue.

So we do expect CT business to overdrive from cost energy standpoint. Final point I would say is cross-sell between different parts of Honeywell. I gave an example of data center just in my remarks a couple of minutes before and how something which was centered around just one segment, we are doing it cross-segment. We are doing that in other verticals too. For example, in life sciences, how we cross-sell between building and process automation.

Or in semiconductor, where we have a very strong position in gas detection, how we also accelerate our participation in fire detection, which comes from building automation. So that's also self-help. leveraging our sales channels to the fullest potential, and certainly we are maximizing our efforts on that.

I think the building automation business, the content of higher growth verticals, and in higher growth verticals, we count three, data centers, healthcare, and hospitality is 20%. 80% of the business come from core or base business, and that's growing at a mid-single digit. And that's on the strength of great customer service and new products. To your question on new products, we have several big launches coming up. Ahead, really right now, we have a new version of our security system launched, which is cloud-based. That's going to play in the mid-segment. A lot of our new offerings are actually going into the mid-segment as a broader theme. A new version of our FHIR system going into our mid-segment.

We're also looking at similar offering in building management system. We are refreshing our EBI platform with a newer version. So across the board, we have learned that as we continue to accelerate our vitality and innovate, we will perform at this level of mid-single-digit plus. And the pipeline is very full, and I'm extremely confident on performance of results by this business.

Hey, Jeff.

So we, as we said in the chart, Joe, we see investments certainly in diversity of fuels and energy security. What I mean by that is Africa was not seen as a destination of investments by refining petrochemicals. So Dingote Refinery, if you recall during Investor Day, he was up there and talking about partnership with Honeywell. They're not only expanding their existing refinery by 100%, which is the largest refinery in the world. They are doubling it. They're also putting additional refinery in Kenya. These are all firm projects. If you look at their cash flow, it's billions of dollars in a quarter. So these are high-certainty projects.

There are additional investments happening in Africa on petrochemicals side too, So we can clearly see that as a trend. One thing which we highlighted is also low carbon energy projects are finally taking shape, you know, from a low base. We had two big wins on carbon capture related projects in quarter three. And we have some robust pipeline for quarter four ahead for us. So there are some investments happening. And the driver for that is European Union continues to hold its mandate for SAF adoption. and to fulfill that demand is more capacity, which is required.

And finally, we do see a capacity addition for petrochemicals. Our licensing activity and automation business in petrochemicals continues to remain strong. So when you add it all together, it's less linked to the oil price. It's more linked to the drivers, which are more broader, energy security, resiliency, low-carbon fuels, or the broader demand of petrochemicals. And that's why we believe it's a multi-year cycle. It's less linked to the price. It's more linked to other drivers. That's why it gives us more conviction.

I would say what we all read, deferrals or higher uptime by U. S. refiner is factually correct, which essentially means that some of the activity which requires a shutdown cannot be performed. You know, we look at our services business, aftermarket business in two buckets. A lot of it can be done online. So a lot of our automation offerings do not require a plant shutdown. If you want to harden your control system for cybersecurity or you want to migrate to the current version, it can be done online. So those businesses get protected even though customers are running at a higher rate.

But there are things which you need to replace, like a sundine pump has to be replaced. You need a shutdown. Or if you want to refurbish a catalyst. So to me, there's some demand moving right. But it's not a lost demand. It's kind of pent-up demand, which will eventually show up. But when you look at the global view, the overall services and catalyst demand is very stable.

As I mentioned before, we see the catalyst demand to be in high teens in quarter four. Next year, we see overall catalyst to be very stable. With single-digit growth, services growth remains very stable.

Thanks, Joe.

Sure.

Good morning.

Not a concern because a large part of our backlog is actually not in North America. LNG backlog is in North America. Everything else is in the rest of the world. And in case of LNG, we build our own equipment in our own factory, and we have enough capacity to fulfill all the backlog, so we don't have any concern on that. On a broader basis, yeah, the construction labor or labor shortages is a trend, but that's not driving any impact on our revenue execution on a visible basis.

Yes, I would say that organically, if you will, the business is probably expanding 150 50-plus BIPs. Just by operation getting better, the rest of it is related to the DAW separation.

Thanks, Rui.

I mean, the pricing is, I would say, I won't say there's a large deviation within the segment. You know, pricing is a factor of inflation in a segment. And inflation drivers vary from semiconductor to electronics to metals like copper and brass. I would say that our overall pricing is a narrow range. It doesn't vary from business 1% and some businesses 10%. It's not in that wide range. You can have a range from 3.5% to 4.5%. So it's a very narrow range for us. And the pricing attainment doesn't require only the action of pricing, but it requires good customer service, good customer communication, a good pipeline of new product. And I think that comprehensive 360-degree view is what we have really adopted to attain the price and keep the price cost positive.

Thank you. I would like to thank our share owners, our customers, and all Honeywell Technologies Future Shaper around the world for the strong third quarter results you delivered. Today marks another important milestone in our journey as a new Honeywell Technologies. Our first quarter as a standalone pay-or-play automation company demonstrated progress on all three elements for our investment case. Roth-based organic growth, strong margin expansion, and a higher free cash flow conversion.

B&T is converting its backlog into organic growth. IA is driving meaningful turnaround, and BA continues to deliver. With nearly $19 billion in our backlog and a strong 2026 outlook, we enter the post quarter with strong momentum and increase confidence in our ability to deliver the commitments we outlined at Invest today.

Thank you all for joining us today, and we hope you have a great rest of your day.