Honeywell Sees Strong Start as Pure-Play Automation Push Gains Momentum

Honeywell reported a strong start to the third quarter, with the first two months performing “good or very good.” Management expects to begin the quarter at the upper end of its 4%–6% organic-growth target. The company is focusing on higher-growth markets such as data centers, LNG, life sciences and semiconductors, aiming to increase their revenue contribution from roughly 20% to 25%. It also plans to raise services and software revenue to 45% of sales from 40% currently. Automation demand remains healthy: process-automation and technology backlog rose 25%, while Honeywell Forge is projected to generate about $1 billion in recurring revenue in 2026. Management also expects LNG demand to remain strong for at least three to four years. Honeywell International NASDAQ: HON Chairman and CEO Vimal Kapur said the company is seeing stronger-than-expected early-quarter momentum as it begins operating as a more focused automation business following the completed spins of its aerospace and advanced materials operations. Speaking at a Morgan Stanley event, Kapur said the company is approximately 75 days into its new structure and is focused on executing the commitments outlined at its investor day. Honeywell now describes itself as a pure-play automation company serving building, process and industrial end markets. Kapur said the first two months of the third quarter were “good or very good,” and that Honeywell expects to begin the quarter at the upper end of its 4% to 6% organic-growth framework. He said continued momentum in the fourth quarter would provide a favorable setup for 2027. Management said the company’s portfolio transformation included separating three businesses in addition to the spins and acquiring six businesses. Kapur said the principal challenge for Honeywell is demonstrating that it can deliver stronger organic growth than it has historically produced. The company is targeting higher-growth verticals that currently represent roughly 20% of its revenue mix. These markets—including data centers, hospitals and hospitality in building automation; LNG and life sciences in process automation; and semiconductors in industrial automation—are expected to grow at approximately 15% in 2026, according to Kapur. Honeywell’s more mature markets, representing about 80% of its mix, are expected to grow at roughly 3% to 4%. Kapur said the company intends to increase the contribution of its high-growth verticals to 25% of revenue over time and expects to finish the current year at approximately 20% to 21%. The company also aims to increase revenue from services and software to 45% of total revenue from 40% currently. Kapur said Honeywell built an enterprise asset-management system last year to consolidate installed-base data that had previously been maintained across numerous business-level systems. The system is intended to help the company identify opportunities to expand service penetration, upsell customers and develop additional offerings. Kapur said Honeywell Forge is expected to generate about $1 billion in annual recurring revenue in 2026 and grow about 15%. He characterized Forge as a “Physical AI” platform, arguing that Honeywell’s industrial and building domain expertise, along with access to data within its controlled systems, differentiates its offerings from general-purpose artificial-intelligence providers.