Honeywell ROIC Problem: What the Triple Spin-Off Won't Fix (2025)
Honeywell is spinning into THREE companies by 2026. But while management focuses on restructuring, ROIC has quietly declined from 26.3% to 19.4% over 8 quarters. Here's what's dragging down returns and which segments might escape the trap.
Honeywell ROIC Problem: What the Triple Spin-Off Won't Fix (2025)
Last Updated: December 29, 2025 Data Currency: Q3 2025 10-Q filings. HON SEC Filings
TL;DR: Honeywell is spinning into THREE companies by 2026—but restructuring won't fix the underlying ROIC problem. Over 8 quarters, ROIC declined from 26.3% to 19.4% (-6.9pp) as $6B in acquisition debt diluted capital efficiency. The best-performing segment is Building Automation (26.7% margin), while Industrial Automation (-9.1% revenue, 18.8% margin) drags the portfolio. The asbestos liability divestiture removed $1.5B in hidden obligations, but debt escalation remains the core issue.
Key Facts:
- HON ROIC: 26.3% → 19.4% over 8 quarters (-6.9pp decline)
- Best segment: Building Automation 26.7% margin (highest)
- Worst segment: Industrial Automation 18.8% margin, -9.1% revenue YoY
- Debt increase: $31.1B → $37.0B (+$6B for acquisitions)
- Asbestos divested: $1.5B liability removed, $148M loss taken
- Aerospace spin-off: H2 2026 (largest segment, 26.1% margin)
Executive Summary: Honeywell's Segment ROIC Landscape
| Segment | Q3 2025 Revenue | YoY Growth | Operating Margin | Margin Change | Trend |
|---|---|---|---|---|---|
| Aerospace Technologies | $4,511M | +15.3% | 26.1% | -160 bps | improving |
| Building Automation | $1,878M | +7.6% | 26.7% | +80 bps | improving |
| Energy & Sustainability | $1,742M | +11.5% | 24.5% | 0 bps | stable |
| Industrial Automation | $2,274M | -9.1% | 18.8% | -150 bps | declining |
Source: HON Q3 2025 10-Q via MetricDuck. Data as of December 2025.
Track These Metrics Live: View real-time ROIC, segment margins, and trend data for HON on MetricDuck.
What Is Happening to Honeywell?
Honeywell is executing a triple spin-off restructuring that will transform the conglomerate into three separate companies by 2026:
Spin-Off Timeline
| Event | Status | Date | Details |
|---|---|---|---|
| Advanced Materials Spin-Off | Completed | Oct 30, 2025 | Solstice Advanced Materials (SOLS): $3.8B revenue |
| New Segment Structure | Announced | Q1 2026 | 4-segment reporting begins |
| Aerospace Technologies Separation | Planned | H2 2026 | $15B+ revenue, pure-play aerospace |
Recent M&A Activity
Honeywell has deployed $11B+ in acquisitions since December 2023:
| Acquisition | Segment | Strategic Rationale |
|---|---|---|
| Carrier Access Solutions | Building Automation | Fire/security expansion |
| Civitanavi Systems | Aerospace | Defense navigation tech |
| CAES | Aerospace | Defense electronics |
| Air Products LNG | Energy & Sustainability | LNG process technology |
| Sundyne | Energy & Sustainability | Pump/compressor tech |
The M&A Debt Problem: These acquisitions added ~$6B in debt, increasing total borrowings from $31.1B to $37.0B. This capital structure change is a primary driver of declining ROIC—more invested capital without proportional profit growth.
Why Is Honeywell's ROIC Declining?
The counter-intuitive finding from our analysis: ROIC is declining despite restructuring efforts. Management is focused on spin-offs and portfolio optimization, but the underlying capital efficiency problem persists.
8-Quarter ROIC Trajectory
| Quarter | ROIC | Change from Q4 2023 | Key Event |
|---|---|---|---|
| Q4 2023 | 26.3% | baseline | — |
| Q1 2024 | 24.4% | -1.9pp | — |
| Q2 2024 | 23.6% | -2.7pp | — |
| Q3 2024 | 22.3% | -4.0pp | — |
| Q4 2024 | 20.4% | -5.9pp | Debt escalation for M&A |
| Q1 2025 | 19.3% | -7.0pp | — |
| Q2 2025 | 19.6% | -6.7pp | — |
| Q3 2025 | 19.4% | -6.9pp | Asbestos divested |
Key Insight: ROIC has declined 6.9 percentage points over 8 consecutive quarters. The trajectory shows no inflection point despite the asbestos divestiture removing $1.5B in liabilities.
ROIC Quality Thresholds for Diversified Industrials
| Rating | ROIC Range | Interpretation | HON Position |
|---|---|---|---|
| Excellent | >25% | Elite capital efficiency | Q4 2023: 26.3% |
| Good | 18-25% | Competitive returns | Current: 19.4% |
| Average | 12-18% | Industry-level returns | — |
| Below Average | 8-12% | Improvement needed | — |
| Poor | <8% | Capital destruction risk | — |
Honeywell has moved from "Excellent" to "Good" tier over 8 quarters.
DuPont Analysis: What's Driving the Decline?
ROIC = Net Margin × Asset Turnover
| Component | Q4 2023 | Q3 2025 | Change |
|---|---|---|---|
| Net Margin | ~15.5% | ~15.1% | Slight decline |
| Asset Turnover | ~0.65x | ~0.58x | Significant decline |
| ROIC | 26.3% | 19.4% | -6.9pp |
Root Cause: Asset turnover declined as the invested capital base expanded (+$6B debt) without proportional revenue growth. The acquisitions haven't yet generated sufficient returns to offset capital deployed.
Which Honeywell Segment Performs Best?
The internal segment comparison reveals a clear hierarchy—and one clear laggard.
Segment Performance Ranking (Q3 2025)
| Rank | Segment | Revenue | Margin | Revenue Growth | Verdict |
|---|---|---|---|---|---|
| 1 | Building Automation | $1,878M | 26.7% | +7.6% | Highest margin, stable growth |
| 2 | Aerospace Technologies | $4,511M | 26.1% | +15.3% | Largest, fastest-growing |
| 3 | Energy & Sustainability | $1,742M | 24.5% | +11.5% | Strong acquisition boost |
| 4 | Industrial Automation | $2,274M | 18.8% | -9.1% | Weakest performer |
Aerospace Technologies: The Crown Jewel
Aerospace is Honeywell's largest and fastest-growing segment:
- Revenue: $4.5B (43% of total)
- Operating Margin: 26.1%
- YoY Growth: +15.3% (including +$255M from acquisitions)
Management Commentary (Q3 2025 10-Q): "Higher organic sales of $147 million in Commercial Aviation Aftermarket and higher organic sales of $147 million in Defense and Space, both driven by higher sales volumes due to increased demand and shipments."
The Aerospace separation in H2 2026 will create an independent company with:
- Used on virtually every commercial/defense aircraft platform
- Recurring aftermarket revenue stream
- Defense backlog: $39.1B total
Building Automation: Highest Margin
Building Automation quietly outperforms with the highest operating margin in the portfolio:
- Revenue: $1.9B (18% of total)
- Operating Margin: 26.7% (+80 bps YoY)
- YoY Growth: +7.6%
Key drivers:
- Smart building systems demand
- Access Solutions acquisition ($302M inorganic contribution YTD)
- Security and fire safety products
Industrial Automation: The Portfolio Drag
Industrial Automation is the clear underperformer:
- Revenue: $2.3B (22% of total)
- Operating Margin: 18.8% (-150 bps YoY)
- YoY Growth: -9.1% (only declining segment)
What's Wrong with Industrial Automation?
- PPE Divestiture: Sale of Personal Protective Equipment business removed $264M in revenue
- Lower organic sales: Productivity Solutions and Services down due to decreased license/settlement payments
- Margin compression: 150 bps decline despite restructuring efforts
What Hidden Liabilities Were Removed?
The Q3 2025 asbestos divestiture was a significant event—removing a liability that had been projected through 2059.
Asbestos Liability Divestiture
| Item | Amount | Status |
|---|---|---|
| Asbestos Liabilities Divested | $1.5B | Removed from balance sheet |
| Cash Contribution | $1.4B | Paid to divest |
| Pre-Tax Loss | $148M | Recorded in Q3 2025 |
| Insurance Assets Derecognized | $0.1B | — |
From HON Q3 2025 10-Q: "On September 29, 2025, we permanently divested all of our legacy Bendix asbestos liabilities and certain non-Bendix asbestos liabilities. We recorded a pre-tax loss of $148 million in the third quarter of 2025 related to the divested asbestos liabilities."
Remaining Hidden Liabilities
| Liability Type | Amount | Status |
|---|---|---|
| Environmental Liabilities | ~$1.5B | Ongoing remediation |
| Flexjet Litigation | TBD | Active (aircraft engine services) |
| Resideo Indemnification | Terminated | Agreement concluded |
How Does Honeywell's Debt Escalation Impact Investors?
The capital structure shift is the primary ROIC driver—and it's concerning.
Debt Trajectory
| Period | Total Debt | Change | Driver |
|---|---|---|---|
| Dec 2024 | $31.1B | baseline | — |
| Sep 2025 | $37.0B | +$5.9B | M&A funding |
From HON Q3 2025 10-Q: "Interest and other financial charges increased due to increased debt funding to support acquisitions and higher interest rates on long-term debt issuances in August 2024."
Risk Escalation Summary
| Risk Type | Status | Detail |
|---|---|---|
| Capital Structure | ESCALATED | Debt +$6B dilutes ROIC denominator |
| Interest Expense | ESCALATED | Higher rates + higher debt = margin pressure |
| Geopolitical | Medium | Tariff exposure across segments |
| Integration | Medium | $11B+ in acquisitions since Dec 2023 |
What Does This Mean for Investors?
Investment Framework by Segment
| Segment | Post-Spin Entity | Margin | Growth | Investment Thesis |
|---|---|---|---|---|
| Aerospace | SpinCo (H2 2026) | 26.1% | +15.3% | Pure-play defense/aviation exposure |
| Building Automation | RemainCo | 26.7% | +7.6% | Highest margin, smart building megatrend |
| Energy & Sustainability | RemainCo | 24.5% | +11.5% | LNG/energy transition exposure |
| Industrial Automation | RemainCo | 18.8% | -9.1% | Portfolio drag—watch for turnaround |
Key Questions Before the Spin-Off
- How will debt be allocated? SpinCo vs RemainCo capital structure is critical.
- Will Industrial Automation stabilize? Continued decline pressures RemainCo valuation.
- What multiple will Aerospace command? Pure-play peers trade at premium multiples.
Bottom Line: The spin-off restructuring may unlock some conglomerate discount value, but it won't fix the fundamental ROIC problem. Debt escalation and Industrial Automation weakness will persist in RemainCo unless management addresses capital allocation.
Methodology
Data Sources
| Source | Data Type | Currency |
|---|---|---|
| MetricDuck BigQuery | ROIC, margins, segment performance | Q3 2025 |
| SEC EDGAR | 10-Q filings, management commentary | Oct 2025 |
| Company IR | Spin-off announcements | Dec 2025 |
ROIC Calculation
ROIC = NOPAT ÷ Invested Capital
- NOPAT = Operating Income × (1 - Tax Rate)
- Invested Capital = Total Debt + Shareholders' Equity - Cash
Segment Margin Definition
Operating Margin = Segment Profit ÷ Segment Revenue
Segment profit is operating income before corporate allocations, as reported in HON's segment footnote.
Limitations
- ROIC trajectory uses quarterly snapshots; annual ROIC may differ
- Segment margins exclude corporate overhead allocations
- Debt allocation post-spin is not yet disclosed
- Acquisition integration effects are ongoing
- This analysis excludes qualitative factors like management quality and macro risks
Data Source: MetricDuck automated SEC XBRL extraction and filing intelligence analysis. Last updated December 29, 2025.
Explore More ROIC Analysis
This article is part of our comprehensive ROIC Analysis Hub, which covers sector benchmarks, peer comparisons, and capital efficiency screening frameworks.
Related ROIC research:
- ROIC: The Complete Investor Guide — Sector benchmarks, formula, and screening framework
- ROIC Stock Screening Framework — 938-company benchmarks across 11 sectors
- Defense Contractor ROIC Rankings — LMT, RTX, NOC capital efficiency
- Semiconductor ROIC Rankings — QCOM licensing moat analysis
MetricDuck Research
CFA charterholders and former institutional equity analysts