Honeywell CEO on path to becoming 'growth-oriented company'

Speaking to Yahoo Finance's Julie Hyman and Brian Sozzi at the World Economic Forum in Davos, Switzerland, Honeywell (HON) CEO Vimal Kapur is eyeing the company's "next chapter" focused on prioritizing growth across the business in 2024. Central to Honeywell's growth strategy, Kapur says there are three macro drivers that "have a huge impact on all of us in our daily life": aviation, automation, and the broader energy transition.

While targeting 4-7% annual growth, Kapur notes near-term headwinds still constraining aerospace include supply chain disruptions, which aren't reflective across the entire economy. However, he envisions substantial growth long-term from "electrification" in the aerospace industry.

Kapur cits recent moves, like acquiring Carrier Global's (CARR) securities unit, are directly building on existing strengths, generating revenue and margin upside, calling it "an extension" of Honeywell's current business model.

In closing, Kapur emphasizes Honeywell's transformation into "a growth-oriented company," reallocating toward key secular trends including automation and sustainable tech.

It's all part of Yahoo Finance's exclusive coverage from the World Economic Forum in Davos, Switzerland, where our team will speak to top decision-makers as well as preeminent leaders in business, finance, and politics about the world’s most pressing issues and priorities for the coming year.

Watch this full episode of Yahoo Finance Live here.

Editor's note: This article was written by Angel Smith.

Video Transcript

[MUSIC PLAYING]

BRIAN SOZZI: All right, we're talking a lot here at Davos about really remaking iconic companies. And really one of those iconic companies that we talk a lot about here at Yahoo Finance is Honeywell. Joining us now here at the World Economic Forum is Honeywell's new CEO Vimal Kapur. Vimal, good to see you. It has been a long time.

VIMAL KAPUR: Thanks Brian. Thanks for having me.

BRIAN SOZZI: So before we get into what you're doing here at Davos, talk to us a little bit about remaking Honeywell. You have come out in your early days as CEO of the company and made some big changes.

VIMAL KAPUR: So I got a great foundation from my predecessors and my job is to now turn Honeywell into this next chapter. And next chapter, I'm really looking to make Honeywell as a more growth-oriented company. And for that, we have to set a clear North Star.

And the three big macros where we are pivoting Honeywell to is future of aviation, automation, and energy transition. All these three are core to us and that really represents almost 90% of our business. So 10% doesn't really fit in roughly. And it gets us a great platform to think about, this is what we want to be organically and inorganically.

And all these three mega trends have a huge impact on all of us in our daily life. We all want to travel. That's what we impact. Automation impacts everything in our life. The products, what we touch and feel, they are made by some manufacturing facility, our buildings we live.

And of course, energy transition, I don't have to speak for itself. We all care about it and we all make sure that it happens at the orderly manner. And doing those things, we make impact on people's lives. And that's what excites me, making this transformation in Honeywell.

JULIE HYMAN: So when it comes to transitioning more to a growth company, some parts of the company are already quite growthy so to speak. Aerospace, for example, saw almost 20% gain in sales last quarter. What does the future of aviation look like and what's the role that Honeywell is going to play in that?

VIMAL KAPUR: So two things which are-- I mean, near term, we are really looking at removing the supply chain constraints. Last year, our volume grew 20%, revenue grew approximately 15%. We haven't published Q4 results, but you'll see that soon. But that's an order of magnitude there.

We'll see the supply chain constraints continue to get relieved in 2024. So while we all believe supply chain has been healed, that's not true for aerospace industry yet. It still is work because a lot of it is related to touch labor. And touch labor dramatically got reduced during COVID, so you have to rebuild the scale in our supply base, and retrain people, and certify people. So that to me is a massive near-term work.

What excites on aerospace is the future of aviation is going to be much more electrification. So how are we looking at offerings which enable electrification in the planes, whether it is fuel cells, whether it's how we cool the planes with the new technology-- we call it vapor cooling system-- or finally moving it to urban air mobility. Will you all like to fly in a flying taxi in New York? It's going to be--

BRIAN SOZZI: I'm not getting in one of those. I appreciate all the technology working.

JULIE HYMAN: Eventually, eventually.

BRIAN SOZZI: I can't do it. Yeah, I can't get there. But I remember Honeywell was one of the first Industrial companies I rode on as a young reporter.

It was 2013 or 2014. I remember back then, we were talking about a day when planes will have no pilots. Are we any closer to that?

VIMAL KAPUR: So urban air mobility is a step towards that, so they are being designed. Think about the autonomy in planes will be a tiered approach. The first approach will be that you have a pilot in a plane and then he or she is being supported by a remote pilot. That's step one.

And then eventually at some point, the remote progression will take more and more work and the pilot still will exist for the purpose of safety. And eventually, it will become pilot less. So it's going to be the layers of autonomy and that's what we are actively working on right now.

Is it feasible? Technically, yes, but then the regulations have to support and public has to get comfortable. And urban air mobility is a platform to enable that as a step one. Then it goes from there to potentially to bigger platforms.

JULIE HYMAN: So in other words, people, investors can maybe expect more cool stuff that's happening for Honeywell in the years to come. When you're looking at long-term growth rates that you're targeting, what are you aiming for with this reorganization?

VIMAL KAPUR: So we have always stated our long-term growth rate 4% to 7%. Last year, revenue was close to $36 billion. So think about it, we have to generate $1 and 1/2 to $2 billion every year.

I'd like it to be 7%. My investor would like it to be that way. And that's what we really programming ourselves that in this range, how do we execute our upper end of the range, how we think about new products innovation, how we think of geographic expansion, and all the tools we have, so that we can grow at a high rate in the times ahead.

BRIAN SOZZI: You just pull the trigger on a major acquisition, almost $5 billion of carrier security business. And I wrote down a note, key to this is recurring revenue, right? Talk to us about the profits in that business and what is the outlook and why did you make that deal.

VIMAL KAPUR: So we made the deal, if you go to our buildings business, the buildings business is all about having critical products in the building. We don't sell any equipment like elevators or large equipment. There are products which building needs for safety, for environmental control. So this is an extension of our current business model that we add one more product line. So we did fire system, we did environmental controls, and now we're going to do security.

And the reason we like this business is it complements our core. So it's one more addition to what we know very well. It's more profitable, so it increases our margin rates.

And it has more recurring revenue. So those are some of the strategic goals we have set for ourselves that as we think about Honeywell, this is the new Honeywell we really want to build. And this target really fits very well with those purposes.

JULIE HYMAN: So where else can we expect you to maybe make acquisitions? Because I know you have a plan to spend up to $25 billion-- this was part of that-- on acquisitions, on other kinds of capital returned to shareholders. What should we be looking at?

VIMAL KAPUR: So we committed $25 million in three years and that's spent into four buckets. The dividend capital spend, those are about $4 billion a year times 3. So give and take about $11 to $12 billion and the balance half of money is available either for M&A or share repurchases. We'd like to be biased more towards M&A and that will be focused upon creating future of aviation, making our capability better in automation, our energy transition.

So our North Star is set. You expect us to do acquisition around this framework. So you won't find us to go to some unrelated area.

That's my goal to strengthen Honeywell in these three vectors organically and inorganically. And there are a lot of exciting opportunities because these are very big markets. There are new technologies which are coming in or we may have no strong position in some places where we have opportunity to go and acquire.

BRIAN SOZZI: Not a lot of folks get to lead iconic companies in the CEO role. Tell investors a little bit about yourself. How did you get this job? I imagine it doesn't happen overnight. I have to-- you have to summarize, what, a 30-year career--

JULIE HYMAN: Well, you're a Honeywell lifer, right?

VIMAL KAPUR: I'm a Honeywell lifer. Yeah, I joined Honeywell in '89. I joined in a joint venture in India.

I would say, look, there is no easy step. First of all, when I joined in '89, I didn't join to become CEO of Honeywell. I joined a good company and I felt I'm going to work here for a long time. And I never said no to any role. Whatever role came in, I--

BRIAN SOZZI: Good tip. Good tip. OK, go ahead, go ahead, go ahead, go ahead. Keep going. Keep going.

VIMAL KAPUR: That you trust the organization that every role is important. And they give you a role, and you add value into the role, and you move on to the next role. So having-- what I did was I got a lot of diverse experiences in different businesses and different countries. I've worked in India for sure for a long time and in UK for many years. And I'm in the US now for the last 10 plus years.

So I think it's a diversity of experience and willingness to take some personal risk. If you don't take a risk to yourself to say if you want to find a perfect job, it doesn't exist. And there will be always an element of risk to say, OK, looks like I know 70% to 80%, 20% to 30% I don't know. And I took those risks and I executed well.

And Honeywell has been fair to me. I think that's one of the strengths of Honeywell, we don't have to talk about inclusion, diversity, or meritocracy. I mean, we practice it and I benefited from that.

BRIAN SOZZI: Well said. Well, cool to see you in this role. You were one of the first folks that we talked to when we launched our live programming here at Yahoo Finance.

We thank you for the time then. We thank you for the time now. Vimal Kapur, Honeywell CEO, enjoy Davos.

VIMAL KAPUR: Thank you very much.

BRIAN SOZZI: Appreciate it.

VIMAL KAPUR: Thanks for having me.

BRIAN SOZZI: Thank you.