Honeywell (HON) Q3 2026 Earnings Call Transcript

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DATE

Thu, Oct. 22, 2026

CALL PARTICIPANTS

• Senior Vice President of Investor Relations - Mark Macaluso
• Chairman and Chief Executive Officer - Vimal Kapur
• Senior Vice President and Chief Financial Officer - Michal Stepniak

TAKEAWAYS

• Net Sales -- $5.0 billion, representing 1% reported growth and 7% organic growth driven by demand across all three segments.
• Adjusted EPS -- $2.27, increasing 34% due to organic sales growth and higher segment profit.
• Building Automation Organic Sales -- 8% growth, supported by 11% growth in building products led by fire and security.
• Process Automation and Technology Organic Sales -- 8% growth, driven by a 14% increase in project sales for LNG and petrochemicals.
• Industrial Automation Organic Sales -- 4% growth, led by 16% growth in solutions despite flat product sales in sensing and utilities.
• Segment Margin -- 21.3%, expanding 370 basis points through productivity and strategic pricing actions.
• Backlog -- Nearly $19 billion, increasing 7% year over year excluding divestitures.
• Free Cash Flow -- $688 million, representing a 15% increase with a 95% conversion rate.
• FY 2026 Sales Guidance -- $20.0 billion to $20.1 billion, raised from the previous range of $19.8 billion to $20.0 billion.
• FY 2026 Organic Growth Guidance -- 4% to 5%, increased from the prior range of 3% to 4%.
• FY 2026 Adjusted EPS Guidance -- $8.40 to $8.45, representing an increase of $0.23 at the midpoint from previous expectations.
• Q4 Organic Growth Guidance -- 5% to 6%, driven by continued strength in Building Automation and project backlog conversion in PA&T.
• Short Cycle Orders -- 8% growth excluding divestitures, led by the Industrial and Building Automation segments.
• Data Center Orders -- Over 100% growth, reflecting high demand for power island and control solutions.
• Gross Debt -- Under $13 billion target by year end, reduced from $18 billion in the second quarter.
• Stranded Costs -- Elimination expected by the end of 2026, accelerated from previous timelines following the standalone pure-play transformation.
• Forge Recurring Revenue -- Approaching $1 billion for 2026, with an annual recurring revenue growth of 12% to 13%.
• Process Automation and Technology Backlog -- Over 10% higher than last year, supported by over $1 billion in process technology orders since the first quarter.
• Q4 Segment Margin Guidance -- Approximately 22%, supported by a 22% margin target in Industrial Automation.
• Capital Expenditures -- $77 million for the quarter, compared to $150 million in the prior year.
• Industrial Automation Margin -- 18.4%, expanding 350 basis points through pricing and productivity actions.

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RISKS

• Stepniak noted that "we expect inflation to remain at these levels at least into the first half of 27," identifying persistent inflationary pressure as a factor the company is navigating through strategic pricing.
• Stepniak cited "mix headwinds stemming from higher project growth, and dilution related to the acquisition of Johnson Matthey's Catalyst Technologies business" as factors impacting segment margins in Process Automation and Technology.

SUMMARY

Honeywell International Inc. (NASDAQ:HON) reported its third-quarter results as a standalone pure-play automation company following its recent corporate transformation. Management reported that organic sales growth exceeded internal targets, supported by demand in energy projects and the data center vertical. The company increased its full-year 2026 guidance for organic revenue, adjusted earnings per share, and free cash flow based on quarterly performance. Management indicated that the elimination of remaining stranded costs is on track for completion by the end of 2026.

• CEO Kapur stated, "Our first quarter as a standalone pure-play automation company was a clear demonstration of the value creation strategy we laid out during Investor Day in June."
• Stepniak noted that the company is "moving into lighter headquarters and more of an adoption of shared services across the company" to optimize fixed costs.
• Management reported that the data center vertical is expanding internationally into Europe and Asia, particularly in Korea and India.
• Kapur indicated that low carbon energy projects, including sustainable aviation fuel and carbon capture, are growing at a strong double-digit rate.
• The company reported that its Industrial Automation segment achieved a 60% on-time delivery rate, up from just below 40% previously, as part of a broader business turnaround.
• Management indicated that the integration of the Johnson Matthey Catalyst Technologies business is generating higher cost synergies than initially forecasted.

INDUSTRY GLOSSARY

• SAF (Sustainable Aviation Fuel): A liquid fuel used in commercial aviation which reduces CO2 emissions.
• LNG (Liquefied Natural Gas): Natural gas that has been cooled to a liquid state for ease and safety of non-pressurized storage or transport.
• Forge: Honeywell's software-as-a-service platform that provides industrial data analytics and management.
• PA&T (Process Automation and Technology): A Honeywell business segment focused on refining, petrochemical, and energy transition solutions.
• Sundyne: A brand of high-speed centrifugal pumps and compressors used in process industries.

Full Conference Call Transcript

Operator: Thank you for standing by. Welcome to Honeywell Technologies Third Quarter 26 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' 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.

Mark Macaluso: Thank you. Good morning, and welcome to Honeywell Technologies third quarter 26 earnings conference call. Joining me today are Honeywell Technologies' Chairman and Chief Executive Officer, Vimal Kapur and senior vice president and chief financial officer, Michal 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 the investor relations 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 third quarter of 26 and discuss our updated 2026 guidance. As always, we will leave time for your questions at the end. With that, it is my pleasure to turn the call over to Vimal, who will begin on slide 3.

Vimal Kapur: Thank you, Mark, and good morning, everyone. Our first quarter as a standalone pure-play automation company was a clear demonstration of the value creation strategy we laid out during Investor Day in June with broad based organic growth strong margin expansion, and higher free cash flow conversion. And I am very pleased with the result our teams delivered. This quarter showed the breadth and quality of new Honeywell Technologies' portfolio with strong results across all segments. We delivered 7% organic sales growth above the high end of the targets we unveiled at Investor Day in June. Demand across the portfolio was broad based, which drove short cycle orders growth of 8% excluding our divestitures. Led by Industrial and Building Automation.

Additionally, the growth inflection we expected in Process Automation and Technology is occurring with the business growing 8% organically in third quarter. As I will talk more about shortly, we believe PANT is beginning a multiyear growth inflection fueled by robust project backlog and continued capital investment in energy sector, especially in Africa, Middle East, US. On profitability, we expanded margins by 370 basis points to over 21% strategic pricing, productivity actions, and the continued reduction in the stranded cost. Importantly, with accelerated progress this quarter, we now expect to eliminate all remaining stranded costs by the end of 26. Just 6 months after the aerospace spin off demonstrating our strong execution capabilities.

Together, this combination of profitable growth and the fixed cost productivity drove adjusted EPS of $2.27, up 34% year over year. To round out the story, the cash conversion accelerated to 95% for the quarter and we expect to be above 100% conversion in the fourth quarter. As a result of our strong execution this quarter and momentum heading into the fourth quarter, we are raising our full year 2026 guide across all metrics. The growth inflection in P and T and the turnaround in Industrial Automation are well underway compounded by 8 straight quarters of outperformance in Building Automation. Michal will talk more about our stronger outlook for Q4 and the full year in a few minutes.

Our transformation into a pure play automation company is complete, and as our third quarter results have demonstrated, we have strong position in growing end markets differentiated offerings, and clear competitive advantage in higher growth verticals like LNG and data centers. We are instrumenting the business to outperform both in 2027 over the long term, with strong short cycle demand, a backlog of nearly $19 billion, and momentum across the portfolio. This gives me and the leadership team great confidence in delivering on our 2029 targets. Let's now turn to slide 4 to talk more about the order trends in the business. The key takeaway is that demand remains strong across most of our portfolio.

We saw growth across our short cycle businesses led by Sensing and Measurement in Industrial Automation, and double digit growth in Building Automation product businesses. Orders in data center vertical were up over 100%. In P and T, we saw strong refining catalyst demand, consistent with our expectation for a second half recovery. And On a regional basis, we saw strength in India, The Middle East, and Africa. In Process Automation and Technology, we are navigating tough prior year comparison due to the 2 strategic low carbon energy and LNG awards in third and fourth quarter of 25 which worth over $700 million.

From time to time, large awards like this do not always correlate with underlying market demand we are seeing which is why we have elected to present a normalized view of the demand. Excluding the impact of Q3 award last year, total company orders are up 3% organically, Furthermore, book to bill in this quarter was 1.0x which drove ending backlog to nearly 19 billion up 7% excluding our divestitures. In P and T specifically, the backlog was up double digits, driven by these large project awards.

We continue to believe that the ongoing transition to LNG and renewables as a priority fueled increasing pipeline activity from refurbishment and rebuilds in Middle East, and the refining build out in Africa, will drive a meaningful energy upcycle over the next several years. Looking ahead to the fourth quarter, we expect orders to grow in the high single digit range, excluding the large LNG awards shown in the chart on Slide 4. This will be driven by demand in Middle East, India, and Asia Pacific in Process Technology, and Building Automation, continued short cycle demand in building automation products and sensing and utilities in Industrial Automation, and momentum in our high growth verticals.

Let us now turn to slide 5 to discuss a favorable dynamics we are seeing in the global energy value chain reinforcing our growth outlook for the Process Automation and Technology business. A global basis, we continue to see activity increasing on large energy projects including over $1 billion in process technology orders since quarter 1 of 26. P and T backlog is over 10% 10% higher than a year ago supported by wins across LNG, refining and petrochemicals, and low carbon energy projects. The breadth of these orders is important too. We are seeing investments across North America the Middle East, Africa, and Asia rather than a single region.

LNG remains strong in the US and internationally, while refining and petrochemical orders include major projects in Africa, and continued activity across the Middle East and Asia. Low carbon energy remains a small part of the business overall but it is growing at a strong double-digit rate. With wins in areas such as sustainable aviation fuel and carbon capture. And we continue to believe that longer term, this will be a growth driver. These orders expand our installed base and create opportunities beyond the initial project win. As these facilities come online, and operate at high utilization rate, they will drive future demand for catalyst, automation, digital modernization, and life cycle services.

Overall, the strength and global diversity of the orders give us confidence in the outlook for continued growth of the PA&T segment as we enter 2027. In conclusion, we are seeing robust backlog growth and commercial momentum across our business, and we expect 2027 organic growth to be at or above our long term growth algorithm. Let me now turn it to Mike to discuss the third quarter results and our 2026 outlook in more detail.

Michal Stepniak: Thank you, Vimal, and good morning. In the third quarter, Honeywell Technologies delivered strong results that surpassed our expectations across most metrics. Sales grew 7% organically with strength across all segments. Process Automation and Technology sales grew 8% organically led by double digit growth in projects, and a return to growth in aftermarket Led by refining catalyst demand. Project sales grew 14% year over year led by strong LNG and petrochemical backlog conversion. The momentum in building automation continued with 8% organic growth. Our 8th straight quarter of high-single-digit growth, evidence that we continue to gain share in the market.

This was principally driven by 11% organic growth in products, led by both the fire and security businesses while solutions also grew 4% organically driven by strength in services. On a regional basis, we saw double digit growth in both India and Asia Pacific with continued strength in The Americas. Finally, in Industrial Automation, organic sales were up 4% in the third quarter, led by double digit growth in solutions, principally in industrial measurement and utilities. Product sales were roughly flat, with sensing and Industrial Measurement demand offset by industry wide deferrals in meter deployments across the utility segment.

On profitability, segment profit grew 23% and segment margin expanded 370 basis points to 21.3% driven by productivity, accelerated stranded cost elimination as well as strategic pricing actions and volume leverage. This more than offset rising inflation, headwinds from the mix of projects versus aftermarket, and the acquisition impact in Process Automation and Technology. By segment, in Industrial Automation, price and productivity actions in the core business drove 350 basis points of margin expansion. with the business firmly on a path to deliver 22% segment margin in the quarter. In building automation, segment margin expanded another 30 basis points to 27% driven by volume leverage and pricing actions that more than offset rising inflation.

And in Process Automation and Technology, margin contracted as expected driven by mix headwinds stemming from higher project growth, and dilution related to the acquisition of Johnson Matthey's Catalyst Technologies business. Adjusted earnings per share was up 34% driven primarily by 23% segment profit growth and lower interest expense, which more than offset a higher adjusted tax rate in the quarter. Finally, free cash flow was up 15% to roughly $690 million while our conversion increased to 95% in the quarter. We expect free cash flow conversion to be above 100% in the fourth quarter as we drive working capital improvements including strong receivable collections.

Let's now move to slide 7 to discuss the third quarter segment margin and adjusted EPS bridge. Starting with margin, we are delivering stronger incremental margin in our short cycle business driving roughly 70 basis points of volume leverage. We are also continuing to effectively mitigate high inflation with strategic pricing actions. Productivity, a reduction in stranded costs. We expect inflation to remain at these levels at least into the first half of 27. Our strong market positions, installed base driven business model, and the mission critical nature of our offerings give us confidence in our ability to successfully navigate this inflationary environment.

On adjusted EPS, earnings growth in the third quarter was primarily driven by a strong operational performance in all 3 segments. Which allowed us to overcome the operating loss from our divestitures. Below segment profit, interest and other expenses declined year over year while our tax rate was slightly higher. We are making good progress against commitments we outlined at the investor Day in June. Our focus on offsetting inflation delivering productivity, and aggressively eliminating stranded cost for transformation is having a meaningful impact. This provides a strong foundation for 2027. Let's turn to slide 8 to provide an update on our leverage commitments.

As I discussed at the Investor Day, we are committed to reducing our gross leverage to less than 3x this year by lowering our gross debt balance from $18 billion in the second quarter to under $13 billion at the end of 26. This will be enabled by the acceleration in free cash flow that we expect to continue in the fourth quarter. We expect our year end cash balance to be approximately $3 billion resulting in a net debt of around $10 billion. Importantly, the cash generation and continued reduction in our leverage will increase our capital allocation flexibility including capacity to pursue disciplined M&A. Let's now turn to slide 9.

As you can see here, we have made considerable progress reducing fixed costs related to the transformation, and we expect this to continue in 2027. We are implementing a cross functional shared services model across the company with a simplified and more flexible corporate structure. More importantly, during this time, we continue to invest in our businesses to drive future growth. The progress on stranded cost reduction underscores the pace of across the organization and the progress we are making in building a simpler, more focused company. This will position the company for long term profitable growth. Executing stranded cost takeout within 6 months of the aerospace spin demonstrates the strong operational execution capabilities of Honeywell Technologies.

Let's turn to slide 10 to discuss our revised full year outlook. Today, we are raising our full year organic growth, adjusted earnings per share, and free cash flow guidance as well as tightening our margin guidance around the previous high end. We now expect full year organic growth of 4% to 5%, up from 3% to 4% previously, driven by our execution in the third quarter and stronger outlook in the fourth quarter.

By business, in the fourth quarter, we expect to see continued strength in buildings and across both products and solutions, high single digit growth in Process Automation and Technology led by project backlog conversion and higher catalyst volumes, and continued sensing and Industrial Measurement demand in Industrial Automation. As a result, we expect to deliver 5% to 6% organic growth. With the performance to date, we expect to be at the high end of our full year margin range at 20.5% and at approximately 22% for the fourth quarter.

This will continue to be driven by pricing, productivity and volume leverage, overcoming higher inflation and anticipated mix headwinds in Process Automation and Technology driven by higher project activity and dilution from the Catalyst Technologies acquisition. Industrial Automation should be at 22% margin in the fourth quarter, while Building Automation is expected to expand margins 70-90 basis points and Process Automation and Technology will end the fourth quarter around 21.5%. We now expect full year adjusted EPS in the range of $8.40 to $8.45, which represents a 23¢ improvement at the midpoint. Notably, the low end of our guidance range is now above our previous high end. This results in full year earnings growth of approximately 30%.

Lastly, our free cash flow guidance is up $100 million to $2.1 billion given the higher income conversion. You can find additional information on our 2026 outlook in the appendix of our presentation includes estimates for corporate and below the line items. Thank you for your time today. Let me now turn the call back to Vimal to wrap up before the Q&A.

Vimal Kapur: Thank you, Mike. We are proud of our results in the first quarter as a standalone company. We surpassed our expectations across most metrics and we see encouraging demand signals in many key end markets. We believe P and T is at the beginning of a multiyear growth inflection coinciding with an upcycle in global energy markets. We are also encouraged by the turnaround the team is driving in Industrial Automation, and Building Automation continues to execute on all fronts. We are also launching new offerings on our Forge platform both in Building Automation and Process Automation Technology, creating a robust foundation for future growth.

With our performance this quarter and backlog of nearly $19 billion, we are confidently raising our 2026 outlook across all metrics setting up for a strong start to 2027. Thank you for joining us today. And, Mark, let's now take some questions.

Mark Macaluso: Vimal, Mike, and I are now available to answer your questions. We kindly ask that you be mindful of others in the queue by asking 1 question and 1 related follow-up.

Operator: Operator, please open the line for Q&A. Thank you. Our first question comes from the line of Nigel Coe with Wolfe Research. Please proceed with your question.

Nigel Coe: Thanks. Good morning. Thanks for the question guys.

Vimal Kapur: Good morning. Morning.

Mark Macaluso: Good morning.

Nigel Coe: So I am curious, the confidence in 4Q order growth, we are still only 1 month into the quarter. I am assuming December is a pretty important month for bookings. I am just wondering what gives you the confidence that a pipeline converts into orders and maybe just touch on how-- what you have seen in October.

Vimal Kapur: Yeah. So far, Nigel, the first 3 weeks of October has been trending on and above expectations. So that is certainly is a good data point. And we look at our statistical performance against pipeline, our win rates, when we forecast it. Also provision for some adequate contingency for things which cannot happen as projected. So overall, our confidence to what we are stating on high single digit orders growth in quarter 4, less of the low carbon energy LNG order, I am sorry, which we booked last year. Which was several hundred million dollars. We remain highly confident on that.

Nigel Coe: Okay. Okay. And then, Mike, a quick 1 on stranded costs. Good news that you will be done by the end of this year. I think that is about 6 months earlier than expected. Does that change your perspective on your corporate expense for next year? I think the guide was less than $600 million How does that look right now?

Michal Stepniak: Right. So it is a little bit early yet, but. And we will talk about it in February. But for next year, just like we talked about, I think, before, we plan for our corporate cost to be about $400 million. And then we are instrumenting the teams, obviously, to productivity and margin expansion north of 60 bps. Like we talked about. So feel we have a really good setup. Like you said, we are we are ahead, and that has implications as far as us having a really good momentum going to next year, and we will work with that. [Inaudible] Thanks, Mike.

Vimal Kapur: Thank you.

Operator: Thank you. Our next question comes from the line of Julian Mitchell with JPMorgan. Please proceed with your question.

Julian Mitchell: Hi, good morning. Just wanted to start off with a question on the IA segment. it is had a sort of rocky or an uneven time for a few years for various reasons. Looks to be very well set today with a large sequential margin increase guided for the fourth quarter. I suppose maybe when we try and look a little bit further out, how confident are you in continued margin expansion at IA in the coming quarters? And given the macro backdrop is a bit choppy, anything concerning you have seen in the order rates of IA, the shorter cycle pieces? So overall, Julian, for IA, we remain very con--

Vimal Kapur: Confident on continued performance in both top line recovery and margin rate expansion. The reason for that is the basics are improving as we talked about it in Investor Day, very rapidly. Our-- of our own time delivery now is used to be just shy of 40%. it is now 60%. Our past dues are down 18%. Our new product launches are being highly accepted by our channel partners and our OE customers. Those foundations have turned the business from negative territory to now more low single-digit. And we do expect that it will continue to progress and find its pathway to more mid-single-digit growth as we lap from 26 to 27.

So we remain very convicted The same is true on the margin rate. We expect the year to end at 22%. Primarily, it is a high quality business now. And from this baseline, as we continue to execute our pricing action, productivity action, we remain very confident on the margin expansion and also achieve 25% goal by 2029. So overall, sensing and measurement, building a unique segment in Industrial Automation. that is our pathway, and we remain highly convicted. This is a high quality business. as part of our portfolio.

Julian Mitchell: that is helpful. And then a quick follow-up on PAT. Margin pressure, kind of, year on year in the third quarter that is continuing into the fourth. Should not we assume that margins stay under that type of pressure until the Johnson Matthey acquisition anniversaries? Or is there anything in the base business moving around that could help the margins sooner?

Michal Stepniak: Yes. So versus where the team finished at the 22.2% I would say next quarter, 21.5%. And then in the first half, I would say probably something similar. But next year, P and T is going to expand margins. And what is happening there is, 1, we have a catalyst mix starting to mix up. That volume is going to grow. that is going to help project volume mix is going to abate. And as you know, we obviously are integrating CT So in the second half, we will be substantially past CT integration. We see a really good margin expansion into the second half of 2027.

And I just remind you, like we talked about, this is a multiyear cycle. In 2028, there is a significant margin pickup again. as we are counting on catalyst volume. So we have very good visibility to this cycle. This we have proven it cycle over cycle over multiple decades. And we are extremely confident on the progression of the business in that fashion. Great. Thank you.

Vimal Kapur: Thank you. Thank you.

Operator: Our next question comes from the line of Steve Tusa with Wells Fargo. Please proceed with your question.

Steve Tusa: Hi, good morning. Good morning. Very helpful chart on the segment bridge. Can you just I think, kind of teasing out, core incrementals putting everything else aside on volume roughly 40%. Is that right? And then can you just discuss that inflation number, the 53 basis points? Like what was that in the first and second quarter? And then what do you expect for that in the fourth?

Michal Stepniak: Sure. So you are exactly right. I think on core, we are about 40% in incrementals. Price to cost in the third quarter was about 30 bps net positive. So that 350 bps that you see on inflation is a little bit higher versus the first half, but also our prices higher. We are averaging about 3.5% price in the first half We will average about 4.5% in the second half, 4% for the year. that is going to be on a year basis, maybe 10-20 bps of, I would say, margin expansion, from price cost. And we see obviously, inflation elevated. We expect that to continue into year end and then starting to abate in the first half.

Everything we get from our teams as far as planning for next year, see inflation coming down a bit. So the price will move with that, but it is still around that 3% to 4%.

Steve Tusa: Okay. And then just for the fourth quarter, my follow-up is what the margin went to the low end of the range, I guess, for the fourth quarter. And is that really just the price cost timing stepping up a little bit sequentially? Just curious as to that or just conservatism.

Michal Stepniak: No. Not at all. Pricing-cost is as well. We actually. You know, we manage price in the third quarter to account for year-end. it is really just mix. So revenue is coming up. And, like we talked, the products are performing extremely well. We do not see anything changing in products. On the other hand, projects is doing better. And the CT outlook is better, and they are dilutive to our overall mix, and that is what is dragging our margin. To that 400 basis points. Still, I would I would say 20. You know, at the at the high end of our guide, for the year at 20.5%. it is about 300 bps margin expansion for the year.

Really good setup for next year. Yep. Thanks a lot. Appreciate it. Thank you. Thank you.

Operator: Our next question comes from the line of Scott Davis with Melius Research. Proceed with your question.

Scott Davis: Thanks, operator. Good morning, Vimal, Mike and Mark. Appreciate the shorter comments today too to leave more time for Q and A. Guys, you have been seemingly gaining a meaningful amount of share in Fire and Security, it seems for a while now. That was always a pretty low growth business, like, literally like a 1% to 2% type growth business. But you seem to have made it something a little bit bigger. What can you just update us on what your you are doing there and what is kind of changed at the margin? what is driving that growth or at least the sustainability of that growth?

Vimal Kapur: I think the fundamental is the ever-higher cycle of new product introduction. Coupled with the mix change of the end markets. So we continue to amplify our new product introduction and maintaining a very high vitality by which we then gain share from our competition. Forge is playing a very important role. Fire business was the first out of the door. To build a connected solution by which you can configure our fire panels remotely. We introduced that almost 3 years back. What it does is, Scott, that while the software content is low, it pulls the core product.

And that value proposition is very compelling for our channel partners because they save significant commissioning time, inspection time, and improves their P&L. Also, we have had been benefiting from data center growth. We have some unique products in fire and data center growth. for early detection of fire in a very unique environment. Because you have a lot of electrical cables or a lot of servers. So that is a unique way we detect fire there. We have differentiated product line. We also introduced some unique new products for detecting fire in batteries. As more and more lithium ion batteries are being used. On the security side, we are benefiting from very premium position of LNL S2.

They continue to perform in double digit growth rate across the board. And Honeywell, added a lot of value in that business by globalizing it. We had talked about that hypothesis when we acquired the business. We clearly see growth of that business outside the US with lot of synergies we are bringing in. So all in all, I would say, we maintain the momentum in this business, and we see no reason that we will not perform at this level. for in the foreseeable future.

Scott Davis: So just to follow-up on that on FORGE, just that answer was complete. But how do you go to market with FORGE then? Is this Is this kind of is it getting wrapped in as a standard offering with every install or is it come in as kind of a sidecar if you will and price separately? And how do you guys go to market with it and get value for it or is it just more of a tool you use to be. Again, to be able to gain share because you have got another kind of Mhmm.

Vimal Kapur: So there are. No. Very good questions, Scott. There are 3 sales motions for ports today. So it is you know, our recurring revenue is now, coming close to $1 billion in 2026. Just shy of that. The first sales motion is Forge is sold along with our service contracts. So we make our customers connect to Forge. Change the pricing of our service contract because we are able to provide higher value outcome. So that is sales motion 1. Sales motion 2 is there are unique applications built in to make our existing offering better, like I gave an example of Firepanel.

So they are now even though we sell it as a stand alone offering, but it goes hand in hand with our core products. And then the third is a stand alone offering of Forge, which we launched, I would say, 18 to 24 months back, first in buildings, where we can connect stand alone buildings of even competitors apart from Honeywell installed base to get better insight into you know, customers' energy consumption, predictive maintenance, emissions, and we launched a similar offering for Process earlier this year. In that scenario, it is sold as a stand alone SaaS software.

So all 3 sales motions are in place, and as we talked about in Investor Day, we expect our ARR to grow Our aspiration is 15%. We wanna have high aspiration. This year, probably, we will be slightly shy of that, more likely 12-13%. We will continue to work our way through to get to closer to 15% every year. Very helpful. Best of luck. I will pass it on. Thank you, guys.

Michal Stepniak: Thanks, Scott. Thank you. Thank you.

Operator: Our next question comes from the line of Amit Mehrotra with UBS. Please proceed with your question.

Amit Mehrotra: Great. Thank you. Good morning, everybody. I-- maybe just starting with process and just understanding sort of the mid to long term growth opportunity as these maybe comps normalize? Obviously, great to see the high single digit growth as you expected. I know there is been sort of a management change recently from building to process. I think Forge for Cognition is maybe part of the growth story. So just talk about sort of beyond the first half of 27 and second half and beyond. what do we think the sort of run rate steady state growth opportunity is for process.

Vimal Kapur: So we see, Amit, the growth in Process Automation and Technology both on the project side and on the aftermarket in services and catalyst side. The project side, if you see the chart we added into our prepared remarks, we see continued-- investment in LNG. So our backlog is, you know, very strong for LNG. We also see investments in Africa and Middle East and Asia on traditional refining. Which, is helping us a lot in our backlog. And finally, we also see activity in low carbon energy projects Just as a reminder, we have licensed 100 projects so far in stable aviation fuel. And only about 20% of those have been built so far.

So there is a lot of runway people coming back to us with FIDs. Which then turn into a significant revenue stream. So project activity remains very robust and very diverse Then on the aftermarket side, we expect, you know, second half of 26 catalyst growth to be double digit. it is double digit in Q3. it is gonna be actually mid teens growth in Q4. And given the higher margins our customers are making on the finished products, we expect catalyst demand to remain strong in 2027, more normalized year, And on the automation side, we see strength in our services portfolio, cybersecurity, our Forge offering. We call it Plant Cognition.

So that offering is also getting strong customer reception. So across the board, as Mike laid out, we see this is a multiyear cycle. In which the project strength will provide us the top line growth and we will maintain our margin with a high mix of Catalyst and services and software. As we progress.

Amit Mehrotra: Got it. Okay. that is helpful. And maybe just as a follow-up, I know 2027 guidance is forthcoming, but I think, Vimal, you talked about sort of at or above the long term algorithm. I think, Mike, maybe a couple months ago, you sort of floated this idea of 15% EPS growth. If I just sort of compare the 2, I would say, bottom line EPS growth maybe I would have expected something a little bit higher just given the margin opportunity. Maybe just unpack that a little bit for us. Maybe IA margins headwind in the first half of next year, maybe that is what is driving it.

But just to the extent that you can, just sort of fill in the color between what you have already commented on 27 between the mid. You know, algorithm versus the 15% EPS growth?

Vimal Kapur: I would say, Amit, the setup for 2077 is very strong. For starters, our midpoint of the guide for 2026 is up by 23¢. So we are starting at a higher baseline. On the top line, we remain very confident on performing at upper end of our 4% to 6% guide. Our backlog is very strong. Our short cycle momentum has sustained itself, and we continue to maintain our share or gain share through new products. So that is gonna continue. On the margin rate, we have done a good job to manage inflation through price cost. it is slightly positive. We expect to maintain that.

And we have maintained our fixed cost by elimination of stranded cost ahead of time. So when you see the setup here, across the board, top line, margin expansion, and fixed cost, we expect a strong print in 2027. I cannot tell you specifics because I will be giving you a guide. Which I think we will have to wait for February when we plan to come back there. But final comment I will make is, directionally, we are on a road to deliver our $12 or better Our long term 2029 guide we set up in Investor Day. Great. Thank you very much. Thanks, Amit.

Michal Stepniak: Thank you. Thank you.

Operator: Our next question comes from the line of Nicole DeBlase with Deutsche Bank. Please proceed with your question.

Nicole DeBlase: Good morning. Could we just start with the 4Q outlook I think you are embedding a little bit of a deceleration in organic growth. The backlog is obviously so strong, short cycle order growth is still strong. Can you maybe talk through the expectations by segment, like what is driving the modest deceleration that you have embedded for 4Q?

Michal Stepniak: I would say probably this is just more of conservatism than anything else. We. Like we said, I think on the on the short cycle orders, they are they are extremely strong. On product side, both BA and IA booked in third quarter. High single digit, double digit growth. So we feel good about that. And then projects are incrementally better. So I think it is just more mix and like we said, we will do 4 to 5% in the. for the year For the year and 5 to 6 in the fourth quarter. And as we stand today, we are probably on the higher end of the 5%. Versus so it is incrementally we feel.

I would say we feel better about the fourth quarter.

Vimal Kapur: I think it is fair to say, Nicole, we do not see any change quarter on quarter. I think the revenue mix can be different within a quarter for projects. But other than that, fundamentals of the business remains very strong quarter over quarter.

Nicole DeBlase: Okay. Understood. Thank you. And then maybe just on IA, you guys referenced some deferrals in utility meter deployments. Can you just give some more color around what is going on there? And if that is expected to continue into Q4 or into 2027, the time line for that kind of rectifying? Thank you.

Vimal Kapur: Yep. I think that is more of an upside opportunity for us. In 2027 we have introduced some very new technology for both gas meters and water meters. Gas meters, unlike electricity meters, have not been upgraded at a large scale by utilities over the last decade. So our technology being new is being tested by multiple utilities and each utility has done their testing by themselves, you know, rather than this being a common testing protocol. Which just adds time.

So we are in the process of working with our, you know, testing of our new gas meter with several utilities And once they complete that cycle, which could be 6 to 9 months, we expect them to turn into major rollouts 2027 onwards for several years. So, actually, the low growth in our metering business is actually already factored in 2026 and potentially in 2027. But looking ahead, it is gonna turn into a tailwind when the adoption rates will pick up, in the period ahead. Thanks, Vimal. I will pass it on.

Operator: Thank you. Our next question comes from the line of Andrew Obin with Bank of America. Please proceed with your question.

Andrew Obin: Yes, thanks so much. Can you hear me?

Vimal Kapur: Yes. We can.

Mark Macaluso: Yes, Andrew.

Andrew Obin: Excellent. Just a question, a little bit on Process Automation Technology on the aftermarket services. I think you highlighted some good tailwinds on catalyst, but if I look at sort of year over year comps, I mean, the comps have gotten quite a bit easier. Versus last quarter. So I would have expected more of a pickup sequential and organic growth What are the headwinds that the business is facing? Because clearly the catalyst business is accelerating. But what are the headwinds?

Vimal Kapur: I mean, I will not call it headwinds. When you grow at 8%, and then you grow subsequent quarter probably at 7%, I may not call it headwinds. I would simply call it the cycle of the projects. I cannot control the milestone when they have to be achieved. So they come at a certain timing. So I would say, broadly speaking, the P and T revenue profile on organic growth basis is very similar between Q3 and Q4. Q3 was slightly higher, versus Q4, but not substantially different. You are talking a narrow range here. Catalyst demand is very strong in quarter 4. Sequentially better than quarter 3.

We were double digit, and we are gonna go towards mid teens growth in, Catalyst. For example, in Q3, our refining catalyst growth was up 80%. So we expect to maintain high rates there Services growth also remains strong in automation. More like low to mid single digits. So fundamentals are very robust in this business. I think the change you see is just the sequencing of the projects within a quarter.

Andrew Obin: Okay. And just maybe another question on industrial automation. On the products, what would it take for the Products to start growing faster? Because I think you guys sort of talked about initiatives to get deliveries on time, delivery improved, so that would sort of lead to a lot of good things happening. What would it take for that growth in that business to inflect materially positive while we are waiting for the new product introduction as you alluded in the prior answer? Thank you.

Vimal Kapur: I think directionally speaking, Andrew, if you observe, we have been you know, turning this business from slow growth. Now we are at low single-digit right now. I would also like this to go to mid-single-digit territory. And we expect that to occur in, you know, 2027. Moving forward. I think the drivers are fundamentals are the same. I talked about improving customer service. Better delivery, improved, you know, past due rates, that is certainly already happening. New product launches, and its penetration takes time. I think that is the only variable as some of them gets more penetration. We expect to continue to perform better in this segment.

So there is no doubt in my mind, I think it is just the timing as we go from low single digit to mid-single-digit in this portfolio in this business in 2027.

Mark Macaluso: And, Andrew, I would just add that the third quarter orders for industrial automation core were up 15%. So this is business that is going into the next year probably with the best backlog it has seen in over 5 years. We are quite confident about finishing And we expect fourth quarter orders to be up high single digits. So there is a lot of momentum here. it is just the cycling of the business going from 1 phase to another phase.

Andrew Obin: Great. I appreciate the color. Thanks.

Operator: Thank you. Thank you. Our next question comes from the line of Andrew Kaplowitz with Citigroup. Please proceed with your question.

Andrew Kaplowitz: Hey, good morning everyone.

Vimal Kapur: Hey, Andrew.

Mark Macaluso: Good morning.

Andrew Kaplowitz: Vimal, I think we know your data center business overall is still relatively small part of Honeywell. But last quarter, I think you mentioned your offerings in power generation were beginning to help your process business and data centers in addition to building automation. So can we think about that data center, call it, ecosystem, and how it might help you in 2027 and beyond?

Vimal Kapur: Well, certainly, you know, we always talked about data center as mid single digit business for BA. Building automation. We are not turning to a point with the change in demand of the customer, we continue to see this can become, actually, at some point, mid single digits of Honeywell. So we. Because now we see the demand in process automation. We saw year to date orders growth of more than 100%. Based upon the pipeline visibility we have, we expect very high growth in 2027 also. It will be mixing up not only the building automation, but even some process automation orders for power island, for controls, for energy storage. That solution is being mixed up.

1 interesting thing which is occurring in addition to this for the last I would say, 6 months is liquid cooling. As liquid cooling will take more penetration, we expect our, you know, spend-- share of spend to further go up. Because we are working with customers for sensing for liquid cooling from our sensors business. And our Sundyne pumps are a premium solution to circulate those liquid cooling. Those will be. as we can imagine, those are going to scale in future.

Probably, it is more a post-2027 But what I can see is something we started with a very modest content in building automation Now we added process automation now we are adding even our content from process technology and industrial automation. it is truly becoming a pan-Honeywell strategy, and we continue to improve our content. Last comment I will make is as we grow as data center growth is happening outside the US, in Europe, and in Asia, particularly in Korea and India, we expect to continue to do well because of our global presence and global capabilities.

Andrew Kaplowitz: Helpful. And then, Vimal, I think you and Mike mentioned that you will get net leverage down under 2.25x by the end of the year. And so, and I think you also mentioned, at that point you could pursue, I think you said disciplined M&A. So how do you characterize the environment right now Obviously, it is the new company, or the new Honeywell Technologies. So any sort of re priorities that you have as you move forward here Toward the end of the year?

Vimal Kapur: I mean, our highest priority is for us is to get our leverage ratio of 3.0x or below and continue to work its way down as we get into 2027 and generate more cash. We want our leverage to further improve. From an M&A perspective, it is an optionality. As you know, our 2029 $12 commitment is all organic. So we have no compulsion. We have no need to wake up and think about an M&A. to do or meet our organic earnings commitment. Having said that, we are looking at options 3 ways. Highest priority being industrial automation, how we look at adding more content in measurement and sensing, that is our highest priority.

Second area we are looking at it is higher growth verticals How can we add more content? To further top grade our portfolio, And finally, we never overlook some of the frontier technologies. You know, there are always tuck ins which can change the profile of our businesses. And we look at these midsized small businesses in addition to that. But all said, I think near term, you will see us staying very disciplined. On our debt pay down. And we will work our pipeline for M&A for 2027 onwards. Appreciate all the color. Thank you.

Operator: Thank you. Our next question comes from the line of Joe O'Dea with Vertical Research Partners. Please proceed with your question.

Analyst: Can you talk a little bit about the self help opportunities moving forward? What you are most excited about? Heading into next year? I am not sure if you have perhaps touched on this with Johnson Matthey and Catalyst Technologies, but just on the heels of the speed with which you did the stranded cost takeout, kind of, thinking about other parts of the organization where you see the biggest self help opportunities?

Michal Stepniak: I would say, just quickly, maybe 2 or 3 which stand out the most, and that is obviously a focus for us as a company. 1 is we are moving more into lighter headquarters and more of an adoption of shared services across the company, which obviously will help us continue to focus on productivity, which value engineering, component engineering, more from a supply chain standpoint and how we think about NPI. that is a significant opportunity for us. And finally, we are obviously working through adoption of AI.

All of our teams are either already trained or being trained on and has access to the models we are using from the company, and that is a really opportunity for us in terms of managing OEM. And it is not as far as reduction OES, but managing the OEF growth or staying flat on OEF while we obviously grow mid to high single digits. Business operation.

Vimal Kapur: 2 points I will add to what Mike said, you know, on the self help self help side. First is on the Catalyst Technology business. As we integrate the business, we are seeing higher cost synergies. Than we had forecasted. So that should certainly help us in our 2027 planning. We are also working on sales synergies, building pipeline, but that, you can imagine, that takes time to convert into a real revenue. So we do expect CT business to overdrive from cost synergy standpoint A final point I would say is cross-sell between different parts of Honeywell.

I gave an example of data center just in my remarks couple of minutes before on how something which was centered around just 1 segment, we are doing it cross segment. We are doing that in other verticals too. For example, in life sciences, how we cross sell between Building and Process Automation. Or in semiconductor, where we have a very strong position in gas detection, how we also accelerate our participation in fire detection, which comes from Building Automation. So that is also a self help. it is leveraging our sales channels to the fullest potential. And, certainly, we are maximizing our efforts on that.

And then on building automation, and demand visibility, clearly, strengthen the data center side of things, but maybe talking about end markets ex data center, obviously, the growth rates over the past couple of years are tougher comps. But what the product innovation pipeline looks like, what that means in terms of the growth visibility you have heading into next year in the non data center parts of Building Automation? I think the building automation business, the content of higher growth verticals And in high growth verticals, we count 3 data centers, health care, and hospitality is 20%. 80 percent of the business comes from the core or base business. And that is growing at mid single digit.

And that is on the strength of, you know, great customer service and new products. We are pushing on new products. We have several big launches coming up. Ahead. Really, right now, we have a new version of our security system launched which is cloud based. that is gonna play in the midsegment. Lot of our new offerings are actually going into the midsegment. as a broader theme. A new version of our fire system going into a midsegment, We are also looking at similar offering in building management. We are refreshing our EBI platform with the newer versions.

Across the board, learned it that as we continue to accelerate our vitality and innovate, we will perform at this level of mid single digit plus. And the pipeline is very full. And I am extremely confident on performance of, you know, results by this by this business. Thank you.

Operator: Thank you. Our next question comes from the line of Joe Ritchie with Goldman Sachs. Please proceed with your question.

Joe Ritchie: Thank you. Good morning, guys.

Vimal Kapur: Hey, Good morning. I think I am going to focus on both of my questions on PA and T. So I guess on the project side of the business with Brent now sitting above $110, typically that stimulates investments from your customers I do not know if you can maybe just give us a little bit of background on like what your customer conversations are like today. Whether the pipeline has like materially increased over the past year. I thought that Slide number 5 was very helpful. But just any color you can give us on that would be great. So we. As we said in the chart, Joe, the VC investment certainly in diversity of fuels and energy security.

What I mean by that is Africa was not seen as a destination of investments. by refining petrochemicals. Dangote refinery, if you recall during Investor Day, he was up there talking about a partnership with Honeywell. They are not only expanding their existing refinery by 100%, which is the largest refinery in the world. They are doubling it. They are also putting additional refinery in Kenya. These are all firm projects. If you look at their cash flow, it is billions of dollars in a quarter. So these are certain-- high-certainty projects. There are additional investments happening on the African petrochemical side too, so we clearly see that as a trend.

1 thing we highlighted is also low carbon energy projects are finally taking shape. You know, on a. From a low base. We had 2 big wins on carbon capture. Related projects in quarter 3, and we have some robust pipeline for quarter 4 ahead for us. So there are some investments happening, and the driver for that is European Union continues to hold its mandate for SAF adoption. And to fulfill that demand, there is more capacity which is required. And finally, we do see capacity addition for petrochemicals. Our licensing activity and automation business in petrochemicals continues to remain strong.

So when you add it all together, it is less linked to the oil price. it is more linked to the drivers, which are more broader in energy security, resiliency, low carbon fuels, or the broader demand of petrochemicals. And that is why we believe it is a multiyear cycle. it is less linked to the price. it is more linked to other drivers. that is why it gives us more conviction.

Joe Ritchie: Yeah. Super helpful, Vimal. And I guess maybe just to ask Andrew's question slightly differently from before. On the refining side of the business, are you seeing any deferrals just given where crack spreads are, refiners may be running out hotter a little bit, given profitability looks really, really good right now. So are you seeing like any of that like business maybe pushing out into next year? Or has that remained very healthy for you?

Vimal Kapur: I would say, what we all read, deferrals are uptime by US refiners is factually correct. Which essentially means that some of the activity which requires a shutdown cannot be performed. You know, we look at our services business aftermarket business in 2 buckets. Lot of it can be done online. So a lot of our automation offerings do not require a plant shutdown. If you want to harden your control system for cybersecurity, or you wanna migrate to the current version, can be done online. So those businesses get protected even though customers are running at a higher rate. But there are things which you need to replace, like a Sundyne has to be replaced. You need a shutdown.

Or if you want to re refurbish a catalyst, So to me, there is some demand moving right, but it is not a lost demand. it is moving. it is kind of pent up demand, which will eventually show up. But when you look at the global view, the overall services and catalyst demand is very stable As I mentioned before, we see the catalyst demand to be in the teens-- high teens in quarter 4, Next year, we see overall catalyst to be very stable. Mid single digit growth. Services growth remains very stable. Yeah. Absolutely. This is a trend. Of high utilization and no shutdowns.

But it does not change the overall dynamics of the business for us at the-- in the near term. Thank you. Very helpful.

Michal Stepniak: Thanks, Joe.

Operator: Thank you. Our next question comes from the line of Varun Gurumoorthy with Bernstein. Please proceed with your question.

Analyst: Good morning, everyone. Thanks for the question.

Vimal Kapur: Sure.

Mark Macaluso: Good morning.

Analyst: So question on PAT. When you are looking at projects and their delivery times, have they been in line with historical norms? there is been a concern that a short labor in North America, and that might lead to some of this just getting stretched. Are you seeing any of that in, you know, in your numbers, or is that not really a concern? Right now?

Vimal Kapur: Not a concern because large part of our backlog is actually not in North America. LNG backlog is in North America. Everything else is in rest of the world. And in case of LNG, we build our own equipment in our own factory. And we have enough capacity to fulfill all the backlog, so we do not have any concern on that. On a broader basis, the other the construction labor or labor shortages is a is a trend. But that is not driving any impact on our revenue execution. On a on a visible basis.

Analyst: Got it. Appreciate it. Thank you. And then just as a side note, so on industrial automation, big sequential jump from 18.4% to 22%. How much of that is coming from the spins of WWS and PSS, and how much of that is more productivity. Feels at this point, you know, everyone's very confident about the number, but just any color on that split.

Michal Stepniak: Yes. I would I would say that organically, if you will, the business is probably expanding, you know, 150-plus bps just by operation getting better. Rest of it is related to the TW separation. Okay.

Analyst: Perfect. Thank you so much.

Vimal Kapur: Thank you.

Mark Macaluso: Thanks, Varun.

Operator: Thank you. Our final question this morning comes from the line of Dan Dolev with BMO Capital Markets.

Analyst: Great. Thank you for fitting me in here. On the inflation topic, 4.5% price in H2. Just what businesses are you having to push the hardest on price? And then and is there anywhere in the portfolio where this might be proving to be a little bit more challenging? Thank you.

Vimal Kapur: I mean, the pricing is. I would say, I will not say there is a large deviation within the segment. You know, pricing is a factor of inflation in a segment. And inflation drivers vary from semiconductor to electronics to metals like copper and brass. I would say that our overall pricing is a narrow range. it is. It does not vary from 1 business from 1% and some businesses 10%. it is not in that wide range. You can have a range from 3.5% to 4.5%. So it is a very narrow range for us And the pricing attainment does not require only the action of pricing, but it requires good customer service.

Good customer communication, a good pipeline of new product, And I think that comprehensive 360 degree view is what we have really adopted to attain the price and keep the price cost positive. Great. Thank you.

Operator: Thank you. Ladies and gentlemen, that concludes our question-and-answer session. I will turn the floor back to Mr. Kapoor for final comments.

Vimal Kapur: Thank you. I would like to thank our shareowners, our customers, and all Honeywell Technologies Future Shapers around the world for the strong third quarter results you delivered today, marks another important milestone in our journey as the new Honeywell Technologies. Our first quarter as a stand alone pure play automation company demonstrated progress on all 3 elements for our investment case: broad-based organic growth, strong margin expansion, and a higher free cash flow conversion. P and T is converting its backlog into organic growth. IA is driving a meaningful turnaround, and BA continues to deliver. With nearly $19 billion in our backlog and a strong 2026 outlook, we entered the fourth quarter with strong momentum.

And increased confidence in our ability to deliver the commitments we outlined at Investor Day. Thank you all for joining us today, and we hope you have a great rest of your day.

Operator: Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.

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