# How Honeywell makes money

CXProWealth Business Lens · Honeywell (HON) · Q3 FY2026

Read from the 10-Q for the period 2026-07-01 to 2026-09-30, filed 2026-10-22 with the SEC (accession 0000773840-26-000143): https://www.sec.gov/Archives/edgar/data/773840/000077384026000143/

Business Lens explains how a company earns, spends and keeps its money, from its own filings. It is insight and context, never a view on the shares, a target, or advice. Figures are raw units as filed; percentages are percentage points.

## Headline figures

- Revenue: $5.0B (+1.3% on the year)
- Operating income: — (operating margin —)
- Net income: $664.0M (net margin 13.3%)
- Gross margin: 40.4%
- Free cash flow: -$52.0M (-1.0% of revenue)
- Cash conversion (operating cash flow / net income): 0.18x
- Capital expenditure: 3.4% of revenue

## Where the money goes (Q3 FY2026)

- Product → Net sales: $3.6B
- Service → Net sales: $1.4B
- Net sales → Total costs, expenses and other: $4.0B
- Total costs, expenses and other → Total Cost of products and services sold: $3.0B
- Total costs, expenses and other → Research and development expenses: $239.0M
- Total costs, expenses and other → Selling, general and administrative expenses: $1.0B
- Total costs, expenses and other → Interest and other financial charges: $143.0M
- Other (income) expense → Total costs, expenses and other: $389.0M
- Net sales → Income from continuing operations before taxes and equity losses: $986.0M
- Income from continuing operations before taxes and equity losses → Tax expense: $60.0M
- Income from continuing operations before taxes and equity losses → Equity loss: $147.0M
- Income from continuing operations before taxes and equity losses → Net income from continuing operations: $779.0M
- Net income from continuing operations → Net (loss) income from discontinued operations: $103.0M
- Net income from continuing operations → Net income: $676.0M
- Net income → Less: Net income (loss) attributable to noncontrolling interest: $12.0M
- Net income → Net income attributable to Honeywell Technologies: $664.0M

## Where the revenue comes from

### Products and services (Consolidated Statement of Operations)

| Member | Value | Share |
|---|---:|---:|
| Product | $3.6B | 72.6% |
| Service | $1.4B | 27.4% |

The members sum to total revenue.

### Segments (Revenue Recognition and Contracts with Customers - Disaggregation of Revenue (Details))

| Member | Value | Share |
|---|---:|---:|
| Building Automation | $2.0B | 40.4% |
| Process Automation and Technology | $1.9B | 37.2% |
| Industrial Automation | $1.1B | 22.3% |

The members sum to total revenue.

### ConsolidationItems (Segment Financial Data - Segment Reporting Schedule (Details))

| Member | Value | Share |
|---|---:|---:|
| Operating Segments | $2.0B | 40.4% |
| Corporate and All Other | $0 | 0.0% |
| Quantinuum | $0 | 0.0% |
| Corporate and Eliminations | $0 | 0.0% |

The members do not sum to total revenue.

## Income statement, as filed

| Line | Q3 FY2026 | Of revenue |
|---|---:|---:|
| Net sales | $5.0B | 100% |
|   Product | $3.6B | 72.6% |
|   Service | $1.4B | 27.4% |
| Total Cost of products and services sold | $3.0B | 59.6% |
|   Product | $2.1B | 42.6% |
|   Service | $849.0M | 17.0% |
| Research and development expenses | $239.0M | 4.8% |
| Selling, general and administrative expenses | $1.0B | 20.8% |
| Impairment of assets held for sale | $0 | 0.0% |
| Loss on debt extinguishment | ($0) | 0.0% |
| Gain on deconsolidation of subsidiary | ($0) | 0.0% |
| Other (income) expense | ($389.0M) | 7.8% |
| Interest and other financial charges | $143.0M | 2.9% |
| **Total costs, expenses and other** | $4.0B | 80.3% |
| **Income from continuing operations before taxes and equity losses** | $986.0M | 19.7% |
| Tax expense | $60.0M | 1.2% |
| Equity loss | (-$147.0M) | 2.9% |
| **Net income from continuing operations** | $779.0M | 15.6% |
| Net (loss) income from discontinued operations | -$103.0M | 2.1% |
| **Net income** | $676.0M | 13.5% |
| Less: Net income (loss) attributable to noncontrolling interest | $12.0M | 0.2% |
| **Net income attributable to Honeywell Technologies** | $664.0M | 13.3% |
| Earnings per share of common stock from continuing operations—basic (in dollars per share) | $2 | 0.0% |
| (Loss) earnings per share of common stock from discontinued operations—basic (in dollars per share) | -$0 | 0.0% |
| **Total earnings per share of common stock—basic (in dollars per share)** | $2 | 0.0% |
| Earnings per share of common stock from continuing operations—assuming dilution (in dollars per share) | $2 | 0.0% |
| Earnings per share of common stock from discontinued operations—assuming dilution (in dollars per share) | -$0 | 0.0% |
| **Total earnings per share of common stock—assuming dilution (in dollars per share)** | $2 | 0.0% |

## History

| Period | Revenue | Operating income | Net income | Operating cash flow | Capital expenditure | Free cash flow |
|---|---:|---:|---:|---:|---:|---:|
| FY2007 | $34.6B | — | $2.4B | $3.9B | -$767.0M | $3.1B |
| FY2008 | $36.6B | — | $806.0M | $3.8B | $884.0M | $2.9B |
| FY2009 | $30.0B | — | $1.5B | $3.9B | $605.0M | $3.3B |
| FY2010 | $32.4B | — | $2.0B | $4.2B | $644.0M | $3.6B |
| FY2011 | $36.5B | — | $2.1B | $2.8B | $790.0M | $2.0B |
| FY2012 | $37.7B | — | $2.9B | $3.5B | $884.0M | $2.6B |
| FY2013 | $39.1B | — | $3.9B | $4.3B | $947.0M | $3.4B |
| FY2014 | $40.3B | — | $4.2B | $5.1B | $1.1B | $4.0B |
| FY2015 | $38.6B | — | $4.8B | $5.5B | $1.1B | $4.4B |
| FY2016 | $39.3B | — | $4.8B | $5.5B | $1.1B | $4.4B |
| FY2017 | $40.5B | — | $1.5B | $6.0B | $1.0B | $4.9B |
| FY2018 | $41.8B | — | $6.8B | $6.4B | $828.0M | $5.6B |
| FY2019 | $36.7B | — | $6.1B | $6.9B | $839.0M | $6.1B |
| FY2020 | $32.6B | — | $4.8B | $6.2B | $906.0M | $5.3B |
| FY2021 | $34.4B | — | $5.5B | $6.0B | $895.0M | $5.1B |
| FY2022 | $35.5B | $8.0B | $5.0B | $5.3B | $766.0M | $4.5B |
| FY2023 | $33.0B | $7.6B | $5.7B | $5.3B | $741.0M | $4.6B |
| FY2024 | $34.7B | $7.7B | $5.7B | $6.1B | $871.0M | $5.2B |
| FY2025 | $37.4B | $8.1B | $4.7B | $6.4B | $986.0M | $5.4B |

Latest trend (the newest full year against the year before; a reading, not a forecast):

- Revenue: +7.8% (year before +5.2%): accelerating
- Operating income: +6.0% (year before +1.4%): accelerating
- Net income: -17.1% (year before +0.8%): slowing
- Free cash flow: +3.8% (year before +13.6%): slowing

## Operating figures stated in the filing

- Order backlog: $18.8B (as of 2026-09-30). "Our backlog of orders increased 1% to $18.8 billion as of September 30, 2026, compared to September 30, 2025." (Item 2. Management’s Discussion and Analysis of Financial Condition and Results Of Operations)
- Order backlog growth, year over year: 1.0% (as of 2026-09-30). "Our backlog of orders increased 1% to $18.8 billion as of September 30, 2026, compared to September 30, 2025." (Item 2. Management’s Discussion and Analysis of Financial Condition and Results Of Operations)
- Sales volume contribution to net sales change, Q3 year over year: 2.0% (as of 2026-09-30). "Volume 2 % - % Price 5 % 4 %" (Item 2. Management’s Discussion and Analysis of Financial Condition and Results Of Operations)
- Price contribution to net sales change, Q3 year over year: 5.0% (as of 2026-09-30). "Volume 2 % - % Price 5 % 4 %" (Item 2. Management’s Discussion and Analysis of Financial Condition and Results Of Operations)

## Key insights

### Price and pruning, not volume, lifted gross margin to 40.4%

Sales rose 1.32%, but cost of sales fell to 59.6% of sales from 64.0%, as price added 5% and two units were sold.

Net sales rose 1.32% to $4,994 million from $4,929 million. The filing splits the change: price added 5% and volume 2%, so price contributed more than twice as much as selling more. It lists 'increased pricing and price adjustments to offset inflation' first among the reasons sales rose. _(from the filing)_
Cost of products and services sold fell 5.67% to $2,976 million from $3,155 million, taking 59.6% of net sales against 64.0% a year earlier. The filing gives one reason for the fall: 'lower costs from recent divestitures', the Warehouse and Workflow Solutions and Productivity Solutions and Services businesses sold in July and August. Gross margin reached 40.4%. _(from the filing)_
Spending below the gross line also fell. Research and development dropped 10.82% to $239 million, which the filing ties to lower new product investment in Industrial Automation, and selling, general and administrative expenses fell 4.94% to $1,039 million. Part of the improvement comes from spending less, not only from charging more. _(from the filing)_
Analysis: two different engines sit behind one margin figure. Selling units lifts the margin once, by removing revenue that cost more to produce, and that effect drops out of comparisons once the prior-year base no longer includes those units. Pricing has to be won again with every contract, so it is the part of the gain that says more about the continuing business. _(analysis)_

### A missing one-time gain, not operations, drove the profit decline

Net income from continuing operations fell 18.34% to $779 million, and the filing traces the drop to a year-earlier Resideo gain, not weaker segments.

Other (income) expense was income of $389 million against $957 million a year earlier. The filing explains the fall: the earlier quarter held a nonrecurring gain on the Resideo termination agreement, and this quarter carried higher divestiture-related costs, partly offset by a gain on selling the Warehouse and Workflow Solutions and Productivity Solutions and Services businesses. _(from the filing)_
Other income equalled 86% of pre-tax income from continuing operations a year ago ($957 million of $1,107 million) and 39.5% this quarter ($389 million of $986 million). Pre-tax income fell 10.93%. The filing's bridge of diluted earnings per share names the Resideo gain as the main reason for the decline, partly offset by the business sale gain, higher tax benefits and higher segment profit. _(from the filing)_
Tax expense fell to $60 million from $153 million, 6.1% of pre-tax income against 13.8% a year earlier, which the filing attributes mainly to changes in accruals on U.S. federal, state and foreign tax matters. A lower tax charge supported this quarter's net income, so the bottom line is not a clean read of the business in either period. _(from the filing)_
Analysis: this quarter's reported earnings sit between two sets of one-time items, a large gain missing from the comparison and a sale gain plus a tax benefit present in this one. The operating lines, gross margin and interest, are the cleaner guide to how the continuing company earns. Diluted earnings per share from continuing operations of $2.40 against $2.99 mixes both. _(analysis)_

### Profit did not turn into cash this quarter

Operating cash flow of $117 million was 17.6% of net income, and capital spending of 3.38% of sales left free cash flow at negative $52 million.

Net income attributable to Honeywell was $664 million, but operating cash flow was $117 million, 17.6% of it. Capital spending took 3.38% of net sales, more than the whole of operating cash flow, so free cash flow was negative $52 million, or negative 1.04% of net sales. _(from the filing)_
The quarter carried several transactions at once: the Aerospace spin-off completed at the end of June, the Catalyst Technologies acquisition in July and two divestitures in July and August. The filing names changes in working capital among the drivers of operating cash flow for the nine months, and says cash spent on repositioning actions was funded from operating cash flows. _(from the filing)_
Analysis: one quarter of weak conversion during a separation is not unusual, since deal costs, tax payments and working capital shifts reach cash before they settle. The filing calls operating cash flow its primary source of liquidity, so the quarters after the transactions are the test of whether conversion recovers or has weakened in the smaller company. _(analysis)_

### Competitive edge

- **An $18.8 billion backlog runs well ahead of quarterly sales** Firm orders of $18.8 billion, against quarterly net sales of $4,994 million, give the company sight of much of its future revenue before it is booked.
- **Retired debt nearly halved the interest charge** Interest and other financial charges fell 45.63% to $143 million, taking 14.5% of pre-tax income against 23.8% a year earlier.
- **Building Automation now anchors the continuing company** At $2,020 million, 40.4% of net sales, Building Automation is the largest segment, and the filing says its sales and segment profit rose on higher demand.

### What to watch

- **Quantinuum losses now land in reported earnings** A new equity loss of $147 million, Honeywell's share of Quantinuum's losses, equalled 18.9% of net income from continuing operations of $779 million.
- **Acquisitions and old indemnities carry execution risk** Honeywell is integrating a catalyst acquisition while selling units and carrying indemnities from past spin-offs, and the filing names each as a risk to results.
- **Pricing gains rest on an inflationary backdrop** Price added 5% to sales against 2% from volume, so recent growth leans on price increases the filing frames as offsets to inflation.

## Investor view

**Honeywell's gross margin reached 40.4% in its first full quarter without Aerospace, lifted by pricing and the sale of lower-margin units**

### How it makes money

Honeywell now sells automation for buildings, process plants and factories. Net sales were $4,994 million this quarter. Building Automation brought in $2,020 million, 40.4% of the total; Process Automation and Technology $1,859 million, 37.2%; Industrial Automation $1,115 million, 22.3%. Aerospace was spun off at the end of the second quarter and now sits in discontinued operations, so every comparison here is for the continuing company. _(from the filing)_
Products carry most of the revenue: $3,628 million, or 72.6% of net sales, against $1,366 million, 27.4%, from services. Products grew 1.54% from a year earlier and services 0.74%, so the mix barely moved. _(from the filing)_
Of each dollar of sales, cost of products and services sold took 59.6%, selling, general and administrative expenses 20.8%, and research and development 4.8%. That leaves a gross margin of 40.4% before overhead, the margin a business selling engineered equipment, software and the service around it is built to earn. _(from the filing)_
Much of the work is booked before it is delivered. The order backlog stood at $18.8 billion, up 1% from a year earlier. The filing defines backlog as 'the estimated remaining value of work to be performed or products to be shipped under firm contracts', which is why a quarter's sales can be read partly from orders taken in earlier periods. _(from the filing)_

### What shifted

Net sales rose 1.32% to $4,994 million from $4,929 million. The filing splits the change: price added 5% and volume 2%, acquisitions added more, and the sale of the Warehouse and Workflow Solutions and Productivity Solutions and Services businesses took most of it back. It lists first among the reasons 'increased pricing and price adjustments to offset inflation'. _(from the filing)_
Costs fell while sales rose. Cost of products and services sold dropped 5.67% to $2,976 million from $3,155 million, and its share of net sales fell 4.42 points to 59.6%. The filing gives one reason: 'lower costs from recent divestitures'. Research and development fell 10.82% to $239 million, which the filing ties to lower new product spending in Industrial Automation. _(from the filing)_
Below the gross line, three items moved hard. Interest and other financial charges fell 45.63% to $143 million from $263 million, after debt tender offers and redemptions. Other income fell to $389 million from $957 million, because the year-earlier quarter held a one-time gain on the Resideo termination agreement. A new equity loss of $147 million is Honeywell's share of Quantinuum's losses since it stopped consolidating that business. _(from the filing)_
Net income from continuing operations fell 18.34% to $779 million from $954 million, and diluted earnings per share from continuing operations to $2.40 from $2.99. Net income attributable to Honeywell fell to $664 million from $1,825 million: a year ago Aerospace was still inside, and discontinued operations swung to a $103 million loss from $905 million of income. _(from the filing)_
Cash lagged profit. Operating cash flow was $117 million, 17.6% of net income, and free cash flow was negative $52 million, or negative 1.04% of net sales. The quarter carried the separation, two divestitures and an acquisition at once. _(from the filing)_

### Risks in the filing

Deals may not deliver. Honeywell names the risk that acquired businesses fail to earn expected returns, including the risk of impairment, that it cannot integrate several acquisitions at once and on schedule, that it cannot sell non-core units on acceptable terms, and that acquired companies carry liabilities, labour, cybersecurity or compliance problems it is not protected against. _(from the filing)_
Old businesses can come back as liabilities. In divestitures and spin-offs Honeywell agreed to indemnify buyers or keep some liabilities, including lawsuits, product liability and environmental matters. Where counterparties agreed to cover liabilities instead, the filing warns their indemnity may not be enough, they may not be able to pay, and Honeywell may have to carry losses until it recovers them. _(from the filing)_
The operating environment is unsettled. The filing describes conflict in the Middle East affecting energy markets, trade flows and shipping, moderating global growth, elevated inflation and market volatility, and changing trade policies, and says these may have a material adverse effect despite its supplier, pricing and dual-sourcing responses. _(from the filing)_
The portfolio risk is already visible in this quarter's numbers rather than hypothetical: higher divestiture-related costs reduced other income, the year included impairment charges on the units sold, and the acquisition sits in the one segment whose margin fell. The inflation risk shows the other way, as a pricing tailwind that has so far more than covered costs. _(analysis)_

## Founder view: mechanisms

### Price set ahead of inflation

Honeywell treats pricing as an operating process, not an annual list update. Price adjustments are made explicitly to offset material and labour inflation, and the company reports price separately from volume so the two can be managed and judged apart. Customers buying control systems, sensors and building automation accept it because the product is a small share of the cost of the plant or building it runs, and switching is expensive. _(analysis)_

### Selling units to lift the mix

Honeywell scores each business on strategic fit, market position, profit and cash flow, and sells what does not fit. Removing lower-margin revenue lowers total sales but raises the margin of what remains, and frees capital and management attention for the businesses it wants to grow. This quarter it sold two Industrial Automation units while buying a catalyst business. _(analysis)_

### Firm contracts that run ahead of sales

Building and process automation is sold as projects and systems that take months or years to deliver, then serviced for the life of the installation. Signed work sits in backlog before it becomes revenue. That gives Honeywell sight of future sales and lets it plan supply, labour and pricing against known demand instead of forecasting it. _(analysis)_

### Paying down debt to free earnings

Around the spin-off, Honeywell retired a large block of debt through tender offers and redemptions, funded in part by money raised for the separation. Lower debt reduces fixed interest that comes before shareholders, so more of each dollar of operating profit reaches net income, and the smaller company keeps access to borrowing at a reasonable cost. _(analysis)_

## Member research

Signed-in members read, on the page: what Honeywell's numbers depend on from here, and the playbook behind each mechanism (what needs scale, what transfers, how to test it, the metric that would show it).

## Sources

- Honeywell 10-Q for the period to 2026-09-30: https://www.sec.gov/Archives/edgar/data/773840/000077384026000143/ (2026-10-22)

Methodology business-lens-1.0 · schema 1.2.0 · run business-lens-2026-11-02 · as of 2026-11-02