Honeywell International Inc. Q2 FY2025 earnings call

Honeywell delivered solid second quarter results, with organic sales and orders growth accelerating. The company is raising sales and earnings guidance for the full year. Management has been transforming the portfolio ahead of separation, including evaluating strategic alternatives for productivity solutions and services, and Warehouse and Workflow Solutions businesses. The company made acquisitions like the $2.2 billion acquisition of Sundyne and returned capital to shareholders. Business leaders have focused on meeting financial commitments, and the portfolio review initiated by the CEO is nearing completion.

In the second quarter, Aerospace Technologies grew 6% organically. Industrial Automation sales were flat on an organic basis. Building Automation saw sales increase 8% organically. Energy and Sustainability Solutions sales grew 6% organically. Segment profit expanded 8% from the prior year. Orders were $10.5 billion in the quarter, up 6% year-over-year. Backlog grew 10% organically to a new record of $36.6 billion.

The company is raising the lower end of the full year organic sales growth guidance range by 200 basis points, now projecting growth of 4% to 5% for the year or 3% to 4% excluding the prior year impact from the Bombardier agreement. Full year sales are projected to $40.8 billion to $41.3 billion. The third quarter organic sales growth is anticipated to be 2% to 4%, equating to $10 billion to $10.3 billion. Full year adjusted earnings per share is expected to be $10.45 to $10.65, and the third quarter is anticipated to be $2.50 to $2.60.

Tariffs have a lagging effect on business demand. Energy projects and catalyst spend are pushed out into 2026 due to macroeconomic and legislative uncertainty. Supply chain issues in Aerospace, such as OE inventory adjustments, also pose risks.

Q: Just maybe wanted to start off with Aerospace to try and understand kind of the moving parts there. I suppose it sounded in Paris as if there was a bit more confidence around sort of supply chain issues and getting those resolved, and that might help the Commercial OE top line, but it seems something sort of moved the other way. So just trying to understand, is that BGA or large commercial? What's the pace at which Commercial OE sales improve? And on the margin front, should we think about this sort of 25% to 26% margin being the new sort of baseline for the next 12 or 18 months?

A: Julian, so I would say, first, orders in Aerospace, extremely strong, continue to be strong on all fronts, Defense and Space, Commercial OE, et cetera. What we see in our Commercial OE in the second quarter, it's really a transitory item, I would say. We experienced some destocking with one of our OEMs, and we expect those -- our shipments to normalize to the OE build rates in the second half. So I feel very confident that you'll see better OE profile from us in the second half. But like I said, we feel quite bullish on Aero performance for the year. From a margin standpoint, as we talked earlier, we were integrating CAES, and that's about 100 bps drag for us year-over-year. That's going to start to normalize in the next year. CAES, by the way, is growing revenue this year at high double digits, so it's ahead of our pro forma. Really encouraged by that. And we also year-over-year are putting about $200 million of incremental R&D into the Aerospace business to help support our NPI growth and new revenue next year. So I think in the second half, margin profile for Aero will be better than what you've seen this quarter. And like I said, I'm quite confident about the high single-digit growth on revenue for the rest of the year.

Q: Can we just talk a little bit about UOP? And my question is very strong growth this quarter, but you're seemingly talking it down for the second half of the year. Can we just understand what verticals drove the upside? And what verticals are driving the downside if we could disaggregate it?

A: So I'll say, Andrew, for the quarter 2, we had 2 favorable items. We had a big licensing agreement with a customer, which gave us long -- strong growth. And also catalyst sales were much stronger in Q2. So some of the catalysts got pulled through from second half to first half. So that's more of a cycle of this long-cycle business. To the second part of your question, the impact we see is energy project spend is moving more to the right. Part of it is, I would say, economic uncertainty which got settled in and some of the regulatory items which got clarified with OB3 regulations. So we do believe they will settle. But clearly, we saw pressure on that for rest of the year, which we have reflected in our guide for ESS business and, to a certain degree, also on IA for process automation.