Honeywell (HON) Q1 FY26 earnings call: guidance and Q&A

Seeking more details on the supply chain issues in Q1, especially in a low-volume quarter, and measures to solve them.

Jim Currier explained that the Q1 slowdown was more acute than anticipated, specifically due to temporary constraints with key mechanical suppliers affecting Engines and Control Systems. He noted that recovery began in March and is carrying into April, giving confidence in the Q2 forecast.

“The start of the quarter, however, was more acute in terms of the decline versus what we had anticipated. And we recognize that this issue at the end of January and early February, and 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.”

asked by Nigel Coe · answered by James Currier

Inquiring about the sequential step down in Q2 margins, the drivers, and confirming Aerospace margin expectations.

Mike Stepniak stated that the full-year margin expansion framework remains unchanged. The Q2 sequential decline is due to mix pressure from catalyst sales and the high-margin revenue loss from Middle East disruptions. Aerospace margins are expected to be roughly flat year-over-year in Q2 but modestly up for the full year.

“What's happening in the second quarter sequentially, we have, I would say, a mix pressure from catalyst sales or lack of catalyst cells in the second quarter. And it also gives us a little bit of pressure year-over-year. But as you remember, last year, second quarter was our strongest quarter on catalyst sales in the year.”

asked by Nigel Coe · answered by Mike Stepniak

Seeking clarification on how PA&T organic sales will ramp through the year to achieve the flattish full-year guidance, given a tough first half.

Vimal Kapur explained that the Middle East conflict caused Q1 and Q2 revenue impacts. However, strong and consistent order bookings over the past three quarters, combined with robust Q2 trends, provide high confidence for a high-single-digit revenue ramp in PA&T during the second half, supported by backlog and historical linearity.

“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 second half 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 second half ramp of the revenue of high-single or PA&T segment.”

asked by Julian Mitchell · answered by Vimal Kapur

Asking for more detail on commercial aftermarket exposure to the Middle East, engine mix, business aviation, and the 3-6 month lag for flight hours impact. Also, how Q1 Aerospace margins were impacted by supply chain and any one-time items.

Jim Currier reiterated that Aerospace growth is supply-constrained, not demand-constrained. He noted strong resilient growth in business aviation flight activity despite higher fuel prices. For defense, conflicts drive demand for replenishment and sustainment. On margins, a favorable mix towards Electrical vs. Mechanical provided a tailwind in Q1 despite lower volume leverage.

“our growth is constrained by supply and not demand across the board, and 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 3- to 6-month delay before we would see something within the Aerospace business.”

asked by Sheila Kahyaoglu · answered by James Currier

Asking for the potential size and areas of activity for Honeywell in the Middle East rebuild opportunity following the conflict.

Vimal Kapur outlined three phases: immediate services to restart plants (not yet started), refurbishment of impacted facilities (incremental demand in H2 for Honeywell equipment), and long-term demand for services and catalysts due to elevated oil prices and favorable product spreads. He emphasized that near-term headwinds are reflected, but long-term trends suggest a favorable outcome.

“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... After that phase is over, it probably will take -- typical plant start-ups can take 8 to 12 weeks then we really expect the refurbishment of some of the facilities, which have been impacted.”

asked by Deane Dray · answered by Vimal Kapur

Inquiring about the competitive landscape in Building Automation, especially with competitors 'waking up,' and the sustainability of Honeywell's leadership.

Vimal Kapur stated that Honeywell primarily competes with mid-sized regional companies, not large multinationals, due to its channel-based product sales model. He highlighted the benefit of market fragmentation, strong new product introductions, and a common supply chain as drivers of sustained high-single-digit growth, expecting the trend to continue.

“Our competition is midsized companies, which vary by each region. We have set up 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.”

asked by Andrew Obin · answered by Vimal Kapur

Asking about Honeywell's strategy and potential opportunity in the data center market.

Vimal Kapur noted Honeywell's improving share in data centers, particularly with Tier 2 providers globally. He highlighted active work on liquid cooling solutions for the Sensing business and power generation capabilities for behind-the-meter data centers, leveraging Honeywell's traditional control and automation expertise.

“we are actively working on liquid cooling for our Sensors business because if liquid cooling trend is true, it requires more sophisticated controls compared to the traditional HVAC air-based control. And that's where Honeywell technology is going to be very, very relevant.”

asked by Joseph Ritchie · answered by Vimal Kapur