Release Date: August 05, 2026
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Record selectable equipment win with Indigo for over 800 Airbus A320 aircraft, expanding content in a fast-growing market.
- Strong demand across all end markets, with orders up 8% year-over-year and a book-to-bill of 1.1.
- Continued momentum in commercial aftermarket, with 8% growth driven by robust business aviation flight hours.
- International defense orders up strong double-digit with a book-to-bill of 1.5, providing a strong runway for future growth.
- Reiterated 2030 targets, with confidence in 2027 growth driven by supply chain investments and output recovery.
Negative Points
- Supply chain constraints persist, with output growth only 4% in Q2, below expectations, leading to a guidance cut.
- Revised 2026 organic sales growth down to 4-5% from prior guidance, with EBIT reduced by $300 million at midpoint.
- Inventory obsolescence charge of $50 million in Q2, primarily in Engine and Power Systems, impacting margins.
- Mix shift towards lower-margin OE and domestic defense, away from higher-margin aftermarket and international defense, pressuring profitability.
- Commercial aftermarket growth expected to slow to low-to-mid single digits in H2 due to supply constraints and tough comps.
Q & A Highlights
Q: Can you walk us from the 2026 guide provided at Investor Day to the updated outlook offered today?
A: Josh Jepsen (CFO) explained that structurally nothing has changed, and demand remains robust. The primary driver of the revised guidance is that the expected acceleration of output from Q1 to Q2 to Q3 did not materialize as planned, with a particularly lower ramp in June. The company is resetting guidance to a more prudent baseline that can be delivered even if output growth remains flat. Sales growth is down 3% to 4% at the midpoint, driven by lower mechanical supply and mix, with EBIT down about $300 million due to a $50 million inventory obsolescence charge and a mix shift from higher-margin aftermarket and international defense to lower-margin OE and domestic defense.
Q: How much of the slower anticipated growth in commercial aftermarket and defense and space is supply versus demand, and what's specific to Honeywell Aerospace?
A: Jim Currier (CEO) emphasized this is clearly a supply issue, not a demand issue, with orders up 8% on a rolling 12-month basis across all three end markets. The company has over 3,000 suppliers, with 98% performing exceptionally well. The remaining 2% fall into two categories: constrained suppliers (a handful not providing needed output) and critical suppliers (those lacking robustness and consistency). The growth is constrained by the mechanical supply base, which is the singular area of focus to unlock value and drive growth.
Q: What gives you confidence you will see improvement into the back half, and what specifically took a step back in the last few months?
A: Jim Currier (CEO) stated that structurally nothing changed, but the company overestimated the pace of output improvement. The typical profile is that the third month of the quarter (June) sees a high percentage of quarterly revenue materialize, but the growth in June was not at the expected rate. The company is taking a prudent baseline view for the reset. Josh Jepsen (CFO) added that the company is pivoting from "brute force" to strategic actions, including four times the investment in in-sourcing and multi-sourcing and doubling supplier tooling between 2025 and 2027, which will drive sustainable output growth.
Q: How much of the top-line and EBIT cut is coming from supply chain, and what are three things to look for in the next six months to fix the supply chain?
A: Josh Jepsen (CFO) said the vast majority of the top-line reduction is driven by the supply side, as demand remains robust. The EBIT reduction includes the $50 million inventory obsolescence charge and the remainder from mix and volume leverage. Jim Currier (CEO) provided an example of a constrained supplier with roughly $15-16 million in past due, which unlocks hundreds of millions of dollars in revenue output for Honeywell Aerospace, illustrating the disproportionate impact of a small group of constrained suppliers.
Q: How many suppliers are sole source today, and how many will still be sole source in three to five years?
A: Jim Currier (CEO) explained that the dual-sourcing, multi-sourcing, and in-sourcing strategy focuses on the most constrained suppliers. Year-to-date, the company has second-sourced 50 suppliers and plans another 50 in the second half of 2026. The intent is not to dual-source every part among the tens of hundreds of thousands of SKUs, but to focus on constrained areas, critical suppliers, and those needing additional investment to support planned growth.
Q: Are the supply chain issues causing airline customers to turn to DER repairs and PMAs, and where did the $50 million inventory obsolescence charge occur?
A: Jim Currier (CEO) stated there is no correlation between the inventory obsolescence charge and customer behavior. The company continues to see significant demand in the commercial aftermarket for both repair and overhaul and spares, with no shift away from Honeywell Aerospace. Josh Jepsen (CFO) confirmed the inventory obsolescence charge is not expected to recur, with the vast majority occurring in the Engine and Power Systems segment and a very small portion in Electronic Solutions.
Q: Are you jeopardizing OEM ramp plans, and have delays led to compensation discussions with customers?
A: Jim Currier (CEO) confirmed the company is delivering for OE customers and ramping shipments with build schedules, staying intimately tied to OE customers. The supply plans are aligned to published production rates. The company is driving more output toward OE to support those rates. Regarding penalties, Jim Currier noted that while delinquencies could transcend into penalties, customers are most interested in keeping investments flowing, as any penalties pale in comparison to the benefits of more output from Honeywell Aerospace.
Q: Is the emphasis on castings the place with the most pressure, and is the free cash flow outlook now more at the lower end?
A: Josh Jepsen (CFO) confirmed castings are one of the key areas, along with forgings, complex machining, and bearings, all on the mechanical side. The company is putting significant CapEx into castings to drive capacity and higher yields. Regarding free cash flow, the range was maintained intentionally wide due to separation moving pieces. With slightly lower EBIT but some improvement in working capital, the midpoint of the range remains reasonable.
Q: Why are you seeing a disproportionate impact from supply chain issues compared to others in the industry?
A: Jim Currier (CEO) explained this is a multi-year journey. When he came into the role, the supply base was substantially worse than the current 98% functioning well. The company has worked through many issues, and the remaining 2% are the most difficult, time-consuming problems causing the most pain. The CEO overestimated the pace at which these critical issues could be solved, leading to the revised guidance.
Q: How much of the 2027 recovery is dependent on critical suppliers getting healthy versus internal improvements?
A: Josh Jepsen (CFO) stated it is by and large output-driven, with the more output through the supply chain and facilities unlocking growth given the strong backlogs and order books. Jim Currier (CEO) added confidence in 2027 comes from face-to-face supplier engagement, with 70% of capital investments external and 30% internal. As output improves, the company can fulfill more commercial aftermarket and international defense business, which carries higher margins. Additionally, pricing on long-term contract renewals will recouple to costs,
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
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