Honeywell International NASDAQ: HON CFO Mike Stepniak said the company is off to a strong start following its portfolio transformation, citing favorable July order trends, broad regional demand and improving prospects for the second half of the year and into 2027.
Speaking at a Deutsche Bank conference, Stepniak said Honeywell has set three-year targets of 4% to 6% revenue growth, double-digit earnings-per-share growth toward $12 in 2029, margin expansion and free-cash-flow conversion above 90%.
“We’re off to a good start,” Stepniak said, adding that order activity has supported the company’s decision to raise guidance. He said the company has included contingency in its growth framework for potential demand disruptions, inflation and pricing variability.
Orders Strengthen Across Regions and Cycles
Stepniak said demand has been broad-based geographically, with North America particularly strong and Europe no longer presenting the headwind it had been in prior years. China remains pressured but is performing adequately, while the Middle East and other Asian markets have been strong, he said.
Honeywell is seeing both short-cycle growth and long-cycle demand, according to Stepniak. He pointed to improving backlog conversion in the process business and new demand tied to supply-chain resilience, security concerns and rebuilding activity in the Middle East.
The company expects second-half revenue growth of 4% to 6%, with Stepniak saying he hopes results will trend toward the upper end of that range. He also said Honeywell expects more pronounced margin expansion in the near term as it works through stranded costs associated with its portfolio changes.
For 2027, Stepniak said the company sees a favorable setup from improving order trends, lower stranded costs and a supportive macroeconomic backdrop. He said Honeywell is targeting roughly 15% EPS growth next year as part of its path toward its 2029 earnings objective.
Software, AI and New Product Development
Honeywell is targeting 45% of revenue from software and services over time, with its Forge platform central to that effort. Stepniak said the company connected more assets through Forge last year than in the preceding five years combined.
Honeywell currently has about 5 million connected assets and expects that total to reach about 9 million over the next 2.5 years, he said. The connections create opportunities to provide customer solutions and develop data-driven offerings. Stepniak tied that effort to a target of 15% annual revenue growth in software spending.
The company is also applying artificial intelligence internally and within Forge. Stepniak said Honeywell is using AI tools in engineering for drafting, drawing retrieval and proposal development, and in finance for balance-sheet analysis and internal audit work. He said the company has made a significant investment in equipping associates with AI tools and copilots.
New product introduction, or NPI, remains another key focus. Stepniak said Building Automation has the most mature NPI process, while Industrial Automation has been developing its program for about 18 months and is beginning to see results. New products generally carry better pricing or mix and can be accretive within their first two years, he said.
Building and Process Automation Demand
Stepniak said Building Automation’s growth has been supported by its diverse geographic and end-market exposure. While data centers account for about 5% of the segment today, up from close to zero three to four years ago, Honeywell aims to more than double that business to above $1 billion over the next several years.
The company supplies fire sensing, security, physical security, monitoring and building-management systems to data centers. Stepniak also cited opportunities in load management, liquid cooling and heat measurement as computing requirements increase.
Building Automation is expected to finish the year with margins above 27%, and Honeywell has a line of sight to 29% margins in 2029, according to Stepniak. He identified NPI, Forge commercialization and employee leverage as key margin drivers.
In Process Automation and Technology, Stepniak said demand has increased across projects, LNG and catalyst activity. Honeywell’s LNG business is taking orders for slots at the end of 2028 and continues to receive new customer inquiries, he said.
Second-half catalyst demand is expected to rise by double digits versus the first half, while second-half year-over-year catalyst demand is expected to increase by high single digits. However, Stepniak said projects are the larger driver of expected segment growth.
He said Process Technologies is seeing a more pronounced order pickup than Process Automation, which historically trails the technology business by roughly 18 to 24 months. Process Automation is also expanding into life sciences, pharmaceutical and medical-device production, cybersecurity, U.S. onshoring and semiconductors.
Honeywell expects the Process Automation and Technology segment to report about a 22.5% margin for the year, reflecting mix and the integration of Johnson Matthey. Stepniak said the acquired business will take two to three years to reach Honeywell-level margins, though he sees cost and demand-improvement opportunities. Honeywell continues to target 25% segment margins by 2029.
Industrial Automation and Capital Allocation
Industrial Automation is being positioned as a sensing-and-measurement-focused business. Stepniak said improved delivery performance, new product investment, pricing and organizational simplification are supporting its turnaround. The business has improved on-time delivery to approximately 80% and is targeting more than 85%.
Honeywell expects Industrial Automation to reach about a 22% margin rate in the fourth quarter, Stepniak said, adding that he was “100% confident” in its ability to reach 25% margins within three years.
On capital allocation, Stepniak said Honeywell is currently prioritizing debt reduction and aims to reduce its debt ratio below three by year-end. The company expects its dividend payout ratio to be around 35% and plans to keep its share count roughly flat while it focuses on debt repayment. Capital expenditures are expected to be about 3% of revenue.
Honeywell plans to continue pursuing bolt-on acquisitions, with preferred deal sizes of roughly $2 billion to $4 billion. Stepniak identified Industrial Automation as the company’s largest M&A opportunity because of the fragmented nature of the market, but said Honeywell intends to remain disciplined on valuation, strategic fit, synergies and return targets.
About Honeywell International (NASDAQ:HON)
Honeywell International Inc is a diversified, publicly traded multinational conglomerate NASDAQ: HON that designs and manufactures a wide range of commercial and consumer products, engineering services and aerospace systems. The company operates through major business platforms that historically include Aerospace; Building Technologies; Performance Materials and Technologies; and Safety and Productivity Solutions. Its portfolio spans avionics and propulsion systems, building controls and HVAC equipment, process technologies and advanced materials, industrial automation software, and personal protective equipment and scanning solutions.
Honeywell's aerospace business supplies aircraft manufacturers and operators with engines and auxiliary power units, avionics, flight safety systems and aftermarket services.
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