United Technologies Corp (UTX.N), the world's largest maker of elevators and air conditions, raised the low end of its 2013 profit forecast on Tuesday, as cost savings from job cuts and improving sales trends 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 represents about 18 percent of the company, 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 fell 0.7 percent to $106.68 in premarket trading.
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.
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."
United Tech said it expected to invest $500 million in restructuring this year. The company has reduced its headcount by about 2,000 jobs this year. It reported having 218,000 employees at the end of 2012.
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 earnings of $6.16 per share on revenue of $63.9 billion for the year.
United Technologies recently reorganized its elevator and climate segments under one business to better capitalize on urbanization trends in emerging markets.
(Reporting by Lewis Krauskopf; Editing by Lisa Von Ahn)