Honeywell International Inc.

Thank you for standing by and welcome to the Honeywell first 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, sir.

Thank you. Good morning and welcome to Honeywell's first quarter 2026 earnings and outlook conference call. On the call with me today are Honeywell Chairman and Chief Executive Officer Vimal Kapoor, Honeywell Aerospace Technologies President and Chief Executive Officer Jim Currier, and Senior Vice President and Chief Financial Officer Mike Stepniak. This webcast and the presentation materials, including non-GAAP reconciliations, are available on our investor relations website. From time to time, we post new information on this 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 are subject to certain risks and uncertainties, including those described in our recent SEC filings. This morning, we will review our financial results for the first quarter of 2026, provide guidance for the second quarter, and discuss our full year outlook. As always, we'll leave time for your questions at the end with Vimal, Mike, and Jim. With that, it's my pleasure to turn it over to Vimal, who will begin on slide three.

Thank you, Mark, and good morning, everyone. Honeywell delivered strong results in the first quarter, building on the momentum from 2025, despite a complex geopolitical backdrop and temporary mechanical supply chain constraints in aerospace. Orders grew 7% organically, on the strength of our building and industrial automation segment, as well as in petrochemical and refining verticals in process segment. Including the orders growth in aerospace, we drove backlog to over $38 billion with book to bill above 1.1. This growth was robust across electronic solution in aerospace, fire and aftermarket services in building automation, and gas and LNG in process automation and technology, bolstered by our innovation and new product engine. We expanded margin 90 basis point to over 23% driven by pricing discipline, productivity, and accelerated stranded cost removal ahead of the aerospace spin. All of this drove 11% adjusted earnings growth in the quarter, demonstrating the strength and agility of the Honeywell operating system. We also made tremendous progress on the portfolio transformation that began in 2023. we announced the sale of our productivity solution and services and warehouse and workflow solution businesses, respectively, which we expect to close in the second half of 2026. We are also excited to announce that now we expect to complete the Honeywell Aerospace spinoff in the third quarter on June 29th, marking the final step in our transformation. All of the acquisitions, divestitures, spinoff, and simplification effort over the past three years have positioned both aerospace and automation for bright future as independent leading industrial companies. Despite the strong start of the year, we are taking a prudent approach to our guidance given the uncertainty surrounding the conflict in Middle East. We remain confident in our ability to drive accelerating growth in the second half as our backlog supports a pickup in growth in process automation and technology. We will continue to closely monitor the situation, provide any further updates if the situation changes materially. Before we get into the details, I want to thank all our employees for their focus, commitment, and dedication throughout our multi-year transformation. The future is bright as we set both businesses in gear to thrive with the right strategic focus and capital allocation priorities that will drive value for our customer, employees, and shareholders. Let me turn to slide three to discuss the progress on our portfolio transformation. As I mentioned, we are progressing on the final separation milestone with the aerospace spinoff now expected to complete on June 29th, just over two months away. The leadership team for both Honeywell and Honeywell Aerospace are in place and already executing for our customers today. In March, we successfully raised $20 billion of aerospace spin financing while delivering strong investment credit rating of A3, A-, and BBB+, with a positive outlook from Moody's, Fitch, and S&P, respectively. Proceeds from the financing will be used primarily to redeem Honeywell debt, the majority of which has been completed as of quarter end, and to fund the cash to the Aero balance sheet. Aerospace also announced a groundbreaking supplier framework agreement with the U.S. Department of War to rapidly increase the production of critical defense technology through a $500 million commitment. Honeywell was among the first tier one supplier to sign an agreement of its kind and we are honored to support the US and light forces with these increased production capabilities. This agreement demonstrate the criticality of Honeywell Aerospace to national security interest and supports a multi-billion dollar revenue opportunity. Turning to automation, We amended an agreement to acquire Johnson Smithy Catalyst Technologies business, which adjusts the total consideration and extends the date to close the deed to the end of July. We continue to believe the combination of the business with our capability in process technology will unlock future growth by broadening our portfolio, growing our install base, and creating a more integrated offering for our customers. As I mentioned, we announced we signed agreement to sell productivity solution and services to Brady Corporation and warehouse and workflow business to American industrial partners into all cash transactions. These businesses are well positioned to grow profitably under highly capable new leadership with deep industry experience. And for Honeywell, the sale allow us to further simplify our portfolio alongside the planned separation from aerospace. Following these sales and spin, we will have a more cohesive portfolio focused on three principles and markets. Excited to share much more about our business with the investment community at our upcoming investor day for both Honeywell Aerospace and automation business in June. Both companies have exciting future ahead. Before we get into the details, I want to discuss our outlook for process automation and technology in light of the current bid-lease conflict. Let's turn to slide four. In quarter one, the Middle East conflict drove a roughly half-person impact to revenue for all of Honeywell, most notably in process automation technology, given the energy exposure and presence in the region. Clearly, the situation in the Middle East is evolving rapidly, and we hope for fast resolution to the conflict. However, our guidance assumes the conflict persists. through the end of the quarter, and the resulting logistic and shipment delays caused roughly 1% impact to revenue. We continue to effectively manage through this, with the safety and well-being of our employee being the top priority. Despite the conflict, demand continues to be strong for differentiated process technology on a global scale. We have secured over $2 billion in project wins over the past three quarters, including for LNG, refining and petrochemicals, and sustainable aviation fuel across U.S., Brazil, Africa, and Middle East. These wins include both rebuilding of the impacted facility with the key customers, including Qatar Energy LNG, and new expansion projects helping further reinforce the growth outlook for P&T, securing a long tail of high-margin services and software opportunities. Notably, in November last year, Tenggote Petroleum Refinery and Petrochemicals selected Honeywell to supply advanced technology, services, proprietary catalysts and equipment to help double production capacity at Africa's largest refinery in Nigeria. In addition, Dengote will license Honeywell's Oliflex technology, which converts propane to propylene, and Honeywell's petrochemical technology to produce linear alkyl benzene, or LAB, a key ingredient in detergents for household needs. With this agreement, the customer will nearly double its production of polypropylene, which supports the manufacturing of packaging materials, consumer goods, and industrial products, and once at full production, will operate one of the world's largest LAB plants. As a follow-up of this award, earlier in April, we announced that Dengote also selected Honeywell to provide connected services, advanced digital performance monitoring, and operator training at the same refinery. This will help customers like Dengote improve operational performance, increase asset reliability, and enhance their workforce, ultimately unlocking greater value for their facility. On LNG, we recently signed agreement to provide integrated liquefied natural gas pretreatment and liquefaction solution for Commonwealth LNG plant export facility in Louisiana, and next decade's Rio Grande LNG projects in Texas through an agreement with PACTEL. We expect strength in our LNG vertical to continue given the additional projects we expect to be awarded in quarter two. Longer term, we expect the favorable crack spreads in petrochemical and refining will generate incremental catalysts and services demand to maximize performance of our customers' plant in addition to needed repairs and modification related to rebuild. Once the conflict stabilizes, we expect the industry will benefit from pent-up demand and more stable feedstock supply, enabling better plant utilization rates. Despite the near-term disruption, process technology orders increased double-digit, driving a 22% increase in P&T backlog. we remain on track on expected second half ramp as LNG and large modular equipment deeds convert to sales in the back half of the year, which will be followed by new catalyst demand in 2027. So while we acknowledge the challenges the business faced over the last few quarters, we are encouraged by the resiliency of orders, growth and backlog, which will generate a strong runway as we progress through 2026 and into 2027. I look forward to sharing more with you during the June investor day. Let me now turn to slide five to talk more about aerospace growth trajectory in 2026. We continue to see strong aerospace demand across commercial OE, commercial aftermarket, and defensive space, which is driving sustained orders growth of 28% over the last 12 months, which drove a roughly $19 billion aerospace backlog. A 20% increase from the prior year and 1.1 book to build in the first quarter. Against this backdrop, our mechanical supply chain over-delivered in the fourth quarter of 2025, enabling double-digit organic sales growth. However, certain critical suppliers experienced temporary constraints to start the year, which led to slowdown in January and February and lower output and sales growth. Output improved considerably in March, our highest revenue month for the quarter, making us confident that our supply chain efforts will produce better results moving forward. Given the significant amount of demand we see in aerospace portfolio, Honeywell has invested more than $1 billion over the past three years into expanding the capacity and resiliency of our supply chain. Our 2026 guidance incorporates the continuation of this elevated level of spending, focused on onboarding new suppliers, developing internal capabilities, and assisting our supplier partner with engineering and operation. The strategy drove double-digit output growth for 14 straight quarters prior to quarter one. and we are confident on getting back to this trajectory in near term. Given the progress exiting Q1, our history of recovering from supply chain constraints, and continued positive demand trends, we are maintaining our aerospace guidance of high single-digit organic sales growth for the year. As you can see on this page, the outlook is consistent with historical linearity in the business, as we typically experience a sequential ramp throughout the year. To further support this ramp, Electronic solution deliveries are meeting accelerating defense requirements, and we are investing in a new capacity necessary to ensure we can continue to do so. In the first quarter, electronic solution sales grew double digit. With that, I will now turn the call to Mike to go through Honeywell's first quarter results and 2026 outlook in more detail on slide six.