Cost cuts help United Tech's forecast as revenue lags

Reuters

By Lewis Krauskopf

Oct 22 (Reuters) - United Technologies Corp, theworld's largest maker of elevators and air conditioners, raisedthe low end of its 2013 profit forecast on Tuesday, as costsavings from job cuts helped offset weakness in its defensebusiness.

The diversified manufacturer, which also produces Pratt &Whitney jet engines and Black Hawk helicopters, cut itsprojection for full-year revenue to roughly $63 billion from $64billion as third-quarter sales fell short of analysts' targets.

Uncertainty over the U.S. government sequestration program,which involves spending cuts on federal projects, is weighing onUnited Tech's military business, which accounts for about 18percent of revenue, Chief Financial Officer Greg Hayes said inan interview.

"That's where the revenue shortfall occurred, both in thequarter as well as for the full year," Hayes said. "The goodnews is the rest of the business is doing well."

For example, Hayes pointed to rising orders in China, up 11percent in the quarter for the company's Otis elevatorsbusiness.

"China continues to be very, very strong," Hayes said.

Shares of United Tech, a component of the Dow JonesIndustrial Average, fell 0.5 percent to $107.11 inmorning trading. The stock is up more than 30 percent this year.

The company said third-quarter net income rose to $1.43 billion, or $1.57 per share, from $1.42 billion, or $1.56 pershare, a year earlier.

Earnings from continuing operations increased to $1.55 pershare from $1.37, topping the analysts' average estimate by apenny, according to Thomson Reuters I/B/E/S.

Revenue rose 2.8 percent to $15.46 billion, missinganalysts' expectations of $16.18 billion.

Sales rose 11 percent in China and 3 percent in NorthAmerica, excluding acquisitions, while they fell 1 percent inEurope.

SIKORSKY SLUMP

Operating profit rose in four of United Tech's fivesegments, with the Sikorsky unit, which produces Black Hawks,posting lower results.

Spare part orders at Sikorsky, which derives 80 percent ofits business from the military, are down 50 percent so far thisyear, Hayes said.

"What we're finding is that the folks in Washington, becauseof the uncertainty around sequestration, have not been orderinganything they don't absolutely, positively need," Hayes said."So there's been a reluctance to commit funding for spareparts."

Sikorsky also lost about one week of production due to theU.S. government shutdown earlier this month, Hayes said,although the effect on earnings was less than a penny per share.

United Tech said it expected to invest $500 million inrestructuring this year. The company, which reported having218,000 employees at the end of 2012, has reduced its headcountby about 2,000 jobs this year.

The company now expects full-year earnings of $6.10 to $6.15per share, raising the low end from $6.00. Analysts have beenlooking for a profit of $6.16 per share on revenue of $63.9billion.

Last year, United Tech acquired plane component makerGoodrich for $16.5 billion, the largest deal in its history.

With Goodrich, United Tech now derives 55 percent of itsrevenue from its aerospace units, but wants to boost itscontribution from its commercial building businesses, Hayessaid.

"We'd like to see more of a 50-50 split, and so we'll belooking for acquisition opportunities on the building side,"Hayes said, noting that the focus would probably be on deals inemerging markets.

To take advantage of urbanization in emerging markets,United Technologies recently reorganized its elevator andclimate segments under one business.

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