Q2 2026 Honeywell International Inc Earnings Call
Good morning, thank you for standing by and welcome to the Honeywell second quarter, 2026 earnings conference call.
At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session
Please be advised that today's call is being recorded.
I would now like to hand the call over to Mark Macaluso senior vice president of investor relations. Please go ahead.
Thank you. Good morning and welcome to Honeywell Technologies. Second quarter 2026 earnings conference call joining me. Today are Honeywell Technologies, chairman and chief executive officer of vapor and Senior vice president and Chief Financial Officer. Mike Stephania this webcast and the presentation materials including non-gaap recordings Solutions are available on our Wester relations website. From time to time, we post new information on the investor relations website that may be of interest, or material to our investors.
our discussion today includes forward-looking statements that are based on our best view of the world and of our businesses as we see them today and our subject to certain risks and uncertainties including those described in our recent FC V,
This morning, we will review Financial results for Honeywell Technologies for the second quarter of 20126 and discuss our updated guidance. And as always, we'll leave time for your questions at the end.
I would also like to take a moment to remind our audience that the 2026 results and guidance we will present today exclude results from Honeywell Aerospace following the spin-off on June 29th. Additionally, our guidance reflects both the completion of the Johnson Matthey Catalyst Technologies acquisition as of July 17th, as well as the anticipated closure of the Productivity and Warehouse Solutions business, which we now expect by early August.
Who begin on slide 4.
Thank you, Mark and good morning. The second quarter marked an important milestone for Honeywell Technologies. As we began our next chapter. As a pure play automation company at investor day, we laid out our go forward strategy of growing and monetizing unsolved ways through outcome Based Services software and new product Innovation. We also introduced long-term targets for Honeywell Technologies, which will be our road map for the next 3 plus years. And as you can see, we are laying the foundation today to deliver on our commitments.
Our result is quarters have demonstrated the strength of the new Honeywell Technologies portfolio.
We delivered 4% organic sales growth, driven by continued strength in Building Automation and a better-than-anticipated performance in both Process Automation and Technology and Industrial Automation businesses.
We grew 16% organically, with broad-based demand across all segments. This resulted in a 9% increase in ending backlog. Notably, short-cycle orders grew double-digit across all segments.
In P&T, orders were up 24%, organically led by roughly 50% orders growth in Process Technology, providing even greater confidence in their expected second half growth in Flexion.
We also expanded segment margin by 100 basis points, overcoming significant cost inflation headwinds and unfavorable mix through a combination of productivity and volume leverage.
This row earnings in the second quarter above our expectation. From early June, with increased confidence heading into the second half of the year. As a result. Today, we are raising our full year outlook for organic growth.
Segment margin and adjusted earnings per share. We continue to expect a sharp growth inflection in Process Automation and Technology, and continued momentum in Industrial Automation in the second half of 2026.
Combined, with the sustained outperformance in building automation. We now expect to grow 4 to 6% organically in second half of the year in line with our long-term targets.
We're also raising our adjusted EPS outlook by $0.10 at the midpoint, which reflects our second quarter outperformance and improved second half outlook that is more than offsetting the loss of income from the earlier than anticipated close of the two divestitures.
We also took important action this quarter to strengthen the portfolio to support long-term growth.
On the portfolio, we closed the acquisition of Johnson Matthey's Catalyst Technologies business on July 17th.
With this business, we add a differentiated technology portfolio that will expand our install base and strengthen b&t's portfolio across refining. Petrochemicals and renewable fuels.
Ken and his leadership. Team are already fully engaged with our new colleagues meeting with over 90% of employees globally at Key sites in just the first week.
They have been involved in all aspects of the transaction and are prepared to hit the ground running to deliver for our customers and our shared owners.
I could not be more excited. To welcome, the JM Catalyst Technologies, team to Honeywell Technologies.
As part of the final stage of our portfolio transformation, we completed the separation of Honeywell Aerospace, and also supported the Continuum team in their successful initial public offering in June.
On Continuum, we expect to provide more color on our plans of our 47% ownership, stake by early next year.
We remain strong supporters of Rod and his team and are excited to be shareholders in such a groundbreaking quantum computing company.
Thanks for the great work of our team. We also did not expect to close the Develop Productivity Solution and Services and Warehouse and Workflow Solution business by early August. This is approximately two months ahead of our initial planning assumption, which has reduced our 2026 revenue expectation by approximately $400 million. We're also confident this will drive greater focus and further simplification of our Industrial Automation portfolio, which has already begun to see improved financial performance. We wish both these businesses and their teams continued success as they embark upon their next chapter.
A transform and simplified portfolio is well, positioned to outperform with momentum in both long term and short cycle orders, ramping activity in Pipeline and meaningful macro Tailwind for the next several years.
Let's turn to slide 5 to recap our recent investor day where I had the pleasure of spending time with many of you in New York City last month,
Honeywell Technologies, we kicked off the day laying out our revamp and focus strategy that will drive value, enhancing solution for customers and drive out performance. In our Focus markets, each business leader walked through their differentiated offering connected strategy, growth framework and through your targets guests. Also, heard directly from our leading customers and partners including Exxon Tango, Google equinix Duke Energy and others about the differentiated outcome we are delivering and the long-standing relationship we have built over many decades.
My team and I are highly confident in our ability to deliver on our 3-year commitments. We have a strong position in key and markets differentiated Technologies, a global footprint and a clear competitive advantage in high growth verticals. Our team is comprised of Honeywell veterans, talented new additions and even some folks that rejoined us after successful carriers elsewhere,
All of this coupled with a proven Honeywell Technologies accelerator operating system positions us for a new chapter of growth and profitability. As Honeywell Technologies, the event concluded with us, delivering, our new 3 year Target, which you can see on slide 6.
For the last 3 years, we transformed our portfolio through Acquisitions spin-offs and diversions into a pure play automation company focused on innovating in Mission critical environments where uptime safety productivity and efficiency are Paramount. This has set us up to deliver on these commitments.
Our strategy focuses on 2 key pillars growing our install base and then monetizing this vast install base through Innovative software services and outcome based Solutions.
While maintaining our leading position in core verticals, we are also increasing our exposure to higher-growth verticals like data centers, LNG, grid infrastructure, and life sciences, as examples—all of which are linked to compelling mega trends. Our projected topline growth and margin expansion is also underpinned by a more meaningful shift towards services, software, and annual recurring revenue. On margin, we have over 200 basis points of margin expansion coming quickly from standard cost removal, portfolio actions in Industrial Automation, and benefit of the Aerospace trademark agreement.
On top of that, we expect to drive 60 basis points a year of operational margin expansion through price improvement, mix, new product introduction, and productivity. As you heard from our CFO in June, we are confident that the 24% target is achievable and provides meaningful upside as we execute our
Strategy, collectively, this will drive approximately 12 dollars of adjusted EPS, representing more than 10% growth annually.
The important Point here is that we will generate these returns right out of the gate given all the actions we took to prepare the organization ahead of Aerospace Spin. And finally on cash. We expect to improve our conversion over 90% and have line of sight already in the second half of this year to hitting 95%.
I want to talk more about our acquisition of Johnson Matthey's Catalyst Technologies business, which will become part of our Process Automation and Technology segment. This addition to Process Technology will unlock strategic growth by increasing our existing installed base and creating a more integrated offering across Catalyst and Process Technology. It also expands Honeywell UOP's capability across refining, petrochemicals, and renewable fuels with complementary offerings and capabilities, which you can see on slide 7.
What makes this acquisition specifically attractive is its strategic fit with our existing business.
We are already on many of the same customers with complementary process units, and the business perfectly aligns to our core verticals. The acquisition also enhances our end-to-end solutions by combining catalyst process technology and digital capabilities, powered by Honeywell Forge. We have clear visibility to both commercial and cost synergies and our long-term outlook for this business as part of Honeywell.
Technologies has not changed. Let's not turn to slide a to discuss our orders Trend in each business.
As you can see, our orders growth has been accelerating across the company, driven by strong demand generation, NPI and continued share gains.
This resulted in 16% organic orders growth in second quarter with broad-based growth across all short cycle. Businesses driving momentum on the LTM basis. As a result pnt had incredibly strong quarters of orders growing nearly 25% leading to a book to bill for p&t above 1.2.
Additionally, GM's Catalyst Technology business is set up well to benefit from the energy upcycle, particularly as customer capex forecasts support the ongoing transition to LNG and renewable fuels as a priority.
Strength across both long-cycle and short-cycle orders growth, including increased pipeline activity from refurbishment and rebuilds. In the Middle East, this will provide a meaningful macro tailwind for the next several years.
Beat and his team continue to execute the turnaround strategy in IIA to win back share and grow the core business.
Finally, in Building Automation, the team continues to drive innovative NPI that is driving share gain while growing our position in a higher growth vertical. This quarter, we drove over 50% orders growth and 30% organic sales growth in high growth verticals, while maintaining our strong position in the core with approximately 30% orders growth in our fire business.
Order, the Middle East, grew over 50%. This quarter by our process technology business regarding the conflict. We are assuming the situation remain as it is today with no improvement from the current tension. But also no significant escalation in the war or further disruption to the supply chain. This is, of course, a very fluid situation where our teams in the region have done a, tremendous job, minimize impact to our business. While ensuring our employees are safe and we're able to continue to support our customers.
Finally, book-to-bill for the total company was 1.1, and our ending backlog was up 9%.
This and continued momentum. We've seen all segments support 4% to 6% growth outlook in the second half and over the medium term.
It's been a pleasure speaking with you this morning and let me know, turn it over to Mike to discuss our second quarter results and 2026 Outlook in more detail.
Thank you very much, and good morning. In the second quarter, our technology delivered strong results that surpassed our expectations. We saw sales grow 4% organically, led by continued momentum in Building Automation and stronger-than-anticipated growth in Industrial Automation.
Process automation, technology cells, decreased 1% organically. But we're still materially ahead of our original outlook for the quarter.
On a segment basis, Building Automation delivered 9% organic growth, driven by double-digit growth in Products and continued strength in Solutions.
The teams drove double-digit growth in the fire and services businesses, respectively. And we saw strength in all regions, led by Asia-Pacific, Middle East, and Americas.
All in and other strong water from below and the building automation team.
In Industrial Automation sales were up 4% in the second quarter. Exceeding our expectations, led by strength in Solutions products grew slightly with continued momentum in sensing and Industrial measurement partially offset by utilities.
The core Industrial Automation business, excluding Plant the Future, grew 2% organically in the second quarter.
Finally process automation technology sells decline. Just 1% organically in the second quarter.
Ahead of our prior expectations as the upcycle in energy, markets, and activity in global projects begins to materialize.
Projects grew 5% driven by strengthening gas, LG and petrochemicals.
This trend was offset by a 6% decline in aftermarket, due primarily to a top prior year comparison, from a large couple of shipment in the second quarter of 2025.
Importantly, consistent with our messaging at the investor day. We expect a sharp inflection in growth in process automation, technology, beginning in the third quarter.
Led by process, technology and driven by Beckler conversion and much stronger Catalyst shipments.
On profitability segment profit, increased 9%, while segment, margin expanded 100 basis points to 19% with strong margin expansion in building Automation and Industrial Automation.
In addition to ongoing volume, leverage, and productivity actions, strength in cost removal continues to track ahead of plan.
By segment, building automation segment margin expanded 90 basis points to 27.1% on volume, leverage and price which was partially offset by inflation.
Segment margin Industrial Automation. Also expanded 90 basis points to 17.2% as pricing and productivity action. More than offset inflation and unfavorable mix.
1% largely driven by unfavorable mix from lower Cutlass volumes as expected. This however, was also ahead of our original margin output for the quarter.
Adjusted earnings per share of $1.95 was up 10%, driven primarily by higher segment profit. We drove lower net interest expense stemming from that paydown, which was partially offset by higher repositioning costs.
And as we previewed in the first quarter, a higher adjusted effective tax rate, drove a 16 Cent headwind which we overcame with stronger operational performance.
You will find additional information on the segment performance in the appendix of our presentation.
Rounding out the results, free cash flow grew considerably this quarter, both year-over-year and sequentially, to roughly half a billion dollars. This was principally driven by higher income as well as improvements in working capital, which more than offset ongoing collection headwinds in the Middle East.
This quarter, we deployed 1 billion dollars of capital through roughly 800 million dollars of dividends and roughly $200 million in high-value capital expenditures.
Year to date, we have deployed over $2.8 billion in capital to repurchase our own shares.
Pay dividends.
And invest in future growth.
Let's now move to slide 10 to quickly discuss the second quarter adjusted Epps Bridge.
As you can see, we delivered high quality results in the second quarter, strong segment, profit growth, including elimination of stranded costs. Lower below the line expenses, due to interest expense and lower share count allowed us to overcome the higher tax rate.
Excluding the tax headwind, earnings would have been up 20%.
Let's turn to slide, 11 to discuss our updated 2026 guidance.
Today, we're increasing our organic sales growth. Outlook to 3% to 4% for the year up from previous guidance of 2% to 3%. And now expect the second half to grow 4% to 6% versus 3% to 5% previously.
Building Automation continues to execute well, leading to a mid-single-digit-plus organic growth outlook, supported by incredibly strong orders growth in the second quarter—particularly in our focus verticals, including healthcare, hospitality, and data centers.
We expect process automation, technology, and growth to accelerate to high single digits in the second half, as global energy projects resume, backlog conversion ramps, and core shipment volumes increase significantly.
Finally, Industrial Automation growth will continue in the second half driven by resilient.
Short cycle demand for industrial measurement and sensing continued growth in Europe and China and strengthening America's demand.
As a result of the momentum in process automation technology and Industrial Automation. Where increasing our 4 year organic growth expectations for both businesses from roughly flat to up low single digits for the full year and meaningful improvement from our original expectations coming into the year.
We now expect 4 year, segment. Margin expansion of 250 to 290, basis points up 25 basis, points at the midpoint from the previous guidance.
This reflects the outperformance in the second quarter in process automation technology and Industrial Automation significant progress, on stranded cost, elimination, and accretion related to The Accelerated timing of PSS and wws the virtues.
Importantly, we expect high water technologies will exit the year above 22% segment margin.
We now expect 4 year, adjusted earnings per share of 8.20 cents and the midpoint for up, approximately 27% versus barrier and up from our previous, midpoint of 8 and a cents.
Finally, we continue to expect, free cash flow of roughly 2 billion dollars in 2026.
With the majority of this coming in during the second half and approximately 95% conversion rate.
You can find additional information on 2026 output independence, of our presentation, which includes estimates for corporate, and other below the line items.
On page 12, you will find the bridge from our June 8th guidance call to today's update. As you can see, we expect full-year adjusted earnings per share will be $8.20 at the midpoint, up from our previous midpoint of $8.10.
Let me now turn the call back to Vimal, through a pop, before Q&A.
From all key metrics, we successfully navigated and uncertainty, geopolitical backdrop with the strength of our resilient business model and the record of our fun Technologies accelerator operating system with our portfolio transformation. Complete, our simplified Pure Play automation portfolio as well, positioned to benefit from long-term micro Tailwind, including the product location of AI, increasing Global energy, demand and an aging population and increased consumption.
This combined, with our focus on increasing exposure. On higher growth verticals, driving annual recurring, Revenue growth from outcome Based Services and software. And maintaining our Innovation engine will enable us to achieve double digits, annual adjusted, EPS growth at greater than 90% free cash flow conversion.
Relate our 3 year targets for this new business and I look forward to updating you on a progress to achieving them in coming quarters. Today is only the beginning of that journey and I'm pleased with how we have started. But we have considerably more work and opportunity ahead of us with that Mark. Let's take a quick questions.
Demo Mike and I are now available to answer your questions. We kindly ask that you please be mindful of others in the queue by asking only 1 question and 1 related follow-up. Operator, please open the line for Q&A.
Thank you. And as a reminder, if you'd like to join the question queue, please press star 1 on your telephone keypad,
Our first question comes from the line of Dean Dre with RBC Capital markets, please proceed with your question.
Thank you. Uh, good morning, everyone. I'd just like to say congrats to Vimal and the whole leadership team on the successful spins. You got them all done on time, it was well communicated, and I do like seeing that boost to the guidance here right out of the block. So, congrats.
Thank you. Thank you, Dean.
Hey, since it is. So topical, um, I'd like to Circle back on the Middle East impacts, I mean, you still had double digit orders. Um, so the you still have got momentum there. Just, you know, I'm interested in about the idea that you've got some collection issues. Is there any risk of like force majour here? Um, and any kind of disruptions like that.
Uh, I mean, I would say being, uh, the Middle East is, uh, the way we have guided the second half, it is the normal which exists today. As we said in our prepared remarks, uh, how things have shaped up over the last 4 or 5 months, we have understood the dynamics on the ground. We did lose some revenue, Q1 and Q2 as we had guided, uh, but now, we are assuming our future state is built upon how the—
Conditions prevail today unless things change dramatically, uh, to your question. Uh, we are, uh, we observe some, uh, collection issues in pockets where they're modest; they are not material, but we have taken a prudent decision, uh, you know, to address the customer set where we have limited risk. But we don't have any risk to the point of any major disputes and things of that nature. Uh, we think business is in good shape. As an example, 50% orders growth in Q2.
Primary driven by uh few big deals in our process technology business, but you know, refurbishment which are occurring there. That's certainly is providing us, uh, some Tailwinds. But overall we believe that we are well positioned. Uh, and as this region, invests more as the things settled, mostly in transportation and Logistics related Investments and some resiliency will uh will benefit from that indeed. I might, I might just add that majority of our collection issues happen in in March, and April. In Middle East that started to normalize. Um, we still expect the revenue in the Middle East to be about the high single digits this year and, uh, orders should be about 40%. So, uh, we look really forward to, uh, to seeing Middle East performing, um, in the second half and, um, and next year
Good to hear and then just as a follow-up and congrats on getting the Johnson Matthew deal closed. Can you talk about the implications because you did renegotiate, a lower price. Just what were the circumstances there? Uh, and the conditions that that you got the lower price and what are the plans near-term plans for integration?
Yeah. The you know, we are excited about having this business and it's the business is really built upon. Our fundamental belief that the world more needs, more energy and energy mixed with change. Those are the fundamental principles
Primarily we believe that the word will need more investment in petrochemicals and renewable fuels. And the JM acquisition, strengthens our portfolio around that, uh, we also get more install base. Uh, you know, uh, and our ability to serve it. We, uh, you know, the negotiations are just part of the normal course, in my view as a as an ed transaction occurs. There are a few milestones and depending on how the business was trended. Uh, we worked with our counterparty to, uh, you know, look at how we should value the business. So I don't want to, you know, dwell a lot upon that but we remain uh excited about how we got the deal done at about 13 times. Uh a bit with with cost energy. No sales and energy and you will agree with me that we have acquired this business for commercial synergies. At the heart of it but we are not going to count on that in our early Innings but we'll we'll build upon it.
and then, then I would just add that just I I think we we got the business at the bottom and, um,
I would say that the second half looks looks good, even in our own couple is business. The second half is is sequentially versus first off up 2530, so so we look forward to getting our hands on this business.
And in congratulation on the retirement. And, uh, you know, you should have, uh, you know, good good next Innings and we we, we, we will stay connected.
Appreciate it. Wish you all the best. Thank you. Thanks, Dean. Thank you.
Thank you. Our next question comes from the line of Nigel, Co with wolf research, please proceed with your question.
Oh, thanks, good. Uh, good morning everyone. Um, thanks for the question. Um, so Mike, it's it's oboli good news to see the, uh, the guidance increase thing. Uh, you did indicate that uh, in in June that there was scope for upside. But I'm curious if there's anything you saw in June July, to give you more confidence. Uh, just any any color in terms of how, uh, you know, we exited the 2q entered 3Q on the end markets and then within that discussion, um, maybe just touch on IIA. It sounds like the upside came outside, the US so be curious if you've seen any momentum in the US.
Sure um look I I would say is uh just just launching the the new company here today. We what we saw in the second quarter, we we feel extremely. I would say confident in the in the second half as you can, as you saw orders across the board were were strong, every business printed, double digit short-sighted orders in the in the second quarter which gives us a lot of confidence in um in the in the third quarter and the fourth quarter and for IIA, the I would say the the growth and the strength is is broad-based.
Um, including including in China and Europe and um, and us is recovering nicely as well and the business benefiting from from onshoring. So I would say across the board, we we see a really good output for the for the second half. We raised the the guidance as you saw but I also think there is a there is more room as we as we're going to go into the first quarter and fourth quarter to to beat even the the race guidance.
Yeah, only thing I'll add, Nigel, is I think Pete and his team are executing, uh,
Quicker than we anticipated, how the business recovery will occur. Uh, and as we reported the orders growth for Industrial Automation, uh, uh, businesses, uh, about 10%, which is signals are performance in the second half. We, we are right, have we have the right momentum and, uh, that was the reason behind raising the kind of the business to low single digit in the second half. And, and I'm confident that that speed will deliver a 22% margin rate in the, in the fourth quarter,
So uh the the teams worked on it for a long time and and we have a really good line of sight here.
Mike. That's a that's a great segue to uh to my follow-up which is the the 2 points of sequential acceleration. Uh it was around 2 points of expansion and then uh second margin from 3 to 4 queue. Uh, there's a lot going on here with portfolio. Uh, you know the sale of the um Warehouse ptss Services um and then trying to cost tapering off in the back half of the year. But I'm just wondering if you may just unpack that 2 points of expansion for you to walk you through,
It is I would say structural even the portfolio options. Um as we stand today, I see the team is driving operationally 100, 120 bits of margin expansion.
That's great. Thank you.
Good idea.
Thank you. Our next question comes from the line of Scott Davis with Melius Research. Please proceed with your question.
Mr. Davis, your line is live
Oh, I was on mute. My apologies. I'm uh,
Anyways, I'll start over again. Good morning. Uh, I think over the goal line and
I'll also Echo, congrats to Dean we'll miss having Dean around. He's been
Uh, great colleague for a lot of years, so we'll miss him too.
Um,
Guys a couple just smaller things here 1. When you look at your m&a pipeline, is it kind of evenly split between your segments is? There are there particular segments where where you think you're you're you're more likely to over index.
Just a little bit of color there, please.
Yeah, so Scott I would say think of m&a. Uh, in in 3, distinct categories, uh, how we looking at it? Uh,
The the the highest priority is, uh, strengthening our Industrial Automation sensing and measurement. Portfolio input are looking at variety of options. Uh, so that remains our first priority or our priority number 1. Second bucket is, uh, as we're thinking about accelerating our business in, uh, some of the higher growth verticals, uh, whose impact we can clearly see in our orders growth rate. We are getting more and more convicted, that's the right strategy for Honeywell. So, how can we add some portfolio additions in some of these end markets, uh, to further accelerate our growth? So we have identified those 8, high growth markets. So looking at m&a opportunity in the end. We like to acquire a product line only like required 2 businesses in LNG, for example. So what can we do more on same lines in, uh, you know, verticals like hospitality and semiconductor micro grid, Etc. So they brought base
And finally tuck in acquisition on the tech side. We always have looked at the frontier Technologies, you know, few in 5 on cyber security. Uh, so we'll keep looking at, you know uh keep an eye on those. Those are much smaller of course, but they they do Propel our organic growth.
Okay, that's helpful. And guys could you just help us kind of size or at least help us understand?
The opportunity within the data center—I mean, it's pretty easy to picture the fire and security stuff. But can you walk us through kind of the longer list of SKUs and opportunities that you have there?
Yep. So I would say the we are looking at data center in uh, 2 Dimensions, 1 is the growth Beyond us.
Uh, the the we can clearly observe, the the built out of data center has not grown Beyond us across Europe, across Asia, and we have a better position as a company globally. Given honeywell's brand and participation globally. So that certainly is a Tailwind for us. So certainly that's benefiting us. But we also uh, observing. Now more data centers, putting on-site power generation.
Which is allows our process automation business to participate in data centers to automate, uh, you know, the utilities and energy storage on the on location. The gas coming in there for pipeline for, you know, for, for those power plants. So we can clearly see that as a new business opportunity, none of that is into our orders even yet. But we have, uh, multiple proposals by process automation team, apart from the building automation, which you mentioned. Very correctly. Has benefited a lot from fee, detection, security, and building management system which goes into Data Center. Finally, I would also say the third uh, like for
This tool for Honeywell, emerging longer term, is liquid cooling. Sensing is required in liquid cooling. It is a, uh, you know, good play for us. Our sensors are required as a critical input for liquid cooling. So, all those OEMs are actively working with us to develop new strategies on how they're going to execute liquid cooling. So, all things being equal...
we, uh, we will continue to expand our play in data center from almost nothing 3, 4 years back to, you know, that uh, you know, 5% of the building automation business and I and I expect that we will we will be at a higher number across Honeywell as the time progresses
That's great. Thank you, best of luck, guys. Thank you, thank you, thank you, Scott. Thank you.
Thank you. Our next question, comes from line of Andrew Obin with Bank of America. Please proceed with your question.
Morning, congratulations. Good morning.
Um,
Just a question. Did I hear right? I apologize. You mentioned 40% Water growth. What was that number related to? Was that on Process Automation in the second half, or was it referred to something else? I apologize.
No. What what I said that? Um, I think what, what I said on the, on the Catalyst, the the Second Harvest is first, half will be, will should be up 25 to 30% on on that, um, on that framework. Um, our orders for the quarter were up 16 16%
Okay, I apologize. Can you talk about? Yeah, sorry. No. I was just gonna add the orders in process automation. Technology were up 24% for the quarter.
Okay. Uh, thanks so much. Uh, can you just sort of alluded to, um, you know, seeing orders and process automation related to the Middle East outside of the Middle East? Uh, can you just talk about the Strand? What exactly are you seeing a people trying to do risk the exposure to the Middle East? And how soon can you see that show up a and orders and B, uh, in your actual work? Thank you.
Yes. So so Andrew the uh the strength in orders for second quarter in process automation. Technology was the biggest enabler was LNG demand in uh globally us of course being the big 1 but also outside us and some of the big deals in LNG is the is the is a big driver for orders growth in the in the process segment.
So your question, where do we see diversification of investment Beyond Middle East due to the conflict? On answer is yes, we absolutely are seeing projects coming in. We have large project in Africa, we are actively working. Some of it has been booked, some booking will occur in, in the technology side of the process, uh, business. Uh, so we see Investments there and we also see Investments happening in Asia for the downstream, uh, uh, refining petrochemical sites. Because I think, as we all observe, there was a very high price of fuse 200% 300% cost up for diesel and jet fuel. So so there are customers and countries. Looking at more domestic production for uh fuels as well as Downstream petrochemical uh products there. So overall the process Market will see more capital investment to de-risk the Middle East conflict situation. That's our forecast,
Thank you so much. And then maybe, uh, can you talk about Industrial Automation? Just, uh, maybe you can give some KPIs on improving, uh, performance. Uh, I don't know, sort of on-time delivery—anything you want to share, you know, how you're moving along in improving execution in this segment, driving this, uh, improvement. Thank you.
Yes, I would say that uh the the kpi is we are looking at it is uh first of course, how our delivery performance is improving so it's very Channel driven business. So uh, the sensitivity to the delivery performance is. Hi, we're working towards high 80s percent performance as we progress through the course of the year and that's our trend line. You know, Pete mentioning the call at start of the year. We will meet parties and we are trending from 40 towards 80, uh, as as we speak at this point of time. The other critical kpi for us is performance. On new products. We have launched several new products, uh, end of last year, early this year, and they are becoming enabler for our growth as evidenced by our orders growth rate of 10%. In Q2, we do expect, uh,
Continued strength in our orders rate in the segment for the second half of the year. So the actions we are taking on Innovation on operational. Performance is the foundation of how this business is going to turn around. And we expect the the Improvement Trend will continue from no growth to low single digit growth to at some point. We'll turn the business into a mid single digit growth.
Thanks so much. This is great.
Thank you.
Thank you. Our next question comes from the line of Nicole delos with Deutsche Bank. Please proceed with your question.
Yeah, thanks. Good morning, guys.
Good morning.
Um just wanted to ask on ba continues to show you know really nice high single digit growth and then orders up 13% in 2q. It just feels to me that that high single digits should be sustainable into the second half, keeping all of that in mind. Would you disagree with that for any reason? And then, you know, why wouldn't this if orders continue to hold up, like, why couldn't you see high single digit growth per seed into 2027?
It should become more single. There is no real logic, we are as being a new company. We are printing our new forecast, so obviously our aspiration is meet or beat it. So this is a level of uh, you know uh uh Prudence which we have used in our guide, but fundamentally the strategy of the business is Pivot towards high growth vertical. We clearly see Tailwind in data center hospitality and Healthcare. There are certainly driving a lot more orders growth and pivoting towards more and more uh acceleration of based business on the strength of new products. In fact, we're going to launch even more new products as we progress in the second half. So yeah, fundamentally, uh, there is no logic, but we are always cautious, given competition can respond to some of our actions over the last 2 years and we need to be cautious but the I remain optimistic to surprise everybody on the performance of the business in the second half.
Awesome. Thanks, Emma. We all love beets and raisins. Um, okay. And then I guess, maybe on stranded costs—um, you guys referred to making more progress than expected. Can you just put a finer point on that with respect to any changes in the stranded cost reduction timeline versus what we got at Investor Day or in the periods before? Thank you.
Sure. So just trying to cause this progressing extremely well. We at the investor day, I think we we said something around 85 million, I was trying to call said the Iran. This is about 20 million dollars better right now. So, we should enter 2027 with about 60, 65 million dollars of trending cause that that will proceed to illuminate, um, early next year. So, it's a, it's a good story, synchrony better about 20 million dollars to what we talked about.
Thanks, Mike. I'll pass it on.
Thank you. Thank you.
Thank you. Our next question comes from the line of Just Brak with Vertical Research Partners. Please proceed with your question.
Hey thanks. Good morning everyone. Um, hey, just coming back to Johnson, Matthew vimel, uh maybe 2 questions 1, as you've looked at that business over time. Uh, has it sails been relatively synchronous with what goes on at UOP? In other words, I'm wondering if this, uh, you know, is more of the same kind of quarter, the quarter volatility or, you know, they're sort of differences in timing and what they do versus what you do that. Possibly fix some of this quarterly volatility out of out of the, you know, your Catalyst sales.
Yeah, I would say that, uh, you know, their licensing Technologies are different from EOP. That's the reason we are quite the business because of the complementarity of the technology. So, given the differences they have, they are more into spaces like hydrogen methanol ammonia, where we don't have capability. It it's not 1-to-1 comparison. Uh, because the End Market they serve are different from the end markets, EOP sir, which is more refining, petrochemicals and oil and G. Uh, so so those comps are not comparable. There is a there's a variation between that but on the Catalyst side of our state Trends are very convergent. I mean, you know, each 1 of us have product lines and customer base. So they're not wide differences in the Catalyst performance, but but the technology licensing, there are differences.
And you, as you noted, you don't want to include revenue synergies in your outlook, but maybe just a little color on, you know, where you get after those, how quickly you might be able to capture some of those?
Yeah. I think they are driven by uh the combined offerings uh of Johnson methi and our process technology business solves, customer problems better. And that's the chart 7. If you see, uh, you know, in Our Deck there, uh, we for example, uh, can combine our capabilities in, uh, area like hydrogen, if you see, uh,
There is a capability, which Johnson Matthew bring in for production of on purpose, production of hydrogen. We have capability on co2. Elimination in that. So that
Process technology business was in the Middle East for L&D facilities, so their investment cycle is back. We also see customers looking at ways and means for improving more resiliency. Now, how can they run their operations in spite of this? You know, what can we do in terms of things like remote operations and more digitization in operations, so that they can, you know, take countermeasures.
And then finally early days but we clearly see investments in Middle East pivoting towards uh Logistics infrastructure. So pipeline terminals, different way of shipping product as we all read and observe from the media. So clearly there's a direction towards that. So all in, I would say, uh,
the the things have settled. Hopefully, no, no words happens from where we are today, and we see investment, uh, uh, uh, uh, you know, uh, becoming more and more normalized and some large projects coming back into the pipeline.
Got it. That's uh, that's helpful, no more. And then I guess just maybe a broader question. On the guidance, the 4 to 6% baked in to the second half of the Year, obviously, the the trailing 12-month orders, you know, up double digits. Um, you know, it was very supportive of that guy. Uh, it does sound like there's probably maybe some conservatism into the second half as well. But I guess the question I I have is is is is how much of of what you're seeing from an order perspective. Today is, is maybe even like longer cycle and is already starting to happen.
Health support, you know, uh a pretty good outlook for 2027 as well.
I would say it's both, and um, and uh,
I think versus what what we guided at the investor day for, for 2027 and looking where we, where we entering the the second half and how things are progressing, given the strength across the board in the short cycle and then the continued orders on the long cycle. You're right. Our 2027 incrementally is is looking is looking Stronger versus when we, when we talked even last month. So we feel really good about, uh, the prospects for for next year.
And what I will add, Joe, is that orders growth is a strength of our strategy.
Of pivoting more and more towards high growth particles which we talked about, uh, during the investor day. So building automation is seeing 13% orders growth in last quarter. A lot of that growth came from data center hospitality and Healthcare process.
Got a lot of it growth from LNG and uh low low carbon energy or renewable fuels which which we called out as high growth verticals. And in Industrial Automation, we saw a lot of growth in semiconductor Fabs. So exactly the the, uh, it it's not only underrated that narrative is turning into actual reality and we expect to maintain this momentum. Which then becomes basis for our second, half guide. And then of course, continue that in 2027
That's great. Thanks guys.
Thank you.
Thank you. Our next question comes from the line of Andy Kaplitz with Citigroup. Please proceed with your question.
Good morning, everyone.
Good morning. And Mike, can you comment on price versus cost? As you know, commodity inflation is obviously all over the place, but your margin, as you said, is trending a little better than the expectation. So let me just talk about what you're seeing. What, if any, updated thoughts do you have for price versus cost in the second half of '26?
Sure. So I think we we um we talked about it earlier earlier in the year we and we we we fought the inflation was going to be persistent and and that's what we, that's what we continue to see going into the second half. Um, price was about 3 and a half 3.7 for the for the second quarter. I think, looking at the second half, it will be around 4% and then that's where we see inflation to to be. So, uh, so essentially, we're, we're able to, uh, to cover inflation with price. But inflation is stubborn. We see a lot of inflation in electronics memory, obviously copper. And we also see inflation in labor. So uh, so I think this is their environment we're in um we continue to price the price at that level and and continue to to manage things with with our customers. Um, but uh, but yeah, I would say generally things are very similar to uh, to what we what we assume going.
Into uh into the end of the second quarter. I would say a lot of the margin expansion you see here from us is it's not really driven by by Price cost but it's really by by our productivity stranded cost takeout and the teams just being able to get a much better leverage on uh on um on cost and NPI introductions.
Second half which I think is a bit different from what you're recording Q2 or Solutions like growth. So I assume that's just continuing recovery in short cycle, demand that you're seeing and maybe NPI self-help Tailwind kicking in a little bit more, but maybe you could elaborate on that dynamic.
Yeah. So the uh the solutions side of the business is smaller component but it's growing uh you know very nicely for us and that's basically aftermarket services on our product install base.
Specifically, if you look at our gas detection side of the house of the business in, uh, Industrial Automation, we're very large install base and that service very well through our traditional way of service contracts and others. So that's growing, uh, extremely well, uh, and the and the, the growth of the business as I mentioned, is on the basis of our operate improved operational performance. So that customers have more trust in giving us more business. Also, new products which are creating more differentiation for us, uh, and certainly on on the top line basis, as Mike mentioned, the pricing is, certainly some help given the high inflation, uh, prevailing in uh in across all segments, in hunnewell. Yeah, yeah, yeah just add also that part of the growth and solutions to queue was related to uh integrated
Yeah, so we have a little bit of that that obviously won't won't. Continue posted investors. Are you should think about kind of the core IIA business growing sort of in the low single digit range? You know, call it 2% or so exiting as a kind of a start path for hostage or world.
Helpful guys.
Thank you.
Thank you. Our next question comes from the line of Alexander Virgo with Evercore ISI. Please proceed with your question.
Uh, yeah, thanks very much. Good morning. Good morning John. Thank you. The cool. I wondered if you could, um, just elaborate a little bit more on the 15% growth in software are, is there anything in particular driving that strength? Um, and then a couple of housekeeping questions. If you could, um, I think you've raised the expect the guidance on, on repositioning costs, um, and they were a little bit higher in the quarter than I anticipated. So I'm just wondering if you can give us a sense for what's driving that and whether that perhaps brings forward some costs that might otherwise have fallen next year. Uh and then I wondered, if you could, just give us a sense of the magnitude of the impact in the quarter from Catalyst volumes being down on the margin and then the benefit that that would have commensurately in the second half. Just to give us a sense, that would be great. Thank you.
Okay, I'll answer the first portion on software and hand over to Mike. Uh, so we do expect uh our ARR growth to be in the about 15% for 2026. You know, of course, the year is 6 months to go, so I can't really give you a precise number but we are working towards that goal and won't be substantially different towards that. What is driving? It is your question 2 things first is our existing offering is penetrating more so sell existing offer to more new customers. Uh, we seeing a lot of strength that across the board, both on the building and process automation side because our offerings are getting more and more Market acceptance. And the second is launching new offerings. We continue to have new offerings on our Force platform aligned with the customer needs, uh, and that continues to create more pipelines. So that 2027, we also need to deliver the 15%, uh, you know, uh, rubric there. So we just need more product towards that, so fundamentally, we we remain, uh, bullish on performance.
Of our Forge based, uh, strategy. And uh, that becoming an important part of our earnings algorithm, uh, uh, moving forward.
And and and on the, on the repositioning. We we decided to uh, to consolidate footprint uh, within our process business in the in the second quarter. So that's why you saw the the spike in in the repositioning. We're estimating 3 position right now for the year around that 100 110 million dollars and I think that's what what you should see.
Line bases. And the second type of catalyst where we have unique intellectual property. So our ability to get better margins is more Superior than that. So in a given quarter, the mix of that really drives the net margin of catalyst sometime. You can sell some of this unique IP Catalyst a lot more. Therefore our margins are very favorable sometime that happens in the front end of the year and that is not forecast easily because that driven by the actual consumption on based upon the plant conditions, you know, you run plant really very hard. You need more Catalyst if you run at a lower capacity than the Catalyst runs longer. So there's a, there's a variability on when that occurs which creates, you know, these, uh, variations on the margin and process technology on a quarter on quarter basis, but on a yearly basis, the margins are very predictable, you know, they are, they are more linear on an annualized basis and less linear within within a quarter.
Thank you. Our next question comes from the line of Chris Snider with Morgan Stanley. Please proceed with your question.
Thank you. Um, I also wanted to ask about the Middle East. Um, I think you guys said the full year up, um, high single digits on that. I presume the back half is even stronger. And, you know, I appreciate that activity has stabilized. But the outlook for you guys seems a lot more constructive, you know, relative to broader U.S. industrials in the region. So I guess my question is: is there something specific?
Think about what you guys are doing there to support volumes, or is there something specific about the products or the markets served that is, allowing you guys to show that kind of growth, which is and still, which is a a tough situation over there. Thank you.
I think it's a, I mean, at the heart of, it is a portfolio. If you see Honeywell portfolio is big in building Automation, and process Automation, and if you look at Middle East Market, that's what the market is all about. It's a big energy Market, uh, and we have a leading position with our process technology segmenting, and, and process automation segment. So clearly we serve all countries for that. And then it's a big infrastructure Market in which there's a built out of different type of infrastructure. Uh, be it, uh, you know, Hospitality be it, Healthcare Systems, airports Etc. And building automation business does, uh, extremely, well, in, uh, in those circumstances, I think what, what sets also, uh, separates us out is heavily localized models. We are 1 of the most localized company in Middle East for decades. Uh, we did not evacuate even 1 person during this conflict. Not, not even a single person. All our people are on ground because there are local, so we didn't have to do any look, any, any
Big, uh, move out. So I think combination of our portfolio uh and where customers are investing therefore and our portfolio is favorable towards that which will make a distinction between us and other Industrials and our heavily localized footprint. Puts us in a more favorable position probably compared to our peers.
Thank you vimel, I really appreciate that. Um, and then maybe just following up on m&a. Um, you know, you you signaled, you know, willingness to do m&a. Um,
You know, do you think that is there a balance sheet in, maybe bandwidth capacity for um, you know, deals of material size in the back, half of 26, or is this more 27 and Beyond, um, you know, maybe after, um, you know, monetization of of quantum just gives you guys even more dry powder. Thank you.
So 26, we are very focused to retire our debt. We have committed that and we will, we will absolutely execute on it. So I would say the M activity, should be perceived reviewed more in the lens of 2027 onwards. Uh, these things take time but we're actively working on Pipeline. I would say the Honeywell balance sheet of its own have strength for the deal size. What we mentioned during investor day 1 to 5 billion dollar Enterprise Value. Uh, the Continuum demonetization will give us additional Tailwind. Should we need it? Uh, and we'll plan it appropriately. But overall we will continue to top rate our portfolio. Should the right opportunity exists, but all our earnings forecasts of 12 dollars
By 2029 is based upon organic growth. There's not even single m&a assumed in that.
Because we all know that's unpredictable and we'll see what comes on our way.
Thank you very much, appreciate it.
Thank you.
Thank you. Our final question comes from line of Andrew mmmkay with BNP paraba, please proceed with your question.
Hey, good morning guys. Thanks for. Excuse me in here.
Um, you know, just to follow up on, uh, some of the processes discussion, you know, it's in. It's in that, uh, LG activity pick up. Uh, can you just reiterate that that timeline for conversion of buckle LNG projects?
You said 6 to 12 months, or is it multi-year? Sure.
My dear, uh, you know, this is your, you know, for us to build a uh, our proprietary equipment in LNG. We have
Little distinction in our business model. Typically we license our technology and customers will hire an EPC to build their plan. In case of LNG, we don't license technology, we give a proprietary equipment, uh, heat, exchanger uh typical delivery times are somewhere from, you know, 2 to 3 years window, depending upon the design. So you're talking about conversion, if we booked something in uh, 2024 they are converting today and what we are booking in 2026 will convert 2028, but also don't forget a lot of the revenue recognition is on PC basis, percentage completion. Uh, so you will do a crew, some Revenue, it's not zero, but then, large Revenue creation happens. Merely on a 2 year window. And I would just might be a that we're sold out on LNG for the next 3 years, 3 years. Yeah, it totally sold out. So we have a lot of Tailwinds in the business
Yeah. Okay, that's about what I figured. Um, and um, AI had not uh come up and, and the Q&A. Yeah. And and everything's pretty picked over. I want to ask like a high level 1 that that sort of this notion of physical AI driving demand or or interest in physical AI. I'm wondering if you're beginning to see um, that notion of of AI driving incremental, investments in Hardware, um, to get ahead of being able customers, being able.
To monetize AI long term. Are you, are you hearing that your discussions are? Are you seeing that, um, maybe potentially in any of your orders, cross, maybe Industrial Automation. Um, just maybe talk a little bit high level on what you're seeing there. As I mentioned, uh, you know, we when we sell uh, software on our Force platform, that's all AI based offerings. So clearly 15% Revenue growth. The base is small. I agree. We are going to inch from about 900 million to a little over a billion dollars of ARR in that segment, uh, this year, uh, in in that offering this year, uh, that does pull in products to a certain degree, uh, and that's our core strategy. We continue to launch new offerings, uh, and the drive demand to our products. So to me, AI is integral part of our offering set, Honeywell believes that it's how the automation industry will move towards autonomy. Today, we have been sending automation since 1975.
Our offerings are becoming more and more autonomous—from semi-autonomous to autonomous. And the best way to measure our progress is to see our ARR growth. I cannot give you any other indicator because they are all wrapped up into other products, and that's a direct measure. And that's the reason we are updating you on our ARR growth on Forge on a periodic basis.
Yeah.
Yeah, very good. Thank you very much. Thank you.
Thank you, ladies and gentlemen. That concludes our question-and-answer session. I'll turn the floor back to Mr. Kapur for any final comments.
Thank you very much, operator. I would like to thank our share owners, our customers, and all the Honeywell Technologies. Future Shapers around the world for the strong second quarter results, you delivered. We are confident on our part ahead and look forward to sharing our ongoing progress in the months to come. I hope all of you have a pleasant and restful summer. Thank you very much for joining us today and we hope you have a great rest of your day.
Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.
