UTC Posts Strong Third Quarter Led By Commercial Aerospace

Defense Daily, Oct 18, 2006

By Calvin Biesecker

United Technologies Corp. [UTX] yesterday reported strong third quarter financial results driven by its commercial aerospace businesses and growth at each of its segments.

Net income increased 21 percent to $996 million, 99 cents earnings per share (EPS), compared to $821 million (81 cents EPS) a year ago, eclipsing consensus estimates by three cents EPS. Sales were up 12 percent to $12.2 billion compared to $10.9 billion a year ago, with 8 percent of the gain organic. Free cash flow was just under $1.2 billion.

The strong quarter combined with the company's year-to-date performance led it to increase earnings guidance this year to between $3.65 and $3.69 EPS versus prior projections of between $3.55 to $3.65 EPS. Sales are forecast to be $47 billion.

"Third quarter results overall were exceptional and reflect the balance in UTC's businesses," George David, UTC's chairman and CEO, said in a statement. "Commercial aerospace volumes and margins were up significantly at Pratt and Hamilton Sundstrand, along with solid profit growth at UTC Fire & Security and Otis. These gains more than offset weaker market conditions in two of Carrier's businesses and production challenges at Sikorsky on materially higher volumes."

UTC recorded higher sales and profits at each of its divisions led by Pratt & Whitney, Hamilton Sundstrand and Sikorsky. At Pratt sales were up 15 percent to $2.8 billion on higher commercial aftermarket sales of large engines, higher sales at Pratt Canada in increases at the Power Systems business. Operating profits rose 19 percent to $443 million on the higher sales, more than offsetting rising commodity costs.

Sales at Hamilton Sundstrand were up 16 percent to $1.3 billion, driven by commercial aerospace and industrial systems gains. Operating profits were up 19 percent to $220 million on the higher sales. Margins were up 40 basis points, limited somewhat by higher development spending related to Boeing's [BA] 787 Dreamliner commercial aircraft.

Revenues at Sikorsky were up 36 percent to $867 million due to significantly higher military and commercial helicopter deliveries driven by demand and the division's recovery from a labor strike earlier this year. Profits, however, did not keep pace with the revenue increase, jumping just 9 percent due to difficulties ramping up Black Hawk helicopter production for the military. Company officials said the problems stem from its own machine centers having difficulty getting products ready on time, the need to outsource work, which is less efficient, and supply chain issues. They expect to see improvement in the fourth quarter but supply chain and other production issues will linger into next year. Margins fell 1.9 percent.

Otis, UTC's division that designs and manufactures elevators and escalators, turned in a strong quarter with sales up 9 percent and profits up 10 percent, led by growth in China and North America. Company officials said the business is strong across all areas of the world.

UTC's heating, ventilation and air conditioning business, Carrier, which is the company's largest division, boosted sales 6 percent and profits 4 percent. While the commercial HVAC business was up, a slowing U.S. housing market trimmed residential sales. Profits were dampened by increasing commodity costs, which exceeded higher prices the company is passing along to its customers, company officials said.

The company didn't provide guidance for next year but expects benefits from commercial construction, emerging markets and continued restructuring. Negatives are expected to be the North American housing market, higher U.S. interest rates and research and development opportunities. UTC said it's unsure about a slowdown in the commercial aerospace aftermarket, commodities costs and the ability to pass these along to customers, and foreign exchange rates.

[Copyright 2006 Access Intelligence, LLC. All rights reserved.]

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