United Technologies Corp. declined the most among Dow Jones Industrial Average stocks after reducing its full-year sales forecast, hurt by U.S. government spending cuts to its military aviation business.
The stock fell 1.4 percent after the Hartford, Connecticut-based company said annual sales will be about $63 billion, down from a prior projection of $64 billion.
Spending cuts by the U.S. Department of Defense, which accounts for 18 percent of United Technologies’ sales, spurred the company to revise its sales outlook, Chief Financial Officer Greg Hayes said in a telephone interview today. Demand for spare parts for aircraft such as the U.S. Army’s Black Hawk helicopter fell by about half, he said.
“The only concern we really had going into the fourth quarter is what’s going on in Washington,” Hayes said. “It’s really been a surprise how dramatic the cuts have been on the military aerospace side. We’re finding the government reluctant to spend any money they don’t absolutely have to.”
United Technologies closed at $106.13 in New York and was the biggest decliner on the Dow 30-stock average, which was up about 0.5 percent. The company’s shares have advanced 29 percent this year.
Analysts project full-year sales to be $63.8 billion, the average of 17 estimates compiled by Bloomberg. In January, United Technologies said sales would be as much as $65 billion.
The “weakness in military aerospace markets and slow pace of recovery in Europe” will damp annual revenue, Chief Executive Officer Louis Chenevert said today in a statement.
Third-quarter revenue climbed 2.8 percent to $15.5 billion, trailing the $16.2 billion average of 17 analysts’ estimates. Net income rose 1.2 percent to $1.43 billion. Earnings per share from continuing operations increased to $1.55 from $1.37, a year earlier, exceeding the average $1.54 estimate among analysts.
Excluding the effect of acquisitions, military aerospace sales fell 14 percent in the quarter, according to a presentation posted to United Technologies’ website. That trend is likely to continue next year, Hayes said on a conference call with analysts.
Across-the-board government spending cuts known as sequestration, which call for military spending to shrink by $500 billion over a decade, are taking a toll on the company’s Sikorsky Aircraft division. The unit will fall short of its parent’s forecast for annual sales growth because of the reductions, which began in March, Hayes said at an Oct. 1 meeting with analysts.
Sales at Sikorsky fell 6.5 percent to $1.54 billion in the third quarter. The company was forced to slow its Black Hawk production lines after the U.S. government’s partial shutdown earlier this month because furloughed Defense Department inspectors must sign off on the work.
“They’re facing the same story as a lot of other industrial companies where you’d like to see momentum pick up on the top line,” Christian Mayes, an analyst at Edward Jones & Co., said in a telephone interview today.
The company also raised the lower end of its 2013 profit forecast. It now expects to earn $6.10 to $6.15 per share this year, compared with as little as $6.
Projected cost savings this year of $500 million, 11 percent higher than previously forecast, pushed United Technologies to refine its profit outlook, Hayes said. The reductions come from streamlining operations, including closing some facilities, the company has said.