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Bill Ackman Comments on United Technologies

- By Holly LaFon

UTX's (NYSE:UTX) first quarter earnings demonstrated strong growth across its businesses as organic revenue grew 8%. Results were particularly strong in the aerospace businesses with 11% organic revenue growth and 12% pro forma operating income growth (including Rockwell Collins' results in both years). The Rockwell Collins acquisition is off to an excellent start with performance and integration ahead of management's expectations. While organic revenue growth in the commercial businesses was reasonably strong at 5%, pre-tax operating profit was muted due to cost pressures at Carrier, which the company believes will improve meaningfully over the course of the year. EPS grew by 8%, which includes the negative impact of amortization expense related to the acquisition of Rockwell Collins. We estimate that EPS grew nearly 15% excluding this non-cash, non-economic expense.

The company remains on track to complete its previously announced three-way business separation by early 2020. UTX plans to announce the leadership teams and boards of directors for Otis and Carrier shortly, and to highlight the long-term opportunities in each of its businesses at investor events later this year.

UTX's shares have appreciated 27% year-to-date, but trade at less than 16 times our estimate of this year's pro-forma earnings, a nearly 30% sum-of-the-parts discount to its peers. We believe the upcoming business separation will serve as a catalyst for significant future share price appreciation as investors begin to value each of UTX's businesses separately.

From Bill Ackman ( Trades , Portfolio )'s first-quarter 2019 Pershing Square shareholder letter .

This article first appeared on GuruFocus.