Schnitger Corporation

Hexagon rides diversification wave, Q2 up 5%cc

EarningsHexagon, the parent company of Intergraph, Leica, Vero and other brands you know, reported Q2 revenue of €781 million, up 23% as reported (hold on — the devil is in the details) and a tad ahead of expectations. On an organic, constant currency basis (cc), revenue was up 5% due mainly to 10% cc growth in Intergraph PP&M. The PP&M numbers come as a bit of a relief, since the news from oil and gas contractors and owners hasn’t been good for the last year or so, and many PP&M customers talk of retrenching as oil projects are postponed or cancelled.

The details:

So. What does it all mean? A couple of things: First, diversity is good. Upstream oil (exploration and extraction) not so good? Focus on downstream refining or other verticals. Governments not releasing security-related funding in one geo? Focus on others. Hexagon’s huge product portfolio, industrial breadth and geographic reach help it weather many economic and political storms.

Next, we’re not seeing much impact yet from the combining of products into what the company calls synergy or smart solutions. There are point successes, such the first sales of a Hexagon Mining solution that as combines sensing with location technology to alert drivers of potential collisions but no meaningful revenue contribution. One of the questions you’ve been asking about AVEVA plus Schneider Electric is how soon you can expect to see combined solutions; as Hexagon shows, well-integrated solutions can take years to bring to market.

Finally, Hexagon’s combo platter of hardware and software means the occasional lumpy quarter and, in some cases, hardware margins. And that’s perfectly OK: 5% cc organic revenue growth with a commensurate bottom-line is respectable and, if it’s repeatable quarter in and quarter out, will attract a certain type of investor. It’s not Google or some other high flyer, but not everything can or should be.

PP&M continues to be a terrific acquisition. During the investor Q&A, Mr. Rollén was asked if the problems in oil and gas, globally, plus PP&M’s good Q4 2014 could cause the division to report negative growth late in 2015. He gave a very credible answer: only 5% or 6% of the growth in Q2 2015 was from oil and gas (and the big deal was with Dow Chemical, so not oil and gas) — meaning that there is potential outside the troubled vertical. But even within oil and gas, not everything is exploration-related. PP&M has solutions that can help owner/operators (and their contractors) reduce operating costs in existing facilities, which is even more critical in a downturn of unknown duration.

Mr. Rollén doesn’t give guidance but seemed to indicate that 5% cc organic growth was achievable for the year. He said that the company saw nearly 2% of growth come from new products in Q2 and that tough year/year comparables for China in Q3 and Q4 might be mitigated by improvement in Russia and continued growth in North America and Western Europe. The consensus seems to be that revenue in Q3 will be about €748 million, up 15%, and for the year, €3.06 billion, up 17% including currency effects.

The slide is reproduced from Hexagon’s Q2 results investor slide presentation, which you can find here.

Exit mobile version