* Q2 EPS from continuing ops $1.62 vs. $1.41 Wall St view
* Cuts 2012 EPS view to $5.25-$5.35, roughly flat with 2011
* Regulators require sale of some Goodrich operations
* Says weak euro taking a toll on sales
* Revenue down 4.6 percent, short of Wall Street forecast
By Scott Malone
July 26 United Technologies Corp posted
second-quarter profit on Thursday that topped analysts'
expectations, and closed its largest-ever acquisition, the $16.5
billion takeover of Goodrich Corp.
The higher-than-expected profit overshadowed the company's
warning that full-year earnings would be roughly flat with 2011
due to the weak European economy, as declining sales of spare
parts for jet engines and elevators slow revenue growth.
The purchase of Goodrich, a maker of landing gear and other
aircraft components, will build on United Tech's current Pratt &
Whitney jet engine and Hamilton Sundstrand aircraft electronics
arms, increasing the range of equipment it sells to top jet
makers Boeing Co and Airbus.
The world's largest maker of elevators and air conditioners
said it would step up planned restructuring spending to $500
million this year from a prior $450 million target, as it copes
with a slowing economy.
"It is certainly a challenging environment out there, with a
slowing global economy," Chief Executive Louis Chenevert told
analysts on a conference call. "We know how to operate in a
tough macroeconomic environment."
The Hartford, Connecticut-based company's
better-than-expected profit came despite a sharper-than-expected
decline in sales. Fellow blue chip 3M Co also beat
quarterly earnings forecasts on Thursday despite light revenue
thanks to tight spending controls.
Second-quarter net income attributable to common
shareholders came to $1.33 billion, up less than 1 percent from
$1.32 billion a year earlier.
Earnings of $1.62 per share from continuing operations beat
the analysts' average forecast of $1.41, according to Thomson
The results were another example of a company managing its
way through Europe's woes, analysts said.
"At this point in earnings season, the 'Europe will kill us'
thing is being put to rest," said analyst Brian Langenberg, of
Langenberg & Co.
Revenue fell 4.6 percent to $13.81 billion from $14.47
billion and below Wall Street estimates of $14.44 billion.
Factoring out the weakening euro and the sale of some
businesses, revenue would have been up 1 percent.
United Tech shares were up 0.7 percent at $73.10 on Thursday
afternoon on the New York Stock Exchange, driven by the beat.
The Goodrich deal, which the companies agreed to in
September, closed about a month later than United Tech had hoped
for, as it awaited final regulatory approvals. Those came on
Thursday, when European, U.S. and Canadian authorities signed
off on the deal, with the proviso that United Tech sell
Goodrich's power generation and small-engine control operations,
which generate about $250 million in annual sales.
"That took the uncertainty off the table," said Matt
Collins, an analyst at Edward Jones. "Anytime you hear the
European regulators looking into anything, you get nervous."
Investors in the capital goods space are particularly
attuned to European reviews of deals, since the European
Commission in 2001 blocked General Electric Co 's planned
$42 billion takeover of Honeywell International Inc.
United Tech's Chenevert, who has served as chairman since
2010, shook up his company's portfolio of businesses to get his
hands on Goodrich, which also makes aircraft wheels and brakes.
After shareholders objected to his initial plan to finance
the deal in part by selling $4.6 billion in new common shares,
Chenevert said he would sell off four smaller businesses --
Rocketdyne, Hamilton Sundstrand's industrial pumps and
compressors operations, Clipper Windpower and United Tech's
fuel-cell business -- to raise cash for the deal.
United Tech this week reached deals to sell the industrial
pumps and compressors units to Carlyle Group LP and BC
Partners Ltd, as well as its Rocketdyne space unit to GenCorp
Inc. Together the businesses raised $4.1 billion.
It expects to reach a deal to sell Clipper over the next few
weeks, said Chief Financial Officer Greg Hayes.
Those unit sales allowed United Tech to dramatically reduce
the amount of equity it needed, and the company in June sold $1
billion of convertible notes to plug the gap.
"We have completed the financing for Goodrich with a
structure that was much better than was originally expected,"
Chenevert said on Thursday, in a rare appearance on the
company's quarterly earnings call with investors.
Chenevert said United Tech, whose shares have lost almost 3
percent of their value since it announced the deal in September,
had already assigned a team of 50 employees to work on
integrating Goodrich and identified some $400 million of annual
costs that it expects to cut out of the combined operations over
the next five years.
United Tech plans to name former Goodrich CEO Marshall
Larsen to its board in September. The new unit will be folded
into the company's Propulsion & Aerospace Systems arm, headed by
CEO Alain Bellemare.
CUTS 2012 VIEW
United Tech lowered its full-year earnings forecast to a
range of $5.25 to $5.35 per share, representing roughly flat
profit, down from an April outlook of $5.30 to $5.50.
The company said it expected 2012 sales of $58 billion to
$59 billion, representing growth of about 5 percent, compared
with the previous forecast of $61 billion to $62 billion.
The euro's fall against the dollar has hit manufacturers
this quarter, as it cuts the value of sales made in Europe.
It also lowered its sales forecasts for Otis elevator,
largely due to weakness in China, and Pratt & Whitney, where it
now expects sales of spare parts for commercial engines to fall
10 percent this year.
United Tech's industrial peers, including GE, Honeywell and
Textron Inc, have largely beaten Wall Street's forecasts
for the quarter, easing worries about a slowing global economy.