Newly spun-off Honeywell Aerospace cuts 2026 forecast on supply-chain woes
Honeywell Aerospace Faces Supply Chain Challenges and Lowers Outlook
By Aatreyee Dasgupta and Shivansh Tiwary
Supply Constraints Impact Aftermarket and Original Equipment Deliveries
Aug 5 (Reuters) - Honeywell Aerospace lowered 2026 sales growth forecast and issued a weaker-than-expected earnings outlook on Wednesday, as persistent supply-chain hurdles crimped its ability to meet surging aftermarket demand.
The company said supply constraints are forcing it to prioritize original equipment deliveries to Boeing and Airbus as the planemakers ramp up production, diverting output from its higher-revenue, higher-margin aftermarket business. Its shares tumbled 12% in extended trading.
Margins and Sales Mix Shift
Aerospace suppliers often sell systems and parts to planemakers at thinner margins, recouping much of their profit later through higher-margin aftermarket spares and services.
It is also favoring domestic defense and space programs over typically higher-margin international contracts, leaving a less favorable sales mix in the back half of the year.
Executive Commentary on Demand and Supply
"Demand continues to be really robust. It's really a supply challenge," Chief Financial Officer Josh Jepsen said in an interview with Reuters.
Financial Performance and Forecasts
The aircraft engine, parts and defense systems maker expects 2026 organic sales growth of 4% to 5%, versus a 7% to 9% increase forecast earlier.
It projected annual adjusted earnings per share of $7.60 to $7.90, below analysts' average estimate of $8.86, according to data compiled by LSEG.
Impact of Spin-Off and Quarterly Results
Honeywell Aerospace debuted on the Nasdaq in June after spinning off from Honeywell in a three-way split. It incurred about $100 million of separation-related costs and inventory obsolescence charges, resulting in a 7% year-on-year fall in quarterly core profit.
Second-quarter adjusted profit per share fell 32% to $1.87, while sales rose 5% to $4.52 billion. Both these missed analysts' expectations.
Profitability and Segment Performance
Though higher sales volumes and pricing supported revenue growth, profitability came under pressure from higher costs and an unfavorable business mix.
Quarterly profit in its electronic solutions segment fell 3% and engines and power systems dropped 32%, while control systems posted an 8% rise.
Market Trends and End-Market Performance
"Secular trends across our end-markets remain strong," said CEO Jim Currier.
Commercial aftermarket sales, the company's largest end-market, rose 8%, while defense and space sales increased 3% and commercial OE rose 6%.
(Reporting by Shivansh Tiwary and Aatreyee Dasgupta in Bengaluru; Editing by Shilpi Majumdar)
