Honeywell Aerospace inc. (HONA) Earnings & Analysis

Latest quarter

Honeywell Aerospace reported third-quarter revenue of $4.6 billion, up from $4.5 billion a year earlier and 1.26% above the consensus, although reported sales and the estimate both round to $4.6 billion. Adjusted earnings per share were $2.21, ahead of the consensus estimate of $1.90.

CFO Josh Jepsen said organic sales grew 2.4% as mechanical output improved from the prior quarter and some deals closed earlier than expected. He said commercial original-equipment sales rose 8% organically, while commercial aftermarket sales grew 2% and defense and space sales increased 1%. Supply constraints limited aftermarket deliveries and particularly affected international defense sales, he said.

Honeywell Aerospace’s operating margin fell to 22.1% from 22.7% a year earlier. Jepsen said adjusted EBIT benefited from approximately $50 million in net tariff refunds, while allocating more output to commercial original-equipment and domestic defense customers created an unfavorable sales mix.

Free cash flow fell to $500.0 million from $701.0 million a year earlier. Jepsen said prior-period comparisons for free cash flow and adjusted earnings per share were not meaningful because of separation-related impacts.

Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.

What management said on the call

CEO Jim Currier said accelerating output was his priority as orders grew across all end markets in the quarter. CFO Josh Jepsen said trailing 12-month orders increased 9% and backlog rose 12% from a year earlier to more than $19 billion, while demand continued to outpace the supply base.

Currier said about 70 critical suppliers were not consistently meeting the company’s needs, with roughly 10 most responsible for limiting output growth. The suppliers are concentrated in complex machining, castings, forgings and bearings. He said their combined output gap to Honeywell Aerospace’s needs narrowed from the prior quarter.

Asked about bearings, Currier said a second source was ramping production and should clear its past-due deliveries in early 2027; a third supplier was investing in capacity and staff to come online in the second quarter of 2027. Currier also said the company was prioritizing original-equipment customers over the aftermarket to avoid disrupting aircraft production lines, and domestic defense customers over international customers.

Jepsen said the resulting sales mix was a margin headwind and expected it to continue. Discussing 2027, he said higher volumes could improve operating leverage and that pricing momentum seen in 2026 was expected to continue, but he declined to specify what margins would look like.

Currier announced a $500 million expansion of the Tempe campus, with a facility scheduled to open in late 2028 to support control systems production. Jepsen said investments in the supply chain would run through both expenses and capital spending, and he expected capital expenditure to increase in 2027. For the fourth quarter, he expected output growth consistent with the first three quarters and said the company did not anticipate tariff refunds.

Guidance

Honeywell Aerospace raised its 2026 pro forma standalone adjusted EPS guidance to $7.85–$8.00 from $7.60–$7.90; Jepsen attributed the increase to lower expected expenses below the operating-income line. The company also raised its second-half free cash flow guidance to $1.2 billion–$1.4 billion from $1.0 billion–$1.5 billion.

For 2026 pro forma standalone adjusted EBIT, Honeywell Aerospace narrowed its range to $4.375-$4.425 billion from $4.35-$4.45 billion, keeping the same midpoint.