Honeywell Aerospace Sees Margin Exiting 2026 In The Mid-23% Range, With Mix Still Pressuring 2027
The CFO said tariff refunds that lifted third-quarter margin to 25% will not repeat, and mix and supply-chain spending weigh on next year.
Honeywell Aerospace's adjusted operating margin will exit 2026 in the "mid 23s," Chief Financial Officer Josh Jepsen said on the company's third-quarter earnings call on Wednesday, down from 25% in the third quarter, which included about 110 basis points (1.1 percentage points) from tariff refunds.
A margin that loses its refund boost
Jepsen said the company expects no tariff refunds in the fourth quarter. That, plus a little mix headwind, lands the margin in the mid 23s, which he called a reasonable jumping-off point for 2027. Third-quarter adjusted EBIT was $1.2 billion, up 4% against pro forma standalone adjusted EBIT a year earlier, on sales of $4.6 billion, up 2.4% organically.
For the year, management narrowed its adjusted EBIT guidance around the same $4.4 billion midpoint and raised its 2026 adjusted earnings-per-share range to $7.85 to $8, citing lower below-the-line expenses as a new public company. It also lifted second-half free cash flow guidance to $1.2 billion to $1.4 billion and kept capital spending at about $650 million.
The board declared the company's first quarterly dividend, 40 cents a share, payable in December.
Mix and investment weigh on 2027
Jepsen said pricing momentum should continue in 2027, but mix stays a headwind because commercial original-equipment and domestic defense orders take precedence over aftermarket and international work. Defense trailing 12-month orders rose 18%.
Asked by a JPMorgan analyst why incremental margins would run below the 30% average, Jepsen said the path to 2030 is not linear. Near-term depreciation and operating spending on the supply base will accompany investment, he said, though he expects the 2030 growth and margin targets to hold. CEO Jim Currier called 2026 a transition year and said the company remains committed to those targets.
Jepsen added that past-due backlog growth cost about four points of growth this year; without it, growth would have been eight-plus percent rather than the forecast 4% to 5%.
A $500 million Tempe plant
The company announced a $500 million, 300,000-square-foot expansion of its Tempe campus, set to open in late 2028, to build control-systems products tied to more than $15 billion of customer wins. Jepsen said it is in the company's plans and that it is working through how to fund it.
Capital spending will step up from about $650 million, and Jepsen said the company will provide a 2027 guide.
Asked about repricing of original-equipment contracts, Currier would not give percentages but said renewal negotiations are going as expected.
Currier said supplier output should build each quarter from the fourth quarter of 2026 through 2027, the base for the faster sales growth management is promising.
Sources
- Honeywell Aerospace (HONA) Q3 Earnings: Taking a Look at Key Metrics Versus Estimates — Yahoo Finance
- Honeywell Aerospace Lifts 2026 Second-Half Free Cash Forecast, Declares Dividend — Reuters
- Honeywell Aerospace declares first quarterly cash dividend — Yahoo Finance
- Honeywell Aerospace to Release Q3 Earnings: What's in the Cards? — Yahoo Finance
- Honeywell Aerospace Inc. Non-GAAP EPS of $2.21 beats by $0.35, revenue of $4.6B beats by $20M (HONA:NASDAQ) | Seeking Alpha — seekingalpha.com
