We're downgrading Honeywell Aerospace after a shockingly bad earnings debut

Here is a story making headlines in the economy: Honeywell Aerospace shares tumbled 11% on Wednesday evening after the company reported weak quarterly results and cut its full-year outlook due to supply chain stumbles. It's a rough look for the newly public maker of cockpit systems and other aircraft parts, which split from Honeywell Technologies in late June. Revenue in the second quarter ended June 27 rose 5.

4% year over year to $4. 52 billion, missing the LSEG-compiled consensus estimate of $4. Adjusted earnings per share (EPS) fell 32% from the year-ago period to $1.

Economic Details

87, below the LSEG estimate of $2. The decline in extended trading Wednesday, on top of a 6% sell-off in shares during the regular session, is bringing shares down to $182, which would be a new low as a standalone company. Bottom line We expected some noise in the company's first report post-separation, but this was flat-out ugly.

Honeywell Aerospace is experiencing strong demand, evidenced by its 8% order growth year over year, and $15 billion worth of new wins — as measured by lifetime value — year to date. Honeywell Aerospace makes cockpit and power systems, engines for business jets and other components like sensors. However, issues within its supply chain are hurting output and preventing the firm from meeting all its orders.

As a result, the company slashed its full-year guidance for organic growth and operating profit, and offered a weak initial 2026 earnings forecast. "After a few years of double-digit output growth, we faced supply chain constraints in the first quarter that resulted in factory volume growth below expectations," CEO Jim Currier said in the earnings call. "At the time, we guided you to expect a steady ramp in our output through the first half, accelerating into the back half.

Analyst Views

While we are seeing progress, the ramp has not come through at the pace we had initially laid out. Frankly, I underestimated how long it would take to implement and see traction from the corrective measures we had taken and are taking. " Cutting your outlook is never something you want to do in your first earnings call as a CEO of a public company, but we do have some appreciation for management's willingness to take its medicine and completely reset expectations to a level where a miss is much less likely in the future.

One can never be so sure, but management explained on the call that its outlook for the remainder of the year implies similar year-over-year output growth levels to those delivered in the first half. "While we have confidence in all the actions we're taking to accelerate output near term, we believe it is prudent to set short-term financial guidance that is achievable without dramatic improvement in supply chain performance," added CFO Josh Kepsen. Where do we go from here?

Frankly, we are shocked and humbled by what just happened. Honeywell Aerospace was supposed to get cleaner post-separation from the cyclical Honeywell Technologies business.

Financial markets are tracking the development closely as investors assess the likely impact.