Cost cuts help United Tech's forecast as revenue lags

Tue Oct 22, 2013 11:17am EDT

(Reuters) - United Technologies Corp (UTX.N), the world's largest maker of elevators and air conditioners, raised the low end of its 2013 profit forecast on Tuesday, as cost savings from job cuts helped offset weakness in its defense business.

The diversified manufacturer, which also produces Pratt & Whitney jet engines and Black Hawk helicopters, cut its projection for full-year revenue to roughly $63 billion from $64 billion 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 on United Tech's military business, which accounts for about 18 percent of revenue, Chief Financial Officer Greg Hayes said in an interview.

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

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

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

Shares of United Tech, a component of the Dow Jones Industrial Average .DJI, fell 0.5 percent to $107.11 in morning 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 per share, a year earlier.

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

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

Sales rose 11 percent in China and 3 percent in North America, excluding acquisitions, while they fell 1 percent in Europe.

SIKORSKY SLUMP

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

Spare part orders at Sikorsky, which derives 80 percent of its business from the military, are down 50 percent so far this year, Hayes said.

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

Sikorsky also lost about one week of production due to the U.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 in restructuring this year. The company, which reported having 218,000 employees at the end of 2012, has reduced its headcount by about 2,000 jobs this year.

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

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

With Goodrich, United Tech now derives 55 percent of its revenue from its aerospace units, but wants to boost its contribution from its commercial building businesses, Hayes said.

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

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

(Reporting by Lewis Krauskopf; Editing by Lisa Von Ahn)

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