Greg Lewis
Senior Vice President and Chief Financial Officer at Honeywell International
Thank you, Vimal, and good morning, everyone. Let me begin on slide five. As a reminder, starting in the second quarter, we began excluding the impact of amortization expense for acquisition-related intangible assets and certain acquisition-related costs, including the related tax effects from segment profit and adjusted earnings per share.
We believe this change provides investors with a more meaningful measure of our performance period to period, aligns the measure to how we evaluate performance internally and makes it easier to compare our performance peers. In addition, our second quarter Building Automation results incorporate approximately one month of impact from the acquisition of Access Solutions.
With that, let's discuss our results. We delivered another strong quarter in a dynamic macro environment, meeting the high end of our organic sales range, landing above the midpoint of our segment margin guidance and exceeding the high end of our adjusted earnings per share guidance. Second quarter organic sales were up 4% year-over-year, supported by 16% organic growth in Aerospace Technologies driven by another quarter of double-digit growth in both commercial aerospace and defense space in addition to double-digit growth in our building solutions business.
Honeywell grew volumes by 1% for the second time in the past 10 quarters, and we expect further volume acceleration in the second half. Segment profit grew 4% year-over-year. And segment margin contracted by 10 basis points to 23% as expansion in Energy and Sustainability Solutions was offset by mix pressures in our other three businesses. Earnings per share for the second quarter was $2.36, up 6% year-over-year and adjusted earnings per share was $2.49, up 8% year-over-year driven primarily by segment profit growth. A bridge for adjusted EPS from 2Q 2023 to 2Q 2024 can be found in the appendix of this presentation.
Orders grew 4% year-over-year with a book-to-bill of one led by growth in BA, ESS and IA, including pockets of short-cycle strength with advanced materials and building products growing both year-over-year quarter-over-quarter. Orders growth supported a 5% year-over-year increase in backlog to maintain our record level of $32 billion.
Free cash flow was approximately $1.1 billion, roughly flat year-over-year versus the second quarter of 2023 as higher net income and improved working capital from reduced inventory levels were offset by the timing of higher cash taxes. We continue to expect working capital becoming a more meaningful tailwind in the coming quarters as we unwind the multiyear buildup of inventory.
This quarter, we were able to effectively reduce our days of supply each month in all businesses by utilizing our Accelerator digitalization capabilities, improving demand planning and optimizing production materials management, which gives me confidence that we are starting to systematically bend the curve.
As Vimal discussed earlier, we made significant progress on our capital deployment strategy this quarter, allocating $6.4 billion to M&A, dividends, share repurchases and capital expenditures, including closing our $5 billion acquisition of Access Solutions. When combined with the anticipated closing of CAES and Air Products' LNG businesses later this year, we are on track to deploy a record $14 billion of capital in 2024.
Now, let's spend a few minutes on the second quarter performance by business. In Aerospace Technologies, sales for the second quarter were up 16% organically with double-digit growth in both Defense and Space and commercial aerospace. This marks the 13th consecutive quarter of double-digit growth in Commercial Aviation, enabled by sustained growth in global flight activity and increased ship set deliveries.
Defense and Space growth accelerated in the second quarter as we continue to see robust global demand coupled with supply chain improvements enabling an incremental volume unlock. Aerospace supply chain improvements remain on track as output increased by 14% in the second quarter, the eighth consecutive quarter of double-digit output growth. Segment margin in Aerospace Technologies contracted 60 basis points year-over-year to 27.2% driven by expected mix pressure within our original equipment business, partially offset by commercial excellence, net of inflation.
For Industrial Automation, sales fell 8% organically in the quarter, primarily due to lower volumes in warehouse and workflow solutions, but overall sales improved 1% sequentially. Process Solutions revenue grew 1% in the quarter as another quarter of double-digit growth in our aftermarket services business was partially offset by headwinds in thermal solutions and smart energy.
Our Sensing and Safety Technologies business declined modestly year-over-year but saw sequential growth in both orders and sales, a positive indicator going forward. In productivity solutions and services, sales improved year-over-year when excluding the impact of the $45 million quarterly license and settlement payments that ended in the first quarter.
Orders in PSS grew double digits for the third consecutive quarter. And overall IA orders grew high single digits, led by growth of over 20% in warehouse and workflow solutions, driving an overall book-to-bill of 1.1. Industrial Automation segment margin contracted 90 basis points to 19% due to lower volume leverage and the end of payments under the license and settlement agreement in productivity solutions and services. Excluding the impact of that agreement, margins expanded in the second quarter.
Moving to Building Automation. Sales were up 1% organically as another quarter of excellent performance and our long-cycle building solutions business led the way while we continue to work through lower volumes in our building products portfolio. Solutions grew 14% in the quarter with 20% growth in projects as a result of strength in data centers, health care and energy. Sales grew double digits sequentially, including one month of benefit from the acquisition of our Access Solutions business, highlighted by strong execution in solutions and further progress in fire and building management systems within building products.
Double-digit orders growth was a highlight for Building Automation in the quarter, growing both sequentially and year-over-year in both solutions and products, resulting in an overall book-to-bill ratio of 1.1. Segment margin contracted 60 basis points to 25.3% due to mix headwinds and cost inflation, partially offset by productivity actions and commercial excellence. In Energy and Sustainability Solutions, sales grew 3% organically in the second quarter. Advanced materials increased 8% year-over-year due to continued strength in flooring products.
UOP sales declined 4% as previously noted difficult year-over-year comps in gas processing equipment projects more than offset solid growth in refining catalysts and aftermarket services. Orders were a highlight in ESS as book-to-bill was 1.2 in the second quarter, the third consecutive quarter of a book-to-bill above 1.0 primarily on greater than 20% growth in advanced materials and more than 60% growth in sustainable technology solutions.
Segment margins expanded 200 basis points on a year-over-year basis to 25.2% primarily driven by productivity actions. We continue to execute on our proven value creation framework underpinned by our Accelerator operating system. This, combined with ongoing benefits from our long cycle end markets and the strength of our backlog, give us confidence in ability to navigate the current environment.
Now, let's turn to slide six and talk about our third quarter full year outlook. Our commercial and operational discipline have enabled us to deliver on our organic growth commitments. With continued long-cycle strength and modest sequential growth within certain of our short-cycle businesses, particularly in advanced materials, building products and sensing and safety technologies.
While we are encouraged by our performance year-to-date and our robust backlog, the back half will remain influenced by the dynamic macroeconomic backdrop and varying levels of channel improvement across our portfolio. Given these dynamics and our recent acquisition announcements, we are increasing our 2024 top line expectations. We forecast sales to be in the range of $39.1 billion to $39.7 billion, which includes overall organic sales growth of 5% to 6% for the year, up from 4% to 6% previously, increasing the midpoint from our prior guidance.
The sales forecast also includes the acquisition of CAES and Air Products' LNG businesses, which we expect to close in the third quarter. Collectively, acquisitions are expected to add approximately $800 million to Honeywell sales in 2024. Sequential growth in the third and fourth quarters across most of the portfolio will be driven by continued progress in the aerospace supply chain, seasonal uplift from UOP in addition to other long-cycle businesses and areas of modest short-cycle improvement, which will vary depending on the end market exposures. For the third quarter, we anticipate sales in the range of $9.8 billion to $10 billion, up 4% to 6% organically with the benefit of roughly $300 million in acquisition-related revenue.
Moving to segment margin. As growth in our long-cycle businesses outpaces the short-cycle recovery, supporting the raise to our top line range, we expect to see a bit less favorable mix within some of our SBGs in the short term. However, from a long-term perspective, executing on robust demand for projects and original equipment sets our businesses up for a long tail of high-margin aftermarket revenue streams by expanding our vast installed base.
When incorporating the impact of recently announced acquisitions, we now anticipate our overall segment margin to be in the range of 23.3% to 23.5%, flat to down 20 basis points year-over-year. Overall segment profit dollars will still grow significantly in 2024 between 6% and 9% as margins will continue to be supported by price cost discipline and productivity actions, including our focus on reducing raw material costs.
From a segment perspective, Energy and Sustainability Solutions and Building Automation will lead the group in margin expansion, followed by modest contraction for Industrial Automation as well as aerospace as a result of the CAES acquisition. For the third quarter, we anticipate overall segment margin in the range of 23.0% to 23.3%, down 30 to 60 basis points year-over-year and in line with the first two quarters of this year due to quarterly variability in aero mix, the anticipated close of CAES and normal seasonality within Energy and Sustainability Solutions.
Now let's spend a few minutes on our outlook by business. Looking ahead for Aerospace Technologies, we expect momentum from the first half to carry over into the second half as robust orders and increases in factory output will support growth.
In commercial original equipment, we anticipate the second quarter to be our low point of the year for growth as the related supply chain challenges abate. We see strong sequential and year-over-year growth through the third and fourth quarters, particularly in air transport as build rate strength drives volume progression.
In commercial aftermarket, we anticipate continued sales momentum, though growth rates will come down slightly in the back half as comps get more difficult. For Defense and Space, the global geopolitical backdrop, coupled with our robust order book and increased investments in our supply chain, will provide support for sequential growth in the third and fourth quarters. As a result of these dynamics in a strong first half, we now forecast Defense and Space growth to be double digits for the year. We still expect aerospace to lead Honeywell in 2024 with organic sales growth in the low double-digit range.
For segment margin, the dynamics remain comparable to 2022 and 2023 as higher sales from lower-margin products are partially offset by volume leverage. However, we now expect 2024 aero margins to decline modestly year-over-year due to the impact of the CAES acquisition. We anticipate the third quarter will be the low point in the year, reflecting the closing of CAES and less favorable quarterly mix. In Industrial Automation, we're benefiting from solid orders momentum in most of our long-cycle businesses, while our short-cycle businesses are showing varying signs of sequential progress.
In the third quarter, we expect modest sequential improvement in IA and a return to year-over-year growth in the back half. Second half sales growth will be led by Process Solutions, which will see further strength in our aftermarket services businesses and improvement in the smart energy and thermal solutions businesses that weighed on first half results.
In productivity solutions and services, sales will grow sequentially from here. Orders have grown double digits for three straight quarters in PSS, giving us confidence in our outlook for the second half and into 2025. Sensing and safety technologies will improve sequentially as we benefit from the fading effects of distributor destocking. Warehouse and workflow solutions will grow sequentially as we move through the trough in warehouse automation spending and should end the year around $1 billion in sales.
As a result of these dynamics, we expect flattish organic sales growth in 2024. Margins will expand in the second half as we implement productivity actions and benefit from volume leverage through long-cycle seasonality and further short-cycle progress.
Moving on to Building Automation. In the third quarter, we expect building solutions to outpace building product sales. In products, we anticipate sales to improve modestly sequentially in the third and the fourth quarters, supported by 2Q's favorable order trends. However, the magnitude remains dependent on the ongoing normalization of channel inventories.
In solutions, both projects and services orders grew over 20% in the second quarter, providing support for additional revenue growth in the back half and into 2025. Projects has been a standout, and we forecast double-digit growth for the year. As a reminder, the Access Solutions acquisition has now been incorporated into our guidance within building products. For the year, we continue to expect organic sales growth of low single digits.
For segment margin, while we still anticipate expansion year-over-year, incremental shift in mix toward higher sales in our building solutions business will slow the pace of that expansion near term.
Finally, in Energy and Sustainability Solutions, encouraging fundamentals in our end markets will drive a favorable growth outlook in the third quarter and the full year. In quarter, we expect sales to be roughly flat year-over-year and down slightly sequentially with typical seasonality in flooring products as we exit the summer months, offsetting improvement in electronic materials and UOP.
Notably, the second quarter marks the last of significant year-over-year unfavorable comps from large gas processing equipment projects in UOP. For the full year, sustained strength in catalysts in conjunction with an incremental back half recovery in electronic materials will support growth for ESS.
Our confidence in our sustainable technology solutions business remains unchanged as a strong demand profile will drive robust growth for the year. Additionally, we expect closing of our acquisition of Air Products' LNG business to take place in the third quarter and have included this impact in our guidance.
For the year, our organic growth outlook for ESS is low single digit. Margins should improve half-over-half, particularly in the fourth quarter, as a result of typical catalyst reload seasonality, leading to full year margin expansion for ESS.
Moving on to other key guidance metrics. Pension income will remain roughly flat to 2023 at approximately $550 million. As a result of the acquisitions and corresponding increase in interest expense, we now anticipate net below-the-line impact to be between negative $700 million and negative $800 million for the full year and between negative $185 million and negative $235 million in the third quarter. This guidance includes repositioning spend between $150 million and $225 million for the full year and between $30 million and $70 million in the third quarter as we invest further in high-return projects to support future growth and productivity.
Adjusted effective tax rate will be around 21% for both the full year and the third quarter. We anticipate average share count to be approximately 655 million shares for both the full year and the third quarter as we have already achieved more than 1% share count reduction for the year, but we maintain balance sheet flexibility to deploy additional capital to achieve the highest shareholder returns.
As a result of these inputs, we now anticipate full year adjusted earnings per share to be between $10.05 and $10.25, up 6% to 8% year-over-year. We expect third quarter earnings per share between $2.45 and $2.55, up 3% to 7% year-over-year.
We expect free cash flow to benefit from progress on the multiyear unwind of working capital as we continue to extract more value from our digitization efforts through Accelerator.
In addition, we'll continue to fund high-capex projects -- high-return capex projects focused on creating uniquely innovative, differentiated technologies. As a result, our free cash flow expectations are now in the $5.5 billion to $5.9 billion range, up 4% to 11%, excluding the impact of prior year settlements and commensurate with the revision to net income growth.
So in summary, we delivered a strong first half of the year and anticipate continued top line acceleration in the second half as we benefit from strength in our long-cycle businesses. Our rigorous operating principles will enable us to execute through short-term mix pressure. And we remain confident in our long-term algorithm with a strong second half 2024 exit rate on revenue intact, giving us nice momentum into 2025.
So with that, let me turn it back to Vimal on Slide seven.
