Honeywell International Inc Earnings - Q4 2025 Analysis & Highlights
Honeywell International Inc. (HON) discussed its strong Q4 2025 financial results, exceeding expectations for adjusted sales and EPS, with significant order growth and a record backlog. The company provided a 2026 outlook with anticipated growth in sales and earnings, driven by portfolio actions, innovation, and strategic investments. Key themes included portfolio simplification with the upcoming Aerospace spin-off advancements in Quantinuum and a focus on margin expansion through pricing, productivity, and strategic investments.
Key Financial Results
Honeywell delivered a strong fourth quarter to close 2025, exceeding expectations for both adjusted sales and adjusted EPS.
Orders were up 23%, driving the backlog to over $37 billion.
Sales growth was 6%, excluding the impact of the 2024 Bombardier agreement.
Adjusted segment profit increased 23%, or 2% excluding Bombardier, with a segment margin of 22.8%.
Adjusted earnings per share was $2.59, up 17%, and down 3% excluding the impact of the Bombardier agreement.
Free cash flow was $2.5 billion, up 48%, or up 13% excluding the impact of the prior-year Bombardier agreement.
For the full year, sales increased 7% organically, or 6% excluding the impact of the Bombardier agreement.
Adjusted segment profit grew 11%, or 6% excluding Bombardier, with adjusted segment margin expansion of 40 basis points, or contraction of 40 basis points excluding Bombardier, to 22.5%.
Adjusted earnings per share was $9.78, up 12% year-over-year, or up 7% excluding Bombardier.
Free cash flow for the full year was $5.1 billion, up 20%, or up 7% excluding the impact of the Bombardier agreement, representing a 14% margin.
Business Segment Results
Aerospace sales grew 11% organically, excluding Bombardier, driven by strength in both commercial aftermarket and defense and space.
Building Automation grew 8% organically, supported by 9% growth in solutions and 8% in products.
Industrial Automation grew for a second consecutive quarter, with organic sales up 1%, led by Warehouse and Workforce Solutions and sensing, and a return to growth in Productivity Solutions and Services.
Process solution sales were flat as strength in aftermarket services was offset by lower volumes in measurement and controls products.
Organic sales in Energy and Sustainability Solutions declined 7%, due to lower petrochemical catalyst shipments and continued project deferrals.
Aerospace adjusted segment margin expanded 40 basis points sequentially to 26.5%.
Building Automation margins expanded 20 basis points year-over-year to 27%.
Industrial Automation and ESS saw declines in margins due to unfavorable mix from lower catalyst volumes and cost inflation.
Capital Allocation
Honeywell returned $900 million to shareholders in the quarter through dividends and share repurchases.
$300 million was funded in high-return capital projects.
$2.3 billion of debt was repaid in the fourth quarter.
For the full year, $10 billion was deployed to capital, including $3.8 billion to repurchase 18 million shares, $2.2 billion to acquisitions, $1 billion to capital expenditures, and $3 billion to dividends.
$3.8 billion of debt was repaid to lower interest expense.
Honeywell intends to focus cash deployment in 2026 on reducing debt ahead of the separation.
Capital expenditure is anticipated to increase by roughly $250 million to support growth investment.
Industry Trends and Dynamics
Honeywell sees favorable end market dynamics across Aerospace and defense, Process and Building Automation.
Commercial OE growth should accelerate in 2026 as customer destocking ends and shipments ramp up, particularly in commercial air transport.
Defense and space should maintain momentum due to higher global spending.
Steady increases in flight hours in air transport and business jet underpin ongoing commercial aftermarket strength.
Building Automation expects strength in growing data center and health care end markets.
Slower first half growth in petrochemicals and refining is expected to be offset by robust demand in global projects, especially in life sciences and cybersecurity solutions.
Industrial Automation faces headwinds from a challenging prior-year comparison in products.
Aftermarket order rates for catalysts, particularly within petrochemicals, are slower than expected due to overcapacity in the market.
Inflationary trends in the Industrial segment and Honeywell's served segments remain persistent, driven by labor costs, electronics prices, and commodity prices.
Industrial Automation business is seeing strength in North America and the US, but pressure in China and Europe.
Competitive Landscape
Quantinuum announced the launch of Helios, described as the world's most accurate commercial quantum computer.
Helios nearly doubles the qubit count of its predecessor H2 and sets a new standard for quantum computing performance with the highest fidelity for quantum computing qubits ever released.
Quantinuum also partnered to integrate Helios with NVIDIA's AI supercomputing technology.
Macroeconomic Environment
Inflationary trends in the Industrial segment and Honeywell's served segments remain persistent.
Labor costs are increasing, typically 3% to 4%, with labor shortages.
Electronics prices are increasing, with memory being a new driver.
Commodity prices continue to rise.
Growth Opportunities and Strategies
Honeywell is driving strong organic growth fueled by conversion of its record backlog, disciplined price execution, and momentum in new product introductions.
The company is making an intentional shift to higher growth verticals.
Portfolio simplification efforts are positioning the company toward less cyclical and less capital-intensive markets.
Recent acquisitions in access solution, LNG process technology, compressor control, and defense technology are compounding growth.
4% organic growth came from new product introduction in 2025, primarily from innovation in new markets and offerings.
R&D investments were significantly stepped up in 2025 and will continue at this level in 2026.
Approximately 600 engineers were added to the workforce in 2025, bolstering R&D capacity.
The overwhelming majority of R&D is allocated to new product development.
Sales team incentives are aligned to prioritize the commercialization of new products.
Honeywell is working to change its business model to more recurring revenue, based on its IoT platform, Forge.
The access solution acquisition is playing extremely well, with revenue in that segment growing high-single digit.
Honeywell's overall position in data centers is becoming material, inching towards greater than 5% of revenue.
Financial Guidance and Outlook
Honeywell expects to deliver 6% to 9% earnings growth in 2026, along with accelerating cash generation.
Sales are anticipated to be $38.8 billion to $39.8 billion in 2026, up 3% to 6% organically.
Growth is expected to be led by Aerospace and Building Automation.
Segment margins are expected to be up 20 basis points to 60 basis points to 22.7% to 23.1%.
Adjusted earnings per share is projected to be $10.35 to $10.65, up 6% to 9%.
Free cash flow is expected to be $5.3 billion to $5.6 billion, up 4% to 10%, representing approximately a 14% free cash flow margin and 83% conversion at the high end.
Capital expenditure is anticipated to increase by roughly $250 million.
The tax rate is expected to remain roughly 19%.
Average shares outstanding are expected to decline approximately 1%.
For Q1 2026, organic sales growth is anticipated to be 3% to 5%.
Segment margin for Q1 is expected to be in the range of 22.4% to 22.6%, flat to up 20 basis points.
Adjusted earnings per share growth in Q1 is expected to be 2% to 6%.
Portfolio Simplification
Honeywell expects to complete the Aerospace spin in the third quarter of 2026.
Advanced Materials spin was completed on October 30, 2025.
Honeywell reorganized its segments into a more simplified structure beginning in 2026: Aerospace Technologies, Building Automation, Process Automation and Technology, and Industrial Automation.
The company intends to pursue a sale of Productivity Solutions and Services and Warehouse and Workflow Solutions in the first half of 2026.
The Advanced Materials' stranded costs have already been neutralized in 2026.
Stranded costs from the Aerospace spin are expected to be eliminated in 12 to 18 months.
