Honeywell projects about 15% ARR growth for 2026, fueled by deeper penetration of Forge-based solutions and AI-enabled product expansion, which expands the pipeline. In 2H 2026, margins are influenced by a higher repositioning cost spike in Q2—expected to pay back with benefits in the second half and next year—and Catalyst volumes normalizing upward, with margins depending on the mix between unique IP and market-priced catalysts. Management also highlights that near-term costs are expected to deliver longer-term cost absorption benefits.
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What is driving the 15% software ARR growth, and how do higher repositioning costs and Catalyst volumes impact margins in the second half of 2026?
Honeywell expects ~15% ARR growth for 2026 (targeting that range despite the year still having “6 months to go”). 1
Management attributes that strength to two primary drivers:
Deeper penetration of existing offerings into more new customers
They describe “existing offering is penetrating more” by selling existing solutions to more customers, with strength “across the board” (notably building and process automation) as offerings gain market acceptance. 1
New offerings launched on the Forge platform (pipeline creation and continued product expansion)
They cite continued launching of new offerings on the Forge platform aligned with customer needs, which “continues to create more pipeline.” 1
They also frame Forge software growth as closely tied to AI-based offerings sold on Forge, and explicitly connect ARR growth to the Forge product set (noting that these are “all AI-based offerings” and that management updates ARR growth “periodic[ally]” as a direct measure). 2
Management says the repositioning cost spike in the second quarter was due to a decision to consolidate footprint within their process business. 3
They estimate repositioning costs for the year at ~$100 million to $110 million. 3
Importantly for your margin question: management states that this repositioning is expected to deliver benefits in the second half and next year, specifically including depreciation and other items related to absorption from an ISC standpoint (i.e., the cost may be front-loaded, but it should pay back). 3
They characterize the overall effect as “net-net… positive” with “pretty fairly quick payback.” 3
In Q2 commentary, they also note “higher repositioning costs” partially offset other items that were helping earnings. 4 That is consistent with costs being elevated near-term, even as longer-term savings/benefits are expected.
Management indicates Catalyst volumes were under pressure in the first half (as anticipated), but they now expect second-half volumes to normalize versus first half. 3
They quantify the expected change at a high level:
(They also note that first-half pressure occurred as expected—“right at the earnings guide during January” and it “occurred that way.”) 3
On margin, management emphasizes mix between two catalyst types:
They explicitly state that quarterly margin favorability depends on the mix—at times they can sell more unique IP catalysts (margins favorable), and at other times not (less favorable). 3 They also say this mix-driven dynamic is not easily forecastable within quarters because it is driven by consumption/use based on plant conditions (e.g., how hard a plant is run). 3
For Q2 results, they report that Process Automation Technologies segment margin contracted 180 basis points to 22.1%, “largely driven by unfavorable mix from lower catalyst volumes as expected,” and that this was also ahead of their original margin outlook for the quarter. 4
Putting this together for your 2H margin question:
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