Greg Lewis
Senior Vice President and Chief Financial Officer at Honeywell International
Thank you Vimal, and good morning everyone. Let me begin on Slide 6. As a reminder, we are 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 being 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 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 11 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 2002 to 4Q 2003 and FY '22 FY '23 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 HBT, 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 are 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 one 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 mix pressure in our original equipment business. Performance Materials and Technologies sales grew 4% organically in the fourth quarter. Advanced Materials 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 lifecycle solutions and services and smart energy. UOP sales grew 1% organically as a result of robust seasonal demand and 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 continues 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 destocking, but over 30% orders growth in the quarter, provide some confidence that we are near the end of that cycle. Sensing and Safety Solutions remains relatively resilient despite short-cycled 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 Technologies sales were down 1% organically as growth in our long-cycle building solutions business was offset by modest decline in short-cycle building products. Building Solutions grew 6% in the quarter led by high-single-digit growth in Building Services, driven by strong execution and past-due backlog burn down. 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 mix 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, ACE's sales and profit hold 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 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 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, drive an 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 of 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-cycled businesses again outpace our short-cycled portfolio, particularly early in '24. Overall, the timing of the short-cycled 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-cycled 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 sources 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 ESS 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 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.
