Honeywell Sees Strong Start as Pure-Play Automation Push Gains Momentum

Key Points

• Honeywell reported a strong start to the third quarter, with the first two months performing “good or very good.” Management expects to begin the quarter at the upper end of its 4%–6% organic-growth target.
• The company is focusing on higher-growth markets such as data centers, LNG, life sciences and semiconductors, aiming to increase their revenue contribution from roughly 20% to 25%. It also plans to raise services and software revenue to 45% of sales from 40% currently.
• Automation demand remains healthy: process-automation and technology backlog rose 25%, while Honeywell Forge is projected to generate about $1 billion in recurring revenue in 2026. Management also expects LNG demand to remain strong for at least three to four years.

Honeywell International NASDAQ: HON Chairman and CEO Vimal Kapur said the company is seeing stronger-than-expected early-quarter momentum as it begins operating as a more focused automation business following the completed spins of its aerospace and advanced materials operations.

Speaking at a Morgan Stanley event, Kapur said the company is approximately 75 days into its new structure and is focused on executing the commitments outlined at its investor day. Honeywell now describes itself as a pure-play automation company serving building, process and industrial end markets.

Kapur said the first two months of the third quarter were “good or very good,” and that Honeywell expects to begin the quarter at the upper end of its 4% to 6% organic-growth framework. He said continued momentum in the fourth quarter would provide a favorable setup for 2027.

Portfolio mix and installed-base strategy

Management said the company’s portfolio transformation included separating three businesses in addition to the spins and acquiring six businesses. Kapur said the principal challenge for Honeywell is demonstrating that it can deliver stronger organic growth than it has historically produced.

The company is targeting higher-growth verticals that currently represent roughly 20% of its revenue mix. These markets—including data centers, hospitals and hospitality in building automation; LNG and life sciences in process automation; and semiconductors in industrial automation—are expected to grow at approximately 15% in 2026, according to Kapur.

Honeywell’s more mature markets, representing about 80% of its mix, are expected to grow at roughly 3% to 4%. Kapur said the company intends to increase the contribution of its high-growth verticals to 25% of revenue over time and expects to finish the current year at approximately 20% to 21%.

The company also aims to increase revenue from services and software to 45% of total revenue from 40% currently. Kapur said Honeywell built an enterprise asset-management system last year to consolidate installed-base data that had previously been maintained across numerous business-level systems. The system is intended to help the company identify opportunities to expand service penetration, upsell customers and develop additional offerings.

Software, AI and data-center opportunity

Kapur said Honeywell Forge is expected to generate about $1 billion in annual recurring revenue in 2026 and grow about 15%. He characterized Forge as a “Physical AI” platform, arguing that Honeywell’s industrial and building domain expertise, along with access to data within its controlled systems, differentiates its offerings from general-purpose artificial-intelligence providers.

While software represents a comparatively small portion of the company’s revenue, management said it can support broader product sales. Kapur pointed to remotely configurable and testable fire-detection systems as an example, saying these capabilities can improve productivity for channel partners while requiring Honeywell equipment.

Data centers are also becoming a larger growth vertical. Kapur said data centers account for slightly more than 5% of Honeywell’s building automation revenue and are growing at more than 20%, albeit from a small base. He said the opportunity could expand as data-center operators pursue on-site power generation, creating a role for Honeywell’s process automation operations alongside its existing building-automation offerings.

LNG demand and operating trends

Kapur said LNG is benefiting from two recent acquisitions: an Air Products asset that provides core heat-exchanger technology used to convert gas into liquid, and Sundyne, which supplies specialized compressors for LNG facilities. He said the acquired capacity had been effectively booked through 2028 and 2029, prompting Honeywell to expand capacity to address demand.

Management expects the LNG cycle to remain strong for at least the next three to four years, supported by a global shift from coal toward natural gas and efforts to diversify energy supplies.

Honeywell also said order activity remains healthy. Kapur cited continued strength in short-cycle businesses and said the company’s process automation and technology backlog was up 25%, which he said positions the segment for high-single-digit growth in the second half of 2026. CFO Mike Stepniak said short-cycle orders were up high single digits during the first 2.5 months of the quarter, while long-cycle business has maintained a book-to-bill ratio of 1.1 to 1.2.

On margins, Stepniak said Honeywell expects to remain neutral to slightly positive on price-cost, with pricing around 4% in the second half to offset inflation. Kapur said electronics, commodities and labor costs remain elevated and that the company sees no clear signal of a material change in inflation conditions in 2027.

Kapur said a successful first year as a standalone automation company would mean meeting or exceeding its financial commitments, including its stated goal of $12 in earnings by 2029, which management views as a floor, while increasing the mix of high-growth verticals and services and software revenue.

About Honeywell International (NASDAQ:HON)

Honeywell International Inc NASDAQ: HON is a diversified technology and manufacturing company that develops products and software for the aerospace, building, industrial and energy markets. Its offerings include aircraft engines and auxiliary power systems, avionics, safety and control systems, building automation technologies, industrial process controls, warehouse and supply-chain automation solutions, and environmental and energy-management systems.

The company serves commercial and defense aerospace customers, building owners and operators, manufacturers, logistics providers, and energy companies worldwide.

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