Honeywell International, Inc. (HON) Goldman Sachs Industrials & Materials Conference Call Transcript

Honeywell International, Inc. (NASDAQ:HON) Goldman Sachs Industrials & Materials Conference Call May 10, 2023 8:00 AM ET

Company Participants

Lucian Boldea - President and CEO

Conference Call Participants

Joe Ritchie - Goldman Sachs Group

Joe Ritchie

All right. Good morning, everybody. Welcome to Day 2 of the Goldman Sachs Industrials and Materials Conference. My name is Joe Ritchie, head of our Industrials and Materials team. I also cover the multi-industry sector.

Before we get going with our first presentation of the day, I am required to make certain disclosures in public appearances about Goldman Sachs' relationships companies that we discuss. The disclosures relate to investment banking relationships, compensation received 1% or more percent ownership. We're prepared to read a lot disclosures for any issuer upon request. However, these disclosures are available in our most recent reports available to you as clients on our forms portal. Also the views stated by non-Goldman Sachs personnel do not necessarily reflect those of Goldman Sachs.

So with that, we're excited to have our first presenter today from Honeywell, President of PMT, Lucian Boldea. Lucian. Thanks so much for being here with us to us today.

Lucian Boldea

Thanks to all of you for coming this morning. Certainly a pleasure and privilege to be here with you, representing Honeywell and our PMT division in Honeywell.

So just a few words about PMT and what it contains so that we ground ourselves into the subject that we're covering. So Performance Materials and Technologies in Honeywell covers our Advanced Materials business, cover sorry, UOP, Honeywell UOP business, that is our Process Technology and Engineering Solutions business and then all of our Process Automation and Controls businesses, our Honeywell Performance Solutions business.

If you look at those businesses and why I'm so excited to be here today, the portfolio is extremely impressive and very well aligned with macro trends and with really areas that the world really cares about today. So if we start with sustainability everywhere you go, this is something that everybody talks about. So if you look at how we're aligned with these macro trends, certainly, energy transition is an area of big focus for us. We have a lot of history there. And so certainly, the industry and the energy infrastructure that we've built over the last 100 years, Honeywell UOP and also our Automation business has had a front row seat there.

What we've done over the last 100 years in transition, we now have to -- in energy, building, the infrastructure of today, we have to reinvent in the next 25 years. So it's certainly an accelerated pace, and it's one that we're well positioned to do. Alongside of that, because it's not an either or, it's really improving the operations that are there today. So this is around emissions management. We have a lot of technologies that we'll be talking to you about later around emissions management.

Then last but not least, energy storage and transportation. This is another area around battery technology around how we store energy, different ways to store energy, whether it's hydrogen, whether it's storing the hydrogen itself, whether it's carrying the hydrogen alternate fuels, such as LNG. All those are areas where we have exposure. So that's one pillar of growth around sustainability.

The second one is around digitalization. And if you look at the world of digitalization, certainly things are picking up speed in a very encouraging and very exciting way. Honeywell is at the front edge of leading autonomous operations in several of our areas, really doing digital twins of our customers' operations where we're allowing a more efficient worker, a more enabled worker that has better information at fingertips that produces fewer errors, more efficiency operationally and really fills the skill gap that's out there today.

Then right behind that, of course, we've just made an important acquisition that will enable more digital solutions for our customers, and that's our compressor control corporation that we've just announced. We haven't closed on that yet, but we're certainly very excited about that and we'll be talking to you more about how that adds to our digital solution.

Last but not least, we have our core business. And there, we also have a commitment and a track record of innovation. We're going to continue to build on that so that, that can grow in a margin-accretive way. So what does all that mean when you put it all together? It means a business that will continue on our commitments that we made last year at Investor Day to continue to grow mid-single digits. We'll be talking to you more about this tomorrow about our margins, but we certainly remain on track on the commitments that we've made to you on improving our margins for this business and getting them to 25%. And you'll see that reflected even with modest margin expansion this year following a year of fairly significant margin expansion. So we remain on track to deliver on our strategy. So with that, maybe back to you, Joe.

Joe Ritchie

Lucian, that was great. And great to meet you in person. It's incredible. So you had a 25-year career at Eastman Chemical, Maybe start with why do you needed to join Honeywell? And I'm also curious, just in the first 7 months, taking over as the President and CEO of PMT, what your initial impressions are of the culture?

Lucian Boldea

Yes, sure. So thanks for the question. So yes, 25 years at Eastman. So certainly, it's been a privilege to leave well-run company and to join another one. So, certainly very happy to be at Honeywell. I think when you look at the Honeywell culture, I mean, the words they do are front and center. We do what we say, and we take our commitments very, very seriously, whether it's our commitment internally to one another, whether it's our commitment to any of our stakeholders. And so that is an area that is very much front and center in the Honeywell culture.

I think what's also to me, fascinating about the company is where I started my conversation, just the portfolio itself. So if you look at what we bring to the table and the combination of the offerings that Honeywell can bring to the table, they're really significant. And then last but not least, the business model and we'll be talking more about that as we go through the dialogue, but the business model is also different.

Joe Ritchie

And so when you compare maybe the PMT business to some of the businesses that you ran in Eastman Chemical, what has maybe surprised you about the portfolio and talk to us about the learning curve?

Lucian Boldea

Yes. So if you look at the portfolio of Honeywell and if you look at PMT and why I'm so excited about PMT. If you think about digitalization, you think about sustainability, okay? A lot of people are doing that. A lot of people are in those fields, so you say, what's so unique? But what is really unique is you have material science and advanced materials. You have process technology and engineering services in UOP and you have digitalization in their business. So if there is another company that has all three, then I missed it in my search of companies because this is the only one I know about that has all three that brings them to the table.

And then couple that with the culture of collaboration with a lot of discipline, a lot of business operating principles and how you bring that to the market because it's not easy to bring a unified offering to the market when you have different divisions for the solutions side. But nevertheless, we've done that successfully. We continue to do that successfully. So bringing that portfolio of offers together to solve customer problems is excitement number one.

And then obviously, the next obvious thing, which is near and dear to everyone's heart here, is the combination of short-cycle and long-cycle business. So you've got that internal hedge for a vast majority of your business, you actually have your forecast pretty much in hand and it's determined by your ability to produce and deliver to the customer and source your raw materials. It's not determined by market dynamics. We still have a portion of short cycle, but many companies, particularly in the chemical industry, live on short-cycle businesses, whereas we don't have that. So that, to me, is the biggest difference between Honeywell and the chemical industry in general.

Joe Ritchie

So I know that tomorrow, we're going to hear all about the longer term, right? So we'll save that for tomorrow. But maybe from a more near-term perspective, you're currently expecting mid-single-digit growth for the segment in 2023. 1Q got off to a great start. I think you guys were up 15%, if I remember correctly. So maybe just given that orders are strong, like why do you expect a deceleration potentially as the year progresses?

Lucian Boldea

Yes, I don't think it's -- again, we tend to think sequentially, and I know the investor work thinks more year-over-year. But I think what you have to remember is we're lapping those quarters where we had lower prices than we picked up prices in Q2 of last year. So if you look, it's more of a conversation than it is anything else. I think if you look at the absolute trajectory, we're certainly on a more steady path than the year-over-year comparison would suggest for Q1.

Joe Ritchie

Got it. So think about it sequentially as we progress through the year from a cadence perspective, like steady through the year.

Lucian Boldea

Steady. And then just look at the comp with Q1 last year. Q1 last year was unusually low compared to that's -- maybe your ...

Joe Ritchie

I know price has been a real big contributor to growth has been for a variety of different companies that we cover and certainly for your business as well. How does pricing work across PMT? And what do you expect -- do you expect to be able to maintain price even in a deflationary environment as we progress through the year?

Lucian Boldea

Yes. So I've been asked this question many times for it in this forum or in prior lives. Well, it got your prices up in raw materials went up. Now when prices go down, do you still have pricing power and your pricing -- your ability to pass through price doesn't change that much. It's related to the value you bring and the differentiation you have in your customer offering. So if we were able to pass through increases, we should be able to hold on to value on the other side as well.

Now obviously, nobody is 100% immune to economic cycles, but nevertheless, we feel good about our ability to hold on to prices. We had substantial price increases last year worked with customers. In the end, it is about delivering value to customers and customers seeing value in what we offer at the prices that we offer it. So that's what it comes down to understanding their business model, their ability to pass through our increases is important, and we do that very well. So that's -- but there is a discipline, and there is a cadence that served us well last year that will serve us well in the future as well.

Joe Ritchie

Do you think that, that differs, though, by some of the segments, subsegments and how you report? So EOP, HPS, Advanced Materials. In the past, like I recall Advanced Materials having a little bit more pass-through. So that may be being more subject to fluctuations and the other two businesses Is that a fair way to represent it?

Lucian Boldea

Look, so you have to peel the onion then way back. So I think if you look at Advanced Materials itself, there are segments, and it's really probably 1/3 of Advanced Materials, which is 1/3 of 1/3 of PMT and even less of a fraction of Honeywell, where you have more traditional chemical industry kind of exposure, but the vast majority of Advanced Materials is sold into the refrigerant market. There, you have a market that's very regulated. It's quota-based. So it's a totally different supply demand dynamic than you have in a traditional chemical business. Then you have the 1/3 of Advanced Materials where you have for an electronic exposure, building and construction exposure, you certainly see a downturn in those industries everywhere, including in Honeywell.

Having said that, we look at our UOP business and that we've been asked quite a bit. So where are you in that cycle? Do you see green shoots, and we see better than green shoots right now that's picking up very nicely. That business is getting stronger. So that's why you have a portfolio. So yes, on a small corner of Advanced Materials, you may have some pressure, but then you have UOP coming back up, whereas last year UOP was still lower and Advanced Materials had a stronger year.

Joe Ritchie

Yes, that makes sense. So you mentioned compressor controls earlier in your prepared comments under the -- helping you scale your digitization offering. I'm curious like what really was the appeal of this asset? It's an asset that some of us know from covering Roper. And so -- and maybe talk about how complementary this is to the HBS controls portfolio.

Lucian Boldea

It's very complementary for a number of reasons. So obviously, this is the flagship compressor controls company. It's the premium brand that's up there. When it really matters for your compressors when you're in that super high end compressor market in LNG, in particular, this is the company. This is the household brand that we all know about.

But when you look at the business extremely well-run business, very technically capable business, but there are pieces that we do so well in Honeywell that frankly weren't part of that business model. So they're operating their control strategy is very much around operating the compressor and keeping it within an operating window from a process standpoint. So it's not so much equipment health. We'll go after equipment health. We have a whole set of centers that we can add to that to where we do vibration monitoring, with all that mechanical reliability that we can add to that. There wasn't a lot of service component. This is what we do well. We add service. We add software. So there's a lot of revenue synergies that we can add to this.

And then last but not least, you get over 10,000 compressor installed base, the machinery installed base. Some of that is on Honeywell system today. Some of it is not. So that offers additional market penetration for the rest of our businesses. So it really fits very well in a number of ways where calling on the same legacy customers and the future is in the same direction. So it was from oil and gas going today into LNG and moving forward into carbon capture, which is exactly where we're going with the rest of our business. So it's really following that, but bringing one more very key offer to the market.

Joe Ritchie

That's really interesting. And I know that you guys throughout a high single-digit type growing company, 15% ROI, I think, after year 5. Just maybe just talk about your degree of confidence in hitting those numbers.

Lucian Boldea

Yes, I think we're committed to those numbers. And as I said, our culture is one of say, do. So if we commit to something that means we're confident that we have the details and the plans behind it to deliver it.

Joe Ritchie

I mean Vimal runs this business, right?

Lucian Boldea

He may have mentioned that to me once or twice, not this morning but [indiscernible] talk.

Joe Ritchie

All right. So you guys have put out a $700 million target for your sustainability goals by 2024, and that's a sales target. Maybe just talk us through some of the technologies that you're excited about? How you plan to get there, where you are today? Why don't we start there?

Lucian Boldea

Yes. So on track to deliver on that commitment. And we are very, very excited about where we are in our sustainability technology offerings. So we had a press release this morning, and we'll talk about that in more detail. But there are a number of technologies that go across the spectrum. And I put them in two categories. I would put them first and I mentioned it earlier a little bit on energy transition.

So there are a suite of technologies that make what we do today better. So this is emissions management, emissions monitor and quantifying people's mission, giving them a road map to this carbon neutrality target that everybody has, but everybody doesn't yet have a road map on how they're going to achieve. So you've got that piece just doing what we do today better. Then you move to really new ways to store energy. So we have flow battery technology. We have green and blue hydrogen projects that we've done. We have carbon capture and sequestration projects and then some of those obviously are for the purpose of blue hydrogen. So there are a number of offerings in that dimension.

Then we have the fuels. The new fuels, the next-generation fuel. So this is -- we started out with biodiesel now moving to sustainable aviation fluid, which is the latest range. And if you look, we started on our fuels, on our -- in 2007. So from 2007 until 2020, we sold 17 licenses. In the last 2 years, we sold 20 more. And if you look at the acceleration, basically, every month, it's actually picking up steam. So this is actually the hockey stick that we're living right now. It has turned and it's got one direction and that's up. And it started at biodiesel. It started at sustainable aviation fluid with fat oils and greases. Then we announced our ethanol to jet technology. Then this morning, we announced our CO2 to jet. So that's just continuing to ramp up.

And then last but not least, we also have our up-cycle technology where we do plastics recycling, and we've had a couple of licenses that we've announced in that area. Battery and Energy storage is another one where we do the whole end-to-end control systems and battery solution where we work with our customers. So again, a lot of exciting technologies that could go on and on about that portfolio, but a lot going on there, very, very well aligned with where the world is headed.

Joe Ritchie

So lots of technologies, right? So maybe if we kind of thought about a few of those and think of any if we could bucket near term to medium term to long-term opportunity, you mentioned a lot, whether it's energy storage, blue hydrogen, plastic circularity, sustainable aviation fuels. There's a lot going on. So like as from the investment community, how do we think about the opportunity near-term, medium term, long term?

Lucian Boldea

Well, some of them are here now, right? So I mean, there is the transition fuel. So LNG, we've had a number of announcements around LNG. So that's a business that's going on today. Then carbon capture is another one where everybody is working on that. Their existing projects. We made an announcement on the largest blue hydrogen carbon capture project with Exxon in Baytown. So that's been a big winner for us and one that we're very, very proud of. So those are the here now. The licenses that are under construction in a very aggressive way are the fuels licenses. So these are the 37 that I was talking about. Some of them already operational and then the rest of them being constructed. And so that's also here and now.

And what I would say, which is also an important mention here, this is not science fiction, technology or it's not even technology that we invented last week. Some of this is actually reapplying technology that's been practiced for decades and just adapting it. Some of it is reusing existing capital and existing infrastructure and petrochemicals to repurpose it to biofuels. So this is why customers like to work with us is because we have that history. We have that legacy. We have that experience. We're already in their plans. We're already in their factories in their refineries. So that's why it allows us to have that seat at the table.

But it's a combination. And then further out in time, but not too far out in time, some of the announcements, the one that we made this morning around CO2 to jet. So that's kind of the next frontier, the next generation of technology.

Joe Ritchie

So I'm going to open it up to questions from the audience in a minute. But let's talk about the announcement this morning. I saw that the announcement basically stated there's an opportunity for you guys to reduce GHG emissions by, I think it was 88%. So talk to us about this technology, the announcement. I think there's a partnership as well involved in that.

Lucian Boldea

There is a partnership. The partnership is with a company called HIF, Highly Innovative Fuel. So it's a multinational company. It's a licensor of ours already that has a biodiesel facility that's licensed with our technology. So we have experience working with them. They have experience working with us. And they've announced an investment in sustainable aviation fuel using CO2 as a feedstock. If you think of SAF in general, so SAF, you can produce today from Honeywell on at least four different raw materials. So first, raw material recovered fat oils or greases, then you could produce it from ethanol producers from woody biomass and then the latest announcement as of this morning is from CO2. So CO2 obviously, this is all the carbon capture that's being done using that storing the CO2 sequestering it and then ultimately using it. The raw materials to make SAF in this technology basically are CO2, water and renewable energy. So how much better can it possibly get that you power a plane or recover CO2, water and renewable energy.

Now that requires a lot of infrastructure to come together to be able to do that. But nevertheless, it is ultimately the way you get to some of the goals. And key points, at least the key learning that I maybe should have mentioned earlier in your comment about what I've learned about Honeywell. So energy transition is not a -- from, to that we're going to leave something and we're going to go somewhere else tomorrow. There's going to be a whole lot of end for a long time. And what that means is, first of all, making our current operations better and more sustainable. But then also bridging -- with bridging fuels and then ultimately to the destination.

But if you look at sustainable aviation fuel, you don't have enough raw materials if you don't use CO2 to achieve the regulatory goals that we have out there. So fat oils And greases may get you to today's license is 5%, if you round up everything, you may get to 10%. You add to that ethanol and you don't have it everywhere in the world. So U.S. and Brazil because you're not going to ship SAF around, so you get another 15% and now we're at 25%. Add the woody biomass you get another 15%, so now you're at 40% so still 60% to go and still need carbon for the other 60% and so that leaves you with CO2 as a material, which is why we're so excited because you can't really close the mass balance without CO2 as a feedstock ultimately to achieve the goal that we have to achieve.

Joe Ritchie

That's super interesting. So I'll pause there for a second to see if there's any questions from the audience. Right up here, Pete.

Question-and-Answer Session

Q - Unidentified Analyst

Question on pricing. You discussed how you're going to hopefully be able to keep it. One sort of nuance of picked up from other companies, though, is the, yes, the headline pricing may stick, but there may be sort of back-end incentives or incentives that come through where sort of the ultimate -- so the headline price sticks, but you have to give some discounts or whatever you want to -- how you want to phrase it. And I'm not just focused on Honeywell, it's something I've sort of started to pick up from other companies. So curious if you could kind of give us a little more detail there as well.

Lucian Boldea

Yes. No, I appreciate it. And obviously, it's a very, very diverse portfolio of businesses. So in the businesses where you have a lot of long-term business, long-cycle business, there, if your margin is already in your backlog. So that one is fixed. There's -- those kind of issues are not there. The price is there, it's that, then you know what your cost is, and you're making. So that's pretty well hedged as it is and it offers a hedge overall for the business.

I think where you have some more exposure is in your short-cycle business, and that's that 1/3 of Advanced Materials that -- so we try to not do what you said, but when we do it, the pricing tools are just phenomenal and the visibility is phenomenal. So the biggest learning curve is not to invent dashboards, but to be able to read the dashboards that we have because they're very sophisticated. And that kind of leakage is very well tracked and we count it as price. We don't count it as we got the price, but we gave it away here. It's all in our net pricing calculation. So to -- obviously, we're not completely immune from the markets that we play in, but to the extent that we can keep that value we do. And for the most part, we're very successful at doing that.

Joe Ritchie

Can we get our mic over here.

Unidentified Analyst

Thank you. Historically, when the macro wobbles, you'll see the short-cycle businesses slow down and then after a while, even the long-cycle businesses, projects get deferred, the sales cycle elongates. I guess I'm curious, is it different now when you talk to your customers because of the types of projects? Or are you starting to see kind of a typical playbook on the short cycle and then you start to prepare for the long cycles? Maybe you could address that?

Lucian Boldea

Yes, it's a good question. And you're always on shaky ground trying to propose that the future is different from the past, but it is. And here's why I would say that, and it's two words, skill gap. So I think when you look at what are long projects for us, they're engineering and construction projects, right? They're investments in the long term. And I think at least for the foreseeable future, people are going to remember the lessons they learned in the last few years, which is deferring a lot of capital, deferring a lot of investment. They paid for dearly when the demand came back and said, okay, well, we'll invest then you'll invest but where is your welders, are you -- we're short those kind of skills, which is why our automation and our digitalization business is doing so well is because we're filling in that skill gap.

And I think it's that skill gap that's going to keep everybody honest and rebuilding and making sure that they continue to invest in capital projects. We don't yet see those kind of slowdowns at all. That seems to continue and there seems to be a lot of commitment in continuing those investments. And those investments are happening. There's a lot of regulatory drivers. Remember, inflation reduction act, the Fit for 55 in Europe. This is driving a lot of capital. If you look at the semiconductor investment in the U.S. that's happening. If you look at the investment in Giga factories, and these are all places that we have a front row seat there through Advanced Materials or through Digitalization businesses.

So there's a lot there. Again, there could be elements of that. Obviously, there could be pockets for that is, but I think the overwhelming trend of really rebuilding the CapEx and really not slowing down because of the skill gap is going to make this a smoother even if there is a bit of a downturn, it'd be smoother than it would have been.

Joe Ritchie

Any other questions?

Unidentified Analyst

You touched on it on the last one, but just on the next cycle, how much do you think it's more driven by regulatory? I mean, you mentioned IRA and that, that's more fiscal spending. It's not as much regulatory but just PA, everything else going down. Just how people look at the returns on their projects, regulatory-driven versus i.e., financially driven. And how does that cycle into your pricing thoughts or anything like that? Any comments you have on just -- what's the real driver here, regulatory or economic and how that differs and how you handle it, how you handle price et cetera.

Lucian Boldea

No, it's a great question and doesn't, obviously, have a very easy answer, but it is. So if you look -- I'll start with advocacy. So for example, 10, 15 years ago, your government relations function was kind of a compliance function. Now it's a strategic asset because things are happening, and you have to have a seat at the table. You don't have a seat at the table things that are not going to go in a way that they should and regulators, frankly, don't always have the knowledge of what's possible to be able to drive the regulation.

So first of all, we do try to play a very active role to make sure that we represent the science that we bring to the table and the technology. But to answer your question specifically, it definitely factors in. I think incentives offer a floor in the economics and offer the ability to invest. They've also now with the Inflation Reduction Act created a bit of a geopolitical issue and some arbitrage because you're better off investing in the U.S. than in other parts of the world. So now Europe has tried to do their own thing to try to match some of that and level the paying field. But nevertheless, you had a lot of money from European players, from Asian players that started coming into the U.S. The onshoring, the lessons from COVID and from the supply chain disruptions to the onshoring of the chip industry has brought all that back to the U.S.

So I think probably the most clear example of how does that factor into our pricing. So we don't have to now with an electronic supplier compete head-to-head with an Asian supplier because they're building a plant in the U.S. to have a surety of supply. They're not going to build a plant in the U.S. that's based on non-U.S. feedstocks because then they've totally defeated the purpose of their billions of dollars worth of capital deployed. So we now -- the competitive landscape is different, which allows us to price differently. So that that's changing in the catalyst.

The other part that's changing is, obviously, you take into account the incentives, whether you're talking about biodiesel, whether you're talking about sustainable aviation fuel, how those incentives factor in. So it's very much front and center and regulations, obviously, that's a better example is our Advanced Materials business where we have our refrigerant portfolio. That's a portfolio that's regulatory driven. So that alters the supply demand that you have and as a result, in the end, your ability to price.

So it's always there. It's part of the value proposition. It's always part of what's the alternative for the customer.

Joe Ritchie

Other questions? I want to touch on the skill gap comment. That's a super interesting comment. If you think about the last decade, right, there hasn't been as much capital investment by the super majors, the national oil companies. And what we're seeing, not just with Honeywell, but across a variety of other companies that we cover, is that the aftermarket business has been strong, really like the last five to six quarters from an orders perspective. Has the nature of the relationship and the discussions that you're having with your customers change because of the dynamics of the last decade? And ultimately, what does that mean for your aftermarket business going forward?

Lucian Boldea

Yes, absolutely. It's changed. So if you look at the first example where that happened is offshore oil rigs. So you think of that, that's kind of the ultimate remote location, reasonably high stakes and a difficult probably most difficult place to hire somebody. So that was kind of the first place where you go autonomous. That's the first place where you create a digital twin. That's the first place where you put all your sensors and you start doing predictive maintenance when the helicopter flies from Oslo to the North Sea to this unmanned old rig, they can bring in the correct parts, the correct tools, they know exactly what's wrong. So that was one of the early examples, real-life examples of deployment of those digital tools to have that autonomous operation.

I think in training, you see that in a big way, process errors. I mean, you look at these industrial accidents and these outages that happen because you send a field operator out there and you say, turn the second valve and you forget that there's actually 5 not 4, and it wasn't the second, it was the third valve when you have an industrial accident, and that kind of stuff as boring as it sounds, it happens.

Well, with Honeywell, they'll have virtual reality goggles on and literally, they can go through training with a digital twin, and then they can go with their goggles on in the field. The control room operator sees the same thing that the field operator sees and field operator touches the valve, and it's this one, no, it's that one and they see which one on the digital twin. So there is a level there of redundancy. And it's what would you pay for it? Not much until after the fact when it cost you $30 million, $40 million for turning the wrong valve. And you don't have to experience that, but wants to realize the value.

And so those are the kind of offers, those are the kind of conversations that we're now having with customers in a variety of industries because it's just really difficult to find workers now, and it's a global phenomenon. It's not just a U.S. phenomenon. And I think it just opens the door to those tools that really before would have been a luxury.

Joe Ritchie

Super interesting. And so you talked about -- and this is -- we'll probably end on this note, but we've talked about a lot of opportunities, right? Clearly, some of these opportunities also require investment. There's both organic and inorganic investment that you can contemplate. I'd just be curious, like how are you thinking about whether it's R&D, CapEx or M&A to help augment some of these opportunities?

Lucian Boldea

Yes. I think you'll hear more tomorrow in Investor Day about our commitment to organic growth. So organic growth is going to be absolutely critical. We have a long history. We've invented categories, distributive control systems, that's a Honeywell invention. You look at -- we're powering the world's refineries today, the overwhelming majority of refineries around our technology. So there's a long history and track record of innovation, and there's a heavy commitment on building on that going forward. So I think that's there.

At the same time, we're not patient people as to your first question about the culture. And so there are areas where you're better of buying it than waiting and building it. I mean could we have gotten there on what CCC is doing with enough time and enough effort, yes, probably, but it was the logical thing to do, plus it made sense that we can buy that and bolt on the other services that we bring and accelerate that growth.

On sustainability, we know there are still things in our portfolio that we'd like to have. And so there are a few gaps here and there. So that's something that we will pursue organically because you don't want to wait for the perfect acquisition to be available because maybe it's not available today. So you want to pursue organic but if something becomes available that can accelerate it, whether that's a new technology or a hydrogen, whether that's a new battery technology, whether that's -- but it's definitely in the categories that I mentioned earlier around energy transition, energy storage, emissions management and digitalization. So if it's one of those and there's something that fits in there, that would definitely be of interest from an M&A standpoint as well.

Joe Ritchie

Lucian, it's great having you here today. Thank you. Look forward to seeing you again tomorrow.

Lucian Boldea

Pleasure to be here. Thank you very much. Thank you.