HONEYWELL INTERNATIONAL INC HON

Honeywell delivered a strong fourth quarter, exceeding expectations for adjusted sales and EPS. Organic orders grew 23%, driving the backlog to over $37 billion. Full-year 2025 organic sales increased 6% (excluding Bombardier), surpassing the high end of original guidance by 2 points. Adjusted segment profit grew 23% (2% excluding Bombardier) with a 22.8% margin, and adjusted EPS was $2.59, up 17% (down 3% excluding Bombardier). Free cash flow was $2.5 billion, up 48% (13% excluding Bombardier), with full-year FCF at $5.1 billion.

The company is progressing faster than anticipated on separation milestones. The Advanced Materials spin-off (Solstice) was completed on October 30, 2025. The Aerospace spin-off is now expected to occur in Q3 2026, with its leadership team and Board appointments already announced. Honeywell also concluded a strategic review of Productivity Solutions and Services (PSS) and Warehouse and Workflow Solutions (WWS), intending to pursue a sale of both businesses in H1 2026. These actions aim to create three leading pure-play independent public companies and simplify Honeywell's structure into three core end markets: Process, Buildings, and Industrial.

Quantinuum recently raised approximately $840 million at a $10 billion pre-money valuation, accelerating its technological and commercial progress. In November, Quantinuum launched Helios, described as the world's most accurate commercial quantum computer, nearly doubling the qubit count of its predecessor. A partnership with NVIDIA was announced to integrate Helios with AI supercomputing technology. Honeywell continues to invest in Quantinuum's R&D and technology, which will be a modest headwind to overall segment margins in 2026.

Honeywell has seen a 300 to 400 basis point improvement in LTM average organic growth since early 2024, driven by strong end-market demand, portfolio simplification, and innovation. The company is intentionally shifting towards higher-growth verticals and less cyclical, less capital-intensive markets. Recent acquisitions like Access Solutions and LNG process technology contribute to this. New product introductions (NPI) generated 4% organic growth in 2025, supported by increased R&D investments and the addition of approximately 600 engineers.

For 2026, Aerospace expects high single-digit organic growth, Building Automation above mid-single digits, Process Automation Technologies roughly flat (with a second-half ramp), and Industrial Automation down low single digits to flat. Overall segment margins are guided to expand 20 to 60 basis points, driven by price execution, productivity, and volume leverage, partially offset by Quantinuum investments. Industrial Automation is expected to lead margin expansion through fixed cost reduction, while Building Automation benefits from higher volumes.

The new PA&T segment saw 17% organic orders growth in H2 2025, leading to a 16% rise in opening backlog. This strength is primarily in long-cycle LNG and refining projects, with wins expected to convert to sales in H2 2026. However, the segment faces slower first-half growth due to continued pressure on petrochemical catalyst demand, influenced by market overcapacity. The 2026 guidance does not assume a rebound in this area, but a strong pipeline signals persistence of long-cycle orders.

In 2025, Honeywell deployed $10 billion, including $3.8 billion for share repurchases (18 million shares), $2.2 billion for acquisitions, $1 billion for capital expenditures, and $3 billion for dividends. The company also repaid $3.8 billion of debt. For 2026, the focus for cash deployment is on reducing debt ahead of the separation. Capital expenditures are anticipated to increase by approximately $250 million to support growth investments, funded by working capital efficiency improvements.