Honeywell International Nears June 29 Split With ‘All Green Lights,’ Reaffirms Outlook

Key Points

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• Honeywell says its planned separation is in the “final stages” and remains on track for a June 29 completion, with CFO Mike Stepniak saying there are “all green lights” and no expected issues. The company also reaffirmed its full-year guidance.

• The company said the Middle East headwind is easing after previously warning of significant second-quarter pressure, as customer activity and demand remain strong. Honeywell also said several businesses are showing improving trends, including strong Building Automation performance and early signs of recovery in Industrial Automation.

• Honeywell continues to face supply chain constraints in Aerospace, especially in mechanical engine components, though it expects improvement in the second quarter. The company also said stranded costs from the split should be lower than previously estimated and reiterated a capital plan focused on debt reduction, dividends and bolt-on acquisitions.

Honeywell International (NASDAQ:HON) is on track to complete its planned separation on June 29, the first day of the third quarter, Chief Financial Officer and Senior Vice President Mike Stepniak said at an investor conference.

Stepniak said the company is in the “final stages” of separating and described the process as having “all green lights.” He added that Honeywell is operationally ready, though some transitional services agreements and post-spin activities will remain.

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“I don’t foresee any issues as far as the 29th,” Stepniak said.

Honeywell also reconfirmed its full-year forecast and guidance, with Stepniak citing “positivity in the markets generally.” Aerospace will hold an analyst day in Phoenix on June 3, while the remaining company, or RemainCo, will hold an analyst day in New York City on June 11.

Middle East Headwind Eases

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Stepniak said conditions in the Middle East are proving more resilient than Honeywell previously expected. The company had cited $100 million to $150 million of second-quarter pressure from the region, but Stepniak said the outlook is now “looking much better.”

Customers in the region remain active, he said, with Honeywell teams and general managers visiting customers and repair work underway. Stepniak said customers are not only seeking repairs but also discussing future expansion.

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“Underlying demand is still there,” he said, adding that Honeywell sees “really good demand” from the region over the medium term.

Automation Businesses Show Mixed but Improving Trends

Stepniak said Building Automation continues to perform strongly, with broad-based strength across the business. He noted that the segment has delivered high-single-digit growth for the past six quarters and said it is on pace for another strong quarter.

He attributed the outgrowth to several strategic changes, including a region-for-region approach, reinvestment in research and development, new product introductions and the growth of Honeywell Forge. Stepniak said the company is gaining traction in verticals such as life sciences, hospitality, hospitals and data centers, though data centers remain a relatively small business for Honeywell.

On Industrial Automation, Stepniak described the business as a “self-help” story and said it is beginning to show improvement under Peter Lau’s leadership. He said Honeywell is seeing “green shoots” in the underlying market and believes the business has stopped losing share and is starting to gain share.

After planned exits, Stepniak said Industrial Automation will be about a $3.5 billion business focused on measurement and instrumentation. He said the business is currently dilutive to Honeywell but is expected to lead margin expansion over the next two years.

For Process Automation & Technology, Stepniak said the second quarter remains difficult because of tough comparisons, but orders are improving and the business is sitting on record backlog. He said Honeywell’s LNG business is sold out for 3.5 years and that the company sees a significant inflection in the second half.

Aerospace Supply Chain Still Constrained

Stepniak also addressed Aerospace, where first-quarter growth came in below expectations due to supply chain issues. He said April was encouraging and that second-quarter results should improve from the first quarter, while noting that output in the aerospace industry is typically heavily weighted toward the final month of the quarter.

The supply chain issues are concentrated in mechanical components, particularly in engines, including forgings, castings and blades. Stepniak said Honeywell has invested in its own supply chain and in suppliers through tooling, testing and other support.

However, he said supplier capacity is currently sufficient for about 10% to 12% year-over-year growth, while Honeywell needs closer to 15%.

Stranded Costs, Pension and Quantinuum

Stepniak said Honeywell now expects stranded costs from the separation to be less than $300 million on June 29, down from an earlier estimate of about $400 million. He said most of those costs are already being addressed and that Honeywell expects about $100 million of stranded costs by year-end.

On pensions, Stepniak said Honeywell’s pension plan is more than 40% overfunded, closer to 46%. The company is splitting the pension naturally between Aerospace and RemainCo, with Aerospace receiving about 55% of the assets and RemainCo retaining the rest. Stepniak said the board is still discussing the best treatment for the pension, given its value as an asset but also its volatility and impact on free cash flow metrics.

Stepniak declined to discuss details of Quantinuum’s potential IPO, citing restrictions, but said announcements are expected as the company progresses through its strategic and commercial journey. He said Honeywell currently fully consolidates Quantinuum, including about $250 million of investment spend or losses. If Honeywell’s ownership falls below 50%, he said that would be a tailwind to segment margins because only Honeywell’s ownership portion would be reflected above the line.

Capital Allocation Focuses on Debt and Bolt-On Deals

Stepniak said Honeywell will maintain a prudent capital allocation framework, including investment in growth, a dividend ratio in line with peers and at least enough share repurchases to offset dilution. In the near term, he said the company is focused on debt repayment and expects to reduce gross leverage to about 3 times by year-end.

He said Honeywell will continue to pursue mergers and acquisitions, but prefers bolt-on and tuck-in deals rather than large transformational transactions. Stepniak said Industrial Automation is likely to be the main focus for M&A because of its white space and the fragmented nature of the market.

“What we find works for us the best is bolt-on,” Stepniak said, describing Honeywell’s preferred deal size as roughly $2 billion to $4 billion.

Stepniak said both Honeywell businesses are entering the second half “from a position of strength” and pointed to upcoming investor days for additional details.

About Honeywell International (NASDAQ:HON)

Honeywell International Inc is a diversified, publicly traded multinational conglomerate (NASDAQ: HON) that designs and manufactures a wide range of commercial and consumer products, engineering services and aerospace systems. The company operates through major business platforms that historically include Aerospace; Building Technologies; Performance Materials and Technologies; and Safety and Productivity Solutions. Its portfolio spans avionics and propulsion systems, building controls and HVAC equipment, process technologies and advanced materials, industrial automation software, and personal protective equipment and scanning solutions.

Honeywell’s aerospace business supplies aircraft manufacturers and operators with engines and auxiliary power units, avionics, flight safety systems and aftermarket services.

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