BUSINESS

Pratt & Whitney parent United Technologies posts higher Q3 profits, revenues

10/23/2012 04:04 EDT | Updated 12/23/2012 05:12 EST
HARTFORD, Conn. - United Technologies Corp. posted higher third-quarter net income and revenue Tuesday on rising orders in key businesses, but said it expects the U.S. economic recovery to remain anemic and offered a gloomy assessment of business in Europe.

The parent company of Otis Elevator, jet engine maker Pratt & Whitney, Sikorsky helicopter, Carrier heating and cooling and other aerospace and building system businesses said orders were up for Otis, heating and cooling equipment in North America and airline spare parts.

But United Technologies (NYSE:UTX) shaved its revenue outlook for the year due to what it said is a weak recovery in commercial aerospace parts maintenance and repair and uncertainty in the global economy.

It also increased its restructuring effort to brace for what it called a "challenging economic environment."

The Hartford, Conn.,-based company, said net income available to common shareholders was US$1.42 billion, or $1.56 per share, for the three months ended Sept. 30. That's up 7.5 per cent from US$1.32 billion, or $1.47 per share, a year ago.

Earnings from continuing operations came to $1.37 per share. Analysts surveyed by FactSet expected $1.19 per share.

Revenue rose almost six per cent to US$15.04 billion from $14.2 billion a year ago. But analysts had expected $15.6 billion in revenue.

United Technologies said it expects 2012 revenue of $58 billion, the low end of its previous outlook. Analysts have forecast $58.4 billion. It also is increasing its 2012 restructuring costs to $600 million from $500 million.

The conglomerate closed on its biggest deal in July, an $18.4-billion purchase of aerospace parts maker Goodrich Corp. in Charlotte, N.C. It said its third-quarter profit would have been lower than last year's comparable period when accounting for $168 million in discontinued operations related to several companies it's selling to help finance the Goodrich purchase.

Accounting for companies it set aside for sale such as industrial companies of aerospace manufacturing subsidiary Hamilton Sundstrand, United Technologies said earnings fell to $1.25 billion from $1.29 billion in the July-September period last year.

The acquisition of Goodrich and a separate $1.5 billion purchase by Pratt & Whitney of Rolls-Royce' stake in a joint venture that makes engines for the Airbus A320 will reduce earnings per share by 10 cents, down from a previous estimate of 20 cents.

Analyst Rick Whittington of Drexel Hamilton said the earnings results were "fine under the circumstances," which includes slow economic growth.

United Technologies, with its Goodrich acquisition, should capitalize on improving airline parts repair and maintenance business and new engine orders, he said.

"To me that's the new United Technologies, an aerospace company, not a diversified industrial business," Whittington said.

But Joseph Nadol of J.P. Morgan said the results reflected some challenging end-market trends that caused organic sales to decline by two per cent from the prior year.

"Management just hosted an analyst day in late September, and the fact that it is lowering overall company sales guidance to the low end of the range and Pratt earnings guidance by $75 million just a few weeks later is a sign of continued weakness in the end markets," he wrote in a report.

Nadol said order trends were mixed. Otis new equipment sales increased by 11 per cent, while Carrier orders were up three per cent.

"However, commercial aftermarket demand remains under pressure and organic large commercial spares at Pratt were down 21 per cent, worse than second quarter's 15 per cent decline."

Airbus said in August it plans to double the $12 billion it spends with U.S. suppliers in response to strong airplane sales. And Boeing Co. is aiming to speed up 787 production to 10 planes a month by the end of next year and plans to deliver planes it has built and need reworking.

Chief Financial Officer Greg Hayes told analysts on a conference call that United Technologies expects "solid growth" next year in commercial airline manufacturing and maintenance and repair, residential heating and cooling systems and U.S. commercial construction.

But the company expects business in Europe to be flat in 2013 and anticipates declines in U.S. military spending to continue even without an estimated $50 billion in defence cuts known as "sequestration" scheduled for January unless Congress agrees on an alternate deficit reduction plan.

Its shares fell 52 cents to $77.31 in afternoon trading Tuesday on the New York Stock Exchange.

— With files from The Canadian Press