HONEYWELL INTERNATIONAL INC (HON)

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Dollars in tables and graphs in millions, except per share amounts)

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to help the reader understand the results of operations and financial condition of Honeywell International Inc. and its consolidated subsidiaries (Honeywell Technologies, we, us, our, or the Company) for the three and six months ended June 30, 2026. The financial information as of June 30, 2026, should be read in conjunction with the Consolidated Financial Statements for the year ended December 31, 2025, contained in our 2025 Annual Report on Form 10-K. Certain prior year amounts are reclassified to conform to the current year presentation. Discussions throughout the Management’s Discussion and Analysis of Financial Condition and Results of Operations are based on continuing operations unless otherwise noted.

BUSINESS UPDATE

MACROECONOMIC CONDITIONS

We continue to operate in a challenging macroeconomic and geopolitical environment, including ongoing conflict in the Middle East and its impact on energy markets, trade flows, and shipping. Global growth expectations moderated, while inflationary pressures and market volatility remain elevated. In response, we remain focused on disciplined supplier engagement and proactive actions to manage critical material availability, logistics conditions, and input cost volatility across our network.

Mitigation strategies are an important component of our approach to managing these risks, including portfolio and supply chain simplification, alignment to local and regional supply sources, pricing actions, dual-source strategies, and longer-term approaches for constrained materials. These efforts include direct engagement with key suppliers, new supplier development, and, where appropriate, design modifications. We maintain relationships with both primary and secondary suppliers to support sourcing continuity and operational flexibility. Due to stringent quality controls and product qualification processes, these strategies have not impacted, and are not expected to impact, product quality or reliability.

To date, our strategies have helped manage our exposure to these supply chain and cost-related conditions. However, continued volatility driven by geopolitical conflict, evolving trade policies, and persistent inflationary pressures may have a material adverse effect on our consolidated results of operations, cash flows, or financial condition.

PORTFOLIO TRANSFORMATION

We continually assess the relative strength of each business in our portfolio as to strategic fit, market position, profit, and cash flow contribution in order to identify target investment and acquisition opportunities in order to upgrade our combined portfolio. We also identify businesses that do not fit into our long-term strategic plan based on their market position, relative profitability, or growth potential.

In 2025, we announced we were evaluating strategic alternatives for our Productivity Solutions and Services and Warehouse and Workflow Solutions businesses within the Industrial Automation reportable segment to further simplify Honeywell Technologies’ portfolio and accelerate shareowner value creation ahead of the Aerospace Spin-Off. Beginning December 31, 2025, the assets and liabilities of these businesses were classified as held for sale. In April 2026, we announced that we reached agreements to sell the businesses in two separate transactions, both of which are expected to close in the third quarter of 2026 and are subject to customary closing conditions, including receipt of certain regulatory approvals.

On June 4, 2026, the Company’s former consolidated subsidiary Quantinuum completed its IPO. Upon completion of the IPO, the Company retained a 48% noncontrolling ownership interest in Quantinuum and accounts for its Quantinuum investment as an equity method investment.

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In the third quarter on June 29, 2026, the Company completed the Aerospace Spin-Off. Each Honeywell Technologies shareowner received one share of Honeywell Aerospace common stock for every two shares of Honeywell Technologies common stock held of record as of the close of business on June 15, 2026, except that they received cash in lieu of any fractional shares of Honeywell Aerospace common stock that they would have received after application of such distribution ratio. After the date of the Aerospace Spin-Off, Honeywell Technologies does not beneficially own any shares of Honeywell Aerospace common stock and no longer consolidates Honeywell Aerospace into its financial results. The historical financial results of Honeywell Aerospace will be reflected in Honeywell Technologies’ consolidated financial statements as discontinued operations under GAAP for all periods beginning in the third quarter of 2026. In addition, following completion of the Aerospace Spin-Off, we now manage our businesses through three reportable business segments: Building Automation, Process Automation and Technology, and Industrial Automation.

On July 17, 2026, we acquired Johnson Matthey’s Catalyst Technologies business segment for total consideration of $1,750 million, net of cash acquired.

SEGMENT REALIGNMENT

Effective in the first quarter of 2026, we realigned certain of our business units comprising our Industrial Automation and Energy and Sustainability Solutions reportable business segments. This realignment formed a new reportable business segment, Process Automation and Technology, and resulted in a new composition of our Industrial Automation reportable business segment. Process Automation and Technology is comprised of UOP, which was previously in Energy and Sustainability Solutions, and the core portion of the Process Solutions business, which was previously in Industrial Automation. The new composition of Industrial Automation continues to include the smart energy, thermal solutions, and process measurement and control businesses, previously included in the Process Solutions business, as well as the Sensing and Safety Technologies, Warehouse and Workflow Solutions, and Productivity Solutions and Services businesses. Following the realignment, our reportable business segments were Aerospace Technologies, Building Automation, Process Automation and Technology, and Industrial Automation. In addition to the realignment, also beginning in 2026, we report the disaggregation of revenue within our Building Automation, Process Automation and Technology, and Industrial Automation segments based on business models. The realignment had no impact on our historical consolidated financial position, results of operations, or cash flows. Prior period amounts have been recast to reflect this change.

OTHER MATTERS

On June 29, 2026, following completion of the Aerospace Spin-Off as described above, the Company effected a one-for-two reverse stock split (the Reverse Stock Split) and proportionate reduction in the number of authorized shares of common stock. As a result of the Reverse Stock Split, every two shares of common stock issued and outstanding or held by Honeywell Technologies as treasury shares were automatically combined into one share of common stock, and the number of authorized shares of common stock was reduced from 2 billion to 1 billion with no change in par value. Any fractional shares were settled in cash. All share and per share amounts have been retrospectively adjusted to reflect the Reverse Stock Split for all periods presented.

RESULTS OF OPERATIONS

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Consolidated Financial Results

Net Sales by Segment

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Segment Profit by Segment

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CONSOLIDATED OPERATING RESULTS

Net Sales

The change in Net sales was attributable to the following:

A discussion of Net sales by reportable business segment can be found in the Review of Business Segments section of this Management’s Discussion and Analysis.

Q2 2026 compared with Q2 2025

Net sales increased due to the following:

•Increased pricing and price adjustments to offset inflation,

•Favorable impact of foreign currency translation, driven by the weakening of the U.S. dollar against the currencies in certain of our international markets, primarily the Australian dollar and Chinese renminbi, and

•Incremental sales from recent acquisitions,

•Partially offset by lower sales from the divestiture of the personal protective equipment (PPE) business.

YTD 2026 compared with YTD 2025

Net sales increased due to the following:

•Increased pricing and price adjustments to offset inflation, and

•Incremental sales from recent acquisitions,

•Partially offset by lower sales from the divestiture of the PPE business, and

•Lower sales volumes.

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Cost of Products and Services Sold

Q2 2026 compared with Q2 2025

Cost of products and services sold increased due to higher direct and indirect material costs and higher labor costs.

YTD 2026 compared with YTD 2025

Cost of products and services sold increased due to the following:

•Higher direct and indirect material costs and higher labor costs of approximately $0.4 billion or 4%, and

•Incremental costs from recent acquisitions of approximately $0.2 billion or 2%.

Gross Margin

Q2 2026 compared with Q2 2025

Gross margin was flat and gross margin percentage decreased 170 basis points to 37.6% compared to 39.3% for the same period of 2025.

YTD 2026 compared with YTD 2025

Gross margin increased by approximately $0.1 billion and gross margin percentage decreased 100 basis points to 38.1% compared to 39.1% for the same period of 2025.

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Research and Development Expenses

Q2 2026 compared with Q2 2025

Research and development expenses increased as a percentage of net sales due to increased investment in new product development in our Aerospace Technologies business.

YTD 2026 compared with YTD 2025

Research and development expenses increased as a percentage of net sales due to increased investment in new product development in our Aerospace Technologies business.

A summary of our research and development costs is as follows:

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Selling, General and Administrative Expenses

Q2 2026 compared with Q2 2025

Selling, general and administrative expenses were flat compared to the same period in 2025.

YTD 2026 compared to YTD 2025

Selling, general and administrative expenses were flat compared t

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Dollars in tables and graphs in millions, except per share amounts)

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to help the reader understand the results of operations and financial condition of Honeywell International Inc. and its consolidated subsidiaries (Honeywell, we, us, our, or the Company) for the three years ended December 31, 2025. All references to Notes relate to Notes to Consolidated Financial Statements in the section titled Financial Statements and Supplementary Data.

BUSINESS UPDATE

MACROECONOMIC CONDITIONS

We continue to monitor macroeconomic and geopolitical developments that continue to be characterized by elevated trade tensions, economic policy uncertainty, and evolving inflationary pressures. While continued global growth proved more resilient than widely anticipated, new tariffs imposed in 2025 and 2026 to date, along with ongoing rollbacks and negotiations, are driving volatility in global markets. Global conflicts, tariffs, labor disruptions, and new regulations continue to generate volatility in global markets and contribute to supply chain vulnerabilities and pricing fluctuations. We remain proactive in our collaboration with suppliers to minimize shortages and mitigate supply chain and price volatility.

Mitigation strategies remain crucial to meet customer demand in this evolving environment. Our mitigation strategies include supply chain simplification, continued alignment to local supply sources, digital solutions for identifying and managing shortages, pricing actions and dual source strategies, longer term planning for constrained materials, supply tracking tools, direct engagement with key suppliers, and new supplier development. Strong relationships with strategic primary and secondary suppliers allow us to collaborate to reliably source key components and raw materials, develop new products, commit our resources to assist certain suppliers, and at times, alter designs of existing products. We believe these mitigation strategies enable us to reduce supply risk, foster new product innovation, and expand our market presence. Additionally, due to the stringent quality controls and product qualification we perform on any new or enhanced product, these mitigation strategies have not impacted, and we do not expect them to impact, product quality or reliability.

To date, our strategies helped minimize our exposure to these conditions. However, if we are not successful in sustaining or executing these strategies, these macroeconomic conditions could have a material adverse effect on our consolidated results of operations, cash flows, or financial condition.

See the section titled Risk Factors for a discussion of risks associated with the potential adverse effects of inflationary cost pressures, supply chain disruptions, tariffs and other trade restrictions and barriers, and labor shortages to our businesses.

PORTFOLIO TRANSFORMATION

We continually assess the relative strength of each business in our portfolio as to strategic fit, market position, profit, and cash flow contribution in order to identify target investment and acquisition opportunities in order to upgrade our combined portfolio. We also identify businesses that do not fit into our long-term strategic plan based on their market position, relative profitability, or growth potential. During the second quarter of 2025, we completed the divestiture of our PPE business, as well as closed on the acquisition of Sundyne. We also announced our agreement to acquire Johnson Matthey's Catalyst Technologies business segment.

On February 6, 2025, we announced our intention to pursue a separation of Honeywell from Honeywell Aerospace, into independent, U.S. publicly traded companies, which is intended to be completed in the third quarter of 2026. The planned separation is intended to be a tax-free separation to Honeywell shareowners for U.S. federal income tax purposes. The separation will be subject to the satisfaction of a number of customary conditions, including, among others, the filing and effectiveness of applicable filings (including a Form 10 registration statement that includes required financial statements) with the SEC, assurance that the separation of the businesses will be tax-free to Honeywell’s shareowners, receipt of applicable regulatory approvals, and final approval by Honeywell’s Board of Directors. The proposed separation is complex in nature, and may be affected by unanticipated developments, credit and equity markets, or changes in market conditions.

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On July 8, 2025, we announced we are evaluating strategic alternatives for our Productivity Solutions and Services and Warehouse and Workflow Solutions businesses within the Industrial Automation reportable segment to further simplify Honeywell's portfolio and accelerate shareowner value creation ahead of the planned separation of Honeywell from Honeywell Aerospace. As of December 31, 2025, the assets and liabilities of these businesses are classified as held for sale.

On July 30, 2025, we entered into a termination agreement for the accelerated monetization of the indemnification and reimbursement agreement we had with Resideo Technologies, Inc. (Resideo), pursuant to which Resideo’s subsidiary had an ongoing obligation to make cash payments to Honeywell in amounts equal to 90% of Honeywell’s annual net spending for environmental matters at certain sites as defined in the agreement. Upon closing of the transactions contemplated pursuant to the termination agreement, we received a one-time cash payment of $1.6 billion in lieu of all future payments to which the Company was entitled pursuant to the indemnification and reimbursement agreement.

On September 29, 2025, we permanently divested our legacy Bendix asbestos liabilities and certain non-Bendix asbestos liabilities. We recorded a pre-tax loss of $148 million in 2025 related to the divested asbestos liabilities. Under the terms of the divestiture agreement, we contributed $1.4 billion in cash and derecognized $1.5 billion in asbestos liabilities and $0.1 billion of related insurance assets to a third party entity.

On October 30, 2025, the Company completed the spin-off of its Advanced Materials business into an independent, publicly traded company named Solstice Advanced Materials, Inc. (Solstice). Honeywell shareowners of record as of the close of business on October 17, 2025 received one share of Solstice common stock for every four shares of Honeywell common stock. Results of operations, financial position, and cash flows for the Advanced Materials business are reported as discontinued operations for all periods presented and the notes to the financial statements have been adjusted on a retrospective basis. Discussions throughout this MD&A are based on continuing operations unless otherwise noted.

SEGMENT REALIGNMENT

In October 2025, we announced a planned realignment, expected to be effective in the first quarter of 2026, of our business units comprising our Industrial Automation and Energy and Sustainability Solutions reportable business segments. This realignment will form a new reportable business segment, Process Automation and Technology, and result in a new composition of our Industrial Automation reportable business segment. Process Automation and Technology will be comprised of UOP, which is currently in Energy and Sustainability Solutions, and the core portion of the Process Solutions business, which is currently in Industrial Automation. The new composition of Industrial Automation will continue to include the smart energy, thermal solutions, and process measurement and control businesses, currently included in the Process Solutions business, as well as the Sensing and Safety Technologies, Warehouse and Workflow Solutions, and Productivity Solutions and Services businesses. Following the realignment, our reportable business segments will be Aerospace Technologies, Building Automation, Process Automation and Technology, and Industrial Automation. In addition to the realignment, also beginning in 2026, the Company will report its disaggregation of revenue within its Building Automation, Process Automation and Technology, and Industrial Automation segments based on the business models of Products, Projects, Solutions, and Aftermarket. The realignment will not impact our historical consolidated financial position, results of operations, or cash flows. We expect to report our financial performance based on this realignment effective with the first quarter of 2026.

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RESULTS OF OPERATIONS

Consolidated Financial Results

Net Sales by Segment

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Segment Profit by Segment

CONSOLIDATED OPERATING RESULTS

Net Sales

The change in Net sales was attributable to the following:

A discussion of Net sales by reportable business segment can be found in the Review of Business Segments section of this Management's Discussion and Analysis.

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2025 compared with 2024

Net sales increased due to the following:

•Increased pricing and price adjustments to offset inflation,

•Incremental sales from recent acquisitions, and

•Higher sales volumes,

•Partially offset by lower sales from the divestiture of the PPE business, and

•The sales impact of the settlement of the Flexjet-related litigation matters. Refer to Note 19 Commitments and Contingencies of Notes to Consolidated Financial Statements for further information regarding the Flexjet-related litigation matters.

2024 compared with 2023

Net sales increased due to the following:

•Incremental sales from recent acquisitions,

•Increased pricing and price adjustments to offset inflation, and

•Higher sales volumes,

•Partially offset by unfavorable impact of foreign currency translation, driven by the strengthening of the U.S. dollar against the Turkish lira, Chinese renminbi, and Canadian dollar, offset by the weakening of the U.S. dollar against the British pound.

Cost of Products and Services Sold

2025 compared with 2024

Cost of products and services sold increased due to the following:

•Incremental costs from recent acquisitions of approximately $0.9 billion or 4%,

•Higher direct and indirect material costs and higher labor costs of approximately $0.7 billion or 3%, and

•Higher sales volumes of approximately $0.6 billion or 3%.

2024 compared with 2023

Cost of products and services sold increased due to the following:

•Higher direct and indirect material costs and higher labor costs of approximately $0.8 billion or 4%, and

•Incremental costs from recent acquisitions of approximately $0.5 billion or 2%,

•Partially offset by highe

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