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Honeywell’s Performance Materials and Technologies: Sales Down

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Honeywell’s Performance Materials and Technologies segment

Honeywell’s (HON) PMT (Performance Materials and Technologies) business is its smallest segment, responsible for 22.5% of the company’s sales in 1Q16. The PMT business comprises three distinct entities: UOP (United Oil Products), Process Solutions, and Advanced Materials. PMT sales fell by 9% year-over-year to $2.1 billion in 1Q16 due to severe organic declines in the company’s UOP business. Sales were down by 8% on a core organic basis.

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Organic growth distribution

Process Solutions sales advanced 9% organically, driven by double-digit growth in project businesses. Overall sales grew by 10% on the addition of sales from the recently acquired Elster business. Although orders were down by low single digits on an organic basis, there was some growth in the high-margin software and services business. UOP sales fell 37% organically and 38% overall, due to lower gas processing, equipment, and catalyst sales. Advanced Materials sales grew 11% organically and 10% overall, driven by a ramp-up in global warming products in the fluorine business as well as higher volumes in resins and chemicals.

PMT margins suffer on lower catalyst sales

Segmental profits fell by 12% year-over-year to $441 million, due to lower sales and a 90-basis-point margin decline in 1Q16. Operating margins fell to 20.6% as reduced high-margin catalyst sales in the UOP business offset higher resin and chemical volumes and benefits from previous restructuring actions. Deal costs and the dilutive actions of mergers and acquisitions impacted margins by 20 basis points.

Investors interested in trading in the industrials sector could consider the Industrial Select Sector SPDR ETF (XLI) and the iShares US Industrials ETF (IYJ). Major holdings in IYJ include Honeywell (HON) at 3.3%, 3M (MMM) at 3.9%, and General Electric (GE) at 11.5%.

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