What Honeywell Aerospace (HONA) Said on Its Q3 Earnings Call

Key Points

• Honeywell Aerospace exceeded Q3 expectations, reporting 2.4% organic sales growth to $4.6 billion, a 1.3 book-to-bill ratio and backlog growth of 12% to more than $19 billion. The company maintained its full-year organic growth outlook of 4% to 5%.
• Supply-chain constraints remain the main growth bottleneck. Around 70 suppliers are under performance watch, particularly in machining, castings, forgings and bearings, though investments in alternate sourcing, insourcing and capacity are expected to support stronger output through 2027.
• The company raised 2026 adjusted EPS guidance to $7.85–$8.00, increased second-half free-cash-flow guidance to $1.2 billion–$1.4 billion and declared its first quarterly dividend of $0.40 per share. Honeywell also announced a $500 million Arizona campus expansion to support future control-systems growth.

Honeywell Aerospace NASDAQ: HONA reported third-quarter organic sales growth of 2.4% to $4.6 billion, exceeding its prior expectation for flat to slightly higher sales as mechanical output improved from the second quarter. The company maintained its full-year organic growth outlook of 4% to 5% while emphasizing that supply-chain constraints remain the primary limit on its ability to convert demand into sales.

Chief Executive Officer Jim Currier said the company’s first quarter as an independent business finished ahead of the expectations it outlined in August. Sales rose 3% sequentially, led by commercial aftermarket activity, while orders increased across every end market compared with the prior year. Defense and space orders and commercial aftermarket orders both rose by double digits.

Honeywell Aerospace reported a quarterly book-to-bill ratio of 1.3 and a trailing-12-month book-to-bill ratio of 1.1. Backlog increased 12% from a year earlier to more than $19 billion, according to Chief Financial Officer Josh Jepsen.

Profit, cash flow and dividend

Third-quarter adjusted EBIT totaled $1.2 billion, up 4% from pro forma standalone adjusted EBIT in the prior-year period. Adjusted earnings per share were $2.21, while free cash flow was $500 million.

Adjusted EBIT included about $50 million in net IEEPA tariff refunds, adding more than 100 basis points to the company’s margin. Jepsen said the tariff-refund benefit had already been included in the second-half guidance issued in August and is not currently expected to recur in the fourth quarter.

The board declared Honeywell Aerospace’s first quarterly cash dividend of $0.40 per share, payable in December. The annualized payout ratio is expected to be approximately 20% of estimated 2026 pro forma standalone adjusted EPS. Currier said the company expects to increase the dividend over time as the business grows.

The company raised its 2026 pro forma standalone adjusted EPS guidance to a range of $7.85 to $8.00, citing lower-than-expected below-the-line expenses as a newly public company. It also raised second-half free-cash-flow guidance to $1.2 billion to $1.4 billion. Capital expenditures are still expected to total about $650 million for the year.

Supply constraints remain central issue

Currier said Honeywell Aerospace’s management team remains focused on boosting supplier production and factory output. While most of the company’s more than 3,000 suppliers are delivering according to plan, about 70 suppliers are on a watchlist for inconsistent performance, and approximately 10 are most responsible for pacing output growth.

The constrained suppliers are concentrated in four mechanical-component categories: complex machining, castings, forgings and bearings. The company said suppliers improved their combined output relative to its needs during the third quarter, though performance has not yet improved enough to advance the company’s color-coded supplier ratings.

• In complex machining, Honeywell Aerospace deployed employees to supplier facilities and supported hiring. Currier said one key supplier increased its workforce by more than 20% from the middle of the third quarter to the beginning of the fourth quarter, producing record weekly shipments beginning in October.
• In castings, current suppliers increased deliveries as the company qualified new sources, though production scheduling slowed growth during the quarter.
• Forging suppliers increased year-to-date output by double digits, and the company secured additional forging supply for future years.
• In bearings, a second-source supplier increased production after earlier manufacturing-line startup difficulties. Honeywell Aerospace expects that supplier to eliminate its past-due deliveries by early 2027, while a third supplier is expected to come online in the second quarter of 2027.

The company is expanding insourcing, multi-sourcing and supplier-tooling investments. Currier said Honeywell Aerospace expects more than 30% of material spend to have more than one active source by year-end, up from less than 15% when he took leadership of the business more than three years ago. The company aims to have multi-sourcing account for more than half of material spend by the end of the decade.

Jepsen said manufacturing output rose 5% from the second quarter and 2% from the prior-year period. He said supply-chain actions are expected to build throughout 2027, supporting higher output and faster sales growth, though the timing will vary by product category and supplier initiative.

End-market performance and investment plans

Commercial original-equipment sales increased 8% organically from the prior year, supported by higher commercial air transport build rates, steady business aviation deliveries and increased selectable-equipment volumes. Commercial aftermarket sales rose 2%, although Jepsen said several deals expected later in the year closed during the third quarter and contributed about one point of top-line growth.

Commercial aftermarket orders rose 12% year over year. Honeywell Aerospace said it has not seen a change in commercial transport backlog or customer behavior from higher fuel prices. Currier also pointed to resilience in business aviation, particularly in the midsize through ultra-long-range categories where the company participates.

Defense and space sales rose 1%, led by double-digit growth at CAES and Civitanavi. However, supply constraints had a greater effect on international defense business as the company prioritized domestic defense demand. Trailing-12-month defense and space orders increased 18%.

Since its second-quarter report, Honeywell Aerospace said it has generated more than $5 billion in incremental customer lifetime wins, bringing its year-to-date total above $20 billion. Those awards included the U.S. Air Force’s selection of the company’s SkyShot 1600 engine for an autonomous collaborative platform program, as well as defense awards exceeding $2 billion in lifetime value for missile and munitions platforms.

The company also announced a $500 million expansion of its Tempe, Arizona campus. The planned 300,000-square-foot facility is expected to open in late 2028 and add capacity for control-systems products, including its Assure Advanced Actuation and Attune Vapor Cycle Cooling technologies. Currier said those technologies have generated more than $15 billion in customer wins to date.

2027 outlook

Honeywell Aerospace said it expects output growth to ramp through 2027 as new suppliers, additional capacity, tooling investments and insourcing projects take effect. The company has approved insourcing projects representing more than $100 million in annual material spend.

Still, executives said margin expansion may not follow a linear path because the company plans to pull forward supply-chain investments through both operating expenses and capital expenditures. Jepsen said the company expects to exit 2026 with margins in the mid-23% range, excluding certain one-time factors, and that higher original-equipment and defense sales are expected to create mix pressure in 2027.

Currier said the company remains committed to its 2030 targets and views supply-chain improvements as the key factor needed to unlock stronger sales growth, additional aftermarket deliveries and longer-term margin expansion.

About Honeywell Aerospace (NASDAQ:HONA)

Honeywell Aerospace develops and supplies aerospace technologies for commercial aviation, business and general aviation, defense, and space customers. Its portfolio includes aircraft engines and auxiliary power units, avionics, flight controls, navigation and communication systems, environmental and thermal-management equipment, wheels and brakes, and other propulsion and mechanical systems.

The company also provides aftermarket support, including maintenance, repair and overhaul services, replacement parts, upgrades, technical assistance, and digital solutions designed to improve aircraft performance and operational efficiency.

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