This morning, we will review our financial results for the second quarter, share our guidance for the third quarter, and provide an update on full year 2025. Our organic sales and orders growth both accelerated during this quarter, as we are seeing the benefit of our consistent spending and execution on new product development across our businesses. Given the strong first-star performance, we are raising sales and earnings guidance for the full year while incorporating into our outlook all currently known tariffs and the uncertain business conditions going forward. As independent entities with clear alignment and purpose, increased organization agility, and customized capital allocation priorities, each will be better positioned to accelerate future growth opportunities.

Yet, we are not waiting for the separation to reshape our portfolio for future growth. We continue to selectively deploy capital towards acquisition, announcing two new deals in the past couple of months. We are also looking to recycle capital, as I discussed earlier, by pursuing alternatives for businesses that do not fit our future. The transaction is expected to close in the first half of 2026 and will enhance our growth and margin profile over time while providing a strong financial return.

In early July, we also announced the technology tuck-in acquisition of Li-ion Tamer that enhances our building automation capability in high-growth energy storage and data center end markets. While such smaller deals do not often get much investor attention, in aggregate, they can accelerate our strategic roadmap and boost growth with a lower risk profile. In the second quarter, we build upon a strong start to the year as we again exceeded our guidance for organic sales growth and adjusted earnings per share. At the same time, we remain committed not to compromise on our investment and growth initiatives, as we are beginning to see evidence of our progress.

What went well
  • Second quarter sales grew 5% organically with three of four segments above that level, and both organic sales and orders growth accelerated during the quarter.
  • Adjusted earnings per share was $2.75, up 10% year over year, with results meeting or exceeding all financial commitments.
  • Orders reached $10.5 billion, up 6% year over year excluding M&A, led by a double-digit increase in aerospace orders, while backlog grew 10% organically to a record $36.6 billion.
  • Building automation grew 8% organically with margin up 90 basis points, driven by volume leverage and a full quarter benefit from access solutions, surpassing expectations.
  • Defense and space and UOP led growth with double-digit performances, and capital deployment was well-balanced with $2.2 billion for the Sundyne acquisition and over $2.4 billion returned to shareholders.
  • On strong first-half performance, the company raised full-year sales and earnings guidance while incorporating all currently known tariffs.
What went wrong
  • Aerospace Technologies segment margin contracted 170 basis points to 25.5%, as output growth and productivity were more than offset by cost inflation and the impact of the CAES acquisition.
  • Large energy projects and catalyst spend were pushed out into 2026 due to macroeconomic and legislative uncertainty, pressuring the back-half outlook for ESS and process automation.
  • Energy and sustainability solutions margin contracted 110 basis points to 24.1%, hurt by a customer settlement and cost inflation.
  • Free cash flow was $1 billion, down roughly $100 million from the prior year, as tariff-related cost inflation raised inventory levels and capital project spending expanded.
  • Commercial OE shipments were hit by destocking at a North America OEM, and aerospace OE pricing lags cost because long-term contracts take longer to reprice for tariffs.

Guidance Changes

MetricPeriodCurrent guidance
Organic sales growthFY20254%-5% (3%-4% ex-Bombardier); low end raised 200 bps (raised)
Total salesFY2025$40.8B-$41.3B (raised)
Segment marginFY2025up 40-60 bps (down 30-10 bps ex-Bombardier) (reduced vs prior)
Adjusted EPSFY2025$10.45-$10.65, up 6%-8% (up 1%-3% ex-Bombardier) (raised)
Free cash flowFY2025$5.4B-$5.8B (maintained)
Organic sales growthQ3 20252%-4% ($10B-$10.3B)
Segment marginQ3 202522.7%-23.1% (down 90 to down 50 bps YoY)

Performance Breakdown

MetricYoYNote
Aerospace Technologies +6% organic Strong Defense and Space and Commercial Aftermarket; margin down 170 bps on cost inflation and CAES integration drag of about 100 bps plus higher R&D.
Industrial Automation Flat organic Above guidance range; margin up 20 bps to 19.2% on productivity actions and commercial excellence offsetting cost pressures.
Building Automation +8% organic Margin up 90 bps on volume leverage and a full-quarter benefit from access solutions.
Energy and Sustainability Solutions +6% organic Double-digit UOP growth; margin down 110 bps as volume leverage and LNG acquisition benefit were offset by a customer settlement and cost inflation.
Adjusted EPS +10% Organic and inorganic segment profit growth plus a lower tax rate more than offset higher interest expense and lower pension income.
Commercial Aftermarket (Aero) +7% Decelerated from 15% in Q1 as aftermarket normalized to a more typical go-forward rate with stable flight hours.

Earnings Call Themes & Trends

TopicPrevious mentionCurrent periodTrend
Separation into three independent companies—Solstice Advanced Materials spin narrowed to Q4 2025 (ticker SOLS); Aerospace spin planned for second half of 2026Rising
Tariff mitigation—Known tariffs factored in as written; offset via productivity, pricing, and alternative sourcing while protecting margins and demandSteady
Portfolio review and strategic alternatives—Comprehensive review complete; pursuing strategic alternatives for PSS and Warehouse & Workflow Solutions; no further major exits expectedSteady
R&D investment acceleration—R&D up 60 bps to 4.6% of sales across all four segments; about $200M incremental into Aerospace; expected to moderate next yearRising
Energy project timing—Sustainable fuels projects moving right on IRA/OB3 policy; LNG remains strong; some catalyst demand softeningDeclining
M&A activity—Announced GBP 1.8B Johnson Matthey Catalyst Technologies bolt-on and Li-ion Tamer tuck-in; pace to slow slightly but pipeline remains strongRising

Q&A Summary

On Aerospace, what is driving the commercial OE softness and is the roughly 25%-26% margin the new baseline for the next 12-18 months?
Management said aerospace orders are strong across defense, space and commercial OE; the Q2 OE weakness is transitory destocking at one OEM expected to normalize in the second half. The lower margin is not a new baseline, as CAES integration (about 100 bps drag), incremental R&D, and OE destocking are all transitory.
UOP showed very strong Q2 growth but is being talked down for the second half; what verticals drove the upside and downside?
Q2 benefited from a large licensing agreement and stronger catalyst sales pulled forward from the second half. The downside is energy project spend moving right on economic and regulatory (OB3) uncertainty, though OB3/IRA is mostly preserved and not a headwind into next year.
On aerospace tariff inflation, what additional inflationary pressure is there given tariffs seemed better than in April?
Short-cycle tariffs are easy to pass through quickly, but aerospace OE contracts often span 10 years and take longer to reprice, so the team needs more time to align price with cost while managing customer impact.
Why is Honeywell increasing R&D spend right ahead of a breakup, and is the message coming from the businesses?
Kapur said the acceleration began last year to drive organic growth by investing in the right domains, where hiring is a long-cycle effort, and is across all four segments. It is separate from the spin, pushes Honeywell toward upper-quartile R&D, and has high ROI in 2026.
Why does Warehouse & Workflow fit the strategic-review exit when it has strong aftermarket characteristics Honeywell wants?
The portfolio review is complete with no further major exits expected. The PSS and warehouse decision reflects end-market participation choices; logistics, warehouse and transport are good segments but show growth rates and lumpiness that fit less well in the future automation portfolio.
How does the order trajectory look and what is the M&A appetite before the spin?
Orders were up 6%, better than Q1, led by aerospace; building automation faced tougher comps and IA/ESS saw a softer June but stronger July. M&A activity will slow slightly given spin and integration work, but the pipeline remains strong, including carve-out/sponsor-style deals.

More on Honeywell International Inc

Reported 2025-07-24 · figures from the Honeywell International Inc Q2 2025 earnings call.

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