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    HON
    Earnings call· Sep 2025(Q3 FY25)

    HONEYWELL INTERNATIONAL INC HON

    Oct 23, 2025 Source

    Executive summary

    Honeywell Q3 FY25 — Strong Performance Drives Raised Full-Year Guidance Amid Portfolio Transformation

    Honeywell delivered strong Q3 FY25 results, exceeding organic growth and adjusted EPS guidance, driven by broad-based order momentum and a record backlog. The company is actively transforming its portfolio, successfully spinning off Solstice Advanced Materials ahead of schedule and announcing a new Automation segment structure for 2026, ahead of the planned Aerospace separation. Despite some Q4 margin headwinds in ESS and Industrial Automation, management anticipates margin expansion across all segments in 2026, supported by pricing and productivity.

    Highlights

    5

    • Organic sales accelerated to 6% year-over-year, finishing ahead of expectations.

    • Adjusted earnings per share was $2.82, up 9% year-over-year, exceeding the high end of guidance.

    • Orders grew 22% organically to $11.9 billion, with an overall book-to-bill above 1x.

    • Backlog reached another record high, positioning the company for future growth.

    • The spin-off of Solstice Advanced Materials was completed ahead of the original schedule.

    Concerns

    4

    • Free cash flow was $1.5 billion, down 16% from the prior year due to capital expenditures timing and modestly higher working capital.

    • Energy and Sustainability Solutions (ESS) segment margin is anticipated to contract meaningfully in Q4, leading to a roughly 1 point reduction for the full year, driven by lower high-margin catalyst and licensing sales.

    • Industrial Automation is expected to see full-year margin contraction due to an increasingly unfavorable mix.

    • Aerospace Technologies segment margin decreased 160 basis points year-over-year to 26.1% due to cost inflation and acquisition-related headwinds.

    Guidance & targets

    32
    CategoryTargetConfidence
    Full-year 2025 Organic Sales Growth
    approximately 6%
    high materiality
    High
    Full-year 2025 Sales
    $40.7 billion to $40.9 billion
    high materiality
    High
    Q4 2025 Organic Sales Growth
    8% to 10%
    medium materiality
    High
    Q4 2025 Sales
    $10.1 billion to $10.3 billion
    medium materiality
    High
    Full-year 2025 Company Segment Margin
    up 30 to 40 basis points
    high materiality
    High
    Q4 2025 Segment Margin
    22.5% to 22.8%
    medium materiality
    High
    Full-year 2025 Adjusted EPS
    $10.60 to $10.70
    high materiality
    High
    Q4 2025 EPS
    $2.52 to $2.62
    medium materiality
    High
    Full-year 2025 Free Cash Flow
    $5.2 billion and $5.6 billion
    high materiality
    High
    Aerospace Technologies Full-year Sales Growth
    low double-digit range
    medium materiality
    High
    Aerospace Technologies Q4 Organic Sales
    up double digits
    medium materiality
    High
    Aerospace Technologies Full-year Margins
    approximately 26%
    medium materiality
    High
    Aerospace Technologies 2026 Margins
    increase from 2025 levels
    high materiality
    High
    Industrial Automation Full-year Sales Growth
    down only low single digits
    medium materiality
    High
    Industrial Automation Q4 Sales
    down low single digits
    medium materiality
    High
    Industrial Automation 2026 Margins
    expand
    medium materiality
    High
    Building Automation Full-year Organic Sales Growth
    mid-single-digit to high single-digit range
    medium materiality
    High
    Building Automation Q4 Sales
    up mid-single digits
    medium materiality
    High
    Building Automation Full-year and Q4 Margins
    expand meaningfully
    medium materiality
    High
    Energy and Sustainability Solutions Full-year Sales Growth
    flat to up slightly
    medium materiality
    High
    Energy and Sustainability Solutions Q4 Sales
    down low single digits
    medium materiality
    High
    Energy and Sustainability Solutions 2026 Margins
    return to margin expansion
    medium materiality
    High
    Solstice Separation Impact on 2025 Sales
    reduce by $700 million
    high materiality
    High
    Solstice Separation Impact on 2025 Adjusted EPS
    reduce by approximately $0.21
    high materiality
    High
    Solstice Separation Impact on 2025 Free Cash Flow
    reduce by $200 million
    high materiality
    High
    Aerospace Separation
    second half of 2026
    high materiality
    High
    Automation Segment Realignment
    effective beginning of first quarter of 2026
    high materiality
    High
    Aerospace Leadership and HQ Announcement
    later this year
    medium materiality
    High
    Quantinuum Stake Monetization
    begin monetizing its stake
    high materiality
    Medium
    Industrial Automation Full-year Margin
    contraction
    medium materiality
    High
    ESS Full-year Segment Margin
    roughly 1 point reduction
    medium materiality
    High
    Strategic Review of Productivity Solutions and Services and Warehouse Automation
    much more definitive path forward
    high materiality
    Medium

    Segment performance

    4
    SegmentRevenueYoYQoQMargin
    Aerospace Technologies
    Segment margin decreased 160 basis points year-over-year, but improved 60 basis points sequentially on strong quarter-over-quarter volume and improved supply chain performance. Volume leverage and commercial excellence were offset by cost inflation and acquisition-related headwinds.
    Orders growth: strong double-digitBook-to-bill: 1.2xCommercial Aftermarket: strengthDefense and Space: strengthCommercial OE: returned to growth
    		—12% organic—26.1%
    Industrial Automation
    Sales returned to growth, exceeding guidance. Segment margin declined 150 basis points from prior year, as commercial excellence and productivity benefits were offset by inflationary pressures.
    Sensing business: continued strength
    		—1% organic—18.8%
    Building Automation
    Delivered high single-digit growth. Margin expanded year-over-year due to strong volume performance.
    Building solutions: strengthBuilding products: strengthNorth America: led growthMiddle East: led growthEurope: grew organically for fourth consecutive quarter
    		—7% organic—expanded 80 bps
    Energy and Sustainability Solutions
    Performed in line with expectations. Segment margin was flat versus prior year, with one-time government reimbursement and margin-accretive acquisition offsetting cost and volume headwinds.
    Refrigerants (Advanced Materials): strong performanceUOP: licensing and catalyst delivery delays
    		—-2% organic—24.5%

    Operational metrics

    20
    Orders Growth
    22%YoY organically
    Q3 FY25

    Orders grew organically from the previous year to $11.9 billion, with broad-based increase across all 4 segments.

    Adjusted EPS
    $2.82up 9% YoY
    Q3 FY25

    Exceeded guidance, driven by strong segment profit growth and lower effective tax rate, offsetting higher interest expense.

    Capital Returned to Shareholders
    $800 million
    Q3 FY25

    Part of disciplined capital allocation approach.

    Capital Projects Committed
    $400 million
    Q3 FY25

    Committed to high-return capital projects.

    Effective Tax Rate
    19%compared to 20% previously
    FY25

    Expected for the full year, adding $0.13 to adjusted EPS.

    Segment Profit Growth Contribution to Adjusted EPS
    $0.63$0.10 better than previous view
    FY25

    Includes both organic and acquisition contributions, flowing through better-than-anticipated Q3 operating results.

    Below-the-Line Headwinds Contribution to Adjusted EPS
    $0.39 reduction
    FY25

    Anticipated reduced year-over-year headwinds, with repositioning at the low end of prior range.

    Share Repurchases, Acquisitions, Dividends and Capital Projects
    $9 billion
    First 3 quarters FY25

    Total capital deployed.

    Aerospace Margins
    25%bottomed out
    Q2 FY25

    Management stated Q2 2025 was the low point for Aerospace margins, with sequential improvements expected.

    Aerospace Commercial OE Sales Growth
    returned to growth
    Q3 FY25

    As expected, sales recoupled to the delivery rates of large customers.

    Aerospace Commercial Aftermarket Sales Growth
    healthy rate
    FY25

    Air transport growth outpacing business aviation. Expected to moderate from Q3 levels towards longer-term trend in Q4.

    Aerospace Defense and Space Growth
    robust
    FY25

    Expected to continue as supply chain improves and national defense budgets ramp.

    Industrial Automation Sensing Business
    continued strength
    Q3 FY25

    Led Industrial Automation sales growth.

    Building Automation Products Organic Growth
    fifth consecutive quarter
    Q4 FY25

    Expected to be broad-based across fire, BMS, and Security.

    Building Automation Solutions Growth
    solid year-over-year growth
    Q4 FY25

    Expected in both projects and services.

    UOP Orders Growth
    9%
    Q3 FY25

    Signal of growing underlying demand from customers.

    M&A Deal Performance
    performing very well
    since 2023

    Majority of deals are becoming organic for growth and continue to be accretive.

    Pricing Strategy
    good enabler for 2026 margin expansion
    FY26

    Fundamentally aimed at preserving margins while maintaining volumes. Lag effects from 2025 not expected in 2026.

    Aerospace Past Due Backlog
    >$2 billion
    Q3 FY25

    Remains high even with increased output, indicating significant work ahead.

    Regional Growth
    growth across all parts of the world
    Q3 FY25

    Diversity of portfolio and end markets helping performance.

    Industry KPIs

    6
    MetricValueDetails
    Backlog book to bill>1xratio
    Organic orders growth22%%
    Named project wins pipeline—
    Aftermarket demand indicators—
    Segment organic growth margin—
    Spin stranded cost portfolio moves$700 millionUSD

    Orderbook & backlog

    7
    Total Orders$11.9 billionQ3 FY25

    up 22% organically YoY

    Broad-based increase across all 4 segments.

    Book-to-bill ratio>1xQ3 FY25

    Overall company-wide book-to-bill.

    Total Backlogrecord highQ3 FY25

    up

    Positions the company well for future growth.

    Aerospace Ordersstrong double-digit growthQ3 FY25

    Across all three end markets.

    Aerospace Book-to-bill ratio1.2xQ3 FY25
    UOP Orders9% increaseQ3 FY25

    Signal of growing underlying demand from customers, with good visibility into projects order strength continuing.

    Aerospace Past Due Backlog>$2 billionQ3 FY25

    Continues to be significant even with high output rates.

    Product announcements

    1
    ProductTypeDetails
    Gulfstream G300 business jetlaunch

    Deals & partnerships

    5
    Solstice Advanced MaterialsSpin-off of the Advanced Materials business into an independent public company.

    Honeywell shareholders will receive new shares of Solstice on October 30. Completed ahead of original schedule.

    BendixAgreement to divest all Bendix asbestos liability.

    Entered into an agreement to divest all Bendix asbestos liability on attractive terms for all parties.

    ResideoTermination of an indemnification and reimbursement agreement.$1.6 billion

    Terminated an indemnification and reimbursement agreement in exchange for $1.6 billion in cash.

    QuantinuumSecond capital raise at double the prior valuation, attracting new shareholders.

    New shareholders include Quanta, NVIDIA, JPMorgan, Amgen, and Mitsui. Honeywell plans to monetize its stake at an appropriate time.

    LS ELECTRICPartnership to work on joint solutions between electrical systems and control systems.

    Aims to address customer needs for integrated electrical and control systems, particularly in data centers.

    Risks & headwinds

    8
    Geopolitical tensions and macro uncertaintyOngoing

    Not quantified

    Mitigation: Maintaining a pragmatic approach and high level of agility.

    Cost inflation2025

    Not quantified

    Mitigation: Taking meaningful steps to address cost structure, expecting margin expansion in 2026.

    Tariff pressures2025

    Temporarily outpacing pricing

    Mitigation: Pricing expected to align with tariff costs in 2026, becoming a tailwind for Aerospace margins.

    CAES acquisition integration headwinds2025

    Not quantified

    Mitigation: Expected to subside in 2026, becoming a tailwind for Aerospace margins.

    Reduced expectations for project licensing, catalyst shipments, and certain short-cycle Industrial Automation productsQ4 FY25

    Impacts Q4 margins

    Mitigation: Offsetting most headwinds by leveraging strong volume growth and productivity actions; catalyst demand expected to improve in 2026.

    Difficult macro backdrop for energyNear-term

    Not quantified

    Mitigation: Long-term outlook remains strong, with increasing UOP orders signaling underlying demand.

    Lag effect in pricing2025

    Not quantified

    Mitigation: Not expected to face this event in 2026, with pricing becoming a strong enabler for margin expansion.

    Oil price and overcapacity impact on catalyst demand2025, expected to settle in 2026

    Not quantified

    Mitigation: Expects things to settle as the year progresses in 2026, leading to recovery in short-cycle demand.

    What to watch in Q4 FY25

    5

    Industrial Automation Strategic Review

    Q1 FY26
    CurrentWork in progress
    TargetDefinitive path forward

    Why it matters

    The outcome of the strategic review for Productivity Solutions and Services and Warehouse Automation will define the future scope and growth strategy for the Industrial Automation segment.

    I would say that in the Q1 in 2026 first quarter earnings call, we should be able to provide you a much more definitive path forward.

    Q&A highlights

    5

    Clarify the expected 3-4 point year-over-year decline in ESS Q4 margin and the impact of the Solstice spin-off on this decline.

    Management confirmed Q4 ESS margin softness is primarily due to mix, with catalyst pushouts and a timing factor from an unusually strong Q2. Solstice's Advanced Materials business was slightly accretive but its spin-off is not the primary driver of the Q4 decline. They expect ESS margins to normalize and expand in 2026 due to strong LNG and project activity.

    “So like I said, I think from the order activity standpoint, the order activity on big new projects is quite strong, and we'll continue to see that in the fourth quarter. From a revenue conversion standpoint, given these are big capital projects, they start converting to revenue probably in the second and -- second quarter and then the second half.”

    asked by Nigel Coe · answered by Mike Stepniak

    2 min read5 chapters

    Detailed Narrative

    01

    Portfolio Transformation and Simplification

    Honeywell is actively transforming its portfolio, successfully completing the spin-off of Solstice Advanced Materials ahead of its original Q1 2026 schedule. This milestone provides momentum for the planned separation of Aerospace in the second half of 2026. Effective Q1 2026, the Automation segment will be reorganized into Building Automation, Process Automation and Technology, and Industrial Automation, aligning the structure with future operational models and simplifying the RemainCo portfolio.

    02

    Balance Sheet Derisking and Financial Flexibility

    The company undertook significant actions to derisk its balance sheet in Q3. This included divesting all Bendix asbestos liability and terminating an indemnification agreement with Resideo, which resulted in a $1.6 billion cash inflow. These transactions simplify and derisk the balance sheet, providing greater financial flexibility and reducing administrative burdens, allowing focus on core business value creation.

    03

    Quantinuum Capital Raise and Future Monetization

    Honeywell's quantum computing venture, Quantinuum, completed a second capital raise at double its prior $5 billion pre-money valuation. This round attracted new strategic shareholders like Quanta and NVIDIA, alongside existing investors. While excited about Quantinuum's future, Honeywell recognizes it is not the best long-term owner and plans to monetize its stake at an appropriate time⏳ to create value for shareholders, with the recent capital raise providing sufficient runway.

    04

    Strong Q3 Performance and Order Momentum

    Honeywell delivered exceptional Q3 results, with organic sales accelerating to 6% year-over-year and adjusted EPS exceeding guidance. Orders grew 22% organically to $11.9 billion, resulting in a book-to-bill ratio above 1x and a record backlog. This broad-based order growth across all segments, particularly in long-cycle aerospace and energy projects, demonstrates the early success of increased R&D investments and focus on innovation.

    05

    2026 Margin Expansion Outlook

    Despite some Q4 margin headwinds, management expressed confidence in margin expansion across Aerospace, Industrial Automation, and Energy and Sustainability Solutions in 2026. This is expected to be driven by improved pricing realization, particularly in Aerospace where 2025 tariff costs will align with pricing, and the subsiding of integration costs from the CAES acquisition. Productivity actions and a clearer inflation picture are also anticipated to contribute.

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