Introduction to Honeywell PMT
Performance Materials and Technologies (or PMT) was the smallest business unit in Honeywell (HON), with earned revenues touching $9.2 billion in 2015. Although the highly cyclical upstream part accounted for just 7% of the oil and gas (XOP) end market, 52% of this segment is exposed to that end market.
In 2015, the PMT segment profits expanded by 3.2% to 21%, making it a very high margin business. Honeywell’s major competitors in this unit are Albemarle (ALB), Dow Chemicals (DOW), Dupont (DD), and BASF (BASFY).
The PMT business comprises three distinct entities: UOP (United Oil Products), Process Solutions, and Advanced Materials. The UOP business offers refining and petrochemical technologies; the Process Solutions segment’s offerings optimize manufacturing processes and enhance productivity and safety; and the Advanced Materials unit provides specialty chemical (VAW) products and environment-friendly refrigerants.
Products are generally sold directly to customers, a business model discussed in Part 18 of Pick Your Poison: An Investor’s Guide to Specialty Chemicals.
Oil and gas exposure
Honeywell has substantially realigned its oil and gas (VDE) portfolio toward downstream economics to keep its Oil and Gas unit less susceptible to fluctuations in oil prices. Exploration and production operations, which form the upstream business, are extremely sensitive to oil prices and are therefore highly cyclical.
Downstream companies, on the other hand, refine extracted crude into usable gasoline, a less cyclical business. As consumers of crude oil, oil refiners are beneficiaries of lower crude prices. As shown in the above graphic, in 2009 Honeywell’s profits in the segment suffered a setback of 18% when Brent crude fell by 36%. Despite a large drop of 47% in Brent crude prices, Honeywell managed to raise its profits by 6% in 2015.