Thank you for standing by, and welcome to the Honeywell 4th Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's 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 Sean Mecham, Vice President of Investor Relations. Please go ahead.

Good morning, and welcome to Honeywell's fourth quarter 2025 earnings and 2026 Outlook conference call. On the call with me today are Chairman and Chief Executive Officer, Vimal Kapoor, and Senior Vice President and Chief Financial Officer, Mike Stepniak, as well as Mark Macaluso, who will be leading investor relations for Honeywell going forward. 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 that may be of interest or material to our investors on this website. 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 risks and uncertainties, including the ones described in our recent SEC filings. This morning, we'll review our financial results for the fourth quarter and full year 2025, and discuss our guidance for the first quarter and full year 2026. As a reminder, we began reporting advanced materials as discontinued operations beginning in the fourth quarter of 2025 following the successful spin of Solstice advanced materials on October 30th, 2025. The fourth quarter results we present today exclude Solstice. As always, we will leave time for your questions at the end. With that, it's my pleasure to turn the call over to Viml, who will begin on slide three.

Thank you, Sean, and good morning, everyone. Honeywell delivered a strong fourth quarter to close 2025, exceeding our expectations for both adjusted sales and adjusted EPS, with orders up 23%, driving our backlog to over $37 billion. This performance reinforces the strength of our end market positions and execution. We exited the year with a sales growth of 6%, excluding the impact of 2024 Bombardier Agreement, which demonstrates the outcome of our portfolio actions and our emerging focus on innovation, stemming from continued investment in R&D. This gives us conviction in another year of meaningful top and bottom line growth of 2026. Looking ahead, we expect to once again drive strong organic growth fueled by conversion of our record backlog, discipline, price execution, and momentum in new product introductions. The strong organic growth coupled with productivity and an aggressive reduction in stranded costs related to the spins will enable us to deliver 6% to 9% earnings growth in 2026, along with accelerating cash generation. It was about a year ago that we announced our intention to spin off aerospace, which will result in creation of three leading pure play independent public companies. We have made tremendous progress throughout the year with the advanced material spin complete and we now expect to complete the aerospace spin in the third quarter of 2026. Both aerospace and automation will host investor day in June and I hope many of you can join us then. Our teams are working around the clock to ensure this gets done as quickly and judiciously as possible. and I want to thank all our employees for their commitment and dedication to this process. We also remain very excited about the progress at Continuum on key technological and commercial milestones that position the business to lead the way in quantum computing. I will talk more about Continuum and its progress in a few minutes. 2026 will be an exciting year as we move forward the final stages of our portfolio simplification. This positions each business with the rights to strategic focus, organizational agility, and tailored capital allocation strategies needed to grow faster and drive incremental value for all stakeholders. Let's now turn to slide three to discuss the latest update on our portfolio transformation. As I mentioned, we are progressing faster than originally anticipated on our separation milestones. On October 30th, Solstice began trading as independent public company, and we now expect the aerospace to occur in quarter three to that end we announced the aerospace leadership team last week comprised of tenured aerospace veterans and made key board appointments to bring extensive operating experience to our teams tim courier who will serve as president ceo of honeywell aerospace at the time of separation will be joined by josh jepson who will serve as chief financial officer additionally we announced that craig arnold the former chairman and ceo of ethan corporation will serve as non-executive chair of honeywell aerospace board of directors craig brings more than two decades of experience in leadership roles at industrial and tech businesses where he delivered transformational results through operational excellence and disciplined capital allocation together craig jim and josh bring the right mix of industry company and capital market experience to maximize the value for our customers, partners, employees and our share owners. We're also excited to welcome Indra Nooye, Foreman Chair and CEO of PepsiCo to Honeywell's Board of Director, further strengthening our team with her proven track record of leading diverse global businesses and accelerating long-term growth. Beginning in 2026, we reorganized Honeywell segment into more simplified structure focused on cohesive synergetic business model moving forward we'll be reporting four segments aerospace technologies building automation process automation and technology and industrial automation the three automation reporting segments will be organized into six strategic business units enabling us to better solve customer challenges and deliver in-house outcomes with Honeywell Forge platform finally we concluded the strategic review of productivity solution and services and warehouse and workflow solutions and have announced that we intend to pursue a sale of both businesses in first half of 2026. All of these actions position both aerospace and automation for a strong beginning as new industry leading public companies in 2026. Let's start to slide four to discuss the recent advancements of Continuum. Following the recent fundraising in which Continuum raised approximately $840 million at a $10 billion pre-money valuation, the pace of both technological and commercial progress at Continuum is rapidly increasing. close collaborate with share owners as quanta such as quanta nvidia jp morgan amgen and mitsui have led to new commercial partnership that are supporting the development of critical applications for improving drug discovery cyber security and encryption for large financial institution in november continuum announced the launch of helios the world's most accurate commercial quantum computer which nearly doubles the qubit count of its predecessor h2 and we believe sets a new standard for quantum computing performance with the highest fidelity for quantum computing qubits ever released in the market helio's groundbreaking design and advanced software stack brings quantum programming closer to the ease and flexibility of classical computing which we believe positions the company to accelerate quantum's commercial adoption quantum also announced a partnership to integrate helios with nvidia's ai supercomputing technology to create powerful new architecture that can solve the world's most pressing challenges this collaboration between continuum and nvidia is creating a future where ai becomes more expansive through quantum computing and quantum computing becomes more powerful through ai as continuum achieve these important technological and commercial milestone i'm confident of the company's future and the best is yet to come and before mike talks about 4q results let's move to slide five to discuss our recent growth acceleration this chart demonstrate the recent acceleration in organic growth stemming from a combination of strong in market demand are portfolio simplification and innovation this drove a three to four hundred basis point improvement in ltm average organic growth since the beginning of 2024 as i noted earlier we see favorable end market dynamics across aerospace and defense process and building automation we are enabling this further with an intentional shift to higher growth verticals Our performance simplification efforts are positioning the company toward less cyclical and less capital-intensive markets where we can build our install base and liberate this to drive software and services growth. This is being compounded by recent acquisition in XS solution, LNG process technology, compressor control and defense technology. On innovation, we delivered 4% organic growth from our new product introduction in 2025, with majority coming from innovation in new markets and offering as opposed to upgrade on existing core products. This is a direct result of our meaningful step up in R&D investments in 2025, which continues at these levels in 2020 SWIX, as well as management's focus on growth through new products. On the people's side, we have made a concerted effort to enhance our talent pool to drive growth. We added approximately 600 engineers to our workforce in 2025, which has greatly bolstered our R&D capacity and have also allocated the overwhelming majority of R&D to new product development. Additionally, our sales team incentives are now better aligned to our objective of prioritizing the commercialization of new products, further reinforcing our plan to drive growth through innovation while building stronger customer intimacy. With that, I will turn the call over to Mike to go through our fourth quarter results starting on slide six.

Thank you and good morning. We ended the year with robust fourth quarter results. Sales grew 11% organically or 6% excluding the impact of the 2024 Bombardier agreement led by double-digit growth in aerospace and high single-digit growth in building automation. We also continued to drive price across the portfolio as Vimal noted which contributed roughly four percentage points to the top line on the segment basis aerospace sales grew 11 organically excluding bombardier led by continued strength in both commercial aftermarket and defensive space commercial oe growth accelerated as expected from the third quarter as shipments continue to recouple with customers build rates robust demand across all end markets led at third consecutive quarter products regionally north america and middle east led the over performance with europe and up strong mid single digits as well orders increased both year over year and sequentially driven by ongoing momentum across both building solution and products and highlighted by strength in the projects and fire businesses industrial automation grew for a second consecutive quarter with organic sales up one percent led by warehouse and workflow solutions and sensing as well as a return to growth in productivity solutions and services process solution cells were flat as strength in aftermarket services was offset by lower volumes in measurement and controls products finally organic cells in energy and sustainability solutions declined seven percent stemming from lower petrochemical color shipments coming in slightly below our expectations due to continued project deferrals however orders momentum in new be continued with over 40 orders growth in refining and petrochemicals projects which supports our confidence in a gradual 2026 recovery in total honeywell orders grew 23 organically after 22 growth in the third quarter wins in long cycle aerospace energy and broad-based demand in building automation led the way, resulting in total book to bill above one and pushing backlog up 15% to a new record. On profitability, adjusted segment profit increased 23% or 2% excluding Bombardier, with segment margin of 22.8% led by ongoing margin expansion in building automation, partially offset by the timing of high margin color shipments in ESS and headwind from a step up in R&D. in aerospace adjusted segment margin expanded 40 basis points sequentially to 26.5 percent as we again delivered stronger volumes enabled by supply chain improvements while in da margins expanded 20 basis points year over year to 27 percent driven by commercial excellence and volume leverage this was partially offset by declines in ia and ess driven principally by unfavorable mix from lower calories volumes and cause inflation as a reminder pss fourth quarter and full year 2025 results include only the europ business unit following the fourth quarter reclassification of advanced materials to discontinued operations and this will be the last quarter we present results for ess adjusted earnings per share of two dollars and 59 cents was up 17 percent and down three percent excluding the impact of the bombardier agreement driven primarily by higher segment profit and a lower share count overcoming a 24 cent year-over-year headwind from the timing of taxes you can find additional information on the fourth quarter adjusted eps bridge in the appendix of our presentation finally free cash flow of 2.5 billion dollars was up 48 percent or up 13 percent excluding the impact of prior year bombardier agreement growth in free capture was driven by higher operational income and collections offset by higher cash taxes and interest payments on capital deployment we returned 900 million dollars to shareholders in the quarter through dividends and share repurchases while funding 300 million dollars in high return capital projects we also repaid 2.3 billion dollars of debt in fourth quarter for the full year sales increased seven percent organically or six percent excluding the impact of the bombardier agreement exceeding the high end of original full-year guidance by two points adjusted segment profit grew 11 or 6 excluding bombardier with adjusted segment margin expansion of 40 basis points or contraction of 40 basis points excluding bombardier to 22.5 adjusted earnings per share was nine dollars and 78 cents up 12 percent year over year or up seven percent excluding Bombardier. Finally, free cash flow was $5.1 billion, up 20% or up 7% excluding the impact of the Bombardier agreement, representing 14% margin. We deployed $10 billion to capital in 2025, including $3.8 billion to repurchase 18 million shares, $2.2 billion to acquisitions, $1 billion to capital expenditures, and $3 billion to dividends. We also repaid $3.8 billion of debt to lower interest expense. In all, a very strong performance to end the year with plenty of momentum heading into 2026. With that, let's turn to slide eight to discuss our 2026 segment outlook. In aerospace, we expect top-line growth in the high single-digit range organically. We anticipate continued and market strength supported by resilient supply chain that continues to grow its output. Commercial OE growth should accelerate in 2026 as we move past customer de-stocking and ramp our shipments alongside increasing production rates, particularly in commercial air transport. Defense and space should maintain its momentum as higher global spending drives substantial orders growth and record backlog. Steady increases in flight hours, in air transport, and business jet underpin ongoing commercial aftermarket strength, though we expect modest normalization in growth rates from the prior year. Segment margins should expand modestly as volume leverage, better pricing alignment with tariff costs, and tapering acquisition integration costs more than offset mixed pressure from stronger growth in defense and space and commercial OE. For building automation, we expect full-year sales growth above mid-single digits, highlighted by strength in growing data center in healthcare and markets. We expect growth to be led by North America and acceleration in Europe on increased investments in healthcare and decarbonization infrastructure buildup. For the year, both products and solutions will grow at similar rates. We anticipate BA margin to expand over 50 basis points driven by volume leverage, pricing and productivity actions. Process automation technology sales are expected to be roughly flat organically year-over-year. Slower first-half growth in petrochemicals and refining should be offset by robust demand in global projects, particularly in life sciences and cybersecurity solutions. We expect margin to be roughly flat with pricing and productivity offsetting material cost inflation. And finally, in industrial automation, we expect sales to be down low single digits to roughly flat with stable growth industrial solutions offset by headwinds from a challenging prior comparison in products. Within this framework, we're not assuming any rebound on underlying end market demand. We expect IEA to lead margin expansion across all segments in 2026 through meaningful productivity actions and fixed cost reduction. Let's now turn to slide 9 to double-click on process automation and technology dynamics in 2026. During the second half of 2025, we saw 17% organic orders growth in the new P&T segment, which led a corresponding 16% rise in the opening backlog. this continues to be a significant part of our long cycle order strength particularly in lng and refining both in the us and internationally the backlog growth gives us confidence in an expected second half ramp especially when measured against our historical backlog conversion rates wins in lng and a number of large module equipment deals are expected to convert to sales in the back half of the year in addition we're encouraged by our pipeline pnt which grew high single digits year over year signaling that the strength long cycle orders is expected to persist contingent on the pace of final investment decisions from our customers we're diligently tracking the slower than expected aftermarket order rates for catalyst particularly within petrol chemicals which has been influenced by over capacity in the market Catalyst shipments can be temporarily delayed in the short term, but are ultimately necessary for our customers to maintain yields, and those can only be deferred for a period of So while we acknowledge the challenges this business face in 2025, we're encouraged by orders growth and backlog, as well as pent-up catalyst demand that should eventually fuel strong growth as we progress through 2026 and into 2027. Let's move to slide 10 to talk further about our expected semi-margin expansion for 2026. In 2026, we anticipate the demand for our differentiated high-value solutions and continued pricing that is outpacing inflation will drive further margin expansion. on a segment basis we expect improved volume leverage principally in our building automation aerospace technology businesses which will drive solid incremental margins our pmt margins will be roughly flat in 2026 due to the impact of stronger projects growth in the second half our focus on productivity action and rigorous fixed cost management will continue in 2026 we're working diligently to right size our cost structure ahead of the planned aerospace spin and expect to eliminate the stranded costs in 12 to 18 months after the spin. We have already neutralized the impact of Solstice's stranded costs in 2025 through productivity and fixed cost reduction in the rest of the business. Finally, Continuum investments in R&D and technology will be a modest headwind to margin in 2026. As Wimel noted, Continuum is making significant commercial R&D investment to maintain its leadership position in quantum computing. With that as the backdrop, let's move to slide 11 to go through the details of our full year 2026 guidance. Before we get into the specifics, I want to point out that our 2026 guidance includes full-year outlooks for aerospace, productivity solutions and services, and warehouse and workflow solutions, and does not incorporate the pending acquisition on Johnson & Matty's Catalyst Technologies business. We intend to update our outlook when these transactions are complete. For the full year 2026, we anticipate sales of 38.8 to 39.8 billion dollars, up 3% to 6% organically. We expect growth to be led by aerospace on higher commercial demand and increased defense budgets, and building automation driven by new product innovations. This will be partially offset by a slower start to the year in process automation technology, which turns to growth in the second half driven by order visibility and significantly easier comps and mixed regional and end market dynamics in industrial automation. Segment margins are expected to be up 20 to 60 basis points to 22.7 to 23.1% as the benefits from price execution and productivity actions more than offset cost inflation and a roughly 30 basis points headwind from increased investments in continuum. Industrial automation will lead for the year, driven by targeted fixed-cost takeout, followed by building automation as higher volumes continue to drive margin expansion. Aerospace margins should expand modestly as volume leverage is partially dampened by mixed pressures. Finally, we expect P&T segment margins to be roughly flat year-over-year, with pricing and productivity offsetting material-cost inflation. We expect a combination of strong top-line growth coupled with productivity and fixed cost reduction will drive adjusted earnings per share of $10.35 to $10.65, up 6% to 9%. Our guidance assumes a 1% reduction in share count steaming from share repurchases. As we have signaled, we intend to focus our cash deployment in 2026 on reducing debt ahead of the separation. Moving to cash, we expect free cash flow of $5.3 to $5.6 billion, up 4% to 10%, which represents an approximately 14% free cash flow margin and 83% conversion at the high end, or 90% excluding non-cash pension income. capital expenditures anticipate to increase by roughly 250 million dollars to support growth investment attached to orders we already have in belt backward this increase in spending will be funded by improvements in working capital efficiency with a continued focus aerospace inventory let's move to slide 12 to briefly review a full year 2026 eps bridge the main takeaway on this slide is that the overwhelming majority of our earnings growth in 2026 is expected to come from segment profit growth adding approximately 64 cents at the midpoint we expect to benefit from higher volumes enhanced productivity and favorable price costs offset by higher investment in continuum as i noted as you can hopefully see we have fairly clean high quality and straightforward path to our 2026 outlook a few other points to note below the line expenses should be roughly flat the over year as higher pension income of approximately 660 million dollars is offset by increased reposition expenses as we prepare for separation while net interest expense remains in line with 2025 levels we expect the tax rate to remain roughly 19 percent and average shares outstanding to decline approximately one percent adding eight cents to earnings per share additional below the line details are available in the appendix of the presentation now let's turn to slide 14 to talk briefly about 1q guidance we anticipate first quarter organic sales growth of three percent to five percent organically by segment we anticipate organic sales growth in aerospace building automation and industrial automation to look very similar to our full year outlook for these businesses while process automation technology will be more in line with 4q 25 levels given the slow start as mentioned earlier in addition we expect to see normal seasonal step down in revenue from 4q to 1q similar to past years we expect segment margin to be in the range of 22.4 to 22.6 percent flat to up 20 basis points led by productivity actions in our automation businesses we anticipate aerospace margins to be down slightly from the prior quarter on seasonally lower volumes this will drive adjusted earnings per share growth in the first quarter of two percent to six percent we expect a roughly 70 million dollar increase in below the line driven by higher interest expense from recent acquisition and increased reposition expense ahead of the separation additionally as we announced last week following a settlement of all flagship related litigation matters we made a one-time cash payments of 377 million dollars in the first quarter which is excluded from our full-year free cash flow guidance i'll now hand the call back over to bimo to wrap up before q a thank

you mike we are pleased with our strong finish to 2025 with adjusted sales and adjusted earnings per share exceeding the high end of our guidance range this performance underscores the resilience of our business model approach and highlights the growing demand for our innovative solution looking ahead our guidance for 2026 is underpinned by continued strength in our orders growth price execution and record beginning backlog as always our guidance serves as a prudent baseline for performance that we have a strong conviction we can achieve moreover we continue to progress our separation milestone which we are tracking ahead of plan paving a clear path for both aerospace and automation to emerge as industry leading companies in 2026. We look forward to sharing more about our strategy and long-term growth at the upcoming Honeywell Aerospace Investor Day on June 2nd and 3rd in Phoenix, followed by Honeywell Automation Investor Day on June 11th in New York City. These events will provide an excellent opportunity for us to engage with our investors and showcase the strength of our portfolio. and before turning to q a i want to take a moment to acknowledge our head of investor relations sean make him for all his contribution over the past four years as you know sean will be moving to aerospace with a spin-off to establish another world-class investor relation function as he did in honeywell he will be an incredible asset to craig jim and josh as they begin their journey as a standalone entity sean effectively communicated the vision and value of honeywell strategy with credibility and conviction, link the framework with investors for our emergence post separation. On behalf of the leadership team and shareholders, I want to thank Sean for your dedication and commitment and say that I could not be happier to have you lead the IR function at Honeywell Aerospace. Congratulations and with that, Sean, let's take the questions. Thanks for the kind

word, Viml. I'm very grateful for the opportunity to lead IR and be part of this team. It's been a great learning experience and I'm really excited about what's ahead for both Aerospace and Honeywell. Vimbo and Mike are now available to answer your questions. We ask that you please be mindful of others in the queue by only asking one question and one related follow-up. Operator,

please open the line for Q&A. Thank you. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before present the star keys our first question comes from the line of julian mitchell with barclays

please proceed with your question uh hi good morning and um yes i want to say thank you uh sean um for all the help um if we think about the um margin progression just to try and understand that a little bit more for the total company so it's sort of flattish year on year in the first quarter picks up steam over the balance of the year maybe help us understand how second-half weighted that margin acceleration is and are there any specific items on a segment level driving that please or Julian thank you

for the question so we on the on the headline numbers we're expanding 20 to 60 operationally we really are expanding margins about 50 to 90 basis points and we have a little bit of a headwind about 30 basis points this year from continuum um that headwind is a little bit higher in the the first quarter in the first quarter we also our taxes are the highest and uh we're paying uh our interest expense for the year is the highest so that's easing so i think what you'll you see from us 20 20 bips in the first quarter and then sequentially improving second half looks much better than the first half yeah since julian

and what I'll add is that the fundamental playbook which Honeywell always executed on margin expansion, which is price, volume, productivity, that will be in full play this year. We do expect, as Mike mentioned, our operational margins to expand 50 to 90 basis point and invest some money back in continuum. But we are very well programmed to deliver margin expansion as we did in the past, like 2023, we were 100 basis per margin expansion. So we are very confident in delivering our margin expansion rubric for 2026.

And I would just also maybe add that last year we talked about it. We stepped up on engineering from R&D standpoint. That's now normalized going into 2026. It's not a headwind for us. And last year was about, I think, 15 bips of headwind if you take 2025 as a whole.

That's helpful. Thank you. And then just a quick follow-up on the aerospace margins specifically. I think they're starting out the year maybe down the touch year on year and then up a few tens of basis points for the year in aggregate. Maybe clarify kind of how you see those mix impacts playing out through the year. And there's been some discussion on commercial OE contract renewal timings and so forth. Is that a factor this year affecting the aero margins at all?

Sure. So maybe I'll just start with the 2025 progression, but I think it's important as you think about 2026. So we entered 2025 and we said we'll finish about 26% for the year. That's exactly what we did. And the team executed well, despite the Liberation Day having to contend with the terrorists. largely tariffs are behind us going to 2026 price will be better for aerospace acquisition integration costs are abating that's also a tailwind and supply chain is continuing to improve so for 2026 really to me it's it's a margin expansion question is is really just a question of how much and that's a factor of mix and how is mix going to play out in the business as well well as how we continue to unlock and scale the supply chain and how the trajectory progresses. But 2026, I fully expect margin expansion in aerospace.

And Julian, to your question on the OE contracts, we are indeed negotiating our contracts with multiple OEs as we speak, both on the commercial side and business jet side. You know, those are under progress right now. And what I can share with you is that longer term, it will play bow down quite well for aerospace margin expansion because the nature of these are long term so we remain very confident that this is going to have a positive impact on our margin expansion story for the business in

the time. And Julian one last piece I would just add on just thinking of the first quarter reminder that Liberation Day was in April so there's a little bit of a lapping where we have that little bit of lag on the pricing impact relative to the tariffs in aerospace in the first quarter

the oe business great thank you thank you thank you our next question comes from the line of nigel

co with wolf research please proceed with your question thanks good morning um so a lot going on here guys um continuum um you you announced uh you followed a confidential s1 um uh earlier this month. Are you fully committed to an IPO at this point, or is there an option to bring in a strategic investor? And I just want to make sure we get the right numbers on the investment spending. It looks like it's picking up by about $100 million year-to-year, so that would be, what, $250 million of total spend within corporate? Just want to make sure that's the number. And does the free cash flow or rather the cash burn kind of equate to that number as well.

So I'll start, I'll let Bimble comment on the, just on the commercial progress, et cetera. But you're exactly right. It's about $100 million year over year increase. We fully consolidate Quentinium right now. As you know, our raise was quite successful. So Quentinium has plenty of cash, but it flows through Honeywell's financials. but it's about $100 million year-over-year increase in terms of maturation and commercial efforts that the team is progressing.

And Nigel, you put it well, a lot going on in Honeywell, so we are absolutely working on the continuum lag. What I can share with you is we're obviously in the legal restrictions on what we can share, but as a practical matter, the progression on platform continues to be very promising, which is the reason we are investing more R&D dollars to continue to progress to launch the next version of our quantum machine, which is committed in 2027 timeframe. So that's a driver. And I actually spend a lot of time with the customers now to talk about leveraging quantum for commercial applications. So think about banks, think about pharmaceutical companies, and think about large governments. They're all very interested given we are coming closer to time to value. and we are also building leadership theme of Continuum Business, you know, expanding its capability so that it could stand alone as an independent company at the right time. So that's what I can share. I think a lot of wheels in motion and we continue to work very hard to make it a successful business.

That's very helpful. Thanks. And then my follow-on is really just wanted to dig into the extraordinary strength in the process orders last time we checked in with you guys you were talking about softness in large project activity that seems to have changed you know 180 so just just wondering what's what's changed and perhaps a bit more detail on where you

see in the strength by geography or end market so Nigel there to drive there to dynamics going on in the market on the positive side people are spending capital to build more capacity in LNG and refining. That showing our orders up, it's so substantially and backlogged up by 15%. So that's positive. Those are long cycle and we therefore will show more revenue accretion from them in second half of 2026 because the cycle time is 12 to 18 months. So we started lapping up our bookings from quarter three of last year and built the backlog, which will convert now Q3 and Q4 of 2026. Also on the positive side, the LNG business continues to do quite well. Sundine business we acquired is going to become baseline and organic growth, so that's going to help in the second half of the year. On the other side of the ledger, we continue to see pressure on the catalyst demand on petrochemical side. Petrochemical has excess capacity in the world, So our customers are shying to buy more catalysts and also I would say an automation side some of our migration offerings. So there's certainly a slowness there. Our guide doesn't factor any change in that in 2026. Now, I'm not suggesting it won't change, but we are cautious on how we are guiding at this point, and that remains the low point in the business. So, strength in long cycle in LNG and refining, and weakness in short cycle, specifically in the petrochemical side.

Okay, that's great.

Thank you. Our next question comes from the line of Scott Davis with Melius Research. Please proceed with your question.

Hey, good morning, guys. glad to see the uh the uh the final spin-off moving up uh here uh but look i wanted to talk a little bit about price because forever honeywell was kind of a one to two percent price company and now the last couple years you've been able to capture meaningfully more four percent now which is still meaningfully more than the peer group average but what what can you guys walk through you know there's kind of two angles here I mean one is kind of passing through tariff impacts you know and that's not a structural price increase that's more of a pass-through but can you talk about really how much of this price is kind of a change in pricing strategy how you guys approach projects contracts you know obviously new products help I would imagine and and how much of that 4% is kind of just the run-of-the-mill passing on tariffs

thanks yeah that's a great question and I think a lot about it you know on the dynamic I think fundamentally the inflation drivers have become more persistent in the markets we serve and I drive the insistent the inflation drivers into three buckets labor cost is increasing typically three to four percent in a typical year their labor shortages there's enough talk to you know, messaging around that. We also see cost increase in electronics prices. Memory is a new driver now. Of course, it's a small portion of what we buy, but it all starts compounding. And then commodity prices keep going up. I mean, there's a lot of news on gold, but then there's also other commodities which keep ramping up. So when you put it all together, fundamentally, the inflationary trend in industrial segment and segment specifically Honeywell serve, they remain quite persistent. And our pricing strategy, therefore, has become more mature really to look at as a long-term trend, work with our customers, and align with them that what's coming ahead and minimize the impact on their businesses to the extent we can and deploy pricing, which is also different by regions. It could be one in US, different in Europe, different in other parts of the world, also different for new products, because we need to see where we have some leverage there uh based upon feature function which are differentiated so a lot going on in the pricing front and i would say 2026 is going to look very similar to 2025 in the same zip code uh and we spend a lot of time to make sure that the price cost doesn't become a headwind for us and we do maximum to preserve our volume while we are preserving our margins

uh that's very helpful i would just maybe you said that too if you look at our portfolio we've been migrating to high growth verticals where we can afford better pricing and we have a bigger step up in terms of revenue that is generated by npi and these products tend to be accretive and

give us better pricing as well yeah no and then just the natural follow-up would just be is there you know you could when you talk about npi and you talked about product launches but is there do you guys use a vitality index or anything internally in any kind of way to kind of compare that acceleration of nvi versus the past yeah you saw one of the mention of that in our growth

acceleration chart in the our prepared remarks one thing we certainly started measuring is how much of revenue in a given year is coming from new products net new growth coming from new products and last year it was approximately four percent uh it means our r d dollars are creating a differentiated the bond into our offerings. And we are able to either keep share or gain share or able to move to new verticals. So we are measuring two key KPIs. One is vitality. We used to measure that score for many years. And what I learned is some of our segments, high vitality is just right to play because the turnaround of the product is so fast. And if your vitality is not 40s and 50s, you basically may start losing share. So incrementally, while we continue to measure vitality and Remainco Honeywell will have vitality in high 40s, think about 45% or so, we also now measure every quarter new product, revenue coming from new products. And our internal target is, like we did 4% last year, like to maintain that rate. That requires a lot of ideation, working with the customers, having the right ideas and so on. but that's going to be the new playbook for Honeywell that we want to grow to new products and then whatever my market allows us to pick up on price so yeah that's that's how I will summarize that that comment very helpful thanks I'll

pass it on and best of luck this year guys thank you thank you our next

question comes from line of Steve Tusa with JP Morgan please proceed with your

question uh hey good morning morning steve good morning just to clarify that answer so you're expecting roughly three percent price this year um price will be above three percent

i would say most likely three and a half depending on geography and the vertical we we're deploying three to four percent on average should be should be three and a half um and quarterly also uh there'll be a little bit of movement but that's that's kind of the framework

we're using for the year with the teams so at the low end of the range you have volume down um

50 bits no no it really just depends on um on the we deploy price at at skew level essentially um so it's depending on how fast if the product is growing at one percent and market doesn't allow us to deploy more price we won't do that i think low end i would say steve is volume growth

in the low end of the guide three to six is zero high end it is about three so that's kind of how you want to look at the guide three to six price being somewhere around three to three and a half

and the balance is volume yeah it seems pretty conservative with your order growth rate but i won't belabor that uh that point just on the stranded costs um it seems like i would have maybe expected the advanced material stranded cost to come out a little bit quicker can you maybe just level set us on where those stranded costs lie today, especially on the aero side, what to expect and how those should, you know, layer out of the numbers? Because that seems to be a relatively heavy burden that, you know, you're leaving in there, but should, you know, be a tailwind at some point in the next 18 months or so. No, you're right, Steve. So we have already

neutralized the advanced materials stranded costs in 2026 so that's one of the walk we are showing in our margin expansion that it is net neutral so the headwind of that is gone which shows that we are looking ahead and executing it as simultaneously as we work into spin now specifically coming to the aerospace question right now I will admit that we are so heavily focused to make spin happen in Q3. We'll share the specifics of stranded cost, et cetera, during our investor day coming up in June. But we are absolutely confident and committed that we will eliminate stranded costs in 12 to 18 months' time. Earlier the better. We absolutely get it. But that's the

range we expect to take it out. Okay. And then just one last one on Arrow. Can you give us any kind of magnitude of margin improvement embedded in the guidance for Arrow this year? Is it, you know, 25, 50 BIPs, like maybe just a little bit of color on directionally, magnitude.

Yeah, I would say modest. Do you think like low 30s incrementals?

Got it. Thank you, Steve.

Thank you. Our next question comes from the line of Dean Dre with RBC Capital Markets. Please proceed with your question.

Thank you. Good morning, everyone, and congrats to the team on hitting these transformation milestones zones earlier. And also best to Sean and welcome back to Mark. Just the first question, you've been now more specific about the portfolio cleanups for PSS and warehouse. What can you tell us about

the sales process? So I would say at this point, we have a lot of interest on both the businesses and we expect to do a sign of the deals in quarter two. Now, specifically in the quarter, it's hard to pinpoint a month here at this point, but we do expect that quarter two will be able to sign it and the close will be customary regulatory approvals so that you can then estimate that the total time this business may not be part of Honeywell. You know, what it does is, Dean, interestingly, when we complete the transaction of warehouse automation business and delegated and productivity solution business, it simplifies us into three end markets, process, buildings, and industrial, because this allows us to make a choice not to be in a transportation logistics and warehouse markets, not that these are bad markets, it's more a question of where we want to participate as a company, so it's a choice that should be made. And the second thing it does is it makes industrial automation as a sensing and measurement business. We had one of the challenge of industrial automation being a complex business to understand with a lot of segments and a lot of drivers. So with this decision, we are able to narrow down the business to sensing and measurement, which gives us a platform on which we will build upon, you know, through organic growth. And, you know, hopefully we look at more inorganic actions in the future. So it plays out extremely well in our overarching strategy.

That's real helpful. And the second question, there was a reference about pockets of weakness in Europe and China. Maybe just give us a sense of from the geographies what you're seeing at the margin.

I would say that, you know, those comments are specifically for industrial automation business. Industrial automation business is seeing strength in North America and U.S. in particular. the segments are performing extremely well but the segments of IA business in China and in Europe the exposures we have in end markets we serve we see pressure there and that's a weakness in short cycle in Europe now that's not true for other parts of Honeywell if you see building automation they don't see pressure in Europe and China because they serve different markets and they have different product lines so it's very specific to industrial automation at this point and we'll observe how the year progresses. What we are doing is we are focused on launching much more new products so that we are able to generate more demand organically to offset some of these drivers and we'll observe how the year progresses with our actions to counter some of these market conditions. Thank you. Thank you, Lee.

Thank you. Our next question comes from the line of Sheila Kayoglu with Jeffreys. please proceed with your question. Good morning, guys, and thank you. I'll focus on aerospace,

if that's okay. All three end markets grew double digits in 25. Maybe if you could tell us the rank order of how you're thinking about 2026 end markets and any changes around the medium-term growth trajectories as we prep for investor day in June. Thanks, Sheila. Yeah, I would say that

we were really pleased with the progress the team made on supply chain. Really great performance on volume, especially to end the year. So great momentum, particularly with the order rates going into 26. Looking at the growth rates by end market, we'd say defense in space is likely to lead. So high single digits may be creeping in a low double depending on supply chain progress. We then expect OE to be high single digit growth and then still strong performance in aftermarket, but continue on that path towards normalization. So call it mid to high single digit growth is the range, and all that should blend to a high single-digit performance for 2026.

Got it. And then one on, I know a lot has been asked on margins already, but just specifically around incremental investments as we see from the defense contractors, how are you thinking about incremental investments surrounding your portfolio within aerospace and R&D focus areas?

We have been investing, if you look at the broader team of investments, we have been investing in supply chain we have telegraphed that earlier more than a billion dollar investment and then we have delivered volume growth over 14 quarters now double digit volume growth which results into our organic growth now in 2025 2026 overall honeywell capex increases about 250 million dollar aero is a large part of it and it's a good news in my view because aero needs more volumes it needs to expand supply chain capacity there are other parts of investment and other parts of automation business, but Aero has a large share of it. So fundamentally speaking, we are able to deliver to Department of War needs for more volume. And in fact, we are close to PO now, hardly with any past due, which shows that we have ability to meet their needs of the volume they are looking for. So we are very well positioned there. I think our volume capacity, our investments are always in order and we'll continue to make more if it is necessary to grow the business.

It's about $150 million in CAPEX increase next year. The majority of it is going to be funded through working capital improvement. And it's the conversion.

Okay, got it.

Thank you. Our next question comes from the line of Amit Marotra with UBS. Please proceed with your question.

Thanks, operator. Hi, everybody. Vimo, the building automation growth has been good the last few quarters. And I think some of that is applicable to kind of the success you've had in plugging the assets into Forge. And I guess the question I have is, what is the – how can you replicate that in the process and industrial businesses whereby maybe those cyclical parts of the business, you can generate more recurring revenue by upselling some of the services by plugging into your platform? Can you just talk about that, or are those just two different things?

Yeah, no, excellent question, Amit. You know, we have been working very hard to change our business model to more recurring revenue, and the basis of that is stronger linkage to our IoT platform, Forge. Building started that first, and process started that later. I would say the gap between that is about nine to 12 months, and we can clearly see results in the buildings. buildings, what we have been able to do is really build, I'm going to use the word ontology based models. It means that we are able to, when we connect a building, we are able to identify all its assets and really build a reference data model for our customer, which allows us to then build different applications on top of it. And hopefully when we are in Investor Day, we'll be able to show you agents on top of which are managing different operations, maintenance, energy management. So we have moved now to agentic way of working on our customer base. And you're absolutely right. That kind of innovation is driving the growth pull through of our products because it's a one solution, it's not separated from other. Now we're in the same journey in the process. We're just about nine months, 12 months behind. A connected plant is our key offering, which takes our customer install base both on process technology and process automation and again ability to build this ontology based model and then give a much more stronger capability to optimize their operations so that's coming that's coming soon and we do expect that to become an enabler for recurring revenue growth in the process segment in in the near future and then finally we'll in industrial side our business is far more becoming sensing and measurement uh it's less about controls uh but we have to evolve that strategy there but i remain very confident we are going to see the same pattern in process in very near future and and

just sort of very much related to that you know you're building automation revenue forecast is kind of mid single digit plus this year um it feels like that journey in connecting those 11 12 000 you know assets in the field is kind of a third of the way through and i think you guys have a goal of kind of accelerating that this year so i'm just wondering is is it just conservatism because it seems like as you as you get to that journey of fully connected assets you can actually drive sustainability in that kind of high single digit organic growth yeah i mean our penetration

amid actually is much lower which gives us sort of runway and upside uh you know we'll share those details during investor day how much of install base is penetrated from connected assets perspective but also bear in mind that recurring revenue takes time to scale so if i you know as our Reckoning Revenue Bank is building it just compounds every year at a bigger scale so we are at a low base at this point but we do believe that we also will continue to ramp it up at a much higher rate in the times ahead as our ARR is growing there and we expect to we expect to share two things during the investor day our offerings on forge both for buildings and process and industrial some initial ideas and then our ARR strategy how much it is and how much we expect to compound in the times ahead okay yeah that'll be helpful thank you

very much appreciate it thank you thank you thank you our next question comes online of Nicole de blaze with Deutsche Bank please proceed with your question

yeah thanks good morning guys I just wanted to start on some of the order trends that you saw during the quarter can we talk them all about how short cycle order trends generally trended and you know not just relative to 3q but also throughout the the cadence of each month of the quarter sure so i would tell you that generally if you

you have to look at it regionally so u.s meta india short cycle orders perform well throughout the year and and in the fourth quarter as well on the other hand europe and china at least for uh where we participate specifically in industrial automation um we're just we're just okay not great going into the first quarter we see that orders generally will be high single digits on the on the short cycle side probably mid mid single digits for for ba and um and aerospace and then And on IA and P&T, we will continue to monitor. But as Vimo mentioned earlier, the catalyst and convergence are a little bit slow.

Okay, got it. That's helpful. And then maybe just a question on industrial automation margins. I think you mentioned in the prepared remarks that this is where you guys expect the greatest year-on-year margin expansion in 2026. Can you maybe elaborate a little bit on that with respect to the magnitude of potential margin expansion? Thank you.

Yeah. So, vis-a-vis our guide of 20 to 60 and what we're driving operationally, we have industrial automation at close to 100 bps. And the reason for it, if you look at the margin trajectory and progression, we feel like industrial automation has the most opportunity, both from productivity operationally as well as pricing and leverage volume and demand. And so that's how we instrumented the year, and I have a high confidence in the team who execute on that.

Thank you. I'll pass it on.

Thank you. Our next question comes from the line of Chris Snyder with Morgan Stanley. Please proceed with your question.

Thank you. I wanted to follow up on some of the commercial OE contracting discussion. Just given the very long nature of these contracts, I imagine these negotiations are a lot more comprehensive than just pricing for some of the tariff pressure that's come through over the last year. So, I don't know, maybe you don't want to kind of frame the magnitude of these conversations, but any color there would be helpful. Or if you could just maybe talk about, like, when was the last time the company did a big, you know, comprehensive commercial OE price reset?

So, Chris, you know, these contract negotiations don't span one particular OE, first of all. I mean, this is more than one. Few are large, who are small. That's just a matter of fact. And, you know, some of these are due for a long time. Think about five years plus in some cases. So the impact of that, you're absolutely right, because when you're renegotiating a contract after five, seven, eight years, not only are you looking at the pricing changes, but other aspects of the contract. And that's why it takes a very long time to renegotiate a long-term contract here. And as I said before, these renegotiated contracts will bear very well for aerospace margin expansion in the future. So it will be a great setup because we lap all the previous long-term inflation we have been absorbing in some of these contracts. That won't be a headman anymore.

Thank you. Really appreciate that. Yes, certainly a lot of cost inflation over the last five, seven, eight years. Maybe just a quick one. I think you guys mentioned that R&D was kind of at the full run rate, obviously increased in 25. So is that right? Is R&D kind of at a full run rate level now? And I know Arrow takes a long time to convert into sales, but I would imagine the industrial side of the business converts quicker. So can you just maybe talk about how you think some of the R&D spend converts to sales on industrial, and could there be any tailwinds from that over the next 12 months?

Yeah. So, like I said earlier, I think the R&D right now is at the level that we wanted. It's about 4.8% of sales. That we feel is a sweet spot for us. Quarterly going from into the first quarter, that will continue to abate and will be more normalized. And we're obviously getting revenue grow up, which will be a talent from a margin standpoint.

And the cycle time, Chris, you know, varies from, I would say, you know, 18 months, 15 to 18 months for the short cycle and for the long cycle business like aerospace and some of our process technology could be three to five years. So these are long bets in some cases, and it's our job as leadership to put those bets so that we could not deliver even short-term growth, but also position

the companies well for the long-term growth and i if you look at our corporate cause i mean it's really for us the 30 bips drug on continuum um no impact from r&d um stranded cause we we addressed in the in the throughout last year so we don't have a lot of stranded calls as far as uh solstice so we feel really good about the progression we're making on on our structural

Thank you, guys. Much appreciated.

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

Yes, good morning. Thank you for fitting me in. A question on building automation, just a follow-up. Can we just talk about how much growth is coming from Access Solution Cross-Sell? and also how much exposure do you have there to data centers just because you are the market leader on building automation, I would imagine that's a nice tailwind as well.

Yeah. So, Andrew, the access solution acquisition is playing extremely well, and overall the revenue in that segment is growing high single digit in line with building automation, which is growing high single digit. So our thesis has played out quite well. The second part of your question that sales synergies have been a big feature of it. That was one of the main drivers. We thought this business would create a lot of value, and that's been additive to the overall growth. And, again, it's reflected in building automation numbers because that growth is not only coming in excess solutions business. We're able to pull through a lot of excess solution in our projects business, in our solution side of the house there. So that certainly is becoming an important play. And finally, data center overall position of Honeywell in building automation is becoming slowly material. We are inching towards that becoming greater than 5% of our revenue. Think about it, that number was zero a couple of years back. So we are inching our way through across all the three solutions we provide in data center, the safety for fire, the environmental controls for building management system, and security. So, we continue to work our way through, and as that market is performing, that will continue to help the growth of building automation.

Thank you. And another question, a follow-up question. After selling productivity solutions and warehouse and workflow solutions, do you anticipate further portfolio actions on industrial automation side or beyond that?

No. I mean, we are very pleased with the end state. And as I mentioned, Andrew, that we have built now a business in industrial automation, which is heavily focused on sensing and measurement. So we have a common block sensing in sensors for aerospace, sensors for medical devices, measurement system for gas detection in industrial and semiconductor measurement of gas and others. So we have a common theme, which allows us to build a business around it. so we'll scale from here so stay tuned and as we you know share our strategy for industrial automation during our investor day look forward to that thanks so much thank you thank you ladies

and gentlemen i'm sorry go ahead sir no this concludes our question and answer session i'll turn the floor back to mr kapoor for any final comments thank you so as always i would like to

thank our shareholders, our customers, and all the Honeywell Suture Shapers across the world for a strong finish to 2025. We remain confident in our path ahead and we look forward to sharing more with everyone in the quarters to come. So thank you for all listening and please stay safe and healthy.

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