Honeywell (NasdaqGS:HON) Q3 2025 Earnings Call October 23, 2025 08:30 AM ET Company ParticipantsJoe Ritchie - Managing DirectorSean Meakim - VP of Investor RelationsSteve Tusa - Managing DirectorAndrew Kaplowitz - Managing DirectorMike Stepniak - CFOScott Davis - Chairman and CEOVimal Kapur - Chairman and CEOChris Snyder - Executive DirectorSheila Kahyaoglu - Managing Director in Equity ResearchDeane Dray - Managing DirectorNigel Coe - Managing DirectorAmit Mehrotra - Managing DirectorConference Call Partic ...

Core Insights - Honeywell International Inc. is experiencing strong growth in its Building Automation segment, driven by increased demand for products and solutions in North America, the Middle East, and India, with organic sales growing 8% year over year in Q2 2025 [1][8] Building Automation Segment Performance - Organic sales from the building products business increased by 9% year over year in Q2 2025, fueled by robust demand for fire, security, and building management systems [2] - The building solutions business also saw a 5% year-over-year sales increase, particularly benefiting from growth in the Middle East [2] - The Building Automation segment recorded healthy order activity, marking the fifth consecutive quarter of year-over-year order growth, indicating sustained customer demand and strong market conditions [3][8] Future Outlook - Honeywell anticipates continued strength in the Building Automation segment, projecting organic sales growth in the mid to high single digits for 2025, supported by rising demand for energy-efficient infrastructure and digital building management systems [4] - Both building products and building solutions businesses are showing steady momentum, positioning the segment for future growth [4] Peer Comparison - Among peers, 3M Company reported a 3.6% year-over-year revenue growth in its Safety and Industrial segment in Q2 2025, driven by strong demand across various markets [5] - Carlisle Companies Incorporated's Construction Materials segment saw a 0.6% year-over-year revenue increase in Q2 2025, benefiting from robust demand in the non-residential construction market [6] Stock Performance and Valuation - Honeywell's shares have gained 0.4% over the past six months, compared to the industry's growth of 2.8% [7] - The company is trading at a forward price-to-earnings ratio of 17.94X, above the industry average of 11.03X, and carries a Value Score of D [10] - The Zacks Consensus Estimate for Honeywell's 2025 earnings has increased by 0.2% over the past 60 days [11]

Core Insights - Honeywell International Inc. is recognized as one of the 12 Most Promising Dividend Stocks according to Wall Street Analysts [1] - The company operates in the diversified industrial sector, providing products and solutions across various industries, including Aerospace Technologies, Industrial Automation, Building Automation, and Energy and Sustainability Solutions [2] - Honeywell has a strong reputation built over nearly 140 years, particularly in warehouse automation, which has seen increased demand due to the growth in e-commerce [3] Dividend Performance - On September 26, Honeywell announced a 5.3% increase in its quarterly dividend, raising it to $1.19 per share, marking the 16th dividend hike over 15 consecutive years [4] - The current dividend yield stands at 2.27% as of October 8, making it an attractive investment option [4]

Core Insights - Honeywell International Inc. is recognized as one of the best quantum computing stocks to buy and hold for five years, reflecting its strong position in the evolving defense and space industry [1] - The U.S. Department of Energy's Office of Technology Commercialization announced an expansion of the Quantum-in-Space Collaboration, which includes Honeywell, focusing on quantum-secured communications and quantum sensing [2] - Honeywell raised approximately $600 million in equity capital for Quantinuum, valuing it at $10 billion, to support advancements in quantum computing at scale [3] - Madison Investments highlighted Honeywell as a high-quality relative yield investment in the industrial sector, emphasizing its leading positions across various markets and sustainable competitive advantages [4] Company Overview - Honeywell operates in multiple sectors: Aerospace (40% of revenues), Industrial Automation (26%), Building Automation (17%), and Safety and Productivity Solutions (17%) [4] - The company embeds its products into customer operations, generating long-term recurring revenue from aftermarket products and services [4] - Honeywell's competitive advantages include scale, high customer switching costs, intangible assets, and a long history of innovation [4] Industry Context - The defense and space industry is rapidly evolving, with a focus on security and resiliency, which aligns with Honeywell's strategic initiatives in quantum technology [1][2] - The collaboration with the U.S. Department of Energy aims to leverage Honeywell's expertise in satellite communications and onboard quantum computing [2]

Core Insights - Honeywell International Inc. is identified as one of the most undervalued stocks in the Dow according to analysts, with strengths in aerospace, industrial automation, energy solutions, and emerging technologies like quantum computing [1] Financial Performance - In Q2 2025, Honeywell reported earnings of $2.75 per share on revenue of $10.35 billion, surpassing estimates, and updated its full-year EPS guidance to a range of $10.45–$10.65 [4] - The aerospace segment is experiencing growth due to strong defense demand and strategic supply chain investments [4] Strategic Developments - Honeywell raised $600 million in equity for its quantum computing subsidiary, Quantinuum, at a valuation of $10 billion, aimed at accelerating the launch of the Helios system and advancing fault-tolerant quantum computing [2] - The company is planning to spin off its Solstice Advanced Materials division and aims to spin off its aerospace business in the second half of 2026, focusing on value unlocking and innovation-led sectors [3] Technological Advancements - Recent acquisitions, including Li-ion Tamer and SparkMeter, enhance Honeywell's Building Automation and Smart Energy offerings [4] - The introduction of the HON1600 small-thrust-class aircraft engine is targeted at uncrewed military operations, utilizing additive manufacturing for improved production speed and supply resilience [4]

Group 1: Company Performance - Honeywell International Inc. (HON) is experiencing strong momentum in its Building Automation segment, driven by solid demand for products and solutions, particularly in North America and the Middle East [1][2] - The Building Automation segment's organic sales increased by 8% year over year in Q2 2025, with building products sales growing by 9% and building solutions sales improving by 5% [2][8] - Overall backlog for Honeywell grew by 10% year over year to $36.6 billion, with expectations for overall revenues in 2025 to be in the range of $40.8-$41.3 billion, reflecting a 4-5% organic revenue increase [4] Group 2: Market Trends and Projections - The company anticipates that the Building Automation segment's organic sales will grow in the mid to high-single digits for 2025, supported by software-led new product introductions and customer wins in focused verticals [3][8] - Honeywell's shares have gained 10% over the past year, outperforming the industry's growth of 1.6% [7] Group 3: Peer Comparison - Among peers, Carlisle Companies Incorporated (CSL) reported a 0.6% year-over-year revenue increase in its Construction Materials segment, driven by strong demand for reroofing products [5] - 3M Company (MMM) saw a 2.5% year-over-year organic sales growth in its Safety and Industrial segment, supported by stable demand in various markets [6] Group 4: Valuation and Earnings Estimates - Honeywell is currently trading at a forward price-to-earnings ratio of 19.64X, above the industry average of 16.33X, and carries a Value Score of D [10] - The Zacks Consensus Estimate for Honeywell's 2025 earnings has been on the rise over the past 60 days, with current estimates for the current year at $10.49 and next year at $11.36 [12][13]

Core Insights - Honeywell International Inc. (HON) has seen a stock price increase of 10% over the past year, outperforming the industry growth of 2.5% but lagging behind the S&P 500's increase of 20.5% [1] Stock Performance - The stock closed at $216.37, below its 52-week high of $242.77 and above its 52-week low of $179.36 [3] Factors Driving Performance - The commercial aviation aftermarket business is experiencing strong demand, with a 7% year-over-year sales increase in Q2 2025 [4] - The defense and space business saw a 13% year-over-year sales surge in Q2 2025, supported by stable defense spending and geopolitical demand [4] - The Aerospace Technologies segment is expected to benefit from strong demand in commercial aviation and increased defense spending [5] - The Building Automation segment is driven by solid demand from construction projects, particularly in North America, the Middle East, and India [5] - The Universal Oil Products business is benefiting from higher refining and petrochemicals projects [6] - Overall backlog increased by 10% to $36.6 billion, with projected sales for 2025 between $40.8 billion and $41.3 billion, indicating 4-5% organic growth [8][9] Shareholder Returns - Honeywell paid out $1.48 billion in dividends and repurchased $3.6 billion in shares in the first half of 2025 [10] - The quarterly dividend was increased by approximately 5% to $1.13 per share in September 2024 [10] - Expected free cash flow for 2025 is projected to be between $5.4 billion and $5.8 billion [10] Near-Term Concerns - The Industrial Automation segment faced a 5% year-over-year sales decline in Q2 2025, with expectations of low to mid-single digit organic sales decline for 2025 [11] - Long-term debt increased by 9.3% CAGR over the past five years, reaching $30.2 billion by the end of Q2 2025, primarily due to acquisition funding [12] - Interest expenses rose by 32% year-over-year to $330 million in Q2 2025, raising concerns about profitability [13] Valuation Metrics - Honeywell's forward 12-month P/E ratio is 19.63X, higher than the industry average of 16.33X [14] Earnings Estimates - The Zacks Consensus Estimate for Honeywell's 2025 earnings increased by 1.1% to $10.49 per share, indicating a 6.1% year-over-year growth [18]

Core Insights - Carrier Global Corporation has acquired Blaich Automation GmbH, enhancing its intelligent building automation capabilities in Germany [1][2] - This acquisition marks Automated Logic's first owned controls field office in Germany, expanding its presence in Central Europe [2][3] - Blaich Automation specializes in integrated automation solutions for critical sectors such as data centers and pharmaceuticals, aligning with Automated Logic's focus on high-performance sectors [2][3] Company Overview - Carrier Global Corporation is a leader in intelligent climate and energy solutions, committed to innovation and sustainability [6][8] - Automated Logic Corporation provides building-management solutions that maximize energy efficiency and comfort across various markets [8] Strategic Implications - The acquisition is seen as a strategic move to strengthen Automated Logic's market position and enhance its ability to deliver integrated solutions [3][4] - Blaich Automation's expertise and reputation will complement Automated Logic's global capabilities, focusing on optimizing building performance and energy efficiency [3][4] Leadership and Operations - Blaich Automation's existing leadership will remain in place, ensuring continuity in customer service from their base in Leinfelden-Echterdingen [4] - The collaboration aims to expand the impact and value delivered to customers in Germany and beyond [4]

Core Insights - Automated Logic – Canada, Ltd. (ALC) has acquired Control Solutions, Ltd. (CSL), enhancing its building-automation capabilities in Western Canada [1][2] - The acquisition marks ALC's first company-owned controls field office in Vancouver, expanding its market presence [1][2] - Control Solutions, Ltd. specializes in integrated building automation systems for various sectors, including commercial real estate and education [3] Company Overview - ALC is part of Carrier Global Corporation, a leader in intelligent climate and energy solutions, focusing on maximizing energy efficiency and sustainable building operations [6] - Control Solutions, Ltd. employs over 100 staff, providing advanced automation solutions and multi-year service contracts to optimize energy performance [3][4] - The existing leadership and employees of CSL will continue operations from their Coquitlam office, ensuring continuity for their customers [4]

Core Insights - Honeywell reported strong second-quarter results, with sales growth of 8% year-over-year and organic sales growth of 5%, exceeding guidance [2][3] - The company raised its full-year organic growth and adjusted earnings per share guidance, reflecting confidence in its performance and strategic initiatives [1][3] Financial Performance - Second-quarter sales reached $10.4 billion, with operating income increasing by 7% to $2.1 billion and segment profit rising 8% to $2.4 billion [2][9] - Earnings per share for the quarter was $2.45, a 4% increase year-over-year, while adjusted earnings per share rose 10% to $2.75 [2][9] - Operating cash flow was $1.3 billion, down 4% year-over-year, and free cash flow was $1.0 billion, down 9% year-over-year [2][9] Segment Performance - Aerospace Technologies sales increased 6% organically, driven by a 13% growth in defense and space [7] - Building Automation saw an 8% organic sales increase, with segment margin expanding 90 basis points to 26.2% [10] - Energy and Sustainability Solutions reported a 6% organic sales growth, with UOP growing 16% [11] Strategic Initiatives - Honeywell is pursuing a separation of its Automation and Aerospace businesses, aiming to create three publicly-listed industry leaders by the second half of 2026 [4][5] - The company has been actively optimizing its portfolio, including the acquisition of Johnson Matthey's Catalyst Technologies for £1.8 billion and the acquisition of Sundyne for $2.2 billion [5][9] - A comprehensive portfolio review has concluded, leading to a strategic evaluation of alternatives for its Productivity Solutions and Services and Warehouse and Workflow Solutions businesses [5][9] Updated Guidance - Full-year sales are now expected to be between $40.8 billion and $41.3 billion, with organic sales growth projected at 4% to 5% [3][13] - Adjusted earnings per share guidance has been raised to a range of $10.45 to $10.65, reflecting a 20-cent increase at the midpoint from prior guidance [3][13]