Honeywell’s 2026 Q1 Earnings Call: Aerospace Margin Trajectory and Supply Chain Blame Contradict

Date of Call: Apr 23, 2026

Financials Results

• Revenue: Sales grew 2% organically in Q1 2026, led by Building Automation and Aerospace. Process Automation and Technology sales were down 6% organically.
• EPS: Adjusted earnings per share of $2.45 was up 11% in Q1 2026.
• Gross Margin: Segment margin expanded 90 basis points to 23.3% in Q1 2026.
• Operating Margin: Aerospace segment margin expanded 20 basis points year-over-year to 26.5% in Q1 2026.

Guidance:

• Q2 organic sales growth expected to be 2% to 4%.
• Q2 segment margin expected to be 22.2% to 22.5%, down 10 to up 20 basis points sequentially.
• Q2 adjusted EPS expected to be $2.40 at the midpoint.
• Full year organic growth outlook maintained at 3% to 6%.
• Full year segment margin guidance maintained at 22.7% to 23.1%.
• Aerospace full year guide of high single-digit organic sales growth remains intact.
• Expect strong second half ramp in Process Automation and Technology with high single-digit growth.

Business Commentary:

Strong Aerospace Demand and Supply Chain Challenges:

• Honeywell's Aerospace segment experienced a 3% organic sales growth in Q1, despite temporary mechanical supply chain constraints.
• Orders grew 28% over the last 12 months, driven by strong demand across commercial OE, commercial aftermarket, and defense and space.
• The supply chain issues were attributed to temporary constraints from certain critical suppliers, impacting output and sales growth in January and February.

Process Automation and Technology Order Growth:

• The Process Automation and Technology segment saw a double-digit increase in orders, leading to a 22% increase in backlog.
• Despite a 6% decline in organic sales in Q1, driven by timing delays in refining catalyst reloads and impacts from the Middle East conflict, orders momentum remains robust.
• The order growth was bolstered by strong demand in petrochemical and refining verticals, supported by new project wins in LNG, refining, and petrochemicals.

Building Automation Performance:

• The Building Automation segment reported an 8% organic sales increase in Q1, with 9% orders growth.
• Growth was led by strong demand in data center and healthcare verticals, driven by new product introductions and momentum in these high-growth areas.

Industrial Automation and Margin Expansion:

• Industrial Automation segment sales increased 1% organically in Q1, with a 10% orders increase.
• Segment margin expanded 260 basis points, driven by pricing discipline, productivity actions, and favorable mix, despite a slight decline in product sales.

Geopolitical Impact and Strategic Adjustments:

• The Middle East conflict impacted Honeywell's revenue by approximately 0.5% in Q1, with a projected 1% impact in Q2, mainly affecting the Process Automation and Technology segment.
• The company adjusted its outlook to account for the conflict's persistence, emphasizing the need for a resolution and managing logistics and shipment delays.

Sentiment Analysis:

Overall Tone: Positive

• "Honeywell delivered strong results in the first quarter, building on the momentum from 2025." "Orders grew 7% organically." "We expanded margin 90 basis points to over 23%." "We remain confident in our ability to drive accelerating growth in the second half as our backlog supports a pickup in growth."

Q&A:

• Question from Nigel Coe (Wolfe Research): Any more details on the supply chain challenges and measures in place to solve this problem?
  Response: The supply chain issue was an acute, temporary problem with specific key suppliers in mechanical products, impacting Engines and Control Systems. Output recovered in March and improved through April, giving confidence for Q2 mid- to high single-digit Aerospace growth.

• Question from Nigel Coe (Wolfe Research): Why is Q2 margin forecast to step down Q-over-Q, and details on margin trajectory?
  Response: The sequential margin pressure in Q2 is due to mix from the timing of catalyst sales (lack thereof) and high-margin revenue loss in the Middle East. Operationally, stranded cost takeout and pricing are on track for full-year margin expansion of 20-60 bps.

• Question from Julian Mitchell (Barclays): How should we think about PA&T organic sales ramp through the year and the main moving pieces?
  Response: First-half weakness due to Middle East conflict (approx. 1% revenue impact in Q2) will be offset by strong second-half ramp driven by robust backlog and order trends, keeping full-year organic sales roughly flat.

• Question from Julian Mitchell (Barclays): Update on commercial aero aftermarket and supply chain product types affected?
  Response: Commercial aftermarket demand is strong; growth is constrained by supply, not demand. The supply issue was specific to certain outlines in Engines and Power Systems and Control Systems businesses.

• Question from Sheila Kahyaoglu (Jefferies): More detail on commercial aftermarket exposure in the Middle East and Aerospace margin impact from supply chain?
  Response: Growth is limited by supply, not demand. Business aviation has shown resilient growth. The Q1 margin benefit came from favorable mix (more electrical products), but full-year Aerospace margin is expected to be roughly flat at 26%.

• Question from Deane Dray (RBC Capital Markets): Can you size the Middle East rebuild opportunity and impact of $100 oil on UOP?
  Response: Rebuild opportunity has three phases: initial services, facility refurbishment, and pent-up demand from elevated oil prices. Near-term headwinds are in numbers; long-term outlook is favorable for PA&T second-half high single-digit growth due to backlog and catalyst demand.

• Question from Nicole DeBlase (Deutsche Bank): Which Aerospace subsegments were impacted and path to improvement in Q2?
  Response: All three segments (commercial aftermarket, commercial OE, defense and space) were impacted. Improvement in Q2 is expected to be broad-based as supply chain recovery progresses.

• Question from Nicole DeBlase (Deutsche Bank): Parse out the 7% organic order growth across short and long cycle businesses.
  Response: Orders growth was broad-based: Industrial Automation up 10%, Building Automation up 9%, Process Automation and Technology up 3%, Aerospace up 6%. Short-cycle demand is strong and expected to accelerate in Q2.

• Question from Andrew Obin (BofA Securities): How sustainable is Building Automation's competitive lead given competitor activity?
  Response: Competition is primarily with midsized regional companies due to market fragmentation. Honeywell's lead is supported by new products, innovation, and strong demand, expecting continued high single-digit growth.

• Question from Andrew Obin (BofA Securities): Trends in the Sensors business and key verticals?
  Response: Industrial Automation is now focused on Sensing and Measurement. Strong end markets include aerospace, medical devices, utilities metering, and gas detection. Strategy is progressing, with performance improving each quarter.

• Question from Andrew Kaplowitz (Citigroup): What drove the impressive IA margin improvement in Q1 and outlook for pricing/cost?
  Response: IA margin expansion driven by structural cost simplification post-separation, improved pricing (trending towards 4%), and new product introductions. IA will remain a margin driver for the next year.

• Question from Andrew Kaplowitz (Citigroup): Customer conversations on energy security and LNG cycle given Middle East conflict?
  Response: Very bullish on LNG cycle. Demand is diversifying globally (e.g., Africa). Honeywell's LNG automation and equipment business is a high-growth vertical for the next few years.

• Question from Joseph Ritchie (Goldman Sachs): How are you underwriting the risk to the implied second-half process ramp?
  Response: Confidence is high due to firm project backlog (e.g., LNG, Dangote refinery) that has reached final investment decision (FID). Backlog is solid and expected to convert in Q3.

• Question from Joseph Ritchie (Goldman Sachs): Opportunity in data centers for Building Automation?
  Response: Honeywell is gaining share in data centers, especially with Tier 2 providers. Actively working on liquid cooling controls and behind-the-meter power generation, which leverages core automation expertise.

• Question from Amit Mehrotra (UBS): Intra-quarter cadence of Aerospace growth and Aero aftermarket trends?
  Response: Aerospace growth was slow in Jan-Feb due to supply issues but recovered in March (highest revenue month). Q1 aftermarket revenue was down ~$50M due to Middle East disruptions; expect sequential improvement in H2.

• Question from Jeffrey Sprague (Vertical Research Partners): Tax leakage on PSS sale, 2025 EBITDA for warehouse, and Quantinuum deconsolidation details?
  Response: No tax leakage expected on the sales. Details on EBITDA and Quantinuum deconsolidation are limited by rules; more will be shared in Q3.

• Question from Christopher Snyder (Morgan Stanley): Was supply chain disruption due to supplier struggles or customer destocking?
  Response: Disruption was purely supplier-centric, due to lack of critical parts from key suppliers, not customer destocking.

• Question from Christopher Snyder (Morgan Stanley): Back-half Aero margin expectations and integration tailwinds?
  Response: Aerospace full-year margin is expected to be modestly up, with quarterly variability driven by mix. No specific integration tailwinds mentioned.