HON · Honeywell International Inc. Common Stock Ex Distribution When Issued

Period Performance

Period Performance

Honeywell's consolidated net sales increased 8% in Q2 2025 compared to Q2 2024, driven by a combination of 3% price, 2% volume, and 3% from acquisitions, net of divestitures. Gross margin remained flat at 38.9%, despite higher material and labor costs, reflecting pricing actions and productivity. Segment profit growth was mixed across segments, with Building Automation leading at 21% YoY, while Industrial Automation declined 4% due to the PPE divestiture. Net income attributable to Honeywell for the six months ended June 30, 2025 was $3,019M, up slightly from $3,007M in the prior year, with EPS benefiting from higher segment profit and a lower effective tax rate, partially offset by higher interest and divestiture costs.

Segment Dynamics

• Aerospace Technologies reported 11% sales growth, driven by organic momentum in Defense & Space and Commercial Aviation Aftermarket, plus contributions from recent acquisitions. Segment margin contracted 170 bps to 25.5% due to mix and investment in R&D.
• Industrial Automation sales fell 5% as the PPE divestiture removed $141M of sales, and organic sales declined due to lower license/settlement payments. Segment margin improved 20 bps to 19.2% on productivity.
• Building Automation posted strong 16% sales growth, with organic gains in Products and Building Solutions and the Access Solutions acquisition. Margin expanded 90 bps to 26.2% on operating leverage.
• Energy and Sustainability Solutions sales rose 15%, led by UOP licensing and acquisitions. Margin decreased 110 bps to 24.1% partly due to acquisition-related costs.

Forward View

Management highlighted portfolio transformation initiatives, including the planned spin-off of Advanced Materials into Solstice Advanced Materials (targeted Q4 2025), the separation of Automation and Aerospace Technologies (targeted H2 2026), and evaluation of strategic alternatives for Productivity Solutions and Services and Warehouse and Workflow Solutions. No quantitative guidance was provided for future periods. The Liability Management Reorganization was completed to manage asbestos and environmental liabilities. Backlog increased 14% to $36.6B, indicating healthy demand.

Cash Flow Quality

Cash Flow Quality

CFO of $1.9B exceeded net income of $3.0B? Actually net income was $3,019M, but CFO was $1,916M, indicating a gap of ~$1.1B. Noncash adjustments added $744M, but changes in working capital consumed $1,218M (mainly accounts receivable). Capex of $554M represents 29% of CFO, moderate. Free cash flow (CFO minus capex) was $1.36B, covering only 27% of the $5.1B in capital returns (buybacks + dividends), the remainder funded by debt issuance and proceeds from divestitures.

Notable items:

• Investing outflows included $2,163M for acquisitions, partly offset by $1,157M from sale of PPE business.
• Financing included $4,035M in long-term debt proceeds and $1,873M net commercial paper, alongside $3,604M buybacks and $1,479M dividends.
• Working capital declined sharply, driven by increased receivables due to customer payment timing. Overall, cash generation from operations was solid but reliant on external financing for capital return programs.