Honeywell’s shocking shake-up: Find out how it’s creating three powerhouse companies

Honeywell (NASDAQ: HON) has announced a bold strategic move to separate its Automation and Aerospace businesses, alongside the previously disclosed spin-off of its Advanced Materials division. This decision is set to create three independent, publicly traded companies, each with distinct growth strategies and market focus. The separation, which is intended to be tax-free for Honeywell shareholders, is expected to be completed in the second half of 2026.

This transformative plan follows an extensive portfolio evaluation initiated by Honeywell’s Board of Directors under the leadership of Chairman and Chief Executive Officer Vimal Kapur. The move aims to unlock long-term shareholder value, enhance operational efficiency, and enable each business to thrive in its respective industry.

Why is Honeywell separating its businesses?

Honeywell’s decision to separate its Automation and Aerospace units is driven by the need for greater strategic focus, operational agility, and financial flexibility. According to Vimal Kapur, the creation of three independent companies will allow each entity to pursue tailored growth strategies aligned with their core competencies.

Kapur highlighted that this separation is the culmination of Honeywell’s ongoing efforts to simplify its business structure, optimise its portfolio, and capitalise on emerging market trends. “The formation of three independent, industry-leading companies builds on the strong foundation we’ve created, positioning each to unlock significant value for shareholders and customers,” he said.

This strategic shift comes at a time when industries like automation and aerospace are undergoing rapid transformation, driven by technological advancements, sustainability demands, and shifting global markets. By operating as standalone companies, Honeywell Automation, Honeywell Aerospace, and Advanced Materials will have the agility to respond more effectively to these dynamic changes.

What will Honeywell Automation focus on after the split?

Following the separation, Honeywell Automation will emerge as a pure-play leader in the automation and digital transformation sectors. The company will focus on driving the industrial world’s transition from traditional automation to autonomous operations, leveraging cutting-edge technologies like artificial intelligence, advanced software, and process automation.

With an estimated revenue of $18 billion in 2024, Honeywell Automation will maintain its global scale and extensive installed base. Its core mission will revolve around enhancing productivity, sustainability, and safety across industries through innovative automation solutions.

Kapur emphasised that Honeywell Automation’s future growth will be fuelled by global megatrends such as digitalisation, energy security, and AI integration. “As a standalone company with a simplified operating structure, Honeywell Automation will be better positioned to capitalise on the opportunities presented by the rapidly evolving industrial landscape,” he said.

How will Honeywell Aerospace adapt as an independent company?

Honeywell Aerospace will become one of the largest publicly traded, pure-play aerospace technology providers, serving both commercial aviation and defence markets. With $15 billion in revenue reported for 2024, the company’s extensive portfolio includes aircraft propulsion systems, cockpit technologies, navigation solutions, and auxiliary power units.

The aerospace industry is poised for significant growth in the coming years, driven by increasing demand for advanced aviation technologies, sustainability initiatives, and defence modernisation efforts. Honeywell Aerospace’s independence will enable it to focus on next-generation innovations, such as electric propulsion, autonomous flight technologies, and sustainable aviation solutions.

Kapur noted that this separation comes at a pivotal moment for the aerospace sector. “As aerospace prepares for unprecedented demand in both commercial and defence markets, now is the right time for the business to begin its own journey as a standalone public company,” he stated.

What role will Advanced Materials play post-spin-off?

The third company, Advanced Materials, will focus on sustainability-driven specialty chemicals and materials. Expected to complete its spin-off by late 2025 or early 2026, the company reported nearly $4 billion in revenue for 2024. Its product offerings include fluorine-based materials, electronic components, industrial-grade fibres, and healthcare packaging solutions.

A key highlight of Advanced Materials is its commitment to environmental sustainability, particularly through its flagship Solstice® hydrofluoro-olefin (HFO) technology, which offers a low-global-warming alternative to traditional refrigerants. As an independent entity, Advanced Materials will have greater flexibility to invest in eco-friendly innovations and expand its global reach in response to the growing demand for sustainable products.

How will this transformation impact Honeywell’s financial performance?

Honeywell’s strong financial performance in 2024 has laid the groundwork for this strategic transformation. The company reported fourth-quarter sales of $10.1 billion, reflecting a 7% year-over-year increase, with organic sales growth of 2%. Adjusted earnings per share exceeded expectations at $2.47, despite challenging macroeconomic conditions.

For the full year, Honeywell achieved $6.1 billion in operating cash flow and $4.9 billion in free cash flow. The company deployed a record $14.6 billion in capital during 2024, including $8.9 billion allocated to strategic acquisitions. These investments reflect Honeywell’s commitment to growth and its focus on enhancing shareholder value.

Looking ahead, Honeywell projects 2025 sales in the range of $39.6 billion to $40.6 billion, with adjusted earnings per share expected between $10.10 and $10.50. The company’s strong balance sheet, combined with its investment-grade credit rating, will support ongoing growth initiatives and ensure financial stability throughout the separation process.

Expert insights on Honeywell’s strategic direction

Industry experts have largely welcomed Honeywell’s decision to separate its businesses, viewing it as a strategic move to unlock value and enhance competitiveness. Analysts from Elliott Partners, including Marc Steinberg and Jesse Cohn, expressed confidence in the company’s transformation plan.

“The enhanced focus, alignment, and strategic agility enabled by this separation will allow Honeywell to realise opportunities for operational improvement and long-term value creation,” said Steinberg.

Financial advisory firms Goldman Sachs & Co. LLC and Centerview Partners LLC provided guidance on Honeywell’s strategic review, while Skadden, Arps, Slate, Meagher & Flom LLP served as external legal counsel.

What’s next for Honeywell and its stakeholders?

The separation of Honeywell’s businesses is subject to regulatory approvals, including the filing of a Form 10 registration statement with the U.S. Securities and Exchange Commission. The company aims to complete the separation in a manner that is tax-free for shareholders, with final approval pending from Honeywell’s Board of Directors.

As Honeywell navigates this transformation, the company remains committed to its core values of innovation, sustainability, and operational excellence. The creation of three independent companies will not only enhance shareholder value but also position Honeywell’s businesses for sustained growth in an increasingly complex global landscape.