HONA Q&A
Ugly Meet Expectations. Expectations this is Ugly
A subscriber asked us about this Honeywell Aerospace spin out. Pretty awful right after you spin out as SOTP value enhancement, huh? So, HONA is getting slaughtered because its first standalone print was a credibility disaster. This was supposed to be a premium aerospace pure play, and instead management cut 2026 organic growth to 4–5% from 7–9%, cut adjusted EBIT growth to 0–3% from 7–10%, and guided EPS to $7.60–$7.90 versus roughly $8.86 Street. Q2 itself missed too: $1.87 EPS versus $2.12 and $4.52B revenue versus $4.61B.
The explanation is almost worse than the numbers. Demand is fine, but HONA cannot get enough mechanical components, castings, chips and labor through the system. It is prioritizing lower-margin OEM deliveries to Boeing and Airbus—and domestic defense commitments—at the expense of the much higher-margin aftermarket business. So investors are hearing: great backlog, but we cannot convert it, and the mix gets worse while we fix the factories.
To quote Ricky, “Lucy, you have some ‘splainin to do”. Here is what they said:
HONA · Q2 2026 — Top 5 Earnings Q&A
2026-08-05
Organic Revenue Growth (Q2): 5% YoY to $4.5B
Adjusted EBIT (Q2): $1.0B, down 2% YoY
Adjusted EPS (Q2): $1.78, down YoY
Full-Year Organic Sales Growth Guidance: 4%–5% · prior 7%–8% implied (down ~3–4pts at midpoint)
Full-Year Adjusted EBIT Guidance: $4.35B–$4.45B · prior ~$4.65B–$4.75B implied (down ~$300M at midpoint)
Full-Year Adjusted EPS Guidance: $7.60–$7.90
Q1 · Ken Herbert · RBC Capital Markets
Supply chain confidence and drivers of underperformance
Q: The change in supply chain performance from what you were seeing in early June to today seems more drastic than a lack of improvement would imply. What gives you confidence you will see some improvement in the back half, and is there anything in particular within the mechanical components piece that took a step back in the last few months and contributed to the lower-than-expected improvement?
Jim Currier, President and Chief Executive Officer: Structurally, nothing has changed that is causing the revised guide — frankly, I overestimated the pace of the output improvement, and pushing that to the right is what is really driving the revision. We were expecting a significant amount of ramp in the third month of the quarter, which in this case was June when we provided our guide at the investor event in early June. Our typical profile has always been that the third month of the quarter sees a very high percentage of total quarterly revenue materialize. Even though we were seeing improvement in the early parts of Q2, that expected growth in June did not come at the rate we had anticipated. So we took a very prudent baseline view when we reset guidance — even if supply chain output remains the same as what we saw in the first half, that was a contributor to the revised guide. I know it is a very big disappointment, but I am exceptionally confident we are going to see significant output that is sustainable for stronger growth in 2027. I will also add that when I came into this role in August of 2023 I spent a significant amount of my time with customers rebuilding relationships and establishing partnerships, and I believe that has gone very well. This is the second phase of that activity where I have now pivoted my personal time to spending it with suppliers, reestablishing those partnerships in like manner to what I did with customers coming into the role. From those personal face-to-face engagements at supplier locations, we have seen confidence building through the transparency and visibility we are providing to them, and we expect improved output in the second half of the year, albeit delayed from what we had anticipated when we gave our guide in early June.
Josh Jepsen, Chief Financial Officer: This is really a pivot from pure brute force to strategic actions — thinking about what we need to do to build this sustainably going forward. One of the benefits of separation is capital allocation and being able to put more CapEx into this area. We are putting four times the amount of investment this year into insourcing and multisourcing compared to last year, and we are doubling the amount of supplier tooling we are buying between 2025 and 2027. Some of those investments are not quick — some have long lead times — but we think they will drive sustainable output growth going forward, which we believe is really critical.
