Honeywell International (NASDAQ:HON) Chairman and CEO Vimal Kapur said the company has not seen a “significant change” in U.S. demand trends so far in 2026, while pointing to continued strength in aerospace and building automation. Speaking in a Q&A-style event, Kapur described a demand environment with “more positives” than negatives, with the primary soft spot centered on portions of the energy and process markets.
Demand trends: aerospace and buildings strong, energy flatter
Kapur said aerospace demand remains “very, very strong,” and that Honeywell expects “another strong year for Aerospace in 2026.” He added that building automation demand also remains strong.
He highlighted the energy sector as the part of the portfolio where Honeywell is seeing less demand, particularly in short-cycle investment. In process markets, Kapur cited customer caution tied to “overcapacity and other drivers,” saying this informed guidance for the process segment to be “more flattish in 2026.” He noted that while LNG and refining are seeing higher demand (with refining capacity additions occurring outside the U.S.), excess petrochemical capacity is weighing on investment appetite. Honeywell’s guidance assumes those conditions persist through 2026, though Kapur said performance could improve if the environment strengthens.
Orders and backlog: long-cycle strength continues
Honeywell’s order trends were described as “very robust” in the second half of the prior year, and Kapur said he has not seen changes so far in 2026. He also pointed to a notable disconnect in the process automation and technology segment: despite forecasting flattish revenue, Kapur said backlog is up double digits.
He attributed that to long project cycle times—typically 12 to 24 months—and said revenue uplift would be more weighted to the second half of the year. Kapur said Honeywell expects a strong first quarter for process automation and technology as well, with backlog continuing to build.
On customer behavior, Kapur said some end markets are ordering further ahead because demand exceeds capacity. He cited LNG as an example, saying the company is “booked for next 2 years, probably 2.5 years,” with additional demand pushing availability further out.
2026 cadence and guidance drivers
Kapur said a larger second half is “very traditional” for Honeywell and that 2026 is not substantially different. The process segment is expected to be more back-half weighted because of the timing of “firm projects”—purchase orders scheduled for execution in the third and fourth quarters.
He said variability within the company’s 2026 guide (cited as 3% to 6%) depends largely on short-cycle performance. If short-cycle demand remains stable as it was in 2025, Kapur said Honeywell could land toward the upper end of guidance; shifts in short-cycle markets could push results toward the lower end.
Inflation and pricing: expecting another 3% to 4% year
Kapur said Honeywell expects industrial inflation to remain elevated, describing 2026 as the third consecutive year with pricing in the “3%–4% range.” He identified electronics, commodities, and labor as the company’s major input categories, citing higher electronics costs tied to semiconductor and memory shortages, rising commodity prices (including copper and zinc), and increases in precious metal costs used in catalyst manufacturing (up “75%” to “100%,” according to Kapur). Labor costs were also described as rising.
While he said 2026 cost increases can be passed through, Kapur framed the larger challenge as managing persistent inflation over a three- to five-year horizon. He outlined three operating changes:
- Making inflation and pricing a regular customer dialogue to support more step-based pricing adjustments.
- Managing elasticity with productivity to protect volumes while offsetting inflation.
- Creating more new products that deliver customer value and reduce sensitivity to price changes.
R&D spending, spin planning, and capital priorities
Addressing concerns about underinvestment, Kapur said Honeywell’s R&D spending is at the median or above the median for the industry, and that the company made “course corrections” in 2025. He pegged R&D spending around 4.8% to 4.9% and said he does not expect material margin-rate changes in 2026 tied to higher R&D investment, aside from minor movement “10 basis points” up or down.
On separation planning, Kapur discussed stranded costs associated with the planned spin, saying the company’s goal is to remove stranded costs within 12 to 18 months from the separation date, which he said is expected in the third quarter. He said RemainCo’s corporate costs as a percentage of revenue should be similar to today over the long term.
For the post-spin automation-focused company, Kapur said near-term priority is debt reduction to preserve Honeywell’s investment-grade rating, describing 2026 as likely “more dormant” for M&A due to the focus on the spin and credit protection. Longer term, he signaled interest in bolt-on acquisitions across process, building, and industrial end markets, with particular emphasis on expanding industrial automation into a larger sensing and measurement platform. He said the company will exit certain transactions as a “pure play sensing and measurement business” with a roughly $4 billion base, and he described the broader market as fragmented.
Kapur also said Honeywell’s pension is overfunded by nearly 40% and will be “equally” separated between the two entities. He added that, excluding non-cash pension income, both businesses are positioned for “high 90%” free cash flow conversion, citing low CapEx intensity in automation and an improving inventory cycle in aerospace, with 2026 expected to be the first year inventory reduces after several years.
In aerospace, Kapur said margins have been around 26% for the last two years and are expected to move up in 2026. He cited four factors: normalization of OE mix, the reduction of acquisition integration costs, supply chain costs having peaked with growing volume leverage, and a reduced tariff-related lag effect as contracts renew. He added that some favorable contract-renewal impact may appear in 2026, with a larger effect from 2027 onward.
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.
