What Honeywell International (HON) Said on Its Q3 Earnings Call

Key Points

• Honeywell reported strong third-quarter results, with 7% organic sales growth, adjusted EPS up 34% to $2.27, a 370-basis-point increase in segment margins, and free cash flow up 15% to approximately $690 million.
• Demand remained broad-based, supported by industrial and building automation, LNG and energy projects, and data centers. Backlog reached nearly $19 billion, while data-center orders more than doubled and PA&T backlog grew over 10% year over year.
• Management raised its 2026 outlook, now targeting 4%–5% organic sales growth, adjusted EPS of $8.40–$8.45, and $2.1 billion in free cash flow. Honeywell also plans to reduce gross debt below $13 billion by year-end and eliminate remaining stranded costs by the end of 2026.

Honeywell International NASDAQ: HON reported third-quarter 2026 results marked by 7% organic sales growth, margin expansion and improved cash conversion as the company operated as a standalone pure-play automation business.

Chairman and Chief Executive Officer Vimal Kapur said demand was broad-based across Honeywell Technologies’ portfolio, with short-cycle orders rising 8% excluding divestitures. The company reported particular strength in industrial and building automation, while Process Automation & Technology, or PA&T, returned to stronger growth.

“Our transformation into a pure-play automation company is complete,” Kapur said, citing the company’s positions in end markets including liquefied natural gas, data centers and automation.

Sales growth and profitability

Organic sales rose 7% in the third quarter, exceeding the high end of the company’s targets presented at its June investor day, according to Kapur. PA&T organic sales grew 8%, supported by double-digit project growth and a return to growth in aftermarket demand, including refining catalysts.

Building Automation posted 8% organic growth, its eighth consecutive quarter of high-single-digit growth. Product sales increased 11%, led by the fire and security businesses, while solutions sales rose 4% on services demand. The segment recorded double-digit growth in India and Asia-Pacific and continued strength in the Americas.

Industrial Automation organic sales rose 4%, led by double-digit solutions growth in industrial measurement and utilities. Product sales were roughly flat, as sensing and industrial measurement demand offset utility-industry deferrals in meter deployments.

Segment profit increased 23%, while segment margin expanded 370 basis points to 21.3%. Chief Financial Officer Michal Stepniak attributed the improvement to productivity, strategic pricing, volume leverage and accelerated removal of stranded costs related to the portfolio transformation.

Adjusted earnings per share increased 34% year over year to $2.27. Free cash flow rose 15% to about $690 million, and free-cash-flow conversion reached 95% in the quarter. Stepniak said the company expects conversion above 100% in the fourth quarter, aided by working-capital improvements and receivables collections.

Backlog and energy-project momentum

Honeywell Technologies ended the quarter with nearly $19 billion of backlog, up 7% excluding divestitures. Book-to-bill was 1.0. Excluding the effect of a large LNG award received in the prior-year period, total company orders were up 3% organically.

PA&T backlog rose more than 10% from a year earlier, supported by wins in LNG, refining and petrochemicals, and low-carbon energy projects. Kapur said the company received more than $1 billion in process technology orders since the first quarter of 2026, with activity spanning North America, the Middle East, Africa and Asia.

The company expects continued investment in LNG projects, refining and petrochemical activity in Africa and the Middle East, and growth in low-carbon energy applications such as sustainable aviation fuel and carbon capture. Kapur said Honeywell has licensed 100 sustainable aviation fuel projects, of which about 20% have been built.

Orders tied to data centers increased more than 100%, according to Kapur. He said Honeywell is expanding its data-center offerings beyond Building Automation into process automation, power controls, energy storage, liquid-cooling sensing and pumps.

• PA&T project sales increased 14%, supported by LNG and petrochemical backlog conversion.
• Industrial Automation core orders increased 15% in the third quarter, according to Stepniak.
• The company expects fourth-quarter orders to grow at a high-single-digit rate, excluding a large prior-year LNG award.

Margin outlook, costs and capital allocation

Industrial Automation margin expanded 350 basis points in the third quarter, and management expects the segment to reach a 22% margin in the fourth quarter. Building Automation margin rose 30 basis points to 27%.

PA&T margin declined as expected because of a higher mix of projects and dilution from the acquisition of Johnson Matthey’s Catalyst Technologies business. Stepniak said PA&T margin is expected to be around 21.5% in the fourth quarter before expanding in 2027, particularly in the second half, as catalyst volumes grow and integration progresses.

The company now expects to eliminate all remaining stranded costs by the end of 2026, six months after the aerospace spin-off. Stepniak said Honeywell is implementing shared services and a lighter corporate structure while pursuing productivity initiatives and broader use of artificial intelligence.

Honeywell also reiterated plans to reduce gross debt from $18 billion in the second quarter to less than $13 billion by year-end, targeting gross leverage below 3 times. It expects to finish 2026 with roughly $3 billion in cash and about $10 billion in net debt. Kapur said debt reduction remains the near-term priority, while disciplined acquisition opportunities could be considered from 2027 onward.

2026 guidance raised

Management raised its full-year outlook for organic growth, adjusted earnings per share and free cash flow. Honeywell now expects:

• Organic sales growth of 4% to 5%, compared with prior guidance of 3% to 4%.
• Fourth-quarter organic growth of 5% to 6%.
• Full-year segment margin at the high end of its prior range, or about 20.5%, with fourth-quarter margin of approximately 22%.
• Adjusted EPS of $8.40 to $8.45, representing about 30% earnings growth for the year.
• Free cash flow of $2.1 billion, up $100 million from prior guidance.

Kapur said the company expects 2027 organic growth to be at or above its long-term growth algorithm, supported by backlog, short-cycle demand and continued product introductions. He added that Honeywell’s long-term 2029 earnings target of $12 or more remains based entirely on organic performance.

About Honeywell International (NASDAQ:HON)

Honeywell International Inc is a diversified industrial technology company that develops products and systems for the aerospace, building automation, energy and industrial sectors. Its offerings include aircraft engines and avionics, industrial automation and control systems, building management technologies, fire and security products, personal protective equipment, and specialty materials and chemicals.

The company serves commercial aerospace, defense, airlines, building owners, manufacturers, energy producers and other industrial customers.

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