Honeywell Aerospace Q2 Earnings Call Highlights

Key Points

• Honeywell Aerospace reported solid demand but weaker execution: Q2 organic sales rose 5% to $4.5 billion and orders grew 8%, but supply-chain constraints limited production and pushed adjusted EBIT down 2% year over year.
• Full-year guidance was reduced: The company now expects 2026 organic sales growth of 4%–5%, adjusted EBIT of $4.35 billion–$4.45 billion and adjusted EPS of $7.60–$7.90, reflecting slower production recovery, a $50 million inventory charge and a less profitable sales mix.
• Management is investing heavily to improve supply resilience: Honeywell is adding suppliers, tooling and internal capacity, with the largest benefits expected in 2027. Despite near-term bottlenecks, the company secured $15 billion in lifetime customer wins this year, including major IndiGo and defense awards.

Honeywell Aerospace NASDAQ: HONA reported 5% organic sales growth in the second quarter of 2026, but reduced its full-year outlook as supply-chain bottlenecks continued to limit production and shift sales toward lower-margin original-equipment and domestic defense programs.

The aerospace business, which completed its spin-off from Honeywell on June 29, held its first dedicated earnings call as an independent public company. Chief Executive Officer Jim Currier said demand remains strong across commercial aviation, aftermarket, defense and space markets, but the company did not achieve the production ramp it expected earlier in the year.

“Frankly, I underestimated how long it would take to implement and see traction from the corrective measures we had taken and are taking,” Currier said. He characterized the issue as concentrated among a small portion of the supplier base rather than a broader operational problem.

Second-Quarter Results and Demand Trends

Second-quarter sales totaled $4.5 billion, rising 5% organically from the prior-year period. Orders increased 8% over the past year, producing a 1.1 book-to-bill ratio, according to Chief Financial Officer Josh Jepsen.

Adjusted EBIT was $1 billion, down 2% year over year. The result included an approximately $50 million inventory-obsolescence charge. Excluding that charge, adjusted EBIT would have increased 3%, Jepsen said.

Adjusted earnings per share were $1.78, declining from the prior-year period due to higher taxes related to the separation and lower adjusted EBIT.

• Commercial original-equipment sales increased 6%, supported by double-digit growth in commercial air transport.
• Commercial aftermarket sales rose 8%, with strength in commercial air transport and business aviation.
• Defense and space sales increased 3%, as high-single-digit growth in U.S. sales was partly offset by material shortages that limited international deliveries.

Jepsen said business-aviation flight hours grew at a high-single-digit rate during the quarter. He also said the Middle East conflict and higher fuel prices did not materially affect aftermarket demand in the second quarter.

Management repeatedly emphasized that the company’s challenge is supply rather than demand. Currier said Honeywell Aerospace has more than 3,000 suppliers and that roughly 98% are performing well, while a small group of constrained or critical suppliers is having an outsized effect on output. Mechanical supply categories under pressure include castings, forgings, complex machining and bearings, Jepsen said.

Guidance Reset Reflects Slower Production Recovery

Honeywell Aerospace now expects 2026 organic sales growth of 4% to 5%. The revised outlook assumes year-over-year output growth in the third and fourth quarters similar to the approximately 4% growth achieved in the second quarter, rather than the accelerating production ramp management had previously anticipated.

The company expects third-quarter sales to be flat to slightly higher than the prior-year period, reflecting a difficult comparison in the commercial aftermarket. Fourth-quarter growth is expected to be more in line with the full-year outlook.

By end market, the company expects:

• Commercial OE growth at a mid-single-digit rate, led by commercial air transport.
• Commercial aftermarket growth in the low-to-mid-single digits, constrained by mechanical supply availability, particularly in spares.
• Defense and space growth in the mid-single digits, with domestic growth outpacing international sales.

Pro forma standalone adjusted EBIT is now projected at $4.35 billion to $4.45 billion. Jepsen said the lower range reflects the $50 million inventory-obsolescence charge and a mix shift from higher-margin commercial aftermarket and international defense activity toward lower-margin OE and domestic defense shipments.

The company introduced pro forma standalone adjusted EPS guidance of $7.60 to $7.90. It maintained its second-half free-cash-flow expectation of $1 billion to $1.5 billion and expects approximately $650 million in capital expenditures.

Supply-Chain Investments and 2027 Expectations

Management said it is increasing investment in supply resiliency, including multi-sourcing, in-sourcing, supplier tooling and internal manufacturing capacity. The company added new sources for more than 50 constrained parts during the first half and plans to add another 50 in the second half. It expects the effort to increase the number of multi-source components by 15% this year.

Currier said the company is embedding resources at suppliers with labor bottlenecks, an effort that contributed to a 20% quarter-over-quarter output increase at one key supplier. Jepsen said 70% of increased supplier-tooling investment is directed to constrained castings, while the company expects investment in multi-sourcing and in-sourcing to be four times greater in 2026 than in the prior year.

The company is also expanding internal capacity, including a new Arizona production line for its Assure electromechanical actuation system and an expansion of its Minnesota facility for inertial-sensing components used in navigation systems.

Currier said the company expects its supply-chain actions to have a more meaningful effect in 2027, enabling additional output and a greater allocation of supply to commercial aftermarket and international defense markets. Honeywell Aerospace reiterated its 2030 financial targets.

Commercial and Defense Wins Build Backlog

Despite the near-term production constraints, the company highlighted several recent awards. Currier said Honeywell Aerospace has secured $15 billion in lifetime customer wins year to date, adding to more than $90 billion in commercial and defense platform-content wins over the prior four years.

Among the largest recent awards, IndiGo selected Honeywell Aerospace avionics and auxiliary power units for more than 800 future Airbus A320-family aircraft. Currier called it the company’s largest selectable-equipment win in its history.

Aeroméxico also selected Honeywell’s Surface Alert, or SURF-A, runway-safety system for its Boeing 737 fleet of more than 100 aircraft. The software upgrade provides aural and visual alerts to pilots when aircraft or vehicles may be on a collision trajectory during taxi, takeoff or landing.

In defense, the company said its 2024 acquisition of Italy-based Civitanavi is expected to double sales in 2026 from the prior year. Currier said the acquisition expands the company’s European manufacturing footprint and adds inertial-navigation technology for missile programs, unmanned platforms and maritime and land vehicles operating in environments where GPS signals may be disrupted.

Currier said the company’s immediate priority is restoring predictable output. “We must and will improve our execution and performance,” he said.

About Honeywell Aerospace (NASDAQ:HONA)

Honeywell Aerospace Inc manufactures and supplies aircraft components, avionics, engines, and systems for airframe manufacturing, commercial airline, military and defense, business aviation, and space markets, as well as other markets in the aerospace industry. The company offers actuation products, air and thermal management products, auxiliary power units, cabin management and entertainment products, cockpit systems and displays, electric power products, engines, health and usage monitoring products, lighting products, microelectronics, navigation products and radios, recorders and transmitters, satellite communications, sensors, space products, terrain and traffic awareness, vehicle turbochargers, weather radars, and wheels and braking systems.

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