Honeywell Aerospace's Q2 sales rose 5% to $4.52B, but net income fell 71% to $246M on $329M of spin-off costs and $200M of new interest; adjusted EBIT fell 7% on supply constraints and 2026 growth guidance was cut to 4-5%.
Revenue
$4.5B
+5.4% YoY
Net income
$246M
-70.9% YoY
Diluted EPS
$0.78
-70.7% YoY
Operating margin
12.8%
Overview
Q2 2026 (the quarter ended June 27, 2026) was Honeywell Aerospace's last quarter as a division of Honeywell International; the spin-off into a separate Nasdaq-listed company (HONA) closed two days later, on June 29. Sales rose 5.4% to $4,522 million, but net income attributable to the company fell 71% to $246 million. The profit drop is mostly separation arithmetic, not a collapse in the business: $329 million of spin-off "transaction costs" and $200 million of interest on $16.0 billion of new debt account for $512 million of the $622 million fall in pre-tax income. The part that is about the business is a weaker underlying profit line (adjusted EBIT down 7%) driven by supply-chain limits and higher material costs, which led management to cut its full-year growth and profit guidance.
Results at a glance
Metric
Q2 2026
Q2 2025
YoY Change
Net sales
$4,522M
$4,289M
+5.4%
Net income attributable to Honeywell Aerospace
$246M
$844M
-70.9%
Diluted EPS (GAAP)
$0.78
$2.66
-70.7%
Adjusted EPS (company measure)
$1.87
$2.75
-32.0%
EBIT margin (pre-tax income + interest, ÷ sales)
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Sources: the Q2 2026 Form 10-Q (statements of operations, segment data, MD&A) and the Q2 earnings release furnished on Form 8-K (Exhibit 99.1), which is where EPS, adjusted EPS, backlog and end-market sales are reported. EBIT margin and gross margin are calculated from the 10-Q's statement of operations. "EBIT" means earnings before interest and taxes; "adjusted EBIT" is the company's own measure that also strips out spin-off costs, amortization of acquired intangibles, stock pay, environmental costs and a few other items.
Takeaway: Strip out the one-time spin-off costs and the new interest bill, and the business still earned less than a year ago on 5% more sales: adjusted EBIT fell 7% and its margin dropped about 3 points, with the Engines & Power Systems segment's profit down 32%. Demand is solid (backlog +9%, aftermarket +8%); the problem is turning it into output and margin, which is why management cut 2026 organic growth guidance to 4-5% from 7-9%.
Why the comparison with last year is unusual
Several things make Q2 2026 look worse against Q2 2025 than the business really moved:
Carve-out figures. Everything before June 29 comes from "combined" financial statements carved out of Honeywell's books. They include a share of Honeywell's head-office costs (legal, accounting, IT, HR) allocated in proportion to sales, not what an independent company actually pays. The 10-Q says these figures "may not reflect" the results the business would have had as a standalone company.
No interest last year. Honeywell's own debt was never assigned to the aerospace business, so Q2 2025 shows zero interest expense. The company issued $16.0 billion of senior notes in March 2026 and passed $15.1 billion of the net proceeds to Honeywell. Q2 2026 carries a full quarter of that interest: $200 million.
EPS uses a hypothetical share count. HONA had no public shares before June 29. Both years' EPS divide by the roughly 317 million shares distributed at the spin (one HONA share for every two Honeywell shares), with no dilution assumed. The prior-year $2.66 is illustrative, not an EPS any shareholder actually earned.
Spin-off costs. Transaction costs (systems, separating facilities, rebranding, staff costs to stand up a public company) were $329 million this quarter versus $17 million a year ago. Management says these will continue "through at least fiscal year 2027."
New standalone costs are only partly visible yet. HONA now pays Honeywell under a transition services agreement (generally up to two years, priced roughly at cost) and owes Honeywell $1,125 million over less than five years for the right to use the "Honeywell Aerospace" name. The company excludes the trademark-license expense from its adjusted measures. That is why guidance is given on a "pro forma standalone" basis, adjusted to look as if the company had been independent all year.
Where the $622 million drop in pre-tax income went
Pre-tax income fell from $1,000 million to $378 million. Using the company's own reconciliation:
Driver
Change vs Q2 2025
Higher transaction (spin-off) costs
-$312M
New interest on spin-off debt
-$200M
Lower segment profit (the operating business)
-$71M
Other, net (pension, repositioning and other items)
-$24M
Higher stock compensation expense
-$14M
Higher amortization of acquired intangibles
-$5M
Lower environmental expense
+$4M
Total
-$622M
Tax then took a bigger bite than usual. The effective tax rate was 32.3% versus 14.8% a year ago, because most spin-off costs are not tax-deductible and there were "frictional" tax costs from reorganizing ahead of the separation (together adding 20.4 percentage points, per the MD&A), partly offset by a more favorable mix of countries where profit was earned. The 10-Q puts the extra tax expense from these items at $77 million in the quarter.
The operating business: demand up, margins down
Sales by end market. Commercial aftermarket (spare parts and repairs for aircraft already flying) rose 8% to $2,026 million, helped by higher business-jet flying hours. Commercial original equipment (parts for newly built aircraft) rose 6% to $679 million as airliner shipments caught up with customers' build schedules. Defense and space grew 3% to $1,817 million: more US volume, partly offset by lower international volume "due to supply constraints" and the wind-down of a restricted (classified) government program. All growth was organic; currency and acquisitions contributed nothing.
Why margins fell. Cost of products and services sold rose $216 million, faster than sales, "primarily due to $164 million of higher direct and indirect material costs and an approximately $50 million increase in inventory obsolescence charges" (write-downs of parts no longer expected to be used). Gross margin slipped from 36.5% to 35.0%. Selling and administrative costs rose $339 million, of which $253 million was spin-off transaction costs and $68 million higher labor costs. The release says adjusted EBIT still absorbed "approximately $100 million of separation-related costs and inventory obsolescence charges" that were not stripped out as one-offs.
Segment results
Segment
Q2 2026 sales
YoY
Q2 2026 segment profit
YoY
Margin (2026 vs 2025)
Electronic Solutions
$1,774M
+8%
$459M
-3%
25.9% vs 28.9%
Engines & Power Systems
$1,406M
+1%
$174M
-32%
12.4% vs 18.4%
Control Systems
$1,342M
+7%
$389M
+8%
29.0% vs 28.8%
Electronic Solutions (avionics, navigation, defense electronics) grew fastest, with $65 million more defense and space sales and $53 million more aftermarket sales, but profit fell 3% because "unfavorable mix and higher costs" outweighed volume and pricing.
Engines & Power Systems is the weak spot. Sales barely moved (+$30 million commercial original equipment, -$20 million defense and space) and profit fell $82 million, as "unfavorable mix and higher costs more than offset price." The release says about 70% of the stepped-up supplier tooling spend is going to castings, a key input for this segment.
Control Systems was the clean result: sales up $88 million, almost all aftermarket ($86 million), and profit up 8% with price increases covering higher costs.
Year to date the picture is more even: first-half sales rose 6% to $8,874 million and adjusted EBIT was nearly flat ($2,090 million vs $2,106 million). First-half Control Systems profit fell 11% (with a $60 million drop in commercial original equipment sales), while the Q2 weakness is concentrated in Engines & Power Systems.
Balance sheet and cash
The spin reshaped the balance sheet. Long-term debt went from $4 million at December 31, 2025 to $15,849 million at June 27, 2026, and because most of the note proceeds were handed to Honeywell, equity swung from $8.5 billion to a deficit of $5.6 billion. Cash was $1,057 million. The company also set up $4.0 billion of revolving credit facilities and a $4.0 billion commercial paper program at the spin.
First-half operating cash flow was $346 million versus $1,025 million a year earlier. The 10-Q attributes the drop to $450 million more in transaction costs paid and $377 million of payments tied to the Flexjet litigation settlement (a $375 million payment in Q1 2026 to the business-jet operator, settling a dispute over delayed engine repairs). One flattering item: the company sold $344 million of customer receivables to banks in the first half ($151 million in Q2), which it did not do a year earlier. That pulls cash in sooner and makes operating cash flow look better than it otherwise would.
On July 23 the board authorized up to $3.5 billion of share buybacks with no expiry date.
Outlook
Management revised its full-year 2026 guidance with the Q2 results (all non-GAAP):
Measure
Previous
Current
Organic sales growth
7% - 9%
4% - 5%
Pro forma standalone adjusted EBIT
$4.65B - $4.75B
$4.35B - $4.45B
Growth in that EBIT measure
7% - 10%
Flat - 3%
Pro forma standalone adjusted EPS
not given
$7.60 - $7.90
Second-half free cash flow
$1.0B - $1.5B
$1.0B - $1.5B (unchanged)
The CEO said the company thought it "prudent to align our guidance to our supply chain's demonstrated capabilities at the end of the second quarter." Actions under way include qualifying more than 50 new suppliers (50 more planned in the second half), raising supplier tooling spend 20% in the second half versus the first, and increasing multi-sourced parts by more than 15% this year. The company reported $15 billion (estimated lifetime value) of new wins year to date, including avionics and power systems for IndiGo's order of 810 Airbus A320neo-family aircraft.
Our read. Demand is not the constraint: backlog is $18.2 billion (58% of it expected to turn into revenue within a year) and trailing-twelve-month orders rose 8%. The constraint is output and cost, and the guidance cut concedes the second half will not make up what was lost. Three things to watch in Q3, the first full quarter as an independent company: whether Engines & Power Systems margins recover from 12.4%; how much spin-off cost keeps flowing through GAAP results (and whether more operating charges like the obsolescence write-downs appear); and whether cash generation covers about $200 million a quarter of interest on $15.8 billion of debt as well as buybacks. Until then, reported GAAP numbers overstate the damage and adjusted numbers flatter the new cost base, so the guided "pro forma standalone" figures are the fairest yardstick for 2026.