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Why This HON Segment’s Performance Was Better Than You Think

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Jul. 27 2016, Updated 11:05 a.m. ET

Honeywell PMT 2Q16 performance

The Performance Materials & Technologies (or PMT) segment, Honeywell’s (HON) smallest business unit before the split of its Automation and Control Solutions (or ACS) segment, contributed to 23.2% of its sales in 2Q16. The Advanced Materials (~40%), Process Solutions (~33%), and United Oil Products (~27%) businesses are housed within the PMT segment.

Revenue in the PMT segment were in line with expectations and fell 3% year-over-year to $2.3 billion. Operating margins in the segment fell by 20 basis points (or bps) to 21.1% due to lower volumes. Excluding mergers and acquisitions, adjusted margins fell by 10 bps to 21.2%.

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Business-wise sales performance

The major contributor to the sales decline was the UOP (United Oil Products) business, where sales fell 17.5% to $614 million as gas-processing (VDE), licensing, and equipment sales fell due to well-known headwinds in oil and gas (XOP) end markets.

In organic terms, sales fell by 17% within the UOP business. This was in line with weaker oil and gas performances of competitors such as General Electric (GE). However, in an encouraging sign, the UOP business’s backlog increased by 10%, and the company stated that 2Q16 would likely be an inflection point, with sales likely to recover in the latter half of the year.

The falls within the UOP business were substantially offset by a 13% rise in process solution sales with 8% organic growth highlighting the resilience of Honeywell’s portfolio. Some competitors such as Emerson Electric (EMR) have reported much weaker performances since last year. Sales within the Process Solutions segment were also higher due to the integration of the Elster business, which was acquired last year.

Sales within the Advanced Materials business fell organically by 2% as pricing within resins and chemicals continued to be challenging. However, the newly developed Solstice product continues to see increased momentum. It saw 20% growth in the quarter.

The company has now signed agreements worth $3.5 billion for Solstice, and it’s also expanding its production capacity to meet increasing demand.

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