Honeywell at Jefferies Conference: Transformation and Growth Insights

On Thursday, 04 September 2025, Honeywell International Inc. (NASDAQ:HON) presented at the Jefferies Mining and Industrials Conference 2025. The conference call, led by CFO Mike Sepniak, outlined Honeywell’s strategic transformation, highlighting both promising growth and challenges. Key discussions included the company’s ongoing separation processes, strong aerospace performance, and macroeconomic impacts on their operations.

Key Takeaways

• Honeywell plans to complete the Solstice spin-off by year-end, listing on Nasdaq as SOLS.
• The aerospace business is targeted to become a $30 billion entity.
• Organic sales growth for the first half of the year was between 4% and 5%.
• A $600 million investment in Quantinuum, Honeywell’s quantum computing business, was announced.
• The company faces supply chain constraints, particularly in aerospace.

Financial Results

First Half Performance:

• Organic sales growth: 4% to 5%
• Revised EPS guidance: $10.45 to $10.65
• Defense and space sales: Increased by 13% in the second quarter

Future Projections:

• Aerospace business is targeted to reach $30 billion.
• Aftermarket business aims to comprise 60% of the aerospace sector, up from the current 50%.
• Margin rates in aerospace are expected to grow to 27% and beyond.

Operational Updates

Separations:

• Solstice spin-off is scheduled before year-end, with an Investor Day on October 8.
• Aerospace separation is progressing, with more details expected by the fourth quarter.
• Strategic options are being explored for PSS and Intelligrated.

Automation:

• Honeywell aims to become a pure-play automation company.
• The company is structured into building automation, industrial automation, and process technologies.

Aerospace:

• Holds the strongest backlog ever, with a past due backlog of $2.3 billion.
• Supply chain recovery is ongoing but uneven, especially in mechanical components.

Future Outlook

• Honeywell’s automation portfolio is expected to become cleaner and more analyzable.
• Electrification is anticipated to play a significant role in the aerospace business.
• Defense and space sectors are projected to continue growing at elevated levels.

Q&A Highlights

Macroeconomic Factors:

• Tariffs are causing customers to delay investment decisions.
• Europe is experiencing a slowdown in the PSS business.

Aerospace Supply Chain:

• Recovery is not linear, with challenges in machine parts and castings.

Defense and Space:

• Growth is driven by geopolitical factors, such as the conflict in Ukraine.

Quantinuum:

• Raised $600 million, with NVIDIA participating, and plans for an IPO are underway.

For more detailed insights, readers are encouraged to refer to the full transcript of the conference call.

Full transcript - Jefferies Mining and Industrials Conference 2025:

Sheila Kayelu, Analyst, Jefferies Aerospace Defense and Airlines Equity Research team: Good morning, everyone. My name is Sheila Kayelu with the Jefferies Aerospace Defense and Airlines Equity Research team. Thank you so much for being here. We have Honeywell here. We have Mike Sepniak, who’s CFO and executive SVP.

Thanks, Mike, for being here and always supporting our conference. First one’s up as always, so thank you, Sean Meegan, for for allowing this to happen. Mike, I think you have a few prepared remarks, and then we’ll go into q and a.

Mike Sepniak, CFO and Executive SVP, Honeywell: Sure. I what I’ve first of all, thank you for having us. Maybe before we get into q and a, I’ll just give you a quick business update and what’s going on in Honeywell. Obviously, a lot going on. I’ll start maybe just with the separations update.

So Solstice, we’ll list on Nasdaq as SOLS, and we’ll they’ll be before year end, and we’re hosting Investor Day on October 8 at non stock as well. With aerospace separation, it’s progressing well. We’ll have more to say about it in the in the fourth quarter and as we go into next year. But I would like to say that it’s the separations are progressing on on time and and per budget, if you will. With with the business itself, Vimu completed the assessment of the of the portfolio, largely completed with our portfolio transformation with a couple couple deals in here announced Catalyst Technologies, which talks very well to our ESS business.

And then we did a small tuck in in Lion, which was essentially a technology buy that that we thought was important for us. And as you know, we’re looking through strategic options for our PSS business and Intelligrated. And then from just organic standpoint, I’m really pleased with the team’s performance in the first half vis a vis the beginning of the year and what we guided on organic sales, two to 5%. We’re today standing at four to 5%. And from the EPS standpoint, ten ten to ten fifty.

We’re now at ten forty five to ten sixty five. So I would say the team’s done a really nice job progressing for the year. I’m really pleased with the the orders and how they’re coming in, and optimistic about the the second half. And I think we’ll we’ll have a good second half as well. So that’s about it on the on the business.

Sheila Kayelu, Analyst, Jefferies Aerospace Defense and Airlines Equity Research team: I know Honeywell is the hardest working team out there, but with the spins, the deals, you guys have a lot going on. So how do you think about resource allocation today and some of the major benefits post breakup?

Mike Sepniak, CFO and Executive SVP, Honeywell: Sure. So what I would say is, obviously, a lot going on, but the good thing about Honeywell, team has a lot of capacity. And what we’ve done is given the experience with the prior spins, what we did was essentially took a group of people, about 200 people from the businesses, and and put them strictly on the separation, on on their separation. Rest of the team is focused 100% on on running the business, like nothing is happening. And then from m and a, those m and a’s are aligned with with specific segments.

So each team reviews their capacity to absorb those m and a’s before we do them. And we usually our process from m and a standpoint takes any given deal we might be look looking at for two, three years. So we’re usually well prepared as far as how to how to absorb them. So on on whole, I feel like we’re well resourced. We also brought in resources from outside.

We obviously have advisers and help externally that that helps us execute on all these transactions.

Sheila Kayelu, Analyst, Jefferies Aerospace Defense and Airlines Equity Research team: You’re spinning solstice in q four, and you have the Analyst Day October 8 and have announced potential strategic alternatives for productivity solutions and warehouse workflow solutions. How does this contribute to how you view the automation business going forward, and what does automation look like post this business?

Mike Sepniak, CFO and Executive SVP, Honeywell: Sure. So I’m really excited about automation prospects and the outlook. I think the the portfolio will be much cleaner, much easier to analyze and invest and and unpack. So really happy about that. But, ultimately, what we’re we’re striving to be is pure play automation company and global automation company, and that has cohesive portfolio in terms of alignment in in controls, process, software, and really excited about that.

The well the way we will be structured, we obviously have building automation, industrial automation, and process technologies and automation. So three three businesses, very, very clean, I think, way to to run them.

Sheila Kayelu, Analyst, Jefferies Aerospace Defense and Airlines Equity Research team: Maybe if we could talk about, the broader macro. It seems like a relatively slow summer, but we’ve seen some mixed reports since your q two and Honeywell’s higher outlook for the year, but caution regarding lagging effect on business demand from tariff announcements, and I can’t even keep up with some of them, to be quite honest. So where where are areas you’re seeing improvement, whether it’s with orders, and where do you see some choppiness given the potential program push outs or tariff uncertainty?

Mike Sepniak, CFO and Executive SVP, Honeywell: Yes. So like I said, we’re pleased with the first half performance from teams. Orders on the short cycle are predominantly holding. We had a little bit of slow, I would say, July, which gave us a little bit of pause, but nothing nothing concerning as far as our updated guide. If you look at the businesses and unpack them, the the building automation has continued to perform on all cylinders.

So it doesn’t matter where you go globally. You you look at there’s a lot of growth in in building automation, both on the product side and both on the on the solution side. So really pleased with that. Aerospace is is sold out and continues to have very strong demand, and our backlog continues to grow, and orders are coming in very strong.

Sheila Kayelu, Analyst, Jefferies Aerospace Defense and Airlines Equity Research team: I hear it’s a good sector, by the way.

Mike Sepniak, CFO and Executive SVP, Honeywell: So It’s a it’s a great sector to be in these days. Yes. And then from industrial automation and ESS, on the industrial automation, sensing’s doing well. Thermal solution’s doing well. On the other hand, in calibrated and PSS, the scanning business, they’re seeing a little bit of a, I would say, slowdown as far as big project, and and Europe will continue being slow for us in PSS specifically.

And then on for the ESS business, HPS business, we see a little bit a little bit of delays on the big deals, big orders, if you will. We don’t see any cancellations, but where I can see the the final investment decisions are getting pushed three, six months, which obviously has impact for for us in the second half from from revenue. And on the short cycle orders in ESS business on specifically on Catalyst, We also see delays that but those delays are short term because these units will have to be refilled with a catalyst. And and I think the the 2026 is gonna look much better as things tend to stabilize here on on tariffs and our our various issues that we’re going for in terms of the macros.

Sheila Kayelu, Analyst, Jefferies Aerospace Defense and Airlines Equity Research team: Whether it’s Intelligrated or the Catalyst business, any reason for those pushouts? Is it just tariff related uncertainty that you’re seeing that?

Mike Sepniak, CFO and Executive SVP, Honeywell: It’s but the feedback we’re getting, it’s it’s predominantly just assessing the world post tariffs. And I think everybody is just absorbing at this stage the tariffs. They’re looking our customers are looking for, I would say, calmness in the in the macros to to be able to invest in all this swinging as far as tariffs and and few other things. It’s it’s causing them a pause as far as investing.

Sheila Kayelu, Analyst, Jefferies Aerospace Defense and Airlines Equity Research team: Maybe to touch upon UOP. Seems a lot of runway with the recent acquisition along with broader sustainability trends and catalysts. The offset is you called out some large energy projects, and catalyst pushed out into ’26, as you mentioned. How much, visibility do you have into that demand? You know, how does that uncertainty actually translate into orders and then actual revenues?

And how do you think about next year shaping up?

Mike Sepniak, CFO and Executive SVP, Honeywell: Yeah. So I would say the business is quite quite robust, and we’ll continue to grow. I think this year, we said low single digits, flat to up. We’ll continue to see that, and we’re seeing little bit of slowdown in the, I would say, traditional UOP business. But on the other hand, our acquisitions are are performing well, and they’re being accretive to growth and continue to be accretive to grow.

And as we love the first year of of integration, they’re becoming organic growth for us. So really I’m really, I would say, excited about the what what this business is going to do next year and in 2027 as as EOP starting to starting to recover and those big orders starting to come in.

Sheila Kayelu, Analyst, Jefferies Aerospace Defense and Airlines Equity Research team: Is it possible you give us a quick update on how the acquisitions are being integrated and where you’re seeing success?

Mike Sepniak, CFO and Executive SVP, Honeywell: Yeah. So so, obviously, on we’re seeing success everywhere. All of our acquisitions, vis a vis the TVA, are performing better than what we anticipated on on orders, on sales, and and synergies. So across the board. And whether you’re looking at arrows aerospace business or looking at ESS and, or you’re looking at the access solutions in, in building automation, they’re all performing well.

So kudos to the team for for executing those those transactions well and and and integrating them well.

Sheila Kayelu, Analyst, Jefferies Aerospace Defense and Airlines Equity Research team: Maybe to talk again, going back to the industrial automation business, where’s the outlook slightly better, than you expected when you started the year and as you enter into the second half? And, you know, what verticals are tracking better?

Mike Sepniak, CFO and Executive SVP, Honeywell: So I would say sensing is doing doing better than than what we thought. Thermal solution is doing better as well. On the other hand, like I said, PSS and Intel grading is doing a little bit a little bit weaker than than what we expected. Nothing to that we not will not cover in our guide, but but I think that’s kind of the where we’re at right now.

Sheila Kayelu, Analyst, Jefferies Aerospace Defense and Airlines Equity Research team: Got it. Back. So let’s talk a little bit about building automation. I think another segment that’s been exceeding your expectations. Can you talk about what the drivers have been, what’s really driving that, where you’re seeing the most demand, and what you’re seeing, whether it’s from a vertical basis or regionally?

Mike Sepniak, CFO and Executive SVP, Honeywell: Yes. So for building automation, like I said, in terms of geographies, Europe stopped being a drag for us. It’s a tailwind now and start growing against. In Middle East, we have a lot of projects, and that’s that’s been growing the last couple of quarters, double digits for us. And US is is holding up strong.

And I would say from a products portfolio, if you look at data work data warehouses, if you look at entertainment, hospitals, clean energy, all those verticals are are doing quite well. So I would say there’s for our business, there is there is growth across across all verticals. And and I also say that there’s a lot of demand now for our connected offering given labor shortages, etcetera. So connected is doing well, and and we see a lot of growth in the in the aftermarket as well in our services portfolio.

Sheila Kayelu, Analyst, Jefferies Aerospace Defense and Airlines Equity Research team: Any new I remember that Atlanta Analyst Day. Any new products that you have within that? Sorry. I’m throwing a throwing a new one at you that are driving some of that growth since you mentioned the connected offering and the labor shortage and how that’s coming through?

Mike Sepniak, CFO and Executive SVP, Honeywell: So a lot of our connected within connected, we have the most new offerings, and and that’s really obviously outcome based services. And we’re focusing essentially on on our connection points and increasing increasing them and providing value services there. As far as the big NPIs, we run any anywhere from 200 to 300 different NPIs in any given year in the business. And a lot of that NPI dollars is spent essentially on improving current offerings, not necessarily new new NPIs. Our customers too don’t don’t want us to introduce new things too fast because it’s it causes a lot of disruptions in our end.

Sheila Kayelu, Analyst, Jefferies Aerospace Defense and Airlines Equity Research team: I might actually, if I could ask about, before I transition to aerospace and get really into it, how you think about across the entire portfolio r and d spend and how much you spend on maintenance r and d. And, obviously, aerospace will be very different versus new product r and d.

Mike Sepniak, CFO and Executive SVP, Honeywell: So I feel in in pockets in in building automation, I think we’re we’re well provisioned from R and D standpoint. In industrial automation, there are pockets of R and D where where we’ve been increasing investment, and we’ve been doing that for now for about eighteen months, and we’re starting to see fruits of that of that labor. And that’s why I think you’ll continue to see incremental growth on on that business. So I feel vis a vis maybe peers and where we’re at, we’re quite well provisioned.

Sheila Kayelu, Analyst, Jefferies Aerospace Defense and Airlines Equity Research team: Maybe transitioning to aerospace. There’s a lot to unpack and Sure. Where I feel more comfortable anyway. So it’s been leading in terms of orders sold out. You’ll let me know how long you’re sold out through.

But can we talk about what you’re seeing in the backlog in the order book for aerospace? And we’ll drill down on defense and space business a bit. But how do you think about the backlog coverage across the entire aerospace portfolio on the runway?

Mike Sepniak, CFO and Executive SVP, Honeywell: Yes. So backlog has been is the strongest backlog we’ve ever had and and continues to grow. I would say, we also have about $2,300,000,000 still of past due backlog. A lot of the backlog is on the on the past due backlog is on the mechanical side and in defense and space, but we’re working our way through it. Aftermarket orders are holding for us as well.

So we continue to to see strength across the portfolio.

Sheila Kayelu, Analyst, Jefferies Aerospace Defense and Airlines Equity Research team: On the back on the mechanical 2.3 past due, how how did it look like last quarter? And when it is mechanical, is that commercial aero, or is that defense?

Mike Sepniak, CFO and Executive SVP, Honeywell: It’s both commercial aero and defense. And we grew past the backlog, I think, last quarter by about $70,000,000, and we obviously had a had a hiccup there in terms of the growth that we were were correcting. That was driven by just our supply chain issues as far as unlocking some of those mechanical components in and that happened in in June, but we’re working our way past through through that.

Sheila Kayelu, Analyst, Jefferies Aerospace Defense and Airlines Equity Research team: Maybe if you could talk about the supply chain choke holds there within mechanical. If it is commercial, what drives it? Is it still the bearings business? And how do you think about multiple sourcing items, or is it something that you

Mike Sepniak, CFO and Executive SVP, Honeywell: source? So I would I would tell you that we are fully recovered in electronics. So we’re we’re on PO essentially on on electronics. In on mechanical component side, we still have a little bit of, I would say, blockages in machine parts, forgings, castings. We since 02/2021, we we invest about billion dollars to to our supply chain vis a vis, obviously, incremental hiring, but also helping our suppliers as far as tooling, their hiring, etcetera.

So we start seeing progress. Our supply chain is outputting now for, I think, 12 quarters in a row at 11% and plus percent, but the recovery is not linear. It’s little bit choppy. So we’ll continue to grow and and ramp up, but quarter to quarter, sometimes we’ll have a little bit of choppiness on on the output.

Sheila Kayelu, Analyst, Jefferies Aerospace Defense and Airlines Equity Research team: Can we talk about maybe the supply chain recovering? Do you see that that 11% across all your suppliers, or is there regional choke holds

Mike Sepniak, CFO and Executive SVP, Honeywell: still? Not not the regional choke holds. We predominantly produce in in US, but I would say is we might have suppliers where it’s still single sourced or small mechanical suppliers that they essentially cannot keep up with the with the ramp or the issue with with testing or tooling or or people and and essentially to go backwards one quarter or another. So we continue to build build the ramp. It’s it’s more predictable.

I think you’ll see good outcomes from us in the in the second half in aerospace, but it’s we still have a little bit of work to do on the mechanical side.

Sheila Kayelu, Analyst, Jefferies Aerospace Defense and Airlines Equity Research team: And maybe if we could dig into the headcount, a billion dollars of bill additional investment in incremental hiring. How much of that is at Honeywell Aero itself versus your suppliers? And if you could talk about the help with the tooling you’re providing your supply chain.

Mike Sepniak, CFO and Executive SVP, Honeywell: Yeah. I wouldn’t specifically comment just on the on the allocation. It’s really case by case, and, obviously, we are trying to treat our suppliers strategically. And so it’s it really depends on on the on the suppliers, on their size, and and where they have issues, and where they’re consistent issues, new issues, etcetera.

Sheila Kayelu, Analyst, Jefferies Aerospace Defense and Airlines Equity Research team: Okay. Got it. Maybe going back to our backlog comment, you talked about aftermarket orders holding up well. What does that mean? How long is your aftermarket backlog?

You know, how do we think about somebody ordering an aftermarket part and you shipping it?

Mike Sepniak, CFO and Executive SVP, Honeywell: Yeah. So so it’s an interesting question, but essentially, you obviously your your aftermarket backlog, you want it to be as as small as possible because you you want to output it in the quarter. So we we usually like to keep the when we’re on PO, we have about 90 of backlog in in the in the aftermarket as far as what’s coming into the shops and how we how we transition. I would tell you that about 70% of our aftermarket is is under long term service agreements. So we have a pretty good predictability when these aircraft will come in for service, etcetera.

Well, my comment on the backlog is that essentially we see flight hours holding up, especially in business aviation, and we see continued demand both both from MSA standpoint, maintenance service agreements as as well as time and material.

Sheila Kayelu, Analyst, Jefferies Aerospace Defense and Airlines Equity Research team: So when you look at that aftermarket backlog, it’s more of a parts comment rather than the 70% that’s on long term agreements. Got it. And then on the commercial backlog, several years of commercial backlog. And how do you input the commercial aerospace orders into your backlog? Is it once you win?

Mike Sepniak, CFO and Executive SVP, Honeywell: It’s it’s once we win. So there is you know, there obviously have framework agreement. For example, we could take July. We won’t put the whole skyline of seven three seven into backlog. We’ll we’ll we’ll do it one year out.

Sheila Kayelu, Analyst, Jefferies Aerospace Defense and Airlines Equity Research team: Okay. And then last one, just to round it out on my backlog comments for defense and space. What are you seeing there, whether it’s domestically or internationally? And how is that backlog trending?

Mike Sepniak, CFO and Executive SVP, Honeywell: It’s trending extremely well, and it’s been it’s been very strong for us. Think in second quarter, we we grew sales again at 13% and to sixth consecutive quarter of double digit growth. About 25% of our defense and space business is international. So we’ll see a lot of a lot of growth internationally, a lot of interest, specifically in Europe. So really encouraging that, and and we have a good visibility to to continue to grow defense and space at this at this elevated levels for the next couple of years.

Sheila Kayelu, Analyst, Jefferies Aerospace Defense and Airlines Equity Research team: Maybe let’s stick to that if you want. Sure. The 25% of the business that’s international, can you talk to us about what you do there?

Mike Sepniak, CFO and Executive SVP, Honeywell: Yeah. So we we do a lot of things, but predominantly, it’s a it’s around precision navigation. We do a little bit of mechanical stuff as well. As you know, Leonardo is our big big customer in Europe, for example. And we recently acquired Cibati Navi, which is based in Europe.

And purpose of of us doing this acquisition is really trying to become local for local in the in the European market, and that’s predominantly around electronics. We also have about thousand engineers in Europe based in our engineering centers in Czech Republic, in in Poland, which predominantly focus on on development of new products in for for Europe and the Asian markets.

Sheila Kayelu, Analyst, Jefferies Aerospace Defense and Airlines Equity Research team: What in terms of precision navigation, how do we think about that? Is that mainly missiles and ammunitions, or should we think about that on It’s both. Fighters and aircraft?

Mike Sepniak, CFO and Executive SVP, Honeywell: It’s it’s both. So it’s it’s cockpit avionics as well as munitions.

Sheila Kayelu, Analyst, Jefferies Aerospace Defense and Airlines Equity Research team: Got it. And why has that been growing? I think at the Analyst Day in Paris, it was a 15% CAGR over the last decade and 15% projected. What’s driving that growth, and how do you think about what country specifically outside of Poland and Czech?

Mike Sepniak, CFO and Executive SVP, Honeywell: So Poland and Czech is predominantly our engineering. Okay. It’s engineering

Sheila Kayelu, Analyst, Jefferies Aerospace Defense and Airlines Equity Research team: Got it.

Mike Sepniak, CFO and Executive SVP, Honeywell: Essentially, engineering. But the growth is I think the the catalyst for lot of growth in Europe was the conflict in in Ukraine. And if you look at the Korean Union, they’re obviously trying to rearm and up the the defenses, and a lot of a lot of growth is driven by that. Same same in Asia and and Australia. We have a lot of business in in Australia, in Korea, in Japan.

So I think just generally the the world where the world is today, that drives a lot of need for for deterrence, if you will.

Sheila Kayelu, Analyst, Jefferies Aerospace Defense and Airlines Equity Research team: Are you seeing incremental new countries come in as customers? We were with a company yesterday that mentioned an order from Serbia that had never ordered from them before. So how do you think about So some of the

Mike Sepniak, CFO and Executive SVP, Honeywell: We get we get a lot of interest from various countries, and but we’re trying to focus on on on the materiality, if you will, which and the and the bigger defense budgets, which is, once again, is Japan, is Korea, it’s it’s Germany, it’s it’s Italy, UK.

Sheila Kayelu, Analyst, Jefferies Aerospace Defense and Airlines Equity Research team: Maybe if we could talk about, sorry, one last one on international defense. Sorry, I’m digging into it. While I have you, I might as well. How do you sell internationally versus how you sell in The US? Is there any change in fixed price programs?

Is it through FMS? If you could talk about that.

Mike Sepniak, CFO and Executive SVP, Honeywell: So we we try to wherever we can, we try to apply commercial terms. We predominantly sell through through US government. But with with acquisition of Sivit and Navi, etcetera, that allows us to to do direct sales as well.

Sheila Kayelu, Analyst, Jefferies Aerospace Defense and Airlines Equity Research team: And Sivitanavi, which is hard to say, but how does that add to your portfolio? Do you think about it adding a footprint and a local sales force, or do you think about adding content to additional programs?

Mike Sepniak, CFO and Executive SVP, Honeywell: So it’s predominantly content and manufacturing in in the region and a lot of a lot of, I would say, commercial commercial synergies there.

Sheila Kayelu, Analyst, Jefferies Aerospace Defense and Airlines Equity Research team: Got it. And then domestically, what are you seeing? We I’ve actually heard a lot of positive momentum over the past day on programs like Golden Dome and some of the other initiatives that Trump administration has. So how are you seeing the domestic environment shape up?

Mike Sepniak, CFO and Executive SVP, Honeywell: So the domestic orders are strong as well. We had several inquiries as far as increasing output, refreshing our commitment in terms of volume, and and even customers coming to us and asking about what it would take to us to to increase significantly our output. So there’s a lot of demand there. And from Golden Dawn Dawn too, we’re really excited about just possibility there as far as depending how the technology develops and which technologies win. We have a lot of great great technologies in RF, in in deterrence, especially in in our India’s business.

So quite excited about the opportunity there.

Sheila Kayelu, Analyst, Jefferies Aerospace Defense and Airlines Equity Research team: When we think about Golden Dome for Honeywell, I guess, where would the RF and deterrence play? So would you partner with somebody? Is that how you would bid on

Mike Sepniak, CFO and Executive SVP, Honeywell: We usually partner we usually partner as a subcontractor.

Sheila Kayelu, Analyst, Jefferies Aerospace Defense and Airlines Equity Research team: Okay. And are you on any of the major missile programs that I might not be aware of, or do we think about it more as, a software system that you would provide?

Mike Sepniak, CFO and Executive SVP, Honeywell: We we are on missile programs as

Sheila Kayelu, Analyst, Jefferies Aerospace Defense and Airlines Equity Research team: well. Cool. Maybe if we could switch over to commercial, and then we could come back to defense. Commercial OE, I think we’ve seen from a few folks in our coverage outside of Boeing, you know, we saw some softness in commercial OE, but we do have production aligning to delivery rates going forward, at least for Boeing in the second half. So how do we think about the destocking Honeywell specifically?

Mike Sepniak, CFO and Executive SVP, Honeywell: So it was, I would say, a first half issue for us. We we will do better in the third quarter and vis a vis vis a vis the first half, and we should be fully coupled in the fourth quarter as far as being aligned with Boeing on production. So what happened with Boeing? We we essentially over overproduced and overdelivered last year as they were going through through their through their complexities. And as they clear this year, we’re we’re aligning.

Sheila Kayelu, Analyst, Jefferies Aerospace Defense and Airlines Equity Research team: Would you say it was the same for mechanical parts given the past due backlog, or it was mostly on the electrical and avionics?

Mike Sepniak, CFO and Executive SVP, Honeywell: It’s it’s mostly on electrical energy and avionics.

Sheila Kayelu, Analyst, Jefferies Aerospace Defense and Airlines Equity Research team: And on both the three seven and the seven eight seven, how do we think about that?

Mike Sepniak, CFO and Executive SVP, Honeywell: Yes.

Sheila Kayelu, Analyst, Jefferies Aerospace Defense and Airlines Equity Research team: Okay.

Mike Sepniak, CFO and Executive SVP, Honeywell: Last

Sheila Kayelu, Analyst, Jefferies Aerospace Defense and Airlines Equity Research team: one on the destocking. How do we think about the impact to profitability given you didn’t have the same volume absorption, and I would assume your avionics business is higher profitability.

Mike Sepniak, CFO and Executive SVP, Honeywell: Yeah. So so it definitely shows up in the mix, and it’s already in the in the rate. We’ll continue to work work our rate up and but mix will continue to be a drive for us for for foreseeable future as as OE continues to to lead the growth for Aero.

Sheila Kayelu, Analyst, Jefferies Aerospace Defense and Airlines Equity Research team: Maybe just taking a step back, can you remind folks of some of the good content you have on the commercial OE platforms for both Boeing and Airbus?

Mike Sepniak, CFO and Executive SVP, Honeywell: Yeah. So, I mean, we have obviously very good content on APUs, very good content on on controls and avionics. Not any given platform bearing. If you look at our we’re nose to tail provider. And if you look at our platforms, no platform no platform is bigger for us than 66% of

Sheila Kayelu, Analyst, Jefferies Aerospace Defense and Airlines Equity Research team: revenue. Which one’s that? And, you know, one of the questions that I get often from investors is GE really worked post spin. So how do we think about Honeywell post spin? And it was a lot of, you know, your high market share on APUs and avionics.

How do we think about that maintenance cycle? So I guess how do you think about it internally?

Mike Sepniak, CFO and Executive SVP, Honeywell: So the the way we we model our business ten years out. And if I model that business ten years out with looking at what platforms are coming in and what platforms are coming out, I’m very confident about the aero business becoming a $30,000,000,000 business. So with that happening, what what Arrow team needs to do is is really think through how we structure our supply chain and how we how we enable that 30 that growth to the the $30,000,000,000 business. If you look at our portfolio, we’re we’re very diversified. So we’re in diversified around ATR business, aviation, defense, and space.

So none of the business is more than 40% of the of the over portfolio, and I think that gives the aerospace business a lot of resiliency as far as not being just reliant on on commercial and OE. And I think that I’m really positive about the the cycle. And then we’ve invested a lot of money in over the last last decade or so in EVTOL and electrification, and we’ll we’ll con we’ll see we see wins, and I think electrification is really is really a big play for us going forward.

Sheila Kayelu, Analyst, Jefferies Aerospace Defense and Airlines Equity Research team: Sticking to the commercial OE portfolio, how do we think about some of the growth drivers, whether it’s commercial, Boeing, or Airbus, or the biz ATR and business aviation driving the growth to get to that 30,000,000,000?

Mike Sepniak, CFO and Executive SVP, Honeywell: So there there is a obviously, the it’s based on the skyline and and demand and and the hours. We also have a big portfolio. 10% of our business is is is coming from RMUs, retrofits, mods, upgrades. And that’s the, I would say, a very good aftermarket business for us, which which we’ve been nurturing for for almost a decade now, continues to grow at at double digit. And it’s it’s quicker to market and essentially focuses on on our mining our installed base and and getting service and aftermarket revenue from from the installed base by providing upgrades, better software solutions, productivity to our customers.

Sheila Kayelu, Analyst, Jefferies Aerospace Defense and Airlines Equity Research team: Can you talk about your aftermarket portfolio? Maybe break it down for us and how you think about it, whether it’s RMUs, mods, software, how you sell as a service?

Mike Sepniak, CFO and Executive SVP, Honeywell: Yeah. So so I would say, yes. Like like I said, anytime we we install the kit on the OE, we we try to capture it in the long term service into a long term service agreement. That allows us, obviously, I would say, for better penetration, more predictable cash flow, if you will, and the revenue stream. And I think it’s also a better option for for the customer, and it gives them predictive pricing in us in us as well.

And then the rest of the business is is time and material. And then like I said, about billion and a half of incremental growth in the aftermarket comes comes to us from from our mules. So we’re striving for our aftermarket business to be about 60% of the overall business.

Sheila Kayelu, Analyst, Jefferies Aerospace Defense and Airlines Equity Research team: From what is it today?

Mike Sepniak, CFO and Executive SVP, Honeywell: It it it varies. Right now, it’s fifty fifty, I think.

Sheila Kayelu, Analyst, Jefferies Aerospace Defense and Airlines Equity Research team: Okay. And how do we think about the long term agreements? What proportion of the business is on long term contracts? And something we don’t hear often from Honeywell is pricing complaints. Pricing has generally been good.

So how do you ensure that you get that inflation into the pricing accurately?

Mike Sepniak, CFO and Executive SVP, Honeywell: Yeah. So like I said, about 70% of our aftermarket, we try to we try to get into into long term service agreements. And within long term service agreements, the pricing is much more predictable and and based on indices and inflation indices. As far as OE pricing, we we’ve been slow on getting the OE pricing just because we’re under long term contracts, and we’ll get more more price coming in. But that’s really, I would say, for us, a 2027 event as as some of these contracts are expiring, and we we’re we’ll be renewing our contracts with with OEMs.

Sheila Kayelu, Analyst, Jefferies Aerospace Defense and Airlines Equity Research team: Got it. Anything you would comment on business aviation, how you’re seeing that business progress?

Mike Sepniak, CFO and Executive SVP, Honeywell: There’s a lot of demand. We try to focus our business on super midsize, which which we we like, obviously, just giving our technology and and and the customer base there. And I would say, on OE, demand is there, and ours have been stable. Post post COVID, there was a peak in in the flight hours, and we see them stabilizing. So I think low to mid single digit growth in hours for the foreseen for the future.

Sheila Kayelu, Analyst, Jefferies Aerospace Defense and Airlines Equity Research team: Maybe just to close on aerospace, how do you think about profitability going forward? You have the CAS impact with margins. Just how how do you think about the margin trajectory and investments needed you need to make?

Mike Sepniak, CFO and Executive SVP, Honeywell: Sure. So PACE is going to to lap here in the in the fourth quarter and will be less of a of a drag. The business is accretive from a from a growth standpoint to the to over Honeywell and, obviously, aerospace, and then it’s loaded from a margin standpoint. So the team will continue to improve the margins, but will be largely by year end completed with the with the integration. And then from a margin standpoint, like I said, for us, it’s it’s really about, one, the mix, and and second is about getting more productivity out of supply chain.

So as we stabilize our supply chain, you see you will see our margin rates growing again to that 27% and beyond that. I’m I’m confident the team will get to that

Sheila Kayelu, Analyst, Jefferies Aerospace Defense and Airlines Equity Research team: Oh, I have no doubt that

Mike Sepniak, CFO and Executive SVP, Honeywell: on the 27%

Sheila Kayelu, Analyst, Jefferies Aerospace Defense and Airlines Equity Research team: margin targets. Yes. How about how do we think about overall margins across the remaining segments as we think about the tariff impacts, productivity?

Mike Sepniak, CFO and Executive SVP, Honeywell: Sure. So I will tell you from a from a tariff impact, we should be, by year end, largely caught up on on pricing across the the automation portfolio, and that’s been progressing quite well. From aerospace standpoint, there’s still little bit of time. Like I said, I think that that is going to recover more in in 2027. From a productivity standpoint, we’ll we’ll still we’ll still see a lot of productivity in Honeywell, especially as we separate the businesses.

We we discover a lot of a lot of opportunity for us to capture more productivity. So I’m I’m actually quite quite excited about what we’ll be doing on the on the margin side from a from an automation narrow standpoint.

Sheila Kayelu, Analyst, Jefferies Aerospace Defense and Airlines Equity Research team: I wanna ask two more questions and

Mike Sepniak, CFO and Executive SVP, Honeywell: Sure.

Sheila Kayelu, Analyst, Jefferies Aerospace Defense and Airlines Equity Research team: Off the hook. So maybe how do we think about you said no more deals, but that doesn’t mean people can’t invest in your business. So I think NVIDIA’s NVIDIA’s venture capital arm is investing in Quantinium, valuing the company’s business at $10,000,000,000. So how do you think about that? Can you elaborate on how that came about?

Mike Sepniak, CFO and Executive SVP, Honeywell: So there should be announcement coming out in the press, I think, today on on us, on on our race, and I’ll let everybody read that, and we can talk about it as we go through through the day. But we we obviously partner with with the best companies out there. We we have really great technology in in Continuum and and which we’re commercializing. And I think it just tells you the

Sheila Kayelu, Analyst, Jefferies Aerospace Defense and Airlines Equity Research team: tips so you could talk about

Mike Sepniak, CFO and Executive SVP, Honeywell: it now. Okay. Just fine. Great. So so we just completed the race.

I think it’s $600,000,000, and NVIDIA and few others are are part of that that race. And we obviously are commercializing our our product. We’ll we’ll have we’ll have a customer event here in the in the fall as well. And I’m I’m excited about commercializing this business. And ultimately, I think this this rate gets us through through IPO because our our intent is to IPO this business.

Sheila Kayelu, Analyst, Jefferies Aerospace Defense and Airlines Equity Research team: Great. Well, thanks, Meg, so much, and thanks, everybody.

Mike Sepniak, CFO and Executive SVP, Honeywell: Thank you very much.

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