Honeywell International Inc (HON) — Q1 2021 Earnings Call Transcript

Thank you, Jake. Good morning and welcome to Honeywell's first quarter 2021 earnings conference call. On the call with me today are Chairman and CEO, Darius Adamczyk; and Senior Vice President and Chief Financial Officer, Greg Lewis. This call and webcast, including any non-GAAP reconciliations, are available on our website at www.honeywell.com/investor. Note that elements of this presentation contain forward-looking statements that are based on our best view of the world and of our businesses as we see them today. Those elements can change based on many factors, including changing economic and business conditions, and we ask that you interpret them in that light. We identify the principal risks and uncertainties that may affect our performance and our annual report on Form 10-K and other SEC filings. This morning, we will review our financial results for the first quarter of 2021, share our guidance for the second quarter and provide an update to our full year 2021 outlook. As always, we'll leave time for your questions at the end. With that, I'll turn the call over to Chairman and CEO, Darius Adamczyk.

Thank you Mark and good morning everyone. Let’s begin on Slide 2. We delivered a very strong start to 2021 exceeding the high end of our first quarter organic sales growth, segment margin and adjusted earnings per share guidance range. In the first quarter we delivered adjusted earnings per share of $1.92, down 13% year-over-year and $0.09 above the high-end of our guidance range. Organic sales were down 2% year-over-year, a 5 percentage points sequential improvement from the 7% organic sales decline in the fourth quarter of 2020. We drove year-over-year organic sales growth in two out of our four segments, HBT and SPS despite facing difficult comps since the first quarter of 2020 wasn't fully impacted by the pandemic. Honeywell Building Technologies have returned to growth and safety and productivity solutions achieved an outstanding 47% organic growth in the quarter. We also drove double-digit year-over-year organic growth in connected software sales driven by strong demand for our connected buildings and cyber solutions. We delivered segment margin of 21%, 10 basis points above our guidance with margin expansion in aerospace, HBT, and SPS. We generated $757 million of free cash flow in the quarter, a strong performance despite increased investment in high return capital expenditures, which were up approximately $80 million year-over-year as we position ourselves for the recovery.

Thank you and good morning, everyone. As Darius highlighted, we're very pleased with our start to 2021. While the COVID pandemic continues to impact some of our end markets, our laser focus on demand generation, operational execution, and cost management enabled us to overdeliver on our commitments. First quarter sales declined by 2% organically due to the effects of the COVID-19 pandemic, which represents a 5 percentage point sequential improvement from the fourth quarter. As Darius mentioned, that was driven by robust double-digit growth in our warehouse automation solutions and personal protective equipment businesses, as well as continued demand for our building products and services, advanced materials strength, and strength in our connected software. We expanded margins year-over-year in three out of four segments, aerospace, HBT, and SPS for the second consecutive quarter, limiting Honeywell's overall segment margin contraction to 80 basis points and ending the quarter with a segment margin of 21%. Our commercial excellence and strong cost management, as well as an approximately $30 million one-time benefit in aerospace drove 10 basis points of outperformance in segment margin compared to the high-end of our guidance range despite the mixed headwind from much stronger sales and our lowest margin segment SPS. We delivered adjusted earnings per share of $1.92, down 13% year-over-year. This was $0.09 above the high end of our guidance, driven by segment profit improvement from higher sales volumes and by a lower than expected effective tax rate. From a year-over-year perspective, below the line items were an $0.11 headwind driven by lower interest income and FX and higher repositioning and interest expense, partially offset by higher pension income. Our effective tax rate was higher than the first quarter of 2020, primarily due to benefits realized in the prior year period from tax law changes in India and the resolution of certain U.S. tax matters driving a $0.13 headwind. This was partially offset by a $0.03 EPS benefit from lower share count. A bridge of all this from 1Q 2020 to 1Q 2021 adjusted EPS can be found in the appendix of this presentation. We generated $978 million of cash from operations, up 4% year-over-year despite lower net income. Free cash flow for the quarter was $757 million, down 5% year-over-year due to higher capital expenditures, particularly in SPS, as we continue to expand PPE capacity. Working capital improvements, including strong collections, offset these headwinds during the quarter, driving adjusted free cash flow conversion of 56%, up 500 basis points from the prior year. As you know, the first quarter is historically our lowest from a cash perspective, and we remain on track to our full year cash guidance. I'll talk more about our full year outlook in a few minutes.

Thank you, Greg. Before we wrap up, I'd like to take a minute on Slide 8 to discuss ESG. At Honeywell we consistently say and firmly believe that a robust environmental, social, and governance framework enables us long-term success. In fact, responsible corporate citizenship is an essential part of our value creation framework. Importantly, we announced a commitment earlier this month to become carbon neutral in our operations and facilities by 2035. This represents a continuation of our ongoing sustainability efforts, which have already reduced the greenhouse gas intensity of our operations and facilities by more than 90% since 2004. In addition, we worked extensively to increase energy efficiency, conserve water, minimize waste, and proactively champion responsible remediation projects that restore valuable community assets. We plan to achieve our commitment through a combination of further investments in energy savings projects, conversion to renewable energy sources, completion of capital improvement projects at our sites, and in our fleet of company vehicles and utilization of credible carbon credits. We have a decades-long history of innovating to help customers meet their environmental and social goals. In fact, about half of Honeywell's new product introductions to research and development investment is directed towards products that improve environmental and social outcomes for customers. For example, the widespread adoption of Honeywell's Solstice line of low global warming potential refrigerants, blowing agents, and aerosols has already reduced the equivalent of more than 200 million metric tons of carbon dioxide to date, equal to eliminating the emissions from more than 42 million cars. A few days ago, we announced that Whole Foods Market has adapted to Solstice N40, a lower global warming potential refrigerant in more than 100 of its U.S. stores as it seeks to reduce refrigerant emissions under the U.S. Environmental Protection Agency's green shield program. This is just one example of how our innovative products and services continue to improve customer sustainability profiles and how Honeywell is playing an active role in shaping our future that is safer and more sustainable for generations to come. Now let's wrap up on Slide 10. In summary, we delivered a strong start to 2021 with first quarter results that exceeded expectations. We're seeing promising signs of rapid recovery in some of our markets and we're executing in our rigorous and proven value creation framework, which consistently delivers shareholder outperformance in all economic cycles and will continue to enable us to return to our key long-term growth commitments in 2021 and beyond. With that Mark, let's move to Q&A.

Thank you Darius. Darius and Greg are now available to answer your questions. We ask that you please be mindful of others in the queue by asking only one question. Jake, please open the line for Q&A.

Hey guys, good morning.

Good morning.

I'll ask my one question in five parts. On the second quarter you guys had said in the last call that margins would kind of build from 1Q to 2Q even excluding the $30 million in Aeronautics, they are down. First of all, kind of what changed relative to what you were expecting back then? And then second of all, just in kind of the second half of the year normally things kind of level out from the second quarter, is this year going to be a little bit different seasonally, given the later cycle nature of the company? And then last one would be on aerospace, how do you think your performance compared to like what you gauge as flight hours this quarter on your aftermarket?

That was almost five but I think you got to four. Let’s discuss the margins; the biggest change is the mix makeup of our Q2. Our fastest growing business is Intelligrated, which is growing even faster than we originally anticipated. We're looking at a mid to high double-digit growth rate for that business. Our bookings, success, and output are increasing, and it's becoming an even larger part of our overall portfolio. This is the primary reason for some of the changes. Some headwinds were anticipated, so there's no change in that area. The Intelligrated business is indeed growing faster than we expected, serving as a growth engine for us. Regarding the second half of the year, I want to clarify that we're not less optimistic. In fact, we are very excited about what lies ahead. However, it’s just one quarter into a year full of uncertainties, including infection rates and current supply chain issues. While we don't foresee any major concerns, we acknowledge that it's early in a year filled with unknowns. In response to your third question about performance, I would say our BGA hours are actually up relative to our initial assumptions. What's down is our air transport, which is a bigger figure compared to BGA. Overall, we're about the same, but the components differ. For defense and space, performance was on par with our expectations; the U.S. markets were strong, but international markets were a bit weaker. We are monitoring this for the rest of the year, unsure if there was some channel loading by the distributors at the end of the year. Those are the dynamics at play, but the key takeaway is that we are very optimistic about our markets. We're seeing short cycles return strongly, especially with Intelligrated. It's remarkable to see any segment in our industry grow 47% year-over-year. In the second half of the year, whether in Q3 or Q4, we can expect some of our longer cycle businesses, like PMT and aerospace, to rebound. These segments may have a lot of moving pieces, but they tend to be higher margin businesses. Overall, I believe we are on a promising trajectory moving forward. Greg, do you have anything to add?

I believe you are correct, and I think we have set ourselves up well for what lies ahead. You talked about some of the temporary costs that we mentioned, which will start coming back in the second quarter, with merits kicking in in April. These are important factors, and we plan to increase our investment in research and development, as stated. I think you covered the key points well.

Thanks. Just FYI, Pool Pumps grew 50% this quarter. So, they beat you guys on that front, Pentair, Pool Pumps, just letting you know. Thanks.

Pool Pumps, well, it was pretty close there Steve. 47 to 50, you know.

Good morning guys. Do I read your answer to mean that you're going to enter the Pool Pump business?

Apparently it's an opportunity we need to go investigate.

I'm going to keep it simple. Can you just talk about price kind of broadly versus cost?

Sure, that's definitely something to watch this year. Inflation is clearly a reality we are experiencing. It's important to stay on top of it, especially in areas like steel, semiconductors, copper, and ethylene, which have shown significant inflation in the first quarter. We've established a pricing team at the start of the year, and we're taking swift actions to address this. We will continue to monitor the situation closely. I don't anticipate the pressures easing and the short cycle remains strong. We're all aware of the semiconductor situation and need to stay proactive. We're expecting an ongoing inflationary environment this year, and we are committed to managing it effectively.

Okay, I'll pass it on. Thank you guys.

Thanks, Scott.

Hi, morning. Maybe just sticking to the one question rule, the SPS margin outlook, maybe just give us some context short and long term. I think you'd said Q2 the margins probably worse so maybe how large is that sequential step down in SPS? And also longer-term you've got that close to 20% guidance out there, what's the approximate sort of aspiration of when people should think about that or is it just sort of off the table for the medium term because of how good the growth is?

Yeah, so Julian, I don't think we said that margins contract in SPS sequentially. I think what we were trying to highlight is simply it's in the 14s, it's the lowest one in the portfolio and it's driving the biggest part of the growth. So, it gives some pressure to the overall margin expansion for Honeywell. I think we're going to see margins improve modestly for SPS during the course of the year. Because even for Intelligrated, as an example, we're going to have our peak quarter most likely here in Q2 on the revenue side. And then that will start to abate a little bit as the year progresses as well. You know that that business can be very lumpy on the install, that's not new news. So, the movement of that will influence either the margin progression. As it relates to your 20% target, we absolutely still have that in mind in the longer term. It's probably not 24 months from now. We've talked quite a bit about trying to capture the install base, particularly in the warehouse segment and the whole point of that has been to follow with a terrific service in aftermarket business with software attached. And so, as and when that shift occurs then we'll see those margins mixing up. And then again with the recovery that we've had in places like PSS, which I think Kevin Day Hoffman and the team there have done a terrific job in that business. We start seeing margin accretion again in there. So, we still have very much a line of sight to that 20%. But with roughly maybe even close to a $3 billion business in warehouse this year at the lower margin, that's going to give it some short-term pressure.

If I could provide some additional insights on the long-term outlook, it aligns with the framework we've previously discussed. The Intelligrated business is experiencing robust growth, in the mid to high double-digit range. The shift is evident even within the SPS portfolio. What’s noteworthy is that we are consistently gaining significant market share and expanding our installed base. As the build-out of warehouse infrastructure stabilizes, we anticipate higher margin opportunities due to changes in our business mix. There’s no negative news here; in fact, it’s excellent news that we're capturing market share and growing at an impressive rate. I've consistently stated that acquiring Intelligrated was the best decision Honeywell has made, and this is increasingly evident. The business continues to perform well, and I foresee it being project-driven in the near term due to strong demand in North America and Europe, which we aim to capitalize on. Ultimately, as we shift focus to an installed base, it will transition into a higher margin business.

That's great. Thank you.

Thank you. You bet.

Yeah, thanks, good morning guys.

Good morning Nicole.

So maybe I wanted to focus a little bit on HBT. I know that's part of the whole margin mix down dynamic for the year, but HBT margins continue to move higher and were a lot better than we had expected this quarter. I guess how do you think about the sustainability of the strong incrementals you saw there in the first quarter, if you could kind of talk about the 1Q dynamics as well as how you see margins progressing throughout the rest of the year in that business?

We are very optimistic about the HBT business, as our healthy buildings offerings have started to take off. In the year 2000, we recorded about 100 million in that sector. We anticipate growth to several hundred million by 2021. Regarding the Biden infrastructure plan, there is a significant amount of funding, estimated around 50 billion, particularly for education and infrastructure, where we believe we can make an impact. The team has excelled in managing the margin profile and the product mix. Therefore, we have strong confidence in the future of HBT and are positive about its prospects for the remainder of the year.

And I would just say the margins in the first quarter were strong at 22.5%. Our long-term target for this business is 23. This is a reflection of the portfolio's strength. While we may not see every aspect peak at the same time, this area is moving towards the high end. Some of that may be slightly reduced in the second half and possibly in the second quarter as the projects business increases in significance. However, we feel very positive about the progress that team has made overall in the last 18 to 24 months following the spin of the homes business. They have excelled in productivity, footprint, and new product introductions. I believe what that team has accomplished is impressive, and they are nearing their long-term target as we move through 2021.

Got it. Thanks. I'll pass it on.

Thank you.

Thank you. Good morning, everyone.

Good morning.

Yeah, I would love to get some color on Sparta, those are pretty heady numbers, sales up 25%, bookings up 75%. Just give us a sense of what's the normalized run rate, what are the applications and it's kind of reminiscent of the way Intelligrated started and it turned out to be pretty sustainable in terms of double-digit, so just level-set us here if you could please?

We're very happy with the start in Sparta. When you acquire a business, you often hold your breath until you actually own it and can confirm if you got what you expected. I'm pleased to report that we are excited about the business, as we bought exactly what we anticipated. The first quarter numbers show strong, double-digit growth, with bookings significantly higher. Being in the life sciences sector and offering quality management solutions will provide a long growth trajectory. We have a great team in place, and we've enhanced it with additional professionals, positioning us well to make this a significant success and to drive synergies with our Honeywell Process Solutions business. This segment is growing substantially faster than our life sciences business, which will further boost growth and is also margin accretive. While this acquisition wasn't typical for Honeywell, we feel very positive about our ownership after a quarter, and everything looks promising for the second quarter and the rest of the year.

Great. Thanks. I'll pass it on.

Thank you.

Good morning, everyone.

Hey Jeff, good morning.

Good morning. We'll keep an eye on Sparta, but for now the second-best acquisition Honeywell ever did was UOP. I wonder if we could talk about that a little bit more. And really the kind of the nature of my question is it is very interesting to see the backlog pickup, right. We are seeing this high level of activity in the chem space in particular, that's probably pushing out turnarounds, but maybe you could just give us a little bit more color on how you see the year playing there, how the business might kind of mix? And, if there's any kind of related commentary and HPS is part of that answer, that would certainly be interesting?

I believe there were definitely some positive indicators in the first quarter. We achieved double-digit growth in our services, and the catalyst segment of our business is recovering. Our book-to-bill ratio is looking much healthier this year compared to our expectations and where we were last year, which is also encouraging. We've noticed a resurgence in activity, and I want to emphasize a significant aspect of our portfolio for the future: the sustainability technology solutions business. Its quote logs are now in the hundreds of millions of dollars and are increasing rapidly. Bookings in this area rose by 25%, and we're currently in discussions with various energy producers about our extensive sustainability technology solutions portfolio, which includes offerings in plastics recyclability, eco-finding, energy storage, hydrogen energy, and carbon capture. I am very optimistic about this sector, and it might look quite different in three to four years due to our significant investments in sustainability technology solutions. Regarding larger projects and the associated OPEX and CAPEX budgets, while I view the current price of oil and gas as favorable for investments, it may take a couple more quarters for movement, considering the budget constraints many of the major companies are facing this year. Although these budgets have been low, they are still investing in refurbishment and catalysts. In terms of HPS, it's important to note that the HPS lifecycle typically lags UOP by two to four quarters, which is how these cycles generally function. We see promising signs, and we expect continued improvement in the business over the next several quarters. We will remain patient, but we are quite confident that conditions will keep getting better. As we transition to a more non-carbon energy infrastructure, we'll need carbon for some time, leading to two avenues for growth: maintaining current operations and aiding businesses in their transition to future energy solutions.

Maybe just as a brief follow-on Darius, are you seeing any of those large kind of transportation fuel to petrochem projects kind of coming back on the board?

We are seeing some activities, some discussions because as you know that's exactly right, which is a greater switch from fuels to petrochemicals. So, that's very much a part of our kinds of discussions and “log” that we're having. So, frankly some of the projects are not being released yet. They're being delayed but we're highly, highly confident those will happen.

Hey, good morning Darius and Greg. A question more on a kind of regional basis, just particularly focused on Europe. We'd look at the first quarter flight activity in general and domestically. We were in the U.S. we were down 32%, but we were down 62% in Europe. I guess the question is really, how are you looking at Europe today just more broadly speaking, not just aerospace across your businesses, how you're seeing the recovery there? Thanks.

Europe has likely been slower than we expected in terms of flight hours, as evident in Q1. There seems to be a direct connection to vaccination rates, and Europe is probably three to six months behind the U.S. regarding vaccinations. Therefore, we anticipate a gradual recovery as the year progresses. We expect a strong domestic flight market in the U.S., but the situation in Europe may not be as favorable and could be delayed until the fall. The leading markets include the UK, U.S., Israel, and UAE, which are recovering relatively quickly. Europe should be next in line for recovery. China appears to be in a good position, while India and Latin America face challenges. These regions might experience a recovery later this year, followed by significant growth next year, especially on international routes, with some recovery expected in the latter half of this year. I believe U.S., Middle East, and UK routes will remain quite active even in the second half of this year.

Appreciate it. Thanks.

Thank you.

Good morning, everyone. Can you provide more details about the commercial aerospace aftermarket? You mentioned it was down sequentially. Could you specify how much the Aero large commercial ATR declined? You also indicated that we will see an increase in Q2. What are the booking trends you are observing, and how significant do you expect the improvement in Q2 to be? Additionally, what are your thoughts for the period beyond that?

It appears that flight hours from the first quarter to the second quarter are expected to increase by around 20%. Whether there will be a slight delay in this increase is uncertain. As we discussed, the decrease from the fourth quarter to the first quarter was influenced by the absence of Thanksgiving and Christmas holidays, alongside a rise in infections in December and January. As these issues subside, we anticipate that domestic travel will benefit the most; this is reflected in reports from airlines like Southwest, which focuses primarily on domestic leisure travel and is performing very well. In contrast, airlines that depend more on business travel are likely to face challenges. Therefore, we expect a distinct separation between domestic, international, and business travel. The exact dynamics of this situation are still uncertain. Additionally, in regions such as Europe, domestic travel within the continent has been somewhat suppressed due to renewed lockdowns in response to outbreaks. Overall, the impact varies from country to country and region to region, making it difficult to pinpoint precise outcomes.

Thank you.

Hey, good morning, guys.

Hey, good morning. Darius you had talked about accelerating cash deployment in Q1 with $3 billion that you allocated to high return opportunities including Sparta, but could you update us on the M&A pipeline you're seeing, obviously we've talked about valuations not being cheap out there but do you think you can continue to ratchet up M&A over the next few quarters? And what do you see? The pipeline continues to look positive, and you're right that valuations are not particularly low. However, we plan to be opportunistic and search for unique opportunities that align with our goals. Sometimes, we need to explore areas that others may overlook, as those can often come with high price tags. We have some interesting ideas to enhance our portfolio, and we are consistently working on several opportunities that we hope will come to fruition. We expect to engage in more deals in 2021 and are also considering different avenues for capital deployment.

Thanks guys.

Thank you.

Good morning, guys. So just getting back into the Pool Pump, just kidding. I want to go back to the comments about the supply chain constraints in Q2, and I don't know if you want to try and quantify it, but if you look at normal seasonality, the 1Q to 2Q step up Greg you talked about, it seems like it might be in the range of maybe $2 million or $3 million, is that sort of the right range and where are you seeing these constraints, is it mainly in semi or is it bottlenecks and do you think 2Q is sort of paying for this and again?

The constraints are significant and are related to semiconductors. To clarify, these constraints are included in our guidance. They are particularly pronounced in our SPS, amounting to more than $100 million. This is a considerable figure and it's not trivial. We anticipate that these issues will improve throughout the year, but Q2 is particularly difficult since our guidance could have been even higher. We have projected an outlook for the remainder of the year and are exploring alternative sources. Torsten Pilz is our supply chain officer this year.

Yeah, I think we have two areas; semiconductors is one and resins is the other one. We believe that the resin impact will subside by the end of Q2, but the semiconductor impact will continue throughout the year.

.

Nigel, you're breaking up, we couldn't hear your question.

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I think it's lost sales. We believe it's a push because many of these suppliers are not unique. It's clearly being impacted. So the demand isn't going away. We think that this is likely a push to the second half of the year, but we'll see. That business has been a remarkable success story for us. If we look back a couple of years, it may not have seemed so successful. It had an excellent year last year and has further accelerated this year. It's growing very rapidly. So, we expect to still have a good quarter in Q2, but it could have been an outstanding quarter in Q2.

Great, thank you very much.

Thank you.

Hi, yes, good morning.

Hey, good morning.

Yeah, I figured maybe Julian was messing with Nigel's line to keep him from asking too many questions. But who knows? It's a competitive business. Just question on aero, in a very sort of twisted way, we're getting a lot of questions to the fact that your margin in aero is already so high at the bottom of the cycle. And I was just wondering if we could take a longer-term view and if you could talk about sort of longer-term levers to keep margin expansion going in this business, both in terms of specific end market recovery, but also operating initiatives?

I believe Q1 was quite revealing. While we disclosed a $30 million one-time item, it's important to note that even without that, our margins were still in the upper 20s. This shows our confidence that we can sustain margins at that level. This situation illustrates our capability; if we exclude the one-time item, we remain in the upper 20s, which is significant. Although this might not represent the peak of our investment in aerospace, I assure you, as Greg mentioned, we are currently investing in major platforms and products in this sector, indicating that we are not at an all-time low. Our R&D expenditures have increased from 2020 to 2021, and we still foresee very attractive margins for that part of our business. We are making investments because it's a strong business, and better outcomes are ahead. It seems there may be some misunderstanding, particularly regarding the ATR aftermarket, which has not yet started to contribute significantly. I anticipate improvements in the BGA segment as well. We have positive prospects moving forward, and even at our current business level, we can achieve margins in the upper 20s. I hope that people recognize this as a strong business with a bright future ahead. Greg?

Yeah, I would just, maybe just augment that. So as you said, we printed 29%, you take the 30 million out, it's still 28, high 27s. Our long term target that we highlighted was 27. So again, we're there on that. But we're going to continue to invest in, so I think this business has done a very good job. And it was obviously that in PMT were the most impacted by the pandemic. They did a terrific job on their cost management and realigned their cost structure to the size of the business and that's coming through. But, to Darius’s point, we're going to make sure that we continue to invest and grow it; we're not going to over earn in print margins that are let's say unhealthy for the long-term viability of the business.

Jake, let’s take one more question, please.

Hey, good morning guys. Thank you.

Good morning.

Good morning. I'll have to tell Andrew, it was me messing with Nigel’s line so just to clear it up. I guess sticking with aero, you mentioned commercial OE was up sequentially, was up double digits, I think you said was that a surprise, what platforms drove that? And related to that, what are you expecting on commercial OE build rates as we progress throughout the year?

Yes, so it was definitely up sequentially as highlighted, not really unexpected. We're starting to see some of the build rates recover. It's going to be slow from here. I would say the level we're at right now is going to be kind of a slow ramp from this point. So it's not like we see anything changing dramatically to the upside here imminently. So but not really unexpected for what we've seen. You see what's happening with the mass coming back into service and so on. So we feel like we're sized properly for that ramp as we head into the second quarter in the back half of the year. On BGA certainly that aftermarket stream, it's just going to grow at a faster pace than the ATR. I mean, people are shifting from commercial travel to business jet travel. That's happening and so there may be some element of commercial first-class travel that actually from a business perspective doesn't fully come back. So, we do feel bullish about what we're seeing in the BGA space particularly. But as I said earlier, there's so many variables you know as well as we do, there are so many variables that go onto this between passenger behavior, airline behavior. That's a little bit as to why we are going to take this one quarter at a time.

I would like to emphasize that we anticipate a gradual increase in OE rates. We have strong confidence in this trend for the second half of the year compared to the first half, with further increases expected in 2022. It's worth noting that just three months ago, the infection rates in the U.S. were extremely high, and our situation has since improved significantly. January and part of February were challenging, but we are seeing progress as the world emerges from these difficulties, which will directly impact aviation. We believe this improvement will be more apparent in the latter part of this year and in 2022 and 2023. We are poised for promising quarters and years ahead, with a steady ramp-up expected. Our outlook on aviation remains very positive, and while we are investing in the business, 2020 also provided us with an opportunity to optimize our cost structure, allowing us to capitalize effectively as the business begins to recover.

Thank you.

I'm proud of everyone at Honeywell whose consistent hard work and unwavering commitment enabled us to outperform in this challenging environment. Thank you to our shareholders for your ongoing support. We are well positioned for the recovery with a strong start to the year and I look forward to our opportunities to come during the balance of 2021 and beyond. Thank you all for listening and please stay safe and healthy.