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    HON
    Earnings call· Mar 2025(Q1 FY25)

    HONEYWELL INTERNATIONAL INC HON

    Apr 29, 2025 Source

    Executive summary

    Honeywell Q1 FY25 — Strong Start, EPS Guidance Raised Despite Macro Headwinds

    Honeywell delivered a strong Q1 FY25, exceeding guidance across all metrics, driven by robust performance in Aerospace and Building Automation. Despite increasing macroeconomic uncertainty and tariff impacts, the company raised its full-year adjusted EPS guidance, leveraging its local-for-local strategy and operational systems to mitigate headwinds. Significant progress is underway for the planned separation into three public companies, alongside strategic capital deployment through share repurchases and bolt-on acquisitions.

    Highlights

    5

    • Exceeded the high end of guidance on all metrics in Q1 FY25.

    • Organic sales grew 4% in Q1 FY25, led by Aerospace Technologies (up 9%) and Building Automation (up 8%).

    • Adjusted EPS grew 7% year-over-year to $2.51 per share in Q1 FY25.

    • Orders were up 3% year-over-year to $10.6 billion, driving record organic backlog of $36.1 billion.

    • Repurchased $3 billion of shares year-to-date, including $1 billion in April, putting the company on track to reduce net share count by 2% for the year.

    Concerns

    4

    • Macroeconomic uncertainty and increasing tariffs are impacting global trade patterns, with an approximate $500 million exposure in 2025 before mitigation.

    • Industrial Automation sales declined 2% organically in Q1 FY25, driven by lower demand in Personal Protective Equipment, particularly in China and Europe.

    • Aerospace Technologies segment margin contracted 190 basis points to 26.3% in Q1 FY25 due to mix pressure and acquisition integration costs.

    • Energy and Sustainability Solutions sales declined 2% organically in Q1 FY25.

    Guidance & targets

    28
    CategoryTargetConfidence
    Full-year 2025 Organic Sales Growth
    2% to 5%
    high materiality
    High
    Full-year 2025 Organic Sales Growth (ex-Bombardier)
    1% to 4%
    high materiality
    High
    Full-year 2025 Sales
    $39.6 billion to $40.5 billion
    high materiality
    High
    Full-year 2025 Segment Margin (ex-Bombardier)
    down 10 basis points to up 20 basis points
    high materiality
    High
    Full-year 2025 Adjusted EPS
    $10.20 to $10.50
    high materiality
    High
    Full-year 2025 Adjusted EPS (ex-Bombardier)
    down 1% to up 2%
    high materiality
    High
    Full-year 2025 Free Cash Flow
    $5.4 billion to $5.8 billion
    high materiality
    High
    Q2 FY25 Organic Sales Growth
    1% to 4%
    medium materiality
    High
    Q2 FY25 Sales
    $9.8 billion to $10.1 billion
    medium materiality
    High
    Q2 FY25 Segment Margin
    22.8% to 23.2%
    medium materiality
    High
    Q2 FY25 EPS
    $2.60 to $2.70
    high materiality
    High
    Aerospace Technologies FY25 Organic Sales Growth
    high single-digit range
    medium materiality
    High
    Aerospace Technologies FY25 Organic Sales Growth (ex-Bombardier)
    mid-single digit to high single digit
    medium materiality
    High
    Aerospace Technologies Q2 FY25 Organic Sales Growth
    mid-single digit to high single-digit range
    medium materiality
    High
    Aerospace Technologies FY25/Q2 FY25 Margins
    roughly 26%
    medium materiality
    High
    Industrial Automation FY25 Sales Outlook
    down mid-single digits year-over-year
    medium materiality
    High
    Industrial Automation Q2 FY25 Sales
    down mid-single digits year-over-year
    medium materiality
    High
    Industrial Automation FY25 Margins
    up modestly versus the prior year
    medium materiality
    High
    Building Automation FY25 Sales Outlook
    mid-single-digit growth
    medium materiality
    High
    Building Automation Q2 FY25 Sales
    up low mid-single digits
    medium materiality
    High
    Energy and Sustainability Solutions FY25 Organic Sales Growth
    low single-digit range
    medium materiality
    High
    Energy and Sustainability Solutions Q2 FY25 Organic Sales Growth
    flat to up year-over-year
    medium materiality
    High
    Energy and Sustainability Solutions FY25 Margins
    remain flat
    medium materiality
    High
    Full-year Tax Rate
    unchanged
    low materiality
    High
    Full-year Average Share Count
    reduced by 12 million shares
    medium materiality
    High
    Full-year 2025 Pension Income
    $550 million
    low materiality
    High
    Full-year 2025 Repositioning Expenses
    $125 million to $225 million
    low materiality
    High
    Full-year 2025 Other Below-the-Line Expenses
    $1.35 billion to $1.4 billion
    low materiality
    High

    Segment performance

    4
    SegmentRevenueYoYQoQMargin
    Aerospace Technologies
    Exceeded prior expectations. Better output from supply chain improvements and robust demand from air transport customers. Segment margin contracted 190 basis points due to mix pressure and acquisition integration costs from CAES, partially offset by productivity actions.
    Commercial Aftermarket sales growth: 15%Defense and Space double-digit growthOrders growth: 9%Book-to-bill: 1.1
    		up 9%9% organically—26.3%
    Industrial Automation
    Sales declined due to lower demand in Personal Protective Equipment, particularly in China and Europe. Warehouse and Workflow Solutions returned to growth. Sensing demonstrated recovery. Segment margin contracted 130 basis points due to receivables write-downs and volume deleverage, partially offset by productivity actions.
    Warehouse and Workflow Solutions growth: 5%Sensing double-digit growthProcess Solutions sales: flatProductivity Solutions and Services sales decline: 1% (excluding license and settlement payments)
    		declined 2%-2% organically—17.8%
    Building Automation
    Delivered another solid quarter, outpacing expectations. Growth driven by robust backlog and new product innovation. Orders marked a fourth consecutive quarter of year-over-year growth. Margin expanded due to volume leverage, accretion from Access Solutions, and productivity actions.
    Building Solutions double-digit growthBuilding Products mid-single-digit growthSolutions backlog up 11%Middle East Solutions growth: over 30%North America Solutions growth: mid-teensFire double-digit organic growthSecurity sustained strength
    		up 8%8% organically—expanded 150 basis points
    Energy and Sustainability Solutions
    Strong quarter in petrochemical and refining projects helped EOP. Advanced Materials sales declined due to challenging prior-year comps in flooring products, offsetting strength in specialty chemicals. Orders were a bright spot for Advanced Materials. Segment margin expanded due to productivity actions and the year-over-year benefit from the LNG acquisition, partially offset by cost inflation.
    EOP organic sales growth: 2%Advanced Materials sales declined: 4%Spectra growth: over 20%Advanced Materials Orders: up 7%
    		declined 2%-2% organically—expanded 230 basis points

    Operational metrics

    13
    Research and Development Spend
    4.5%up 50 basis points from previous year
    Q1 FY25

    Balancing current period profitability with organic growth initiatives.

    Orders
    $10.6 billionup 3% year-over-year
    Q1 FY25

    Supported by organic backlog growth to a new record.

    Share Repurchases
    $3 billion
    YTD 2025

    Repurchased at prices considered highly compelling, exceeding the 1% annual commitment.

    Dividends Paid
    more than $700 million
    Q1 FY25

    Part of capital return to shareholders.

    Capital Projects
    approximately $250 million
    Q1 FY25

    Investment in the business both organically and inorganically.

    Tariff Exposure
    $500 million
    2025

    Approximate exposure based on tariffs in place today, before taking any mitigation measures. Largest exposure in Industrial Automation and Aerospace.

    Price Assumption
    about 3%
    FY25

    Updated assumption for the full year, reflecting conservatism.

    Volume Assumption
    minus 2% to 1%
    FY25

    Updated assumption for the full year, reflecting conservatism.

    Organic Segment Profit Growth Contribution to EPS
    $0.13down from prior guide
    FY25

    First quarter surpassed outlook, but offset by more prudent posture towards guidance for the remainder of the year.

    2024 Acquisitions Contribution to EPS
    $0.33
    FY25

    Expectations for these businesses have shown stability at levels ahead of initial plans. Sundyne acquisition not yet included.

    PPE Business Sale Drag on EPS
    $0.07
    FY25

    Modeled an early May close for the PPE business divestiture.

    FX Headwind to EPS
    $0.05reduced
    FY25

    Modestly reduced due to foreign exchange movements since February.

    Segment Profit to Income Before Tax Headwind to EPS
    $0.52
    FY25

    Largest headwind to year-over-year earnings growth.

    Industry KPIs

    5
    MetricValueDetails
    Backlog book to bill1.1ratio
    Organic orders growth3%%
    Aftermarket demand indicators15%%
    Segment organic growth margin9%%
    Spin stranded cost portfolio moves$1.5 billion to $2 billionUSD

    Orderbook & backlog

    3
    Total Organic Backlog$36.1 billionQ1 FY25

    up 8%

    Aerospace Backlogover $2 billionQ1 FY25

    Positive backlog, with OE about $1 billion.

    Building Automation Solutions Backlogup 11%Q1 FY25

    up 11%

    Deals & partnerships

    3
    SundyneStrategic bolt-on acquisition that improves business profile by boosting both organic growth and segment margins, addressing a closely adjusted market to existing ESS offering, particularly in LNG.

    Fifth strategic bolt-on acquisition since Vimal Kapur became CEO. Not yet included in guidance for the year.

    CAESAcquisition integration.

    Integration work largely behind the company, reinforcing effective M&A process.

    Personal Protective Equipment (PPE) businessOpportunistic exit of a business that does not fit into the business model or strategic priorities.

    The sale will improve margins and organic growth.

    Risks & headwinds

    6
    Macroeconomic uncertainty and weaker sentimentcoming quarters

    Assuming an impact to organic sales for the remainder of the year approaching 1%, to segment profit of about 2%, and to EPS of about $0.18 (compared to February guidance).

    Mitigation: Pragmatic approach to guidance, playbook of rapid implementation of sourcing, pricing and productivity changes, local-for-local approach.

    Increasing tariffs and duties2025

    Approximate 2025 exposure is about $500 million before taking any mitigation measures. China is about 60% to 70% of overall tariff exposure.

    Mitigation: Local-for-local strategy, Accelerator operating system to quickly identify areas of concern and implement mitigation efforts, pricing, direct material productivity options.

    Geopolitical tensionsongoing

    Elevated global tensions.

    Mitigation: Local-for-local strategy, well-developed operational systems.

    Industrial Automation demand weaknessremainder of the year

    Lower demand in Personal Protective Equipment, particularly in China and Europe. Trajectory of short-cycle orders and customer CapEx decisions has become increasingly uncertain.

    Mitigation: PPE exit, commercial excellence and productivity actions.

    Aerospace Technologies margin contractionQ1 FY25

    Contracted 190 basis points to 26.3% in Q1 FY25.

    Mitigation: Productivity actions (partially offset).

    ESS cost inflationQ1 FY25

    Partially offset by cost inflation in ESS margin expansion.

    Mitigation: Productivity actions.

    What to watch in Q2 FY25

    5

    Tariff Impact Mitigation

    Second half
    CurrentApproximate 2025 exposure is about $500 million before mitigation.
    TargetFully offset by pricing and productivity actions.

    Why it matters

    Successful mitigation is critical for achieving the updated full-year EPS guidance despite macro headwinds🌐.

    Based on tariffs in place today, our approximate 2025 exposure is about $500 million before taking any mitigation measures. Our better tested Accelerator operating system can quickly identify areas of concern and implement mitigation efforts. Then we pursue consistent and clear communication with our suppliers, customers and partners to maximize operational stability for all parties. Through these well-developed operational systems and our established local-for-local footprint, we are confident we can fully offset the impact of current tariffs and are well positioned to manage future trade uncertainty.

    Q&A highlights

    7

    Clarify the $500 million tariff impact, its annualization, and the offset strategies (pricing vs. supply chain).

    The $500 million tariff exposure for 2025 is before mitigation. The company's local-for-local strategy is foundational. Mitigation will involve a combination of pricing where opportunities exist and substantial direct material productivity options. Confidence in offsetting the impact is high due to aftermarket resilience and rational market competition.

    “Our confidence to execute mitigating this $500 million tariff is very high.”

    asked by Nigel Coe · answered by Vimal Kapur

    2 min read5 chapters

    Detailed Narrative

    01

    Q1 Performance Exceeds Expectations

    Honeywell delivered a strong Q1 FY25, surpassing the high end of guidance for organic sales, segment margin, and adjusted EPS. This performance was driven by robust demand and effective operational execution, translating into substantial free cash flow growth. The company's record organic backlog of $36.1 billion, up 8% year-over-year, provides a strong foundation for future periods, particularly in long-cycle businesses.

    02

    Strategic Portfolio Transformation Underway

    The company is actively preparing for the separation into three independent public companies (Automation, Aerospace, Advanced Materials), with a tax-free spin of Honeywell Aerospace identified as the most efficient method. Key leadership appointments, including Su Ping Lu as SVP and General Counsel and Stephen Williamson as an Independent Director, have been made. A dedicated separation management office has been established to ensure a smooth transition, minimize costs, and maintain operational focus during this process.

    03

    Navigating Macroeconomic Uncertainty and Tariffs

    Honeywell acknowledges increasing global trade uncertainty and tariffs, with an estimated $500 million exposure in 2025 before mitigation. The company is leveraging its 'local-for-local' strategy and Accelerator operating system to offset these impacts through a combination of pricing and direct material productivity. Despite these headwinds, the company maintained its full-year organic growth guidance and raised its adjusted EPS outlook, demonstrating confidence in its mitigation strategies.

    04

    Disciplined Capital Deployment and M&A Strategy

    Honeywell continues its disciplined capital allocation, repurchasing $3 billion of shares year-to-date, including $1 billion in April, and targeting a 2% reduction in net share count for the year. The company also announced the acquisition of Sundyne, a strategic bolt-on that aligns with its criteria for boosting organic growth and segment margins, particularly in LNG. The divestiture of the Personal Protective Equipment (PPE) business is also underway, expected to improve overall margins and organic growth.

    05

    Segment-Specific Performance Highlights

    Aerospace Technologies saw strong organic sales growth of 9%, driven by a 15% increase in Commercial Aftermarket and double-digit growth in Defense and Space, despite margin contraction due to mix and integration costs. Building Automation delivered 8% organic growth, benefiting from robust backlog and high-growth verticals like data centers and hospitality. Industrial Automation faced declines in PPE and Europe, while Energy and Sustainability Solutions saw mixed results, with strength in petrochemical projects offset by a decline in Advanced Materials.

    AI-generated summary of the company’s earnings call. Not investment advice.