By Ernest Scheyder
July 23 United Technologies Corp, the world's largest maker of elevators and air conditioners, raised the bottom end of its 2013 earnings forecast on Tuesday, citing its growing confidence after a jump in aerospace orders and cost cuts.
However, the conglomerate, which also makes Pratt & Whitney jet engines and Black Hawk helicopters, said revenue would be at the lower end of its forecast of $64 billion to $65 billion for this year.
Executives said the onus was on them to turn United Tech's burgeoning order book into revenue, a challenge they said was achievable.
"We've got to see 6 percent (revenue) growth in the back half of the year, and that's a challenge," Chief Financial Officer Greg Hayes said in an interview. "But we have the orders, and that gives us confidence."
Orders for large commercial engine parts rose 65 percent in the second quarter, largely because of last year's $16.5 billion acquisition of parts maker Goodrich, the largest in United Tech's history.
The buyout, though criticized as expensive at the time, has helped United Tech become the preeminent supplier of parts to aerospace customers, offering a suite of services previously supplied by many rivals.
Roughly 65 percent of an airplane's components now come from United Tech, estimates William Blair & Co analyst Nick Heymann.
The rise in miles flown by airlines around the world has caused demand for spare parts to grow, boosting United Tech's profit.
"The recovery in the global economy is creating nice opportunities for us to deliver," Chief Executive Officer Louis Chenevert told Reuters. "Things are improving."
While cost cuts do factor into the new earnings forecast, Wall Street has largely focused on the growing aerospace market share, sending United Tech stock up 25 percent so far this year.
Shares of United Tech rose 2 percent to $104.17 in morning trading.
"The big thing for me was the jump in orders for replacement parts for engines," said Edward Jones analyst Christian Hayes. "That's a very profitable business."
The company gained an edge last week when rival General Electric Co won U.S. antitrust approval for its $4.3 billion buyout of Avio's aviation business only by promising not to interfere with the Italian plane component maker's development of a key engine component for United Tech.
The agreement, which allows United Tech to place staff at the Avio facility once the merger closes, effectively means GE will be building a key part for one of United Tech's jet engines.
Orders in China for Otis elevators rose 39 percent in the second quarter, helped by expansion of cities in the country's centreal and western regions.
"It's a very robust market, and there's plenty of work for all the big players to be happy," Chenevert said.
United Tech posted second-quarter income of $1.56 billion, or $1.70 per share, compared with $1.33 billion, or $1.62 per share, a year earlier.
Analysts on average expected earnings of $1.57 per share, according to Thomson Reuters I/B/E/S.
Revenue rose 16 percent to $16 billion. Analysts expected $16.37 billion.
United Tech raised the low end of its 2013 earnings forecast to $6.00 a share from $5.85 while keeping the high end at $6.15.
Wall Street expects 2013 profit of $6.11 per share.
United Tech also raised its cost cut estimate for 2013 to $450 million from $350 million.
Most of the cost cuts are layoffs across United Tech's various businesses. Last week, for instance, 575 employees at the Pratt & Whitney unit took buyout packages.
United Tech said that because some new jet engine projects would not launch until at least 2015, the company needed to cut costs now.
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