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This industrial giant makes much of the technology that makes other companies run. And CEO Vimal Kapur has focused its portfolio on automation, aviation, and the energy transition. The goal is to address not just the technology behind that transition but the cost, making it feasible for enterprise customers to turn a profit while doing the right thing. On one urgent front, Honeywell is creating greener ways to store energy, such as through low-carbon hydrogen and food waste. It’s a leader in tech that produces sustainable aviation fuel (SAF) from such waste. At least for now, as Kapur told Fortune, “you can’t run a plane on electricity.”

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Industries included in the sector are electrical equipment and industrial machinery.

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<span data-sheets-value="{&quot;1&quot;:2,&quot;2&quot;:&quot;Known for making everything from cockpit controls to N95 masks, Honeywell dipped two spots, to No. 94, on this year’s list. Revenues fell by 11.1% year over year, to $32.6 billion, as the pandemic grounded flights. Travel bans pummeled the company’s biggest business, aerospace, which includes selling commercial airplane parts to customers like Boeing and Airbus. Honeywell partially offset that turbulence by beefing up its warehouse automation unit, which supplies Amazon and others, and by spinning up new manufacturing lines for much in demand personal protective equipment. By the end of 2020, Honeywell had an enviable $15.2 billion in cash and equivalents on the balance sheet, which it could use for acquisitions. &quot;}" data-sheets-userformat="{&quot;2&quot;:12673,&quot;3&quot;:{&quot;1&quot;:0},&quot;10&quot;:2,&quot;11&quot;:4,&quot;15&quot;:&quot;Calibri&quot;,&quot;16&quot;:11}">Known for making everything from cockpit controls to N95 masks, Honeywell dipped 27 spots, to No. 374, on this year’s Global 500 list. Revenues fell by 11.1% year over year, to $32.6 billion, as the pandemic grounded flights. Travel bans pummeled the company’s biggest business, aerospace, which includes selling commercial airplane parts to customers like Boeing and Airbus. Honeywell partially offset that turbulence by beefing up its warehouse automation unit, which supplies Amazon and others, and by spinning up new manufacturing lines for much in demand personal protective equipment. By the end of 2020, Honeywell had an enviable $15.2 billion in cash and equivalents on the balance sheet, which it could use for acquisitions.

This year’s Fortune 500 marks the 67th running of the list.

F500-2021-94-Honeywell International

<span data-sheets-value="{&quot;1&quot;:2,&quot;2&quot;:&quot;Known for making everything from cockpit controls to N95 masks, Honeywell dipped two spots, to No. 94, on this year’s list. Revenues fell by 11.1% year over year, to $32.6 billion, as the pandemic grounded flights. Travel bans pummeled the company’s biggest business, aerospace, which includes selling commercial airplane parts to customers like Boeing and Airbus. Honeywell partially offset that turbulence by beefing up its warehouse automation unit, which supplies Amazon and others, and by spinning up new manufacturing lines for much in demand personal protective equipment. By the end of 2020, Honeywell had an enviable $15.2 billion in cash and equivalents on the balance sheet, which it could use for acquisitions. &quot;}" data-sheets-userformat="{&quot;2&quot;:12673,&quot;3&quot;:{&quot;1&quot;:0},&quot;10&quot;:2,&quot;11&quot;:4,&quot;15&quot;:&quot;Calibri&quot;,&quot;16&quot;:11}">Known for making everything from cockpit controls to N95 masks, Honeywell dipped two spots, to No. 94, on this year’s list. Revenues fell by 11.1% year over year, to $32.6 billion, as the pandemic grounded flights. Travel bans pummeled the company’s biggest business, aerospace, which includes selling commercial airplane parts to customers like Boeing and Airbus. Honeywell partially offset that turbulence by beefing up its warehouse automation unit, which supplies Amazon and others, and by spinning up new manufacturing lines for much in demand personal protective equipment. By the end of 2020, Honeywell had an enviable $15.2 billion in cash and equivalents on the balance sheet, which it could use for acquisitions.

For an astounding 13th straight year, Apple claims the top spot in Fortune’s annual ranking of corporate reputation, based on a survey of almost 3,800 executives, directors, and analysts.

This year's Fortune Global 500 generated $33.3 trillion in revenues and $2.1 trillion in profits.

G500-2020-347-Honeywell

Known for making everything from cockpit controls to quantum computers to N95 masks, Honeywell has gotten leaner lately. The industrial giant plunged 57 places on this year’s list as revenues fell by 12.2% year-over-year, to $36.7 billion. Honeywell planned the thinning: In October 2018, it jettisoned its historic home thermostat unit, now called Residio, and its automotive turbocharger business, Garret Motion. (Both spinoffs are now Fortune 1000 companies.) Thanks in part to the pruning, Honeywell has an enviable balance sheet, with about $10 billion in cash at the ready. Analysts say CEO Darius Adamczyk could well use the funds to bolster Honeywell’s burgeoning warehouse automation or “Internet of things” software businesses with “bolt-on” acquisitions. But the sharp pullback in air travel, an outcome of the globally spreading coronavirus, is expected to hammer the company’s biggest division, aerospace, in the fiscal quarters ahead.

This year's Fortune 500 marks the 66th running of the list.

F500-2020-092-Honeywell

Known for making everything from cockpit controls to quantum computers to N95 masks, Honeywell has gotten leaner lately. The industrial giant plunged 15 places, to No. 92, on this year’s list as revenues fell by 12.2% year-over-year, to $36.7 billion. Honeywell planned the thinning: In October 2018, it jettisoned its historic home thermostat unit, now called Residio, and its automotive turbocharger business, Garret Motion. (Both spinoffs are now Fortune 1000 companies.) Thanks in part to the pruning, Honeywell has an enviable balance sheet, with about $10 billion in cash at the ready. Analysts expect CEO Darius Adamczyk could use the funds to bolster Honeywell’s burgeoning warehouse automation or “Internet of things” software businesses with “bolt-on” acquisitions. But halted air travel, an outcome of the globally spreading coronavirus, is expected to hammer the company’s biggest division, aerospace, in the fiscal quarters ahead.

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Global business is back. After limping through a worldwide financial crisis and economic slowdown, the 500 largest companies ranked by revenues shattered all sorts of performance records in 2013: They racked up combined revenues of $31.1 trillion, up 2.5% from 2012, and profits soared 27% to nearly $2 trillion. China’s 95 companies (up from 89 last year) posted $5.8 trillion in revenues. The U.S. has four fewer companies on the list than last year but remains (for now) the country leader, with 128 corporations on the list—including No. 1 Wal-Mart Stores—reporting $8.6 trillion in revenues. 

Wal-Mart stayed on top as its sales crept closer to half-a-trillion dollars. Apple moved into the top five. And UnitedHealth Group continued its steady climb. 

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Honeywell, now operating under the name Honeywell Technologies, spun off Honeywell Aerospace as an independent company in June 2026. Honeywell International has completed its transformation from a century-old industrial conglomerate into three independent, publicly traded companies: Honeywell Technologies, Honeywell Aerospace, and Solstice Advanced Materials.

Q2 2026

Q1 2026

Q4 2025

Q3 2025

Q2 2025

Q1 2025

Q4 2024

Vimal Kapur

Chairman and CEO

Jim Currier

President and CEO of Honeywell Aerospace Technologies

Lucian Boldea

President and CEO of Honeywell Industrial Automation

Billal Hammoud

President and CEO of Honeywell Building Automation

Ken West

President and CEO of Honeywell Energy & Sustainability Solutions

Honeywell Technologies (HON): Company Profile, Stock Price, News, Rankings

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Honeywell Technologies

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Thank you for standing by, and welcome to the Honeywell Q1 2026 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. Please be advised that today's call is being recorded. I would now like to hand the call over to Mark Macaluso, Senior Vice President of Investor Relations. Please go ahead, sir.

Thank you. Good morning and welcome to Honeywell's Q1 2026 Earnings and Outlook Conference call. On the call with me today are Honeywell Chairman and Chief Executive Officer, Vimal Kapur, Honeywell Aerospace Technologies President and Chief Executive Officer, Jim Currier, and Senior Vice President and Chief Financial Officer, Mike Stepniak. This webcast and the presentation materials, including non-GAAP reconciliations, are available on our investor relations website. From time to time, we post new information on this website that may be of interest or material to our investors. Our discussion today includes forward-looking statements that are based on our best view of the world and of our businesses as we see them today, and are subject to certain risks and uncertainties, including those described in our recent SEC filings.

This morning, we will review our financial results for Q1 of 2026, provide guidance for Q2, and discuss our full year outlook. As always, we'll leave time for your questions at the end with Vimal, Mike, and Jim. With that, it's my pleasure to turn it over to Vimal, who will begin on slide three.

Thank you, Mark, and good morning, everyone. Honeywell delivered strong results in Q1, building on the momentum from 2025, despite a complex geopolitical backdrop and temporary mechanical supply chain constraints in Aerospace. Orders grew 7% organically on the strength of our Building and Industrial Automation segment, as well as in petrochemical and refining verticals in Process segment. Including the orders growth in Aerospace, we drove backlog to over $38 billion with book-to-bill above 1.1. Sales growth was robust across electronics solutions in Aerospace, fire and aftermarket services in Building Automation, and gas and LNG in Process Automation and Technology, bolstered by our innovation and new product engine. We expanded margins by 90 basis points to over 23%, driven by pricing discipline, productivity, and accelerated stranded cost removal ahead of the Aerospace spin.

All of this drove 11% adjusted earnings growth in the quarter, demonstrating the strength and agility of the Honeywell operating system. We also made tremendous progress on the portfolio transformation that began in 2023. We announced the sale of our Productivity Solutions and Services and Warehouse and Workflow Solutions businesses respectively, which we expect to close in H2 of 2026. We are also excited to announce that now we expect to complete the Honeywell Aerospace spin-off in Q3 on June 29, marking the final step in our transformation. All of the acquisitions, divestitures, spin-off, and simplification effort over the past three years have positioned both aerospace and automation for a bright future as independent leading industrial companies. Despite the strong start of the year, we are taking a prudent approach to our guidance, given the uncertainty surrounding the conflict in the Middle East.

We remain confident in our ability to drive accelerating growth in H2 as our backlog supports a pickup in growth in Process Automation and Technology. We will continue to closely monitor the situation and provide any further updates if the situation changes materially. Before we get into the details, I want to thank all our employees for their focus, commitment, and dedication throughout our multi-year transformation. The future is bright as we set both businesses in gear to thrive with the right strategic focus and capital allocation priorities that will drive value for our customer, employees, and shareholders. Let me turn to slide three to discuss the progress on our portfolio transformation. As I mentioned, we are progressing on the final separation milestone with the Aerospace spin-off now expected to complete on June 29, just over two months away.

The leadership teams for both Honeywell and Honeywell Aerospace are in place and already executing for our customers today. In March, we successfully raised $20 billion of aerospace spin financing while delivering strong investment grade credit rating of A3, A-, and BBB+ with a positive outlook from Moody's, Fitch, and S&P respectively. Proceeds from the financing will be used primarily to redeem Honeywell debt, the majority of which has been completed as of quarter end, and to fund the cash to the Aero balance sheet. Aerospace also announced a groundbreaking supplier framework agreement with the U.S. Department of Defense to rapidly increase the production of critical defense technology through a $500 million commitment. Honeywell was among the first tier one supplier to sign an agreement of its kind, and we are honored to support the U.S. and allied forces with these increased production capabilities.

This agreement demonstrate the criticality of Honeywell Aerospace to national security interests and supports a multi-billion-dollar revenue opportunity. Turning to automation, we amended an agreement to acquire Johnson Matthey Catalyst Technologies business, which adjusts the total consideration and extends the date to close the deal to the end of July. We continue to believe the combination of the business with our capability in process technology will unlock future growth by broadening our portfolio, growing our install base, and creating a more integrated offering for our customers. As I mentioned, we announced we signed agreement to sell Productivity Solutions and Services to Brady Corporation and Warehouse and Workflow business to American Industrial Partners in two all-cash transactions. These businesses are well-positioned to grow profitably under highly capable new leadership with deep industry experience. For Honeywell, the sale allow us to further simplify our portfolio alongside the planned separation from Aerospace.

Following these sales and spin, we will have a more cohesive portfolio focused on three principal end markets. Excited to share much more about our business with the investment community at our upcoming Investor Day for both Honeywell Aerospace and Automation business in June. Both companies have exciting future ahead. Before we get into the details, I want to discuss our outlook for Process Automation and Technology in light of the current Middle East conflict. Let's turn to slide four. In Q1, the Middle East conflict drove a roughly 0.5% impact to revenue for all of Honeywell, most notably in Process Automation and Technology, given the energy exposure and presence in the region. Clearly, the situation in the Middle East is evolving rapidly, and we hope for fast resolution to the conflict.

However, our guidance assumes the conflict persists through the end of the quarter, and the resulting logistics and shipment delays cost roughly 1% impact to revenue. We continue to effectively manage through this with the safety and well-being of our employees being the top priority. Despite the conflict, demand continues to be strong for differentiated process technology on a global scale. We have secured over $2 billion in project wins over the past three quarters, including for LNG, refining and petrochemicals, and sustainable aviation fuel across U.S., Brazil, Africa and Middle East. These will include both rebuilding of the impacted facility with the key customers, including QatarEnergy LNG, and new expansion projects helping further reinforce the growth outlook for PA&T, securing a long tail of high-margin services and software opportunities.

Notably, in November last year, Dangote Petroleum Refinery and Petrochemicals selected Honeywell to supply advanced technology, services, proprietary catalyst and equipment to help double production capacity at Africa's largest refinery in Nigeria. In addition, Dangote will license Honeywell's Oleflex technology, which converts propane to propylene, and Honeywell's petrochemical technology to produce linear alkyl benzene, or LAB, a key ingredient in detergents for household needs. With this agreement, the customer will nearly double its production of polypropylene, which supports the manufacturing of packaging materials, consumer goods and industrial products, and once at full production will operate one of the world's largest LAB plants. As a follow-up of this award, earlier in April, we announced that Dangote also selected Honeywell to provide connected services, advanced digital performance monitoring and operator training at the same refinery.

This will help customers like Dangote improve operational performance, increase asset reliability, and enhance their workforce, ultimately unlocking greater value for their facility. On LNG, we recently signed agreement to provide integrated liquefied natural gas pre-treatment and liquefaction solution for Commonwealth LNG plant export facility in Louisiana and NextDecade's Rio Grande LNG project in Texas through an agreement with Bechtel. We expect strength in our LNG vertical to continue given the additional projects we expect to be awarded in Q2. Longer term, we expect the favorable crack spreads in petrochemical and refining will generate incremental catalyst and services demand to maximize performance of our customer's plant, in addition to needed repairs and modification related to rebuild. Once the conflict stabilizes, we expect the industry will benefit from pent-up demand and more stable feedstock supply, enabling better plant utilization rates.

Despite the near-term disruption, process technology orders increased double-digit, driving a 22% increase in PA&T backlog. We remain on track on expected H2 ramp as LNG and large modular equipment deals convert to sales in the back half of the year, which will be followed by new catalyst demand in 2027. While we acknowledge the challenges the business faced over the last few quarters, we are encouraged by the resiliency of orders, growth and backlog, which will generate a strong runway as we progress through 2026 and into 2027. I look forward to sharing more with you during the June Investor Day. Let me now turn to slide five to talk more about Aerospace growth trajectory in 2026.

We continue to see strong aerospace demand across commercial OE, commercial aftermarket, and defense and space, which is driving sustained orders growth of 28% over the last 12 months, which drove a roughly $19 billion aerospace backlog, a 20% increase from the prior year and 1.1 book-to-bill in Q1. Against this backdrop, our mechanical supply chain over-delivered in the Q4 of 2025, enabling double-digit organic sales growth. However, certain critical suppliers experienced temporary constraints to start the year, which led to slowdown in January and February and lower output and sales growth. Output improved considerably in March, our highest revenue month for the quarter, making us confident that our supply chain efforts will produce better results moving forward.

Given the significant amount of demand we see in aerospace portfolio, Honeywell has invested more than $1 billion over the past three years into expanding the capacity and resiliency of our supply chain. Our 2026 guidance incorporates the continuation of this elevated level of spending focused on onboarding new suppliers, developing internal capabilities, and assisting our supply partner with engineering and operation. The strategy drove double-digit output growth for 14 straight quarters prior to Q1, and we are confident on getting back to this trajectory in near term. Given the progress exiting Q1, our history of recovering from supply chain constraints, and continued positive demand trends, we are maintaining our aerospace guidance of high single-digit organic sales growth for the year. As you can see on this page, the outlook is consistent with historical linearity in the business, as we typically experience a sequential ramp throughout the year.

To further support this ramp, electronic solution deliveries are meeting accelerating defense requirements, and we are investing in the new capacity necessary to ensure we can continue to do so. In Q1, electronic solution sales grew double digits. With that, I will now turn the call to Mike to go through Honeywell's Q1 results and 2026 outlook in more detail on slide six.

Thank you, Vimal, and good morning. In Q1, we successfully navigated the difficult geopolitical and macroeconomic environment while exceeding expectations for both segment margin and adjusted EPS. Sales grew 2% organically, led by growth in Building Automation and Aerospace Technologies. Pricing execution remained strong across the portfolio, fueled by new product introductions. On a segment basis, Building Automation surpassed our expectation once again in Q1, with sales up 8% organically across both solutions and products. Sales growth was led by strong demand for the new products and momentum across the high-growth data center healthcare verticals. On a regional basis, sales in the Middle East and India were both up double digits. Building Automation also delivered strong orders growth, up 9% with double-digit growth in projects, services, and fire products.

Aerospace sales grew 3% organically with commercial demand and increasing global defense needs supporting growth in commercial OE, commercial aftermarket, and defense and space. Underlying demand remains robust. As we discussed on the previous slide, Q1 results were adversely impacted by temporary supply chain headwinds in mechanical products. On profitability, aerospace segment margin expanded 20 basis points from the prior year to 26.5%, aided by pricing, productivity, and favorable mix. In industrial automation, sales were up 1% organically in the quarter. Solutions grew 7%, led by robust services demand in measurement and strong performance in warehouse and workflow solutions. Products declined slightly, primarily in Productivity Solutions and Services, but was partially offset by continued strength in sensing. Notably, industrial automation orders were up to 10%, highlighted by strength in China and recovery in Europe. Finally, Process Automation and Technology sales were down 6% organically in Q1.

This was driven principally by timing delays in refining catalyst reloads and automation service upgrades, including impacts related to the conflict in the Middle East. Project sales were flat as elevated demand in LNG was offset by delays in process automation. However, the orders momentum continued in process automation technology with double-digit growth in process technology in Q1, following very strong order growth in the Q4 of 2025. In total, Honeywell orders grew 7% organically, with broad-based demand resulting in book-to-bill above 1.1 and 15% increase in backlog. On profitability, segment profit increased 6%, while segment margin expanded 90 basis points to 23.3%, with margin expansion in all four segments.

This was principally led by industrial automation, which expanded 260 basis points, and process automation technology, which expanded 200 basis points from pricing and productivity actions, a strong result in process automation technology despite the top-line volatility. Adjusted earnings per share of $2.45 was up 11%, driven primarily by higher segment profit and lower share count. Foreign currency provided a modest benefit, and below the line items were favorable primarily due to higher pension income. You'll find additional information on Q1 adjusted EPS bridge in appendix of our presentation. Rounding out the results, we ended the quarter with nearly $100 million of free cash flow, down from $200 million last year. The benefit of higher operational income was offset by timing of collections in the Middle East and inventory headwinds in aerospace, given the mechanical supply chain dynamics.

Collections have improved meaningfully in April, and we remain confident in our full-year outlook. On capital deployment, we returned $1.8 billion to shareholders through roughly $1 billion of share repurchases and $800 million of dividends while funding over $220 million in CapEx to drive future growth. Let's now turn to slide seven to discuss our Q2 guidance. We anticipate Q2 organic sales growth of 2%-4%. Aerospace should improve sequentially from Q1, driven by ramping OE production rates and higher defense spend, supported by incremental improvements in the supply chain, while Process Automation Technology will be slightly weaker than Q1 due to incremental pressure stemming from the Middle East conflict. Both Building Automation and Industrial expect to be roughly in line with their full-year outlook for these businesses.

We expect segment margin to be in the range of 22.2%-22.5%, down 10 to up 20 basis points, led by pricing and productivity actions that we expect will largely offset rising inflation and unfavorable mix in Process Automation and Technology due to timing of high-margin catalyst shipments and the impact from the Middle East. We are also seeing an acceleration in the stranded cost takeout ahead of the Aerospace spin. On the segment level, we expect the strongest margin expansion in Building Automation, while Aerospace margin will be roughly flat. Adjusted EPS is expected to be $2.40 at the midpoint, reflecting a higher effective tax rate in the quarter, amounting to about $0.16 headwind. On a normalized tax basis, EPS in Q2 would be roughly $2.55 at the midpoint of our guidance, driven by higher segment profit and higher expected pension income.

Slide eight provides a look at Q2 dynamics I just described. We expect growth from roughly $0.06 of higher segment profit, while lower below-the-line expenses will drive a similar benefit of $0.04-$0.07 due to higher pension income, partially offset by increased repositioning costs. The main item to note is the $0.16 headwind from a higher tax rate of approximately 21% versus 16% in Q2 of 2025. Nevertheless, we still expect our full-year tax rate to be approximately 19%. The impact from the share count reduction and foreign exchange translation will be roughly $0.01 each. Additional below-the-line details are available in the appendix of the presentation. With that as the backdrop for Q2, let's turn to slide nine to discuss our full-year outlook.

We're maintaining our organic growth outlook of 3%-6% despite the temporary headwinds we encountered in Q1. We expect strength to continue in building automation, while industrial automation will continue to recover in Europe and China. Process automation technology should be roughly flat for the year as order visibility and robust backlog levels deliver a strong H2. Finally, in aerospace, as I mentioned earlier, our full-year guide of high single-digit growth remains intact, driven by improvement in our supply chain observed in March. We expect to continue to deliver strong operational execution driven by pricing discipline, productivity actions, and earlier than expected stranded cost take up. In Q1, this allowed us to deliver strong margin performance while navigating near-term volatility related to material cost inflation, mechanical supply chain headwinds in aerospace, and impact from the Middle East conflict.

While we outperformed our expectations in Q1, the ongoing geopolitical situation warrants prudence, and we are therefore maintaining our full-year segment margin guidance of 22.7%-23.1%. Our guidance continues to include the results of PSS and WWS until the transaction close. It also assumes a continued ramp in Quantinuum investments, and while we expect to consolidate the results of Quantinuum in Q2, we are not adjusting our segment margin or adjusted EPS guidance at this time to reflect this. There is also no change to our free cash flow guidance for the year. Let me now turn the call back over to Vimal to wrap up before Q&A.

Thanks, Mike. We are pleased with our Q1 results with segment margin and adjusted earnings per share exceeding expectations. Looking ahead, we are successfully navigating an uncertain geopolitical backdrop with the strength of our resilient business model approach and rigor of our Honeywell Accelerator operating system. We are tracking ahead of schedule on our separation milestone with the aerospace spin-off now expected to be completed on June 29. I'm very excited to be on the precipice of this formation of two leading pure-play public companies and witness the long runway of value creation both businesses will deliver. We look forward to hosting investors at our upcoming Honeywell Aerospace Investor Day on June 2nd and 3rd in Phoenix, and our Honeywell Investor Day on June 11th in New York City. These events will provide an excellent opportunity to share our strategy and long-term growth expectation.

With that, Mark, let's take the questions.

Vimal, Mike, and Jim are now available to answer your questions. We kindly ask that you please be mindful of others in the queue by asking one question and one related follow-up. Operator, please open the line for Q&A.

Thank you. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question comes from the line of Nigel Coe with Wolfe Research. Please proceed with your question.

Oh, thanks. Good morning, everyone. Momentous day. This is the last quarter of Honeywell as is. Just wanted to maybe try and get a bit more information on the supply chain challenges, especially in such a low volume quarter. Just, it's obviously a very popular inbound question we're getting from investors. Any more details on that and kind of measures in place to try and solve this problem.

Yes. Good morning, Nigel. This is Jim Currier. Just to give you a little bit of color commentary around the supply chain challenges. Typical historical patterns are such that we normally have a slower start at the first of the year, particularly as we exited a very strong Q4 at 13% output growth for aerospace. What I would tell you is that the start of the quarter, however, was more acute in terms of the decline versus what we had anticipated. We recognized this issue at the end of January and early February. It was a very acute transitory issue, specifically with some key suppliers in the mechanical space that adversely affected both our engines business and our control systems business. When I say acute, we can actually identify down to specific outlines within the portfolio that were impacted.

The point being, however, is that we started to see the recovery as we deployed the resources accordingly, and we started to see that recovery in the March timeframe. We're seeing that momentum carry itself over into April, which gives us the confidence in terms of our forecast that we have of mid- to high single-digit growth for Q2.

Okay, that's great. Thanks, Jim. Just on the Q2 margins, you're forecasting quite a step down Q-over-Q. You talked about some of the productivity and obviously getting ahead on the stranded cost. Just wondering, any more details on how to think about margins by quarter, why they'd be coming down Q-over-Q. I think you called out Aerospace flat. I just want to make sure that is the case.

Yes. Good morning, Nigel. This is Mike. Our margin expansion framework for the year remains the same. We talk about 20-60 for the year, 50-90 basis points expansion operationally. We have 30 basis points drag from Quantinuum. What's happening sequentially versus Q1, operationally, nothing's changing. We're doing extremely well on stranded cost takeout that's ahead of plan. Pricing will be above 3% again, so feel good about what we're doing on pricing. The teams are progressing well. What's happening in Q2 sequentially, we have a, I would say, a mix pressure from catalyst sales or lack of catalyst sales in Q2. It also gives us a little bit of pressure year-over-year, because you remember, last year, Q2 was our strongest quarter on catalyst sales in the year.

On total year, I don't see any pressure to what we guided. In fact, I feel more confident that we'll deliver that 20-60 basis points. We just have to get to Q2. In aerospace, we talked about roughly being for the year at 26%, and that's kind of where it's going to be for the year.

Nigel, I'll also add that the loss of revenue we're having in Middle East is also high margin revenue. That just has associated margin pressure because of services and software, which is impacted the most due to disruptions there. That becomes additional driver because it's kind of high dyssynergies associated with that.

Thank you. Our next question comes from the line of Julian Mitchell with Barclays. Please proceed with your question.

Hi. Good morning. Just wanted to start off maybe with the PAT organic sales ramp through the year. Help us understand kind of how we should be thinking about that? It sounds like you're still thinking sort of flattish for the year as a whole on organic sales, which is consistent with your prior guidance, but obviously a much tougher H1. Maybe sort of flesh out for us some of the main moving pieces and how that organic sales growth trends from here in the year?

Well, essentially, I think the only change since we provided the guide has been the Middle East situation, and we lost revenue, as we indicated, about 0.5% of Honeywell's total revenue in Q1 and about 1% in Q2. What we feel very strongly about is our backlog in the business continues to grow. Not only we had a strong booking in Q3, Q4 of H2 of last year, but also printed a very strong orders number in Q1 of this year, and trends remain very, very robust for Q2, which gives us a very high confidence of H2 ramp of the revenue of high singles for PAT segment. Therefore, it's just going to be H1 is, as you've seen, the actual results of Q1 and then forecast for Q2. They get offset by strong performance in the H2.

Net-net, the overall year being flattish, we remain very confident on that. The backlog supports it, the historic linearity supports it. There's not much out of the way assumptions we have made in this forecast.

Julian, there is also just continues to be more pent-up demand for the H2. We're seeing a lot of requests from customers in the Middle East, so I'm confident this demand is coming. Like Vimal said, from a backlog standpoint, we still have a lot of conversion happening sequentially that's going to happen in the H2. Quite excited about that opportunity.

Thanks very much. Just secondly, back to aerospace. I just wondered if you could give us some update on what you're seeing kind of real-time in the commercial aero aftermarket side of things, and whether you've moderated your outlook at all for the H2 or Q2 on things like flight hours or departures, that type of thing. That would be helpful. On the supply chain issue, just lastly on that, is there any help you can give us on kind of specific product types that were most affected by the supply chain issue?

Yeah. Specifically, Julian, to the product type, I'm not going to provide specificity around the actual outlines themselves, other than say that it was very acute, and we could attribute it to a couple of outlines specifically within the engines and power systems business. As it pertains to the commercial aftermarket and any implications on a full year basis, right now, we just saw no impact in Q1 as a result of the conflicts, and we see negligible potential impact in Q2 that's going to be overcomeable. I think the point that I would highlight, however, is that the demand is exceptionally strong, and our growth is constrained by supply and not demand across the board. Any impacts that we see in terms of flight hours in the commercial segment tend to have a trailing impact in the aerospace business.

As flight hours go down, we start to see as it works its way through the ecosystem, it's anywhere between a three to six-month delay before we would see something within the aerospace business.

Our next question comes from the line of Sheila Kahyaoglu with Jefferies. Please proceed with your question.

Thank you, guys, and good morning. Maybe just to follow up on the last question on the commercial aftermarket. Jim, any way you could delve into that a little bit more, talking about your Middle East commercial aftermarket exposure? How do we think about it on engine mix within business aviation, APUs on commercial power by the hour, on that three to six-month lag comment, where would you see the most volatility? As a follow-up on aerospace margins, as we look at Q1 solid start 26.5%, how much of an impact was the supply chain? Do we see any puts and takes from asset sales or mix, in that Q1 figure? Thanks.

Yeah. Good morning, Sheila. A couple things I'll talk to you on the commercial side of the aftermarket, particularly out of the Middle East. Again, as I mentioned, our growth is limited by supply, and not about the demand. Now, having said that, we are watching very closely fuel prices, the increase in fuel prices, and how much longer they will persist across the board. We're not seeing any related demand impacts. In power by the hour programs for us, there's a smaller revenue stream within the overall aftermarket portfolio as compared to time and material and repair and overhaul portions of our business overall. The one point I wanted to highlight, and you mentioned it, about business aviation, we've actually seen very strong, resilient growth in business aviation flight activity, even in light of the higher fuel prices.

It actually grew much better than what we saw in the commercial air transport. As you know, that is a substantial part of our portfolio in terms of business aviation within the aftermarket and part of the overall revenue of Honeywell Aerospace. The one thing I would also add is just on defense. As we see the conflicts that are occurring, the two key words to remember are going to be around replenishment and sustainment. Replenishment around the aspects of missiles and munitions, furthering increasing the magazine capacity that exists not only for the U.S., but for our allies abroad. Then with the usage of aircraft in theater and how we are positioned, we're continuing to see very strong demand in terms of sustainment and support of those operations.

Great. Can I just add the margin question? Can you talk about the solid Q1 margins? How much of an impact was supply chain? Was it negative? Any positive one-time items in there?

As you know, our mechanical business, actually, our mix was much more favorable, electrical versus mechanical, and that produced a tailwind force in Q1, even despite of our lower volume leverage in the quarter. Now, as our output will increase throughout Q2 and be more of a mix around mechanical due to the recovery that we anticipate will occur, you'll start to see that fluctuate, and you'll start to see it being a little bit more normalized. The focus area I would apply is full year. You do see fluctuations quarter to quarter, very mix dependent, but on a full year, we expect modest expansion for Honeywell Aerospace.

Thank you. Our next question comes from the line of Deane Dray with RBC Capital Markets. Please proceed with your question.

Hey, I just want to say at the outset here, I don't recall any other time in Honeywell's history where you've had more portfolio moves at one time that you've been orchestrating, as well as navigating all the geopolitical issues. The fact that you can reaffirm guidance here is impressive. I did want to understand, I know it's early, and I appreciate that you're assuming the conflict lasts through Q2. Can you size for us what the Middle East rebuild opportunity is at this point? Just give us some dimensions and qualitative, what areas you'd be active in.

Yeah. First of all, Deane, thanks for your comments on portfolio transformation. I would say that, with the announcement of the firm date of the Aero spin on 29th of June, and completion of transaction for both businesses which were held for sale, puts us in a position now. Honeywell will be a pure-play automation company, well-positioned for its future. I really feel good about what we have accomplished over the last two years. To your question on Middle East, I would say that I see that coming up in three different phases. The first phase is obvious that the services required to get the plants up and running. That work has not yet started. The situation has normalized to a point that we are being requested for that, so there are a few facilities which got hit during this conflict, so there's no real activity in those sites.

Now, after that phase is over, it probably will take. Typical plant startups can take eight to 12 weeks. We really expect the refurbishment of some of the facilities which have been impacted. The one where Honeywell equipment is there, specifically, in process technology, we have some known issues. We are already working with a customer, and that can show us an incremental demand in H2 of the year, as the things become more normalized.

As the oil price remain elevated to now $100 or above, the forecast generally suggests that the supply side disruptions won't end so soon because the normalization is going to take likely much longer, which then bodes well for the overall spreads for the product for our customers, which should support the more demand for services and catalysts in the times ahead. All in, I would say the best way to put it forward is that near-term headwinds are already reflected in our numbers. Long term, the trend suggests that it's going to be a favorable outcome for Honeywell and more broader for the process industry.

That's really helpful. Just as a follow-up on that last point on the impact of $100 oil to UOP in particular, there were push outs of catalyst reloads, but you also said that the spreads remain favorable. Just what's the impact on UOP near term and then as we see some normalization?

Yeah. As you saw, I just mentioned in our earlier conversation that we remain very convicted on the fact that we'll have PA&T Process Automation and Technology H2 at high single digits. That's driven by the two facts. One is our backlog is very strong due to the three successive quarters of order booking. Q2 is also looking very robust at this point. We do expect the catalyst demand favored by the favorable spreads. All things being equal, we remain very confident of the H2 performance for Process Automation and Technology business due to combination of backlog and catalyst demand coming ahead.

Dean, I would just add that the margins will improve as well in the H2 for the business, given better mix, more volume leverage, and strong pricing.

Thank you. Our next question comes from the line of Nicole DeBlase with Deutsche Bank. Please proceed with your question.

I'm sorry to beat a dead horse on this aerospace issue, but I just have one more follow-up on this. When we look across the three sub-segments of commercial aftermarket, commercial OE, and defense and space, which were impacted by the issue in Q1, and how should we think about the path to improvement within those three pieces into Q2?

Hi, Nicole, this is Jim. It actually impacted all three end market segments. When I talk about specific outlines within our engines and power systems business, it was both commercial, and again, very acute. It impacted both commercial, and it also impacted defense engine outlines. Then some of that, obviously being that the supply base is the same for commercial and defense, and that same supply base is supporting aftermarket and R&O repairs as well. Those same outlines then were affected from an R&O standpoint in terms of being able to deliver into the aftermarket, both from a defense standpoint as well as on a commercial. Again, it was highly acute and highly specific in the engines and power systems business. Again, the mechanicals also affected us slightly as well on our control systems business.

Got it. Okay. The improvement into Q2 should be kind of broad-based across those three pieces.

Okay, understood. Thanks. Just on the order trends, curious what you guys saw in the 7% organic growth, if you were to kind of parse that out across your shorter cycle and longer cycle businesses, and any interesting trends throughout the quarter. Thank you.

Yeah. The overall orders reported are 7% growth. Orders growth was led by Industrial Automation, up 10%, which is combination of both long and short cycle. Building Automation also had a strong quarter, 9% orders growth. Process Automation Technology was up 3%, and Aerospace was up 6%. I would say across the board, it's broad-based strength in the orders. On the short cycle, Nicole, I would say that specifically for automation side, Building Automation performance remains exceptionally well. As you have seen that this is fifth or sixth successive quarter, we are printing high single digit growth. Not only the demand remains robust, we continue to perform well through our new product introduction and perform better than market. Industrial Automation also, the demand is shaping up well. Initially, at the start of the year, we had expressed concern on demand of short cycle in China and Europe.

That certainly is recovering, which is very positive for us. We also see short-cycle demand in U.S. I think that's where Industrial Automation business have some pockets where we have to do more recovery, but we are trending in a very right direction. As you have observed the Industrial Automation results, I do expect that business to start performing more like low single-digit growth once we take out the two businesses which were held for sale out of our revenue forecast. I'm just saying, the RemainCo business. It's trending very nicely toward low single-digit growth for the H2 of the year. Short cycle, I would say overall strength is favorable.

On the process market, I would say it's being clouded by the war and the disruptions, and it's just hard to separate the reality of the demand versus the disruption caused by the oil prices, supply shortages, ability to do shipment. It's hard to kind of separate the facts versus reality and provide an absolute comment there.

Understood. Thanks, Vimal. I'll pass it on. Oh, yeah.

Yeah. I would just add that we're expecting short cycle to accelerate in Q2. It will be mid to high single digit growth. We feel good about short cycle right now.

Thank you. Our next question comes from the line of Andrew Obin with Bank of America. Please proceed with your question.

 There's just a question on building automation. Clearly has been one of the best businesses for you for a while. At the same time, some of your competitors, I think, seem to be sort of waking up a little bit. How do you view competitive environment in this market in areas like fire, and how sustainable is your lead? And look clearly at AHR. I mean, your software presentation was fantastic. So I understand why you feel confident, but maybe just expand. What we're seeing on building automation, how is competitive environment developing, as I said, given that some of your competitors are waking up. Thank you.

Yeah, thank you, Andrew. I would say that, look, we remain in our guide more conservative because we always guide building automation at mid-single digit plus, and we are performing high single. As I had mentioned during our Q1 earnings calls earlier in the year, that we don't want to always assume we will keep taking share. We have been constantly doing that, which is good news for Honeywell. I would say that competition-wise, our business model is sell product through channels. We actually compete with large multinationals on a very limited basis because projects business in building automation is just about 15% of the overall segment. What the headlines say about some of the peers which are publicly reported companies, our overlap with them from portfolio perspective is not very large. Our competition is mid-size companies, which vary by each region.

We have set of companies we compete in fire and BMS and security in U.S. We have different set of people we compete in Europe, different set of people we compete in China, and that's the benefit in this business that we are benefiting from fragmentation of the market. We are growing on the strength of our new products, and our common supply chain. We believe that our organic growth engine, new product and innovation engine, including Forge, is working extremely well. The quarters are shaping quite well ahead. The near term demand remains strong. We do expect that the trend, what you have observed over the last four to five quarters, should remain intact in the times ahead.

Thank you. With the divestiture of the warehouse automation and handheld devices, I mean, clearly the sensors business is becoming much more core and front and center. Could you just sort of parse out what you're seeing there, and what are the trends in key verticals there? Thank you.

Yeah, Andrew. Clearly now industrial automation is positioned as a sensing and measurement business. I'm really pleased on finally we found a very clear strategy in the business. I would say that, our position there in three broad end markets, sensing, in aerospace, medical devices, industrial equipment, that's position one. Position two is our metering business in utilities, and position three is gas detection on all environments, be it oil and gas, be it semiconductor, and more broader industrial. The end markets are strong in each one of these areas I mentioned. Our job is to benefit from these fragmented industrial automation market in sensing and measurement and build a better position as we did in building automation over the last three to five years. That's a task ahead of us. Our strategy is working. Our performance is improving every quarter progressively.

As I mentioned that I do expect that H2 to get slightly better, and we remain very optimistic on the performance for 2027.

Thank you. Our next question comes from the line of Andy Kaplowitz with Citigroup. Please proceed with your question.

Good. Vimal, can you give a little more color into the improvement you saw, particularly in IA margin in Q1? The margin improvement was impressive. I know you've talked about a bigger focus on productivity and lean ahead of separation in that segment and in PA&T, but a bigger fixed cost takeout in IA. Maybe you can update us on what you've been doing and/or how much improved pricing versus cost is helping as well.

Sure. This is Mike. I'll start and have Vimal add some color to it. I think IA is going to be a margin expansion driver for us for the next year or so. With the separation of the POW businesses, we saw a lot of opportunities structurally just to simplify the business from a cost standpoint. The team got after that cost quite early. You'll continue to see the benefits as we go through the year. Also, pricing for us has improved. I think the team's done a really outstanding job in terms of understanding the inflation, working with the customers to manage it and improving pricing. That's second piece. Finally, I would say NPI. The team's been on NPI for the last 18 months, and we're starting to see those NPIs hitting the market and that's helping us recover share where we lost share.

All around, really good story on industrial automation and will continue to be a source of strength for us this year and next year.

Honeywell Technologies (HON) Q1 2026 Earnings Call Transcript

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