Q3 Earnings Show Strength Amid Margin Pressure
Honeywell (NASDAQ:HON) surpassed Wall Street expectations in Q3 CY2025, reporting revenue of $10.41 billion, up 7% year over year and beating estimates by 2.6%. Adjusted earnings per share came in at $2.82, nearly 10% above analysts’ consensus. The company reaffirmed its full-year revenue guidance at $40.8 billion and slightly raised its EPS guidance to $10.65.
CEO Vimal Kapur highlighted strong orders and record backlog across business units as key drivers. “We drove strong financial results and unlocked new value creation opportunities,” he said. Shares rose 5% to $216.89 following the report.
Mixed Long-Term Growth Trends
Despite the strong quarter, Honeywell’s long-term revenue growth remains modest. The company posted a 4.1% annualized revenue growth over five years, below typical industrial sector benchmarks. However, its two-year growth trend of 5.7% is stronger, suggesting some recovery or favorable tailwinds.
Organic revenue, which excludes acquisitions and currency effects, grew at an average annual rate of 3.6% over the past two years. This lower figure suggests recent growth has been partially supported by external factors rather than core business acceleration.
Profit Margins and Efficiency Concerns
Honeywell has historically been a high-margin operator, with an average operating margin of 20.9% over five years. But this quarter, margins slipped to 16.9%, down from 21.8% a year ago. The decline indicates rising operating costs, as the margin drop exceeded changes in gross margin.
While cash flow improved—free cash flow margin jumped to 28% from 17.7%—the decline in operating margin raises flags about long-term cost efficiency.
EPS Growth Driven by Buybacks
Honeywell’s five-year EPS compound annual growth rate of 8.3% outpaces its revenue growth. However, much of this improvement comes from share repurchases, which reduced the share count by 10%. This financial engineering boosted EPS without reflecting stronger operating performance.
In Q3, adjusted EPS of $2.82 marked a year-on-year increase from $2.58 and beat expectations by 9.9%. Still, analysts forecast only 2.8% EPS growth over the next year, signaling subdued near-term earnings acceleration.
Outlook: Quality Quarter but Tepid Forecast
The Q3 report was solid, with beats on revenue, EPS, and organic growth. But looking beyond one quarter, Honeywell’s overall growth remains modest and margin pressures are mounting. Analysts expect slower revenue and earnings expansion going into 2026.
Honeywell may be a steady performer, but investors looking for high-growth AI-linked opportunities may want to explore alternative names. Still, for those seeking reliable industrial exposure with decent profitability, Honeywell remains a stable choice.
