This morning, we will review our financial results for the second quarter, share our guidance for the third quarter, and provide an update on full year 2025. Our organic sales and orders growth both accelerated during this quarter, as we are seeing the benefit of our consistent spending and execution on new product development across our businesses. Given the strong first-star performance, we are raising sales and earnings guidance for the full year while incorporating into our outlook all currently known tariffs and the uncertain business conditions going forward. As independent entities with clear alignment and purpose, increased organization agility, and customized capital allocation priorities, each will be better positioned to accelerate future growth opportunities.
Yet, we are not waiting for the separation to reshape our portfolio for future growth. We continue to selectively deploy capital towards acquisition, announcing two new deals in the past couple of months. We are also looking to recycle capital, as I discussed earlier, by pursuing alternatives for businesses that do not fit our future. The transaction is expected to close in the first half of 2026 and will enhance our growth and margin profile over time while providing a strong financial return.
In early July, we also announced the technology tuck-in acquisition of Li-ion Tamer that enhances our building automation capability in high-growth energy storage and data center end markets. While such smaller deals do not often get much investor attention, in aggregate, they can accelerate our strategic roadmap and boost growth with a lower risk profile. In the second quarter, we build upon a strong start to the year as we again exceeded our guidance for organic sales growth and adjusted earnings per share. At the same time, we remain committed not to compromise on our investment and growth initiatives, as we are beginning to see evidence of our progress.
| Metric | Period | Current guidance |
|---|---|---|
| Organic sales growth | FY2025 | 4%-5% (3%-4% ex-Bombardier); low end raised 200 bps (raised) |
| Total sales | FY2025 | $40.8B-$41.3B (raised) |
| Segment margin | FY2025 | up 40-60 bps (down 30-10 bps ex-Bombardier) (reduced vs prior) |
| Adjusted EPS | FY2025 | $10.45-$10.65, up 6%-8% (up 1%-3% ex-Bombardier) (raised) |
| Free cash flow | FY2025 | $5.4B-$5.8B (maintained) |
| Organic sales growth | Q3 2025 | 2%-4% ($10B-$10.3B) |
| Segment margin | Q3 2025 | 22.7%-23.1% (down 90 to down 50 bps YoY) |
| Metric | YoY | Note |
|---|---|---|
| Aerospace Technologies | +6% organic | Strong Defense and Space and Commercial Aftermarket; margin down 170 bps on cost inflation and CAES integration drag of about 100 bps plus higher R&D. |
| Industrial Automation | Flat organic | Above guidance range; margin up 20 bps to 19.2% on productivity actions and commercial excellence offsetting cost pressures. |
| Building Automation | +8% organic | Margin up 90 bps on volume leverage and a full-quarter benefit from access solutions. |
| Energy and Sustainability Solutions | +6% organic | Double-digit UOP growth; margin down 110 bps as volume leverage and LNG acquisition benefit were offset by a customer settlement and cost inflation. |
| Adjusted EPS | +10% | Organic and inorganic segment profit growth plus a lower tax rate more than offset higher interest expense and lower pension income. |
| Commercial Aftermarket (Aero) | +7% | Decelerated from 15% in Q1 as aftermarket normalized to a more typical go-forward rate with stable flight hours. |
| Topic | Previous mention | Current period | Trend |
|---|---|---|---|
| Separation into three independent companies | — | Solstice Advanced Materials spin narrowed to Q4 2025 (ticker SOLS); Aerospace spin planned for second half of 2026 | Rising |
| Tariff mitigation | — | Known tariffs factored in as written; offset via productivity, pricing, and alternative sourcing while protecting margins and demand | Steady |
| Portfolio review and strategic alternatives | — | Comprehensive review complete; pursuing strategic alternatives for PSS and Warehouse & Workflow Solutions; no further major exits expected | Steady |
| R&D investment acceleration | — | R&D up 60 bps to 4.6% of sales across all four segments; about $200M incremental into Aerospace; expected to moderate next year | Rising |
| Energy project timing | — | Sustainable fuels projects moving right on IRA/OB3 policy; LNG remains strong; some catalyst demand softening | Declining |
| M&A activity | — | Announced GBP 1.8B Johnson Matthey Catalyst Technologies bolt-on and Li-ion Tamer tuck-in; pace to slow slightly but pipeline remains strong | Rising |