Honeywell International (HON) Morgan Stanley's 14th Annual Laguna Conference summary

Strategic transformation and portfolio evolution

• Completed major portfolio changes, including spinning off aerospace and advanced materials, separating three businesses, and acquiring six others, positioning as a pure-play automation company focused on building, process, and industrial markets.

• Shifted business mix toward higher-growth verticals such as data centers, hospitals, hospitality, LNG, and semiconductors, aiming to increase high-growth verticals from 20% to 25% of the portfolio by next year.

• Emphasizing organic growth as a core objective, targeting 4%-6% organic growth, with a focus on innovation, new products, and increased penetration in services and software.

• Built an enterprise-level asset management system to better monetize and track the installed base, supporting a goal to grow services and software revenue from 40% to 45%.

• Acquisitions such as Air Products’ heat technology, Sundyne, and Johnson Matthey Catalyst have expanded capabilities in LNG and renewable fuels, supporting long-term growth in energy transition markets.

Financial performance and growth outlook

• Q3 and Q4 are expected to deliver at the upper end of the 4%-6% organic growth range, setting up a strong foundation for 2027.

• Margin expansion is driven by price discipline, productivity, and portfolio mix, with a target of 60 basis points annual improvement.

• Backlog and order growth remain robust, with double-digit increases in Q2 and continued momentum in both short and long cycle businesses.

• Software ARR is projected to reach $1 billion by end of 2026, growing at 15% annually, and is seen as a key differentiator that pulls through additional product sales.

• Price-cost environment remains neutral to slightly positive, with pricing actions offsetting persistent inflation in electronics, commodities, and labor.

Execution in high-growth verticals and innovation

• Data center automation is growing over 20% annually, with new opportunities emerging as data centers invest in power generation, expanding addressable market.

• LNG business is sold out through 2029, driven by proprietary technology and acquisitions, with capacity expansion underway to meet strong global demand.

• Building Automation has achieved consistent high single-digit growth by focusing on high-growth verticals, aftermarket services, and software-enabled offerings.

• Industrial Automation is recovering from prior share losses, now showing stabilized and modest growth, with strong order momentum in Q2 and Q3.

• Process Automation & Technology expects high single-digit growth in the second half, supported by a 25% increase in backlog and strategic acquisitions.