Honeywell Aerospace Inc.
HONA · Nasdaq
Next quarter
Consensus is $2.13 EPS for Dec 2026 across 4 estimates, ranging $2.02 to $2.22.
HONA Sep 2026
- 16.32%
- -9.60%
- $1.90
- $2.21
- —
- $4.64B
Reported results
- $4.64B
- 36.93%
- $1.16B
- 25.00%
- $726.00M
- $2.29
Highlights
- EPS beat: Adjusted EPS was $2.21, 16.3% above the $1.90 consensus; GAAP diluted EPS was $2.29 versus $2.03 a year ago.
- Modest growth: Revenue rose 2% year over year to $4.64 billion and was up about 2.7% from Q2’s $4.52 billion; adjusted EBIT increased 1% to $1.16 billion.
- Demand remains strong: Backlog reached $19.3 billion, up 12% year over year, while trailing 12-month orders grew 9%, led by Defense and Space.
- Supply limits output: Commercial aftermarket grew 2% despite healthy demand constrained by mechanical-component availability; management cited a small number of suppliers as a continuing production bottleneck.
- Profitability diverged by segment: Electronic Solutions adjusted EBIT rose 11% to $564 million, while Engines & Power Systems fell 16% to $250 million; Control Systems increased 2% to $382 million.
- Raised full-year targets: Pro forma standalone adjusted EPS guidance increased to $7.85–$8.00 from $7.60–$7.90, and second-half free-cash-flow guidance rose to $1.2–$1.4 billion from $1.0–$1.4 billion.
- Cash and capital returns: Q3 free cash flow was $500 million on $668 million of operating cash flow and $168 million of capital expenditure; the company declared its first dividend, $0.40 per share.
- Standalone financing weighs: The company ended the quarter with $15.9 billion of long-term debt; Q3 net interest expense was $187 million, compared with $5 million of net interest income a year earlier.
Analysis
Honeywell Aerospace’s first full quarter as an independent public company produced a clear EPS beat but only modest top-line and adjusted operating growth. Adjusted EPS of $2.21 exceeded the $1.90 consensus by 16.3%; GAAP diluted EPS was $2.29, up from $2.03 a year ago. Revenue of $4.64 billion grew 2% year over year and about 2.7% sequentially from $4.52 billion in Q2. Adjusted EBIT increased 1% to $1.16 billion, with the company citing an approximately $50 million net benefit from tariff refunds alongside new standalone costs. Comparisons with the pre-spin periods require care because those results were prepared on a combined basis.
The defining tension was robust demand against supply-constrained delivery and uneven segment margins. Backlog grew 12% to $19.3 billion and trailing 12-month orders rose 9%, but mechanical-component availability continued to limit aftermarket growth and output. Electronic Solutions profit growth was offset by a 16% decline in Engines & Power Systems adjusted EBIT. Management maintained its 4%–5% full-year organic-sales outlook while raising adjusted EPS and second-half free-cash-flow guidance and narrowing its EBIT range. The quarter also established capital-return policy with a $0.40 inaugural dividend, even as the new company carries $15.9 billion of debt and incurred $187 million of quarterly net interest expense.
Sales and demand
Sales increased 2% on both a reported and organic basis to $4.64 billion. The end-market mix showed growth across the portfolio, though supply constraints limited the pace of aftermarket expansion. Demand indicators were stronger than the reported sales growth: backlog and orders both advanced at high-single- to low-double-digit rates.
- Commercial original equipment: $690 million of sales, up 7% reported and 8% organically, as air-transport build rates and selectable equipment volumes increased.
- Commercial aftermarket: $2.13 billion, up 2%; healthy underlying demand was tempered by mechanical-component availability.
- Defense and Space: $1.83 billion, up 1%; growth from CAES and Civitanavi acquisitions was partly offset by lower international volumes amid supply constraints and a restricted-program wind-down.
- Forward demand: Backlog was $19.3 billion, up 12% year over year, and trailing 12-month orders grew 9%, led by Defense and Space.
Earnings and costs
Adjusted EPS of $2.21 beat the $1.90 analyst consensus by 16.3%; reported GAAP diluted EPS was $2.29. GAAP net income attributable to Honeywell Aerospace was $726 million, compared with $644 million a year ago. Adjusted EBIT was $1.16 billion, up 1%, and its margin was approximately 25%, broadly flat year over year. The modest adjusted EBIT increase included an approximately $50 million net benefit from IEEPA tariff refunds, while also absorbing incremental costs of operating as a standalone company.
- Cost pressure: Cost of products and services sold rose $53 million year over year, primarily reflecting $67 million of higher direct and indirect material costs, net of tariff refunds; gross margin percentage was flat.
- Investment: Research and development expense increased $30 million to $216 million, reflecting higher investment in new product development.
- Standalone burden: The company recorded $54 million of Honeywell trademark-license expense in the quarter; $15.9 billion of debt also contributed to $187 million of net interest expense.
Segment performance
- Electronic Solutions: Sales rose 4% reported and 5% organically to $1.78 billion; adjusted EBIT increased 11% to $564 million. Tariff refunds and pricing more than offset unfavorable mix and higher costs.
- Engines & Power Systems: Sales grew 3% reported and 2% organically to $1.52 billion, led by Commercial Aftermarket, but adjusted EBIT fell 16% to $250 million as unfavorable mix and higher costs outweighed price and tariff-refund benefits.
- Control Systems: Sales were essentially flat at $1.35 billion; adjusted EBIT increased 2% to $382 million, with pricing more than offsetting higher costs and unfavorable mix.
Supply and capacity
Management identified supplier execution as the main constraint on translating demand into output growth. Mechanical-component availability is limiting aftermarket sales, and the filing cites capacity, labor, sub-tier supply, quality, and delivery issues among certain suppliers. The company is pursuing supplier recovery plans, longer-term agreements, inventory investment, alternate-source qualification, and design changes; qualification and customer-approval requirements mean these actions may not ease constraints immediately. Honeywell Aerospace expects its 300,000-square-foot Tempe facility expansion, announced this year, to add capacity and supply-chain resilience when it opens in late 2028. Management said the actions underway position the company for higher sales and output growth in 2027 and beyond.
Outlook and returns
Honeywell Aerospace maintained its full-year organic-sales growth outlook at 4%–5%, raised adjusted EPS guidance, and increased the low end of second-half free-cash-flow guidance. It narrowed the adjusted EBIT range while lifting its expected growth rate. The board also declared the company’s first regular quarterly dividend, payable in December.
- Adjusted EPS: 2026 pro forma standalone guidance rose to $7.85–$8.00 from $7.60–$7.90.
- Adjusted EBIT: Guidance narrowed to $4.375–$4.425 billion from $4.35–$4.45 billion; expected year-over-year growth changed from flat–3% to 1%–2%.
- Second-half free cash flow: Guidance increased to $1.2–$1.4 billion from $1.0–$1.4 billion.
- Shareholder returns: The inaugural dividend is $0.40 per share, payable December 4 to shareholders of record November 13. A previously authorized $3.5 billion repurchase program had not been used for open-market repurchases as of quarter-end.
Cash and financing
Q3 operating cash flow was $668 million and free cash flow was $500 million after $168 million of capital expenditure. The filing reports $1.014 billion of operating cash flow for the first nine months, down from $1.864 billion a year earlier; the decrease was primarily associated with higher debt-interest payments, spin-off transaction payments, and Flexjet settlement payments. The company ended September with $1.56 billion of cash and $15.9 billion of long-term debt. Its $4.0 billion of revolving credit facilities were undrawn. The new dividend thus comes alongside a substantial debt load and the need to fund standalone operations and investment.
