United Technologies Corp. (UTX) fell the most in three months after a drop in sales and profit at its Pratt & Whitney jet-engine unit, which experienced a pair of high-profile failures last quarter.
Orders for Pratt spares declined 6 percent, part of a 1 percent slide in net sales at the business, Hartford, Connecticut-based United Technologies said today. Operating profit in the unit fell 24 percent in the second quarter even as companywide earnings beat analysts’ estimates.
Aviation is one of the twin focal points for Chief Executive Officer Louis Chenevert after buying aerospace supplier Goodrich Corp. for $16.5 billion in 2012 and combining the Otis elevators, Carrier climate-control and fire and security divisions into one building-services business. Pratt engines were involved in a fire on a Bombardier Inc. (BBD/B) CSeries jet in May and on a U.S. F-35 fighter in June.
Pratt’s challenges compounded several areas of concern for United Technologies, including margin pressure in the Otis unit and decelerating organic growth, said Nicholas Heymann, a William Blair & Co. analyst in New York.
“It wasn’t a disaster, but it highlighted how stretched the rubber band was,” said Heymann, who rates the shares market perform.
United Technologies fell 1.9 percent to $110.86 at the close in New York, for the biggest daily decline since April 10.
The company boosted the low end of its 2014 earnings forecast to $6.75 to $6.85 a share, compared with a previous projection of $6.65 to $6.85. Second-quarter profit from continuing operations of $1.84 a share exceeded the $1.70 average of 11 estimates compiled by Bloomberg.
“Overall margin performance was better than expected,” said Peter Arment, a Sterne, Agee & Leach Inc. analyst, who recommends buying the shares. “That really showed they’re making a lot of progress on not only integrating the aerospace business from Goodrich, but also doing a lot of the integration work that’s going on at the Climate, Controls & Security business.”
Pratt’s first blow came May 29, when a fire grounded the test fleet of CSeries jets. In June, an engine failure forced the F-35 Joint Strike Fighter to stop flying and miss last week’s Farnborough Air Show in England. The F-35 was cleared to return to flight on a limited basis last week.
The incidents were unrelated, and the CSeries should be flying again in a few weeks, Chief Financial Officer Greg Hayes told analysts on a conference call today.
“The fixes will be relatively minor,” Hayes said. He said the CSeries issue wasn’t found in other geared turbofan engines Pratt is developing.
United Technologies’ earnings include an adjustment in the Sikorsky helicopter unit to record $830 million in sales and $438 million in losses from an agreement to supply maritime rotorcraft to the Canadian government.
Demand for elevators and commercial spare-parts orders at UTC Aerospace Systems, the aircraft-components unit that includes Goodrich, helped spur a 7.4 percent gain in second-quarter sales to $17.2 billion. That trailed the $17.3 billion average estimate. Net income rose 8 percent to $1.7 billion.
Equipment orders increased 3 percent at Otis, including a 44 percent rise in North America. Operating profit in the business rose 7 percent to $693 million.
Share repurchases will increase 25 percent this year to $1.25 billion, the company said, while acquisitions will probably be less than $1 billion, down from an earlier estimate of $1 billion. Hayes said the recent drop in the share price made buybacks “a very attractive investment.”
To contact the reporter on this story: Richard Clough in New York at email@example.com
To contact the editors responsible for this story: Ed Dufner at firstname.lastname@example.org John Lear