Squawk on the Street+ Honeywell CEO Vimal Kapur 10/9/24

Jim Cramer (0:00)

Honeywell, announcing it will spin off its advanced material unit to drive growth as of yesterday, but there's so much news here. Chairman and CEO Vimal Kapur joins us now exclusively. Now Vimal, in 1999, Allied Signaled and Honeywell merged, and this was about chemicals emerging with some very good software and hardware, and it was the bedrock of this company. I do not think people realize how revolutionary, not evolutionary, but revolutionary the move you made yesterday to be able to re-form this company in your way, automation, future of aviation, energy transition. Tell us why you're making what I regard as being a radical move to reinvent Honeywell.

Vimal Kapur (0:39)

So first of all, thanks Jim for having me here. When I started last year in June, I talked about pivoting Honeywell to three mega trends, and these are truly long-term growth vectors, aviation, energy transition and automation, but also go to Honeywell. But to get there, I had to do portfolio adjustment, and what we did yesterday announcement of the spin of the chemicals business is a part towards that. The good news Jim is, it's a great business. It has some franchisee which are best in class in terms of its offering, but it's less fit in Honeywell where I want to take it. And as a stand alone company, it's going to do very well with its capability to have in regulated product lines like refrigerants, in healthcare, in clean energy, in semiconductor materials, but also Honeywell positions itself, net of this business as a higher growth company with a better free cash flow and a similar margin rates. So to me, it's a win-win, and that's what excites me.

Jim Cramer (1:47)

Very much so, and I do think the analysts seem to not understand that the chemical division is 11, if it's 11 billion in valuation, would stay in the S&P, which would be fantastic for people who own the stock, as we pointed out, and are bulleted. Now, I do want to talk about energy transition. You have moved radically to be in this, including the liquefied natural gas issue. I think that you seem to understand that we're not going to just jump right now to nuclear.

I think you've offered businesses that currently have earnings as opposed to future earnings. So please talk to us about the leading solutions that you're doing for energy transition, which are very different from what everyone else is doing.

Vimal Kapur (2:22)

Sure. So our energy transition business is will be about three and a half billion dollars next year. Where, Jim, we are focused upon is what I call green molecules. The world needs energy today and we always had a presence with our technology in refining and petrochemicals. That's not going away soon. That's here to stay for several decades. At the same time, we provide capability to move to new molecules. Think about sustainable aviation fuels, think about hydrogen because our customers are moving their business mix to these new technologies. We have added now liquefied natural gas into our portfolio. So think about Honeywell energy business as a combination of traditional energy in refining and petrochemicals.

Fast-growing segment of renewable energy molecules like SAF and hydrogen but also gas. And we believe this business is going to do very well in next level decades, given the world wants more energy but with lower emissions. And that's a problem we are solving for our customers.

Jim Cramer (3:24)

And to me, perhaps the most exciting division is future of aviation. I say this because right now we have Boeing, which I regard as being not investible. We've got GE Aerospace, the only one out there, but you are in every plane. You also have a tremendous defense business and you have a space business. This is kind of what we want. Is there any way that one day we may see energy transition, aviation and automation as three companies because each one of these is very much sought after currently by this market?

Vimal Kapur (3:51)

Right, and they are highly synergetic, Jim, each one of them. So these businesses have, so think about, like you mentioned about our aviation business. Aviation business also has to move towards sustainable aviation fuel. That's one of the key industry needs over the next decade. We are one of the biggest technology provider of sustainable aviation fuel in our energy transition business. And that's a proposition of Honeywell that we have these assets which work flawlessly with each other to create higher value for our customers and therefore higher value for our shareholders.

David Faber (4:25)

Vimal, it's David Faber. I wanted to focus for a minute on the plan spin and why you're going that route and why you're confident, in fact, that it will trade fairly well is, as you called it, sort of a pure play. What gives you the confidence this is the right way to go? I'm always curious because I would assume you also looked at the potential for selling the unit outright.