Honeywell's last quarter with Aerospace consolidated: sales rose 4% entirely on price with volume flat, a $6.6bn non-cash Quantinuum deconsolidation gain lifted reported EPS to $17.83 while adjusted EPS fell 4% to $4.52, and $820m of separation costs hit the quarter.
Revenue
$9.7B
+4.3% YoY
Net income
$5.7B
+310.5% YoY
Diluted EPS
$17.83
+311.8% YoY
Operating margin
17.9%
The last quarter with Aerospace still inside
Honeywell's Q2 2026 is a transition document rather than a clean read on the business. On June 29, 2026 — one day before the quarter closed, and a date the company assigns to its third quarter — Honeywell completed the spin-off of Honeywell Aerospace Inc. (Nasdaq: HONA), distributing one Aerospace share for every two Honeywell shares held on June 15. The remaining company renamed itself Honeywell Technologies and now runs three segments: Building Automation, Process Automation and Technology, and Industrial Automation. It also executed a one-for-two reverse stock split (two old shares combined into one) on the same day, so every per-share figure below — current and prior-year — has been restated upward on that basis.
Because the spin closed after the Q2 reporting period, this 10-Q still consolidates Aerospace as a continuing operation. From Q3 2026 onward, Aerospace moves into discontinued operations for all periods. That makes the headline $9.7 billion sales figure the last of its kind: the go-forward company is roughly $5.2 billion a quarter.
Two earlier portfolio moves are already in the numbers. The Advanced Materials business (spun off as Solstice Advanced Materials on October 30, 2025) sits in discontinued operations in both years — which is why discontinued-operations income is $186 million in Q2 2025 and zero in Q2 2026. And on June 4, 2026, majority-owned subsidiary Quantinuum completed an IPO, leaving Honeywell with a 48% stake it no longer consolidates. That single accounting event produced a $6,629 million gain and is responsible for essentially all of the reported earnings growth.
Operating margin is operating income as a share of sales — what's left after the costs of running the business, before interest and tax. Segment margin is Honeywell's own measure of the operating profit of its four businesses before corporate items, one-off charges, pension income and acquisition-intangible amortization; management guides on it, so it is the number to watch. Both are from the company's Q2 earnings release; segment profit reconciles to the 10-Q (Note 18). Adjusted EPS strips out one-off items, including the Quantinuum gain.
The growth is price, not volume
The sales bridge the company provides is unusually blunt. Of the 4% increase in Q2 sales: volume contributed 0%, price contributed +4%, currency +1%, acquisitions +1%, and divestitures −2%. In other words, Honeywell sold no more physical output than a year earlier; it charged more for it, and the MD&A is explicit that the increase reflects "increased pricing and price adjustments to offset inflation."
Whether that pricing actually outran cost is the real question, and the gross margin answers it: gross margin percentage fell 170 basis points to 37.6% from 39.3%, with cost of products and services sold rising 7.2% to $6,066 million on "higher direct and indirect material costs and higher labor costs." Price recovered inflation in dollars but not in percentage terms — a pattern that shows up as flat-to-lower gross margin even when the top line grows.
The currency tailwind is small but worth naming: management attributes it to a weaker US dollar against the Australian dollar and Chinese renminbi. The 2% divestiture drag is the sale of the personal protective equipment business in May 2025, which distorts Industrial Automation's reported growth (below).
Why the EPS number is not the news
Reported diluted EPS quadrupled to $17.83. Almost none of that is operating performance. The MD&A attributes the increase to the Quantinuum deconsolidation gain, worth $15.78 per share after tax, partly offset by higher divestiture-related costs of $1.54 per share after tax.
The mechanics matter, because no cash changed hands. When Quantinuum listed, Honeywell's 48% residual stake was marked to the IPO market price — $7,525 million — against a carrying value of Quantinuum's net assets of $1,599 million and a $703 million non-controlling interest, producing the $6,629 million book gain. The 10-Q states plainly that "no cash contributions were made or cash distributions received by the Company as part of the IPO." Honeywell now carries the stake on the equity method, and it is immediately dilutive: equity losses on Quantinuum were $265 million in the quarter, which includes amortization of $1.1 billion of intangible-asset basis differences over roughly eight years. Another $6.1 billion of the stake's carrying value is equity-method goodwill that is not amortized — and would be written down if Quantinuum's share price were to fall durably.
Adjusted EPS tells the operating story: $4.52, down 4% year over year. The gap between +312% reported and −4% adjusted is the widest divergence in this filing, and the adjusted figure is the one consistent with a business whose volumes were flat and whose gross margin contracted.
Segments: buildings strong, process stalled, industrial distorted by a divestiture
Segment
Q2 2026 sales
Q2 2025 sales
Reported
Organic
Segment margin 2026
2025
Aerospace Technologies
$4,532M
$4,307M
+5%
+5%
24.8%
25.5%
Building Automation
$2,002M
$1,826M
+10%
+9%
27.1%
26.2%
Process Automation and Technology
$1,679M
$1,613M
+4%
−1%
22.1%
23.9%
Industrial Automation
$1,501M
$1,574M
−5%
+4%
17.2%
16.3%
Building Automation is the cleanest result: $176 million of higher sales, split between $103 million organic in products and $59 million in solutions, both on higher demand rather than price alone, with margin up 90 basis points on volume leverage. Orders rose 13%, which the company attributes to data centre and hospitality customers.
Process Automation and Technology is the problem. Reported sales rose 4%, but that is entirely the Sundyne acquisition ($78 million of inorganic sales, a 5-point contribution); organically sales fell 1%, and segment profit fell $15 million with margin down 180 basis points to 22.1%. The cause is specific: aftermarket sales dropped $77 million on "a decline in catalyst shipments" against a strong prior-year comparison, and lower catalyst volumes carry unfavourable mix. Project sales did grow $54 million on volume, led by LNG, and orders were up 24% — so the backlog signal ($9.3 billion, the largest of the three retained segments) contradicts the current revenue line. This is a timing gap, not a demand collapse, but it is the segment where the second-half margin recovery has to come from.
Industrial Automation's −5% reported sales is almost purely the PPE divestiture, worth 9 points of drag; organic sales grew 4% on $47 million of higher solutions revenue from project timing. Margin improved 90 basis points to 17.2% on pricing and productivity. It remains the lowest-margin segment by a wide gap, and is about to get smaller: the Productivity Solutions and Services and Warehouse and Workflow Solutions businesses have been held for sale since December 31, 2025, with sale agreements signed in April 2026 and closings expected in Q3. Marking those to expected sale value cost $48 million in the quarter and $311 million year to date in held-for-sale impairment — a real, if non-cash, measure of how much less the market will pay for them than Honeywell's books carried.
Aerospace, in its final quarter as a Honeywell segment, grew 5% organically on commercial aftermarket pricing ($128 million) and commercial original-equipment volume ($100 million), but margin slipped 70 basis points to 24.8%; year to date the filing flags roughly $60 million of additional inventory obsolescence charges tied to higher inventory balances.
What the break-up cost
The separation is expensive and the charges are concentrated in this quarter. Divestiture-related costs were $820 million pre-tax in Q2 and $1,134 million year to date, against $56 million and $67 million in the comparable 2025 periods — a roughly $0.7 billion year-over-year swing in Q2 alone, which is the main reason "other (income) expense" flipped from $113 million of income to $472 million of expense. Partly offsetting it was about $0.1 billion of higher pension income.
The financing side is larger still. In March 2026 Honeywell arranged a $6.0 billion term loan and Honeywell Aerospace issued $16.0 billion of senior notes; Honeywell Technologies received $15,835 million of pre-separation funding and used it, alongside other cash, to repay $13,187 million of long-term debt and $3,413 million of net commercial paper. The tender offers and redemptions produced a $241 million loss on debt extinguishment year to date plus $44 million of debt restructuring costs. Despite the deleveraging, interest and other financial charges rose to $363 million from $329 million in the quarter, because the new debt was outstanding before the old debt was retired. The effective tax rate rose 670 basis points year over year, with 1,020 basis points attributed to foreign tax accruals and transaction-related tax costs from the Quantinuum deconsolidation and the spin.
Cash reflects all of this. Year-to-date operating cash flow from continuing operations was $626 million, down $816 million, driven by roughly $800 million of divestiture-cost payments, a $375 million Flexjet litigation settlement and $863 million of working-capital build. Cash and equivalents ended the half at $8,751 million, down $3,736 million, after $1,576 million of dividends and $1,000 million of buybacks. On a quarterly basis the picture is better — Q2 free cash flow of $1,252 million was up 43% — but the half-year figure is the more honest one while separation payments are still flowing.
Guidance: lower sales, higher growth, much higher margin
Management raised its outlook for the standalone Honeywell Technologies, and the shape of the revision is informative. Full-year sales guidance was cut to $19.8–$20.0 billion from $19.9–$20.2 billion, while organic growth guidance was raised to 3–4% from 2–3%, with 4–6% organic growth expected in the second half. Those move in opposite directions because the sales cut is a portfolio effect — the PSS and WWS disposals leaving the reported base — not deteriorating demand. Segment margin guidance rose to 20.1–20.5% (from 19.8–20.3%), implying 250–290 basis points of expansion, and adjusted EPS to $8.05–$8.35 (from $7.90–$8.30), up 25–29%. Operating cash flow is guided to about $2.1 billion and free cash flow to about $2.0 billion. The guidance already includes Johnson Matthey's Catalyst Technologies business, bought on July 17, 2026 for $1,750 million net of cash, and assumes the PSS/WWS sales close by early August.
The tension to watch sits in that margin line. Honeywell Technologies delivered a 19.0% segment margin in Q2 on a standalone basis (sales of $5,187 million, segment profit of $985 million, up 100 basis points year over year). A full-year range of 20.1–20.5% therefore requires a second half meaningfully above 21% — a step-up that depends on three things landing together: the catalyst aftermarket in Process Automation actually converting its 24% order growth into shipments, the PSS and WWS businesses exiting the base on schedule and without regulatory delay, and the Johnson Matthey catalyst business contributing immediately rather than after an integration drag. None is implausible; all three are second-half events, and none was visible in Q2's flat volumes.
The structural case is cleaner than the quarter. Standalone orders grew 16% against 4% for the consolidated group, and the retained backlog is roughly $19.6 billion of the $38.0 billion total — order momentum sits with the automation businesses, not the one that just left. But investors now hold two securities where they held one, the reported financials will be restated again next quarter, and the operating result underneath this quarter's $17.83 of EPS was a 4% decline in adjusted earnings on zero volume growth.
Takeaway: Reported EPS of $17.83 is an accounting artefact of the Quantinuum IPO worth $15.78 per share, not a result — adjusted EPS fell 4% to $4.52, and all 4% of sales growth came from price with volume dead flat and gross margin down 170 basis points. The investable question is whether the 250–290 basis points of segment-margin expansion now guided for the standalone company arrives in a second half that has to run above 21% against Q2's 19.0%.