“We now expect full year segment margin expansion of 250 to 290 basis points, up 25 basis points at the midpoint from the previous guidance.”

In context

“Mike Stepniak : Thank you, Vimal, and good morning. In the second quarter, Honeywell Technologies delivered strong results that surpassed our expectations. Sales grew 4% organically, led by continued momentum in building automation and stronger-than-anticipated growth in Industrial Automation. Process Automation Technologies sales decreased 1% organically, but we're still materially ahead of our original outlook for the quarter. On a segment basis, Building Automation delivered 9% organic growth, driven by double-digit growth in products and continued strength in solutions. The teams drove double-digit growth in the fire and Services businesses, respectively, and we saw strength in all regions led by Asia Pacific, Middle East and Americas. All in, another strong quarter from Vimal and the Building Automation team. Industrial Automation sales were up 4% in the second quarter, exceeding our expectations led by strength in solutions. Products grew slightly with continued momentum in Sensing and Industrial Measurement, partially offset by utilities. The core Industrial Automation business, excluding planned divestiture, grew 2% organically in the second quarter. Finally, Process Automation Technologies sales declined just 1% organically in the second quarter, ahead of our prior expectations as the up cycle in energy end markets and activity in global projects begin to materialize. Projects grew 5%, driven by strength in gas, LNG and petrochemicals. This strength was offset by a 6% decline in aftermarket due primarily to a tough prior year comparison from a large catalyst shipment in the second quarter of 2025. Importantly, consistent with our messaging at the Investor Day, we expect a sharp inflection in growth in Process Automation Technology beginning in the third quarter, led by Process Technology and driven by backlog conversion and much stronger catalyst shipments. On profitability, segment profit increased 9%, while segment margin expanded 100 basis points to 19% with strong margin expansion in Building Automation and Industrial Automation. In addition to ongoing volume leverage and productivity actions, stranded cost removal continues to track ahead of plan. By segment, Building Automation segment margin expanded 90 basis points to 27.1% on volume leverage and price, which was partially offset by inflation. Segment margin in Industrial Automation also expanded 90 basis points to 17.2% as pricing and productivity actions more than offset inflation and unfavorable mix. In Process Automation Technologies segment, margin contracted 180 basis points to 22.1%, largely driven by unfavorable mix from lower catalyst volumes as expected. This, however, was also ahead of our original margin outlook for the quarter. Adjusted earnings per share of $1.95 was up 10%, driven primarily by higher segment profit. We drove lower net interest expense stemming from debt paydown, which was partially offset by higher repositioning costs. And as we previewed in the first quarter, a higher adjusted effective tax rate drove a $0.16 headwind, which we overcame with stronger operational performance. You will find additional information on the segment performance in the appendix of our presentation. Rounding out the results, free cash flow grew considerably this quarter, both year-over-year and sequentially to roughly $0.5 billion. This was principally driven by higher income as well as improvements in working capital, which more than offset ongoing collection headwinds in the Middle East. This quarter, we deployed $1 billion of capital through roughly $800 million of dividends and roughly $200 million in high-value capital expenditures. Year-to-date, we have deployed over $2.8 billion in capital to repurchase our own shares, pay dividends and invest in future growth. Let's now move to Slide 10 to quickly discuss the second quarter adjusted EPS bridge. As you can see, we delivered high-quality results in the second quarter. Strong segment profit growth, including elimination of stranded costs, lower below-the-line expenses due to interest expense and lower share count allowed us to overcome the higher tax rate. Excluding the tax headwind, earnings would have been up 20%. Let's turn to Slide 11 to discuss our updated 2026 guidance. Today, we're increasing our organic sales growth outlook to 3% to 4% for the year, up from previous guidance of 2% to 3% and now expect the second half to grow 4% to 6% versus 3% to 5% previously. Building Automation continues to execute well, leading to a mid-single-digit plus organic growth outlook, supported by incredibly strong orders growth in the second quarter, particularly in our focus verticals, including health care, hospitality and data centers. We expect Process Automation technology growth to accelerate to high single digits in the second half as global energy projects resume, backlog conversion ramps and catalyst shipment volumes increase significantly. Finally, Industrial Automation growth will continue in the second half, driven by resilient short-cycle demand for industrial measurement and sensing, continued growth in Europe and China and strengthening Americas demand. As a result of the momentum in Process Automation Technology and Industrial Automation, we're increasing our full year organic growth expectations for both businesses from roughly flat to up low single digits for the full year, a meaningful improvement from our original expectations coming into the year. We now expect full year segment margin expansion of 250 to 290 basis points, up 25 basis points at the midpoint from the previous guidance. This reflects the outperformance in the second quarter in Process Automation Technology and Industrial Automation, significant progress on stranded cost elimination and accretion related to the accelerated timing of PSS and WWS divestitures. Importantly, we expect Honeywell Technologies will exit the year above 22% segment margin. We now expect full year adjusted earnings per share of $8.20 at the midpoint or up approximately 27% versus prior year and up from our previous midpoint of $8.10. Finally, we continue to expect free cash flow of roughly $2 billion in 2026, with the majority of this coming in during the second half and approximately 95% conversion rate. You can find additional information on 2026 outlook in the appendix of our presentation, which includes estimates for corporate and other below-the-line items. On Page 12, you will find the bridge from our June 8 guidance call to today's update. As you can see, we expect full year adjusted earnings per share will be $8.20 at the midpoint, up from our previous midpoint of $8.10. Let me now turn the call back to Vimal to wrap up before Q&A.”