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Honeywell saw an 8% rise in adjusted earnings per share, a $2.6 billion free cash flow, and a record-high backlog of $31.8 billion. The company also announced the acquisition of Carrier’s Global Access Solution business and secured significant new contracts in avionics and energy storage.
In a year marked by leadership changes and strategic acquisitions, Honeywell has positioned itself for continued growth and shareholder value creation. The company’s diversified portfolio and strong financial performance, coupled with its focus on innovation and market expansion, signal a positive trajectory for the year ahead. With an emphasis on organic growth and strategic capital deployment, Honeywell is set to navigate the complexities of the global market while delivering on its long-term financial goals.
As Honeywell International Inc. (HON) looks to the future with strategic acquisitions and a focus on organic growth, recent data from InvestingPro offers additional context to the company’s financial health and market position. With a market capitalization of $133.34 billion and a P/E ratio of 24.17, Honeywell is trading at a premium relative to near-term earnings growth. Notably, the company’s P/E ratio has adjusted slightly to 23.57 over the last twelve months as of Q4 2023.
InvestingPro Tips highlight that Honeywell has raised its dividend for 13 consecutive years and has maintained dividend payments for an impressive 39 consecutive years, showcasing the company’s commitment to returning value to shareholders. This is particularly relevant as the company’s dividend yield stands at 2.19%, with a dividend growth of 4.85% over the last twelve months as of Q4 2023. These figures underscore Honeywell’s stable financial returns amidst its strategic growth initiatives.
Moreover, Honeywell is recognized as a prominent player in the Industrial Conglomerates industry and operates with a moderate level of debt, which suggests a balanced approach to leveraging and financial management. This aligns with the company’s capital deployment strategy and its ability to secure new contracts in critical sectors like avionics and energy storage.
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Operator: Thank you for standing-by and welcome to the Honeywell Fourth Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker’s presentation there will be a question-and-answer session. Please be advised that today’s call is being recorded. I would now like to hand the call over to Sean Meakim, Vice President of Investor Relations. Please go ahead.
Sean Meakim: Thank you, Jamila. Good morning, and welcome to Honeywell’s Fourth Quarter 2023 Earnings and 2024 Outlook Conference Call. On the call with me today are Chief Executive Officer, Vimal Kapur; and Senior Vice President and Chief Financial Officer, Greg Lewis. 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 that may be of interest or material to our investors on this website. 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 risks and uncertainties, including the ones described in our SEC filings. This morning, we will review our financial results for the fourth quarter and full-year 2023, discuss our outlook for the year and share our guidance for the first-quarter and full-year 2024. As always, we’ll leave time for your questions at the end. With that, I’ll turn the call over to CEO, Vimal Kapur.
Vimal Kapur: Thank you, Sean, and good morning, everyone. To start, I would like to acknowledge some important leadership changes announced this morning. First, Honeywell’s Board of Director has elected me to take on additional role of Chairman when our current Executive Chairman, Darius Adamczyk retires from the Board in June. Additionally, Bill Ayer has been elected to succeed Scott Davis as Independent Lead Director of the Board effective this May. First, I want to thank Darius for his innumerable contributions to Honeywell, as well as his mentorship over the past two years in particular. I would also like to thank Scott for his insights over the past four years at Independent Director and leadership throughout the CEO succession process. Congratulations to Bill for his appointment as our new Lead Director, I look forward to partnering with him in achieving Honeywell’s strategic growth initiatives. Lastly, I would like to thank Darius and the Board for their support in naming me Chairman. I am humbled and honored to lead this great company and wake-up everyday energized to take on world’s toughest challenges along with our 100,000 future shapers. Now let’s turn to the main topic of today and discussion on Slide 3. We had a solid finish to another challenging year, delivering on our 2023 commitments. Honeywell’s world-class Accelerator operating system and differentiated portfolio of technology, enabled us to achieve our initial full-year guidance for organic growth, adjusted earnings per share and free-cash flow and surpass the high-end of our original guidance for segment margin expansion. Full-year’s organic growth of 4% year-on-year was a strong demonstration of resiliency by our long-cycle Aerospace and Energy oriented businesses, while we await acceleration in some of our short-cycle businesses, as markets continue to normalize. Before we get into a more detailed discussion on 2023 results and 2024 outlook, expectations, let me take a minute to revisit my priorities for Honeywell. First, our aim is to deliver the upper-end of our long-term organic sales growth target range of 4% to 7%. In order to achieve that, we are enhancing our innovations playbook, accelerating our offering in sustainability and software, monetizing our installed-base and leveraging our leadership position in high-growth regions. Second, over the last six years, the effort of the great integration have transformed Honeywell into an integrated operating company that deploys world-class capability at-scale and multiple growth enablers that benefit the entire enterprise. We are evolving Honeywell Accelerate Version 3.0 of our operating system to drive further value through standardization by business model built on our contemporary digital backbone. In addition to making this organization simpler and more efficient to operate, Accelerator is a powerful source of profitable growth. All of our businesses and potential addition to our portfolio. Third, we continue to evaluate and undertake actions to optimize our portfolio. We’ll do so by executing on strategic bolt-on acquisitions, while divesting non-core lines of business to consistently upgrade the quality of the portfolio and accelerate value creation. This is a powerful combination, which delivers profitable growth and strong cash generation, creating a compelling long-term value proposition for our shareowners. Now let’s turn to slide four to discuss our progress on portfolio shaping goals. In the fourth quarter, we announced the acquisition of Carrier’s Global Access Solution business for nearly $5 billion, enabling Honeywell to become a leader in security solution for the digital age. This transaction, which is clearly in line with our strategic bolt-on M&A framework further enhances our equipment agnostic, high-margin product business mix within building automation Honeywell’s overall security portfolio will be more than $1 billion in sales. When the deal closes this year growing at accretive rate to support Honeywell long-term growth framework. In addition, earlier in January Quantinuum announced its first equity raise since the merger of Honeywell Quantum (NASDAQ:QMCO) Solutions and Cambridge Quantum Computing in late 2021, securing $300 million at a pre-money valuation of $5 billion, demonstrating Quantinuum’s leading position on [fault-tolerant] (ph) quantum computing. The round was anchored by Quantinuum’s strategic partner JP Morgan Chase (NYSE:JPM) with additional participation from Mitsui & Company, Amgen (NASDAQ:AMGN) and Honeywell. This investment brings the total capital raised by Quantinuum since inception to approximately $625 million. Quantum computing is the key enabler for AI to reach scale potential and Quantinuum is a pioneering key breakthrough and expanding use cases across a number of industries. Honeywell remains a majority owner with over 50% equity ownership and we are committed to demonstrating a path to monetization of our [stake] (ph) within the next 18 months. With the recent portfolio announcement we are on a track to accelerate capital deployment and exceed our commitment to deploy at least $25 billion of capital in 2023 through 2025 with a bias towards high value accretive M&A. Our balance sheet then continues to give us meaningful capacity for both opportunistic share repurchases and M&A and the ongoing relatively favorable [demand] (ph) environment in 2024 will support the execution of our M&A strategy on a consistent basis. Before I hand over to Greg, let me turn to Slide 5 to review some of our recent exciting wins. Let me briefly highlight some of our recent commercial proof points. These wins demonstrate innovation across our portfolio and support Honeywell’s recently announced plan to align its portfolio to three compelling megatrends: automation, future of aviation, and energy transition, all underpinned by robust digitalization capability and solution. In aero, we secured over $1 billion in new avionics and mechanical wins directly with airlines carriers in 2023, representing over 2,500 aircrafts. With a strong start to 2024, United chose Honeywell to provide a wide range of advanced avionics for close to 350 aircraft that will enter into service over the next decade. This win is another encouraging demand signal and demonstrates the strength of our offering in the marketplace. In energy space, our battery energy storage solution will be deployed to six solar parks in US, Virgin Islands. When completed, our automation solution will boost the island’s decarbonization effort by fulfilling 30% of the energy need through renewable sources, lowering both emission and consumer energy costs. We remain excited about our sustainable solutions portfolio and Honeywell’s position at the forefront of world’s ongoing energy transition. Finally we’ll be incorporating our hydrogen purification and carbon capture technologies into a multi-billion dollar low carbon ammonia projects. Through this, up to 97% of the plant’s carbon dioxide emission can be sequestered and the project could remove up to 7 million tons of CO2 pollution over per year. This project creates yet another example of Honeywell’s ability to help solve our customer’s tougher challenges and a sign of what’s to come for our energy and sustainability solutions business. Now let me turn over to Greg on Slide 6 to discuss our fourth quarter and full year 2023 results in more detail and also provide guidance for 2024.
Greg Lewis: Thank you, Vimal. And good morning, everyone. Let me begin on Slide 6. As a reminder, we’re reporting fourth quarter and full year 2023 results under our legacy segment breakdown and providing our 2024 outlook using the new segment structure which went into effect in January. With that, let’s turn to the results. We had a strong finish to another challenging year delivering on our 2023 commitments. Despite a dynamic macro backdrop, Honeywell’s disciplined execution and differentiated solutions enabled us to deliver on our full year organic sales, segment margin, earnings and free cash flow commitments. Full year organic sales were up 4% year-over-year, achieving the low end of our long-term financial growth algorithm and beating the midpoint of our initial guidance, despite a 5% drag from lower safety and productivity solutions sales. Segment profit grew 8% year-over-year with segment margin expansion of 100 basis points to 22.7% above our long-term annual expansion target of 40 basis points to 60 basis points and 10 basis points above the high end of our initial guidance. Adjusted earnings per share grew 5% or 11% when excluding the impact of lower non-cash pension income year-over-year. We generated free cash flow of $4.3 billion at the high end of our guidance range, or $5.3 billion excluding the after-tax impact of one-time settlements. We deployed $8.3 billion of capital, including $3.7 billion to share repurchases, $1 billion to CapEx, $700 million to M&A, and $2.9 billion to dividend payouts, which we increased for the 14th time in the past 13 years. Fourth quarter organic sales were up 2%, led by the 11th consecutive quarter of double digit growth in our commercial aerospace business. Segment margin expanded by 60 basis points to 23.5%, driven by expansion in performance materials and technologies and aerospace. Earnings per share for the fourth quarter was $1.91, up 26% year-over-year, and adjusted earnings per share was $2.60, up 3% year-over-year. An adjustment to our estimated future Bendix liability at the end of the year and our annual pension mark to market adjustment drove the difference between earnings per share and adjusted earnings per share. Excluding a $0.13 non-cash pension income headwind, adjusted earnings per share was up 8%. Bridges for adjusted EPS from both 4Q 2022 to 4Q 2023 and FY 2022 to FY 2023 can be found in the appendix of this presentation. Free cash flow was $2.6 billion with free cash flow margin of 27.4% versus 23.1% in 4Q, as working capital was a greater source of cash compared to the prior year. We deployed $2.6 billion of cash flow to share repurchases, dividends, high-return CapEx and M&A. The fourth quarter was another strong one for our backlog, which grew to a new record of $31.8 billion, up 8% year-over-year and 1% sequentially, due to strength in Aero, PMT, and HBT. Orders were up 1% in the quarter led by growth in commercial Aero, PMT, and HPT, including orders growth in building products. This setup gives us confidence in our 2024 outlook which I will discuss in a few minutes. As always we continue to execute on our proven value creation framework which is underpinned by our Accelerator operating system. I’m confident in the strength of our backlog, the tailwinds we’re seeing across our long cycle end markets, and our ability to navigate a dynamic operating environment, which we have demonstrated year after year. Now, let’s spend a few minutes on the fourth quarter performance by business. Aerospace for the fourth quarter was up 15% organically year-over-year, with 20% growth in commercial aviation. Our commercial original equipment business grew over 20% on increased deliveries to both air transport and business and general aviation customers. Commercial aftermarket had another double-digit growth quarter led by the strength in air transport market as increased flight hours continued to drive demand. Defense and space sales grew again in the fourth quarter as the ongoing global focus on national security continues to drive robust demand, while we continue to work through supply chain challenges which govern that growth. Aerospace book-to-bill of around 1 in the fourth quarter is more evidence that demand continues to outpace supply, an encouraging sign that as the supply chain unlocks we’re well situated to capitalize on our advantageous position in the market. Segment margin expanded 20 basis points to 28% as a result of commercial excellence and volume leverage, which were partially offset by cost inflation and mixed pressure in our original equipment business. Performance material and technology sales grew 4% organically in the fourth quarter, advanced material was up 6%, returning to growth in the quarter, driven primarily by a double digit increase in fluorine products. In HPS, sales were up 4% organically as we saw continued strength in life cycle solutions and services and smart energy. UOP sales grew 1% organically as a result of robust seasonal demand in petrochemical catalyst shipments, partially offset by lower volumes in gas processing. Our sustainable technology solutions business finished the year with over 30% sales and orders growth in the fourth quarter. Orders for PMT grew across all three businesses. Segment margin expanded 200 basis points to 24% as a result of productivity actions, favorable business mix, and commercial excellence net of inflation. Safety and productivity solutions sales decreased 24% organically in the quarter, primarily as a result of lower volumes and warehouse and workflow solutions and productivity solutions and services. The projects portion of our Intelligrated business remains around trough levels as investments in warehouse automation continue to be subdued. However, our pipeline of new projects is robust and we are committed to delivering innovative solutions to a widening array of customers in this market, positioning Honeywell to win in an eventual recovery. In our productivity solutions and service business, we continue to work through the effects of distributor de-stocking, but over 30% orders growth in the quarter provides some confidence that we are near the end of that cycle. Sensing and Safety Solutions remains relatively resilient despite short cycle challenges in a few end markets. Segment margin in SPS contracted 290 basis points to 17.3%, driven by lower volume leverage and cost inflation, partially offset by productivity actions and commercial excellence. Building technology sales were down 1% organically as growth in our long-cycle building solutions business was offset by modest declines in short-cycle building products. Solutions grew 6% in the quarter, led by high single-digit growth in building services, driven by strong execution and past due backlog burndowns. Orders were strong across the board in the fourth quarter, as every business grew year-over-year. Segment margin contracted 90 basis points year-over-year to 23.9% due to cost inflation and mixed headwinds, partially offset by productivity actions and commercial excellence. Growth across our portfolio was supported by another quarter of double-digit sales growth in Honeywell Connected Enterprise, which remains accretive to overall Honeywell. Our offerings in connected industrial, cyber, connected buildings, life sciences and connected aircraft, all grew by more than 20% year-over-year in the quarter. For the full-year, HCE sales and profit [fall] (ph) through by double-digits, which is an indicator of the power of our strong software franchise. With 2023 now in the rear-view, we’re excited about Honeywell’s favorable setup to accelerate growth in 2024. Let’s turn to Slide 7 to talk about our outlook for the year. We expect the environment to remain dynamic, but the power of our Accelerator operating system enables us to move quickly and decisively to drive growth, protect margins, ensure liquidity and position ourselves well to deliver on our commitments and I’m confident we’ll do that again in 2024. Our end-market exposures across aerospace, automation and energy remain favorable with continued commercial aviation fleet growth, higher defense investment, heightened focus on automation, due to labor scarcity, intensifying energy demand and decarbonization goals and increased infrastructure spending. These compelling vertical tailwinds are underpinned by the ongoing demand for digitalization and our record level backlogs, which will support robust organic growth for the business. This outlook is somewhat tempered by the uncertain timing of an eventual recovery in the short-cycle as markets return to normalcy, which we see as the swing factor to our sales outcome for the year. But we’re excited by the prospects of this re-acceleration in the coming quarters. Overall, we have a strong setup that will drive growth within our long-term financial framework for sales, margin, earnings and cash in 2024. Our robust balance sheet and strong cash generation will support accretive capital deployment. And while we’re happy with our recently-announced transaction, we will continue to build-on our accretive M&A pipeline as we optimize the portfolio. Now let’s turn to Slide 8 to discuss how these dynamics come together for our 2024 guidance. Given the backdrop, in total for 2024, we expect sales of $38.1 billion to $38.9 billion, which represents an overall organic sales growth range of 4% to 6% for the year with a greater balance between volume and price. Our guide anticipates some short-cycle recovery to begin in the second-half of the year, albeit likely at different rates for our various end-markets, creating a somewhat back-half weighted outlook. Additionally, we remain keenly focused on new product innovation, maintaining our leadership position in high-growth regions, monetizing our vast installed-base and strengthening our software franchise, which we expect to provide resiliency through the year. We also expect the Aero supply-chain to continue to improve gradually sequentially throughout the year as it did in 2023. For the first-quarter, we anticipate sales in the range of $8.9 billion to $9.2 billion, flat-to-up 3% organically. We expect our overall segment margin to expand 30 basis points to 60 basis points next year, supported by improving business mix, continued price-cost discipline and productivity actions, including our precision focus on reducing raw-material costs. Similar to last year, we expect building automation margins to expand the most as we benefit from productivity actions and build-on continued commercial excellence, followed by industrial automation and energy and sustainability solutions. For aerospace, volume leverage will cover continued investment in our innovation platforms and in the supply-chain to unlock volume. Keeping our margin rate within a tight band of our recent levels, while enabling us to deliver robust year-over-year profit growth. For the first-quarter, we expect overall segment margin in the range of 21.9% to 22.2%, down 10 basis points to up 20 basis points year-over-year. Importantly, our guidance for both the first quarter and the full-year for 2024 does not consider the planned acquisition of Carrier’s Global Access Solutions business. We anticipate the closing of the deal by the end-of-the third quarter, and we’ll update our guidance accordingly at that time. Now let’s spend a few minutes on our outlook by business. In Aerospace Technologies, we expect that robust demand will remain throughout 2024 as our record level backlog provides a catalyst for growth. In commercial original equipment build rates continue to trend upwards, driving increase in chipset deliveries, primarily in air transport. On the commercial aftermarket side, we expect to see volume strength as flight hours continue to improve, particularly in wide-body as international travel normalizes further. In defense and space, supplies — supply-chain constraints not demand will be the limiting factor on volume growth. However, our output growth of 18% in 2023 across Aero gives us confidence in our ability to execute and we anticipate modest sequential improvement throughout the year. For overall Aerospace, we expect organic growth in the low-double-digit range in 2024. While we again expect Aero to be our fastest top-line grower, margins will likely remain at comparable levels to 2022 and 2023, as higher sales of lower-margin products are mostly offset by increased volume leverage. In the first quarter, we expect to see low-teens organic growth year-over-year as the progress we’ve made on supply-chain throughout 2023, coupled with our record backlog will drive continued meaningful year-over-year output growth. For Industrial Automation, the timing of short-cycle recovery will play a key factor in 2024 results and are — and will likely lead to a back-half weighted year. In Process Solutions, we expect to further build on the success we experienced in 2003 with another strong year of growth, particularly in our projects and aftermarket services business. Our sensing and safety technologies and Productivity Solutions and Service businesses will benefit as the effects of distributor destocking fade throughout the year. In warehouse and workflow solutions, we expect to move through the trough of the warehouse automation spending cycle, capitalizing on our robust pipeline and easier year-over-year comps as the year goes on. As a result of these dynamics, we expect IA sales to be flattish in 2024. Segment margins should expand, particularly in the second-half as short-cycle recovery leads to volume leverage benefits. In the first quarter IA will remains sequentially stable, while challenging comparisons in warehouse automation demand that is still near trough levels will weigh on year-over-year growth, leading to high single-digit to low-double-digit sales declines year-over-year. Turning to Building Automation, we see a — we expect to see our long-cycle businesses again outpace our short-cycle portfolio, particularly early in 2024. Overall, the timing of the short-cycle recovery will be one of the key drivers of performance in the year and likely lead to stronger results in the second-half. Both projects and services will grow on the strength of existing backlog and tailwinds from aftermarket services. We are seeing encouraging signs in our core verticals, both in the US and internationally as institutional investment in developing regions will be an engine for growth in BA. We anticipate our short-cycle products businesses will benefit as inventory levels normalize. For Building Automation, we forecast full-year sales growth to be low-single digit year-on year. Despite this, we anticipate BA will be the segment with the largest margin expansion, primarily driven by productivity actions and commercial excellence net of inflation. In the first-quarter we expect sales growth to be similar to the fourth quarter as destocking reaches its late stages. In Energy and Sustainability Solutions, the macro-environment will provide puts and takes in 2024. UOP growth will be led by strength in our Catalysts and Services businesses, while our Process Technologies business, modular equipment growth will likely be offset by volume headwinds from challenging comps in LNG equipment. In Sustainable Technology Solutions robust demand will lead to another record year of growth. In Advanced Materials, strength in the broader fluorine products business, particularly in our [indiscernible] portfolio will be offset by expected volume decline in our legacy stationery products, due to well-telegraphed quota reductions from the US. Within the rest of Advanced Materials, improving short-cycle demand over the course of 2024, particularly from semiconductor fabs will support the top-line. Overall, we expect [VSS] (ph) sales to be flat-to-up low-single digits for the year compared to 2023. Margin should improve in 2024, though not as much as in our other segments, thanks to both commercial excellence and productivity actions. In the first-quarter, we expect sales to be down mid to-high single-digits year-over-year as we work-through challenging comps, particularly in our gas processing business and prepare for higher activity levels as the year progresses. Moving on to other key guidance metrics. Pension income will be roughly flat to 2023 at approximately $550 million, which is modestly more positive than compared to our outlook comments from the third quarter earnings call, as the interest-rate environment became slightly more favorable towards the year end. As a reminder, pension income is a non-cash item, given our overfunded pension status will ensure no incremental contributions are needed. This is a great position to be in for our employees, both former and current and our shareholders. We anticipate net below-the-line impact to be between negative $550 million and negative $700 million for the full-year and between negative $140 million and negative $190 million in the first-quarter. This guidance includes a slight improvement in year-over-year repositioning spend, which will be between $200 million and $300 million for the full-year and between $60 million and $100 million in the first-quarter, as we continue to invest in high-return projects to support our future growth and productivity. We expect the adjusted effective tax-rate to be around 21% for the full-year and around 22% for the first-quarter due to timing of discrete payments. We anticipate average share count to be around 656 million shares for the full-year as we execute on our commitment to reduce share count by at least 1% per year through opportunistic buybacks. As a result of these inputs, we anticipate full-year adjusted earnings per share to be between $9.80 and $10.10, up 7% to 10% year-on year. We expect first-quarter earnings per share to be between $2.12 and $2.22, up 2% to 7% year-over-year. Included in the appendix is a bridge that walks the elements of 2024 adjusted earnings per share from 2023. You’ll see the primary year-over-year drivers are higher volumes and increased productivity, with lower share count offsetting below-the-line changes, which are primarily from higher net interest expense. On free-cash flow, we expect to grow in-line with earnings, excluding the after tax impact of last year’s one-time settlement from derisking our balance sheet. We will begin the multi-year unwind of working capital, where our digitalization capabilities through Accelerator are improving demand planning and optimizing production and materials management. In addition, we see several compelling growth-oriented capital investment opportunities and expand — expect to fund high-return projects focused on creating uniquely innovative, differentiated technologies. As a result, we expect free-cash flow to be in the $5.6 billion to $6 billion range, up 6% to 13% excluding the impact of prior year settlements. Our 2024 free-cash flow bridge is in the appendix and summarizes the drivers of year-over-year growth with net income growth being the largest factor, followed by working capital improvements, partially offset by modestly higher-growth CapEx spend. Regarding capital deployment, while we are focused on executing our robust M&A pipeline, opportunistic share repurchase at highly-attractive valuations, which you saw in the second-half of 2003 as we accelerated our buyback in 3Q and again in 4Q remains an important part of our framework, a vote of confidence in Honeywell’s performance and that will continue to be true in 2024. So in summary, while we’re cautious on the macroeconomic backdrop, our leverage to the key macro trends of Aerospace, automation and the energy transition, underpinned by digitalization, which will be complemented by our record backlog and accelerated operating system, give us confidence in delivering another strong year in 2024. So with that, let me turn it back to Vimal on Slide 9.
Vimal Kapur: Thank you, Greg. Let’s take a minute to zoom out from the near-term dynamics and talk about how our financial algorithm translates into value through EPS growth. Last May, we unveiled our updated long-term financial growth algorithm. One of the strengths of that framework is that we have demonstrated that we can balance between the levers we have to deliver what matters, consistent, compelling EPS growth. Let me unpack this for a moment. Our annual 4% to 7% organic sales growth and 40 basis point to 60 basis point of margin expansion alone will deliver 6% to 10% of organic EPS growth. Some years, one or other of these elements move. But as you have seen, 6% to 10% delivery has been consistent hallmark of Honeywell. When coupled with 1% to 2% of EPS accretion from both share buyback and consistent M&A execution, we are confident we’ll deliver double-digit adjusted EPS growth at the midpoint on a [true] (ph) cycle basis. The strength of our dividend currently yielding about 2% also adds further value to our shareholder returns. Although there has been some noise in the results, mostly related to below the line, we have delivered 8% segment profit growth and 2% adjusted EPS accretion from the share repurchases on an average during the past few years, in line with the long-term financial framework. Now, we are ramping our M&A lever, which should drive incremental benefits. With that, let’s go to the next page to discuss our recent progress on this long-term growth algorithm. As you can see on Slide 10, our 2023 results represent another year of strong financial performance consistent with our framework, following meaningful progress since 2016, inorganic growth, gross margin, segment margin expansion, and free cash flow reacceleration. Similarly, our 2024 expectation for organic growth, gross margin, segment margin, and free cash flow margins are solidly in line with our long-term commitment as we continue to make steady, consistent improvement in quality of Honeywell’s financial profile. We are reorienting the organization to prioritize organic growth, deploying the operational power of Accelerator 3.0, and executing on a robust portfolio optimization strategy, which will enable us to achieve our long-term targets. I look forward to the next phase of transformation and remain optimistic about the tremendous opportunities we are uncovering to capture value, drive incremental sales growth, expand margins, and generate more cash. We’ll continue to track our progression closely and update you as these efforts increasingly transfer into our enhanced financial performance. Now, let’s turn to Slide 11 for closing thoughts before we move to Q&A session. We delivered on all of our 2023 commitments. We are confident in our ability to weather the dynamic macroeconomic and geopolitical backdrop with operating rigor you have come to expect of Honeywell. Recent record backlog levels, ongoing strength in our biggest end markets, aerospace and energy, as well as impending recovery in our short-cycle business will support strong result as we progress through 2024. I remain optimistic about the future of Honeywell and believe the company is well-positioned to drive the innovation needed to solve some of the world’s most challenging problems. The future is really what we make it. With that, Sean, let’s move to Q&A.
Sean Meakim: Thank you, Vimal. Vimal and Greg are now available to answer your questions. We ask you please be mindful of others in the queue by only asking one question and one related follow-up. Camilla, please open the line for Q&A.
Operator: Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Steve Tusa with JP Morgan. Please proceed with your question.
Steve Tusa: Hi, good morning.
Vimal Kapur: Hey, Steve.
Greg Lewis: Good morning Steve.
Steve Tusa: Can you just talk about the sequential progression in EPS as we move through the year off of the first quarter base here?
Greg Lewis: You’re talking about for the full year?
Steve Tusa: Yes. I mean the first quarter is a little bit light as a percentage of the year, so just trying to understand how things build for the next three quarters to get to the midpoint of guide?
Greg Lewis: Sure. I mean, if you look at the guide we’re giving for Q1, it’s actually not that different from 2023. So, as we progress through the year, we’re going to expect to see the short cycle revenue inflection more likely between 2Q and 3Q than 1Q and 2Q in terms of the level of — that acceleration. And so, I think the EPS will follow along with that. I mean, the last two years, our EPS has been more back-end weighted in third and fourth quarter than our prior history. I think it’s going to look fairly similar this year.
Steve Tusa: Okay, and then just one on the building’s business. What are you guys seeing there, and what are you assuming for the products business in the next few quarters? There’s obviously a lot of noise in the channel there, and also just from an end market demand perspective, maybe touch on regionally as well in the building business?
Vimal Kapur: Yes, Steve. So we had a quarter 4 finish in which our buildings orders were grew across all segments, both in building products and in building solutions. So that puts us in a good setup for 2024. To your specific question, the setup we have allows us to see sequential progress in the short cycle as the year progresses, and the front end of the year will see more strength in our solution side of the business. Europe remains challenged, as it was, over the last several quarters. And in US, we are in the late innings of destocking of the distributor inventories. So that’s the overall setting. What excites me about the business is the work we have done on new products, that’s going to position us well, our strength in high growth regions, which is performing exceedingly well. So net-net, we remain pretty confident on growth in building solutions, building automation business in 2024, specifically margin expansion and are confident of delivering strong results there.
Operator: Thank you. Our next question comes from the line of Julian Mitchell with Barclays. Your line is now open.
Julian Mitchell: Hi, good morning. Maybe just wanted to try and think about the progress through the year from a segment margin standpoint. I guess you’ve had seven quarters in a row of good year-on-year expansion. Q1 is sort of flat and then the year is up close to that sort of 50-bips mark. So you’re exiting the year in Q4 maybe with margins up 100-bips plus. So just trying to understand starting Q1 at zero, Q4 up 100, where does kind of the sharpest improvement come on a segment basis as you go through the year? And do we think about that margin year-on-year improvement firm wide as just being pretty steady as we go through 2024?
Greg Lewis: Thanks, Julian. Again, I would tell you a lot of the guidance fundamentals are tied pretty closely to the short cycle recovery. And what I mean by that is, we don’t expect a big inflection in the first half, and so therefore our segment profit improvement in the first half versus the second half is going to be a bit lower. And as those short cycle businesses recover, remember, those are some of the highest margin businesses in the portfolio. So that volume leverage is going to be pretty powerful as we go through the year. And that’ll be true in each of those non-Aero related businesses.
Vimal Kapur: What I’ll add, Julian is, if I look at the full year picture for the margin expansion, what we have committed 30 basis points to 60 basis points, there are three broad drivers. The pricing will remain of the order of 3%. Our price cost will not be a headwind. We remain very confident on our pricing execution. Second, we will see good productivity in 2024. Material productivity remains strong in Q4 and we expect that to roll up on a full year basis in 2024. We also have made good progress in executing AI in our operation, and that will be also a source of productivity in 2024. And finally, the short cycle recovery point, which Greg made, as that unpacks itself, the margin accretion we have on that is pretty substantial. So when you put it all together, we remain extremely confident on our margin expansion algorithm.
Julian Mitchell: That’s helpful. Thank you. And just my quick follow up, if we look at, say, Slide 15, trying to understand sort of the shape of that sales recovery, you’ve got those two units at the bottom, productivity solutions and service and warehouse and workflow. If we think about those two businesses, one exited the year just finished down 25 and the other exited down 50, what’s the exit rate for 2024 for those two that’s embedded in the sales guide, please.
Greg Lewis: Yeah, well, again, we don’t guide that specifically, but you should expect that this exit rate diminishes as the year progresses, and as we get into the back half of the year, that turns to be something that is likely positive on productivity solutions and services and will be flattish on warehouse and workflow solutions. And perhaps up, we’ll see how the year progresses on the project side. An important thing to keep in mind is inside of the warehouse business, in particular, we’ve got actually a very rich mix now on the aftermarket services business. So while the projects orders will really be the thing that will govern the top line progression overall, we see double digit growth continuing in the aftermarket bit, which of course is where we capture the value from the install base. So we feel very good about the progression of that as we go through the year.
Vimal Kapur: Maybe to add to Greg’s point on warehouse solutions business, the top line has been challenging, but I see that this as not a headwind for EPS in 2024. We have taken action that Greg spoke about aftermarket. The aftermarket continues to be strong and will be a factor of growth in 2024. We have taken meaningful action on our cost base, specifically on supply chain. And when we put those actions together, which is in our control, we see margin expansion in this business. And in spite of top line pressure, it will not be a source of EPS solution. It will be a source of EPS accretion.
Greg Lewis: And Julian, if I could add just one last thing there. From a modeling perspective, keep in mind it’s not just a dynamic embedded in our model for 2024, second half likely stronger than the first half. It’s also that second half 2023 was weaker than first half 2023. So both of those will influence the year-over-year growth rate as you’re talking about exiting 2023 versus exiting 2024.
Julian Mitchell: That’s great. Thank you.
Operator: Thank you. Our next question comes from the line of Scott Davis with Melius Research. Your line is now open.
Scott Davis: Hey, good morning, Vimal and Greg and Sean.
Vimal Kapur: Good morning.
Greg Lewis: Good morning.
Scott Davis: Good morning. Guys, can we take a step backwards at least and just walk around the world a little bit on what you’re assuming? I assume, Vimal, you probably have pretty good read on what’s going on in China. It’s been a tough region for a lot of your peers, but you don’t need to really focus on Aerospace because it’s a different dynamic. But for the other businesses, perhaps just a little bit of color on what you’re expecting, any differences in 2024 geographically versus 2023. That’d be helpful. Thanks.
Vimal Kapur: Yes, thanks, Scott. So, specifically talking about — let me start with China. We grew about 7% in 2023. I don’t expect a material shift between 2024 to 2023. We have weathered a tough year in 2023, China’s economic cycle. And I expect 2024 to be a shade better, but it’s no more going to be a source of high growth, what it used to be five or seven years back. Speaking more broadly of high growth regions, which represents almost 25% of the Honeywell revenue now. We had very good performance in Middle East and India in particular, and we expect those trends to continue in 2024. India grew for us high double digits. In 2023, we had very meaningful revenue there, similar good performance in the Middle East, so we expect those regions to perform well. All in all, I expect high-growth regions to grow double-digit, which will be a source of organic growth, about a percent, and overall Honeywell algorithm of organic growth. Europe remains challenging. We have seen headwinds in some portions of our businesses and tailwinds in some other portions. So net-net, it’s more neutral to negative. And US, of course, we are like everybody else, waiting for interest rate environment to settle. And that will determine the performance of our business, specifically on the short cycle. So that’s kind of my broad overview of how we see different geographies.
Scott Davis: Okay, that’s helpful. And then a little bit of a nuance here. Would you classify the Carrier deal as a bolt-on? It seems like a little larger than a bolt-on by my definition, but kind of curious how you think about it, because clearly in your slides you mentioned bolt-on deals being the focus and if we were to expect other kind of like billionish…
Vimal Kapur: I would call it bolt-on, because my argument is that, bolt-on to me is which is adding to our core portfolio and propels the growth of organic growth of the business itself. So that’s what this business is. If you see our Buildings Products business, our strategy is to have products which are specified, which are critical for the building. We had a moderate position in security with the addition of this portfolio makes us a meaningful player. And therefore I call it a bolt-on, because it’s a continuum of our strategy. We’re not finding a new adjacency. We’re not exploring some new idea. It’s something we understand extremely well. And therefore, our confidence to add shareholder value here is extremely strong.
Greg Lewis: And keep in mind, at $5 billion, it’s something like 4% of our market cap. So reasonably, it’s not a huge bet as it relates to that as well. Obviously, very different world than when our market cap was half that 10 years ago.
Scott Davis: Sure. Understood. Thank you, guys. I’ll pass it on. Good luck this year.
Greg Lewis: Thank you.
Operator: Thank you. Our next question comes from the line of Andrew Obin with Bank of America. Your line is now open.
Andrew Obin: Yes, good morning.
Greg Lewis: Good morning, Andrew.
Andrew Obin: Hey, just looking at UOP, I was a little bit surprised by the growth in the quarter. I would have thought with STS being strong, and I know you sort of gave us, I think it was a gas product, but can you just tell us what kind of visibility do you have on this business accelerating into 2024? Because it is sort of, I guess, that’s what you’re guiding to, but just a little bit more granularity there. Thank you. Sure.
Vimal Kapur: Sure, Andrew. So 2023 revenue is 1% growth. It’s primarily driven by equipment revenue we had in the prior year. We had large equipment-based projects in our volume, LNG projects. So on a year-on-year comp basis, don’t repeat itself. But if you see the core UOP business on catalysts, it remains pretty strong. Your specific question on sustainability technologies, as we mentioned during our earnings earlier, remain very confident on its performance. We crossed the benchmark of 50 licenses of sustainable aviation fuel just a few weeks back. Now we are seeing activity in carbon capture projects, early innings on hydrogen projects. So our plans to have sustainable technology business of $1 billion in next few years haven’t changed. And my confidence of that absolutely has only grown higher over the last few months.
Greg Lewis: Yes, and I would also just zoom out. I mean, we talk about some of the variability in this business, and PMT has always got some of the highest variability with UOP being a big part of that. Keep in mind, we grew sales in UOP for the year, something like 8%. Very, very healthy. And we’ve also grown orders somewhere in that same neighborhood, I think 2% for the year, but with 13% in the catalyst business. So we’ve come off some big comps with the large LNG projects. Overall, this is a very healthy business with a very healthy backlog. So — and as you said, the STS business provides a really nice catalyst on that new aspect of it, but we feel very good about where UOP is at this stage.
Andrew Obin: Excellent, and just to follow up on advanced materials. I guess same question, the business has returned to growth, just what are you seeing, maybe in a little bit more detail, driving positive outlook for 2024. I think [indiscernible] is constructive there as well. And maybe you can throw in a lot of questions on semis. I guess that’s part of it as well, just if you expand on that. Thank you.
Vimal Kapur: Yes. Thanks, Andrew. Yes, we do see recovery in semis modestly increasing. Every month is becoming modestly better. So that’s part of our forecast for 2024. We also saw in Q4 recovery in some segments of chemicals in short cycle. And we expect that to roll over in 2024. So the short cycle recovery on a broader Honeywell portfolio is not a one event. So it’s going to happen in different portions. So chemicals happened late Q4 and we expect that to continue. So all-in-all, advanced material should have a better year in 2024 compared to what we had in 2023.
Andrew Obin: Thanks so much.
Vimal Kapur: Thank you.
Operator: Thank you. Our next question comes from the line of Nigel Coe with Wolfe Research. Your line is now open.
Nigel Coe: Thanks. Good morning. Thanks for the question. And Vimal, congrats on the Chairman role. There’s lots of modern questions, so here’s a few more. Well, a couple more. Pricing, I’m not sure if you’ve caught up price, but maybe if you just talk about what you’ve [indiscernible] pricing in your revenue bill. But it seems that we’re entering the year with two of the segments down pretty heavily. Maybe just talk about how you see that break back to growth for IA and ESS. Is that in the second quarter, is it more second half loaded? And perhaps maybe talk about what you’ve seeing in the order rates to maybe support the view that we are at the bottom in some of these markets?
Vimal Kapur: Yes. So for IA and ESS, I would say, IA broadly, as we said, will be flatish on a year-on-year basis. The strength we see there is in Process Solutions, in particular, that — it had a strong 2023, we expect another strong 2024 from Process Solutions. Rest of IA is a short-cycle recovery. We saw pockets of that happening in Q4 in our scanning and mobility business. Now other portions have to also recover during course of the year. I talked about our warehouse automation business and how we expect that to perform during course of the year, specifically on the margin side. So that’s definitely is part of our forecast. On ESS, we briefly talked an earlier question. UOP is carrying a pretty strong booking and backlog. So we expect a good year from UOP in 2024. And then I talked about advanced materials a bit earlier there. On orders rate, the Q4 orders were up 1%, which helped us to further bolster our backlog now to record high level. Specifically on orders, there were highlights on short cycles, early green shoots in building products, in scanning and mobility business, in parts of chemicals business, which is a good sign, because if couple have shown, I remain confident this will grow more broadly across our portfolio. Long cycle strong bookings in commercial aerospace, in UOP, in process solutions. There were some lumpy lessened orders in warehouse automation and defense and space, which I talked earlier. So net-net, our long cycle orders performed extremely well on an annualized basis in 2023. And short cycle is showing early cycle of recovery, which gives me confidence for 2024.
Greg Lewis: Yes, maybe just in the last point on pricing, we talked about 4% for 2023. That’s exactly where it came in. And the more balanced view of price versus volume in our model for 2024 is really 3% pricing. And that’s going to be, to Vimal’s point, I think price cost neutral to maybe slightly positive for the year. So we feel very good about our ability to deliver on that. We’ve talked about that at length in the past. I think our capabilities in that area have been very strong and we continue to be confident going into next year.
Nigel Coe: Okay, that’s helpful, Greg. And quick follow up on the cash flow. Nice to see the pick-up year-to-year. I’m guessing the tax benefits, potential tax benefits from R&D kind of rollback. I’m assuming that’s not in your guide, but just curious, if that does pass the Senate, what kind of benefit you might see for 2024 for cash flow?
Greg Lewis: Yes. Well, first of all, it’s not nearly home, as I’m sure you can appreciate. So we’re not sitting here counting any chickens. To be honest, Nigel, I think we need to wait and see exactly how all the rules, first whether it happens and how they set the rules. As you can appreciate, all the specifics matter a lot in this area. So no, we’re not guiding anything special about that. We’ll wait and see exactly what happens and then interpret that and integrate it into our view when it becomes a real thing.
Nigel Coe: Okay. That’s great, thanks.
Operator: Thank you. Our next question comes from the line of Sheila Kahyaoglu with Jefferies. Your line is now open.
Sheila Kahyaoglu: Good morning, guys, and thank you.
Vimal Kapur: Hey, Sheila.
Sheila Kahyaoglu: Maybe I’ll start off with aerospace, if that’s okay. You talked about it growing low double digits. How do we think about the OE growth there? What build rates are you embedding into that on the commercial aerospace side and any color you could give on aftermarket and defense growth?
Vimal Kapur: Yes. So Sheila, we expect the overall low double-digit guide includes the continued high growth rate of OE, as we saw in 2023. That will repeat itself in 2024. Also expect double-digit growth in aftermarket. Defense, we perform at low single to mid-single digit in 2023, the supply chain constraint remains the biggest handle there. And as we make progress, we expect it to perform in that range in 2024 also. But the biggest unlock for us is supply chain. We have demonstrated a strong performance in 2023. We expect a good start of the year and we’ll unpack the year as the things progress.
Greg Lewis: Yes, so to be clear, I mean, no new signals from the OEs. They’re continuing to place the same level of demand on us that they have been. And so, that’s what we’re committed to try to deliver.
Sheila Kahyaoglu: Okay, great. And then if I could ask 1 more. You’ve been asked every angle in terms of revenue growth acceleration. Outside of [indiscernible], what do you need to see in the other three segments to hit the high end of guidance? Is it just all based on short cycle recovery and the timing of that, or is it some additional price capture? If you could maybe talk about that.
Vimal Kapur: Yes. The biggest variable is the short cycle recovery and the pace of it, which remains variable. I mean, you look at 2024 setup for Honeywell in three buckets. Our backlog is up 8% and we convert backlog at a pretty predictable rate. So that’s something which is highly deterministic. Number two, the self-help actions we are driving to drive growth. The self-help action includes price, that includes new products. I talked about high-growth regions, aftermarket services. All that is going to help us to drive growth regardless of the market. And then the third variable is short cycle. If it returns quicker, we’ll have an upper end of the growth or we can beat it if it surprises everybody and vice versa. If they doesn’t perform well during the course of the year, then we are at the lower end of the guide.
Sheila Kahyaoglu: Great. Thank you.
Operator: Thank you. Our next question comes from the line of Andy Kaplowitz with Citi. Your line is now open.
Andy Kaplowitz: Good morning, everyone.
Vimal Kapur: Good morning, Andy.
Andy Kaplowitz: Vilma, I just wanted to follow up on a commentary that you’re on track to exceed the $25 billion of capital deployment guidance from 2023-2025. Obviously, you announced the Carrier deal, but does that commentary suggest continued more aggressive capital deployment? Does your M&A pipeline support that? And then could you update us on the progress in divesting the 10% of the sales you talked about previously?
Vimal Kapur: Yep. So I would say that our capital deployment strategy would be balanced, which maximizes shareholder return. That’s what we’re really targeting for. It will be the balance, as Greg mentioned earlier, we expect both M&A and share repurchases to be part of that element for 2024 and years to come. The pipeline is adequate at this point of time and activity remains strong. So we are constantly looking at the deals which work in our algorithm. It has to be bolt-on. It has to help to drive our overall organic growth and generally meet our financial algorithm which we have earlier talked about. On the part of the portfolio, which doesn’t fit in well, we are going to drive action starting 2024. Of course, we are not going to rush through that, because we need to capture shareholder value, but you can anticipate some initial actions on that during 2024.
Greg Lewis: Yes, maybe just to put numbers on Andy. As we showed in that slide, we’ve been doing $8-ish billion per year. The simple math for 2024 says just with Carrier, that number is 10 going in with just enough share repurchase to buy back the creep. So we’re going to be sitting at 18 through two years towards the 25 plus number. So the high confidence that we’re going to be above that level just with the math.
Andy Kaplowitz: And then just a quick follow up. You managed to grow Aero margin by 20 base points in Q4, even with [OE mix] (ph) being against you. And you talked about supply chain improving in 2024. I know you’re saying it’ll marginally stay in a tight range, but if the supply chain does continue to improve, is there an opportunity there with all of your productivity projects in that segment?
Vimal Kapur: Look, I mean, there are — there is a volume growth there, which will continue and the volume leverage gets offset by the OE mix, which I talked earlier, the OE mix remains strong. But we are also ending investing into aerospace. The volume growth is not coming accidentally. We have invested into our supply chain operations, supplier recovery, which is demonstrating the continuous volume growth occurred in 2023 and 2024. So when you put those facts together, that really drives the margin forecast for Aero at this point.
Andy Kaplowitz: Helpful, guys.
Vimal Kapur: Thank you.
Operator: Thank you. And our next question will come from the line of Peter Arment with Baird. Your line is now open.
Peter Arment: Thanks. Good morning, Vimal and Greg. Greg, just a quick one. You mentioned in just kind of the legacy segment SPS, you were talking about warehouse, the pipeline of kind of in the projects business, that there was some signs and there was some — at least some improvement there. Maybe if you just give us a little color there just because it’s — obviously it’s been a — that that particular area has had a big downturn here.
Vimal Kapur: Yes, I can start there and Greg can join. Look the pipeline, if I compare simple facts, our pipeline in Jan of 2024 compared to Jan of 2023 for warehouse automation projects, it’s up nearly 30%. So what it tells us is that, the basic value proposition and the long-term trend of warehouse automation are intact. But customers willingness to invest in this very tight market or uncertain market is what is holding them back for making capital decisions. So we remain absolutely convicted on this business and the foundational actions we have taken on continue to grow our aftermarket, they are really paying off. I mean, our aftermarket businesses crossed $0.5 billion mark in 2023. We expect double digit growth in aftermarket in 2024. And you can expect the business almost cupping a half project and half aftermarket in this year. So as the market confidence returns, we’ll see the growth back, and that’s supported by the pipeline we have and activity in the market.
Peter Arment: Very helpful color. Thanks. I’ll leave it at one.
Vimal Kapur: Thank you.
Operator: Thank you. And our next question will come from the line of Joe Ritchie with Goldman Sachs. Your line is now open.
Joe Ritchie: Thanks. Good morning, guys.
Vimal Kapur: Good morning, Joe.
Joe Ritchie: Maybe circling back to Nigel’s question on pricing, the three points that’s embedded into your expectations, is that disproportionately coming from Aero? Or how do I just kind of think about pricing across the segments?
Greg Lewis: Yes. So, Aero is probably on the mid to lower end of that, just given all the contract nature of their business and the other businesses, the other three segments are going to be a bit higher than that overall. So that’s really, without being too specific, that’s sort of directionally or notionally, I just think about it.
Joe Ritchie: Okay. Great. Thanks, Greg. And then the quick follow up to circling, I’m trying to square the commentary on HBT and the destocking that you’re seeing in the products business. With — obviously, you’re excited about the security acquisition and the growth profile of that business appears to be different. I’m just trying to square those comments and maybe you can kind of help me with what you’re seeing within your own security business today.
Vimal Kapur: No, as I mentioned before, we expect the front end of the year growth to be more driven by solutions side of the business. We are carrying forward meaningful backlog, both in projects and services. And as the year progresses, we expect short cycle recovery to be the key factor for growth as the year passes along. And net-net, we expect low single digit growth in building technologies, but strong margin expansion. Our commercial excellence actions are in place and we remain confident that we’re going to have a meaningful progress in the year, both on growth and margin expansion.
Greg Lewis: Yes. I mean, I would just say, Joe, zoom out for a minute. And we’re coming towards the end of a three year period where, again, COVID, then followed by big supply chain constraints, followed by massive inflation. And that’s why you hear everyone talking about what’s going on in inventory stocks all over. And yes, as that thing normalizes, that’s going to make things clear across many of our products businesses, including HBT. But more broadly, again, zooming out, we love the — we love where this business is going, and also creating that sizable position in security with a very attractive asset that we’re bringing on from Carrier. Yes, we’re very excited about that opportunity because we think that’s going to be accretive growth across the portfolio for us. So it’s just a matter of, I would say, differentiating between the here and now and the medium to longer term with those comments.
Joe Ritchie: Helpful. Thank you guys.
Operator: Thank you. I would now like to turn the call back over to CEO, Vimal Kapur, for closing remarks.
Vimal Kapur: Thank you. I want to thank all our shareholders for your ongoing support and our Honeywell colleagues who continue to enable us to outperform in any environment. Our future is bright and we look forward to updating you on our progress as we execute on our commitments. Thank you very much for listening and please stay safe and healthy.
Operator: This concludes today’s conference call. Thank you for participating. You may now disconnect.
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