United Technologies Boosts Outlook as Economy Comes in Focus

  • ‘We feel very comfortable about the year,’ says CEO Hayes
  • Industrial giant sees U.K. market strong despite Brexit

United Technologies Corp. raised the low end of its 2016 profit forecast as the aerospace and building-systems giant gained confidence that it is getting a handle on the volatile global economy.

Adjusted earnings this year will be $6.45 to $6.60 a share, an increase of 15 cents to the the bottom of the range, the company said Tuesday as it reported second-quarter results. Sales will be $57 billion to $58 billion, compared with an earlier projection of $56 billion to $58 billion.

“It’s going to be a good year,” Chief Executive Officer Gregory Hayes said in an interview. “We haven’t raised the top end because it’s still early and there’s a lot of things going on from a macro standpoint that could impact the back half, but we feel very comfortable about the year.”

Hayes, who hinted earlier this year that the outlook might be adjusted, has contended with uncertainty in the global economy and unfavorable exchange rates that have weighed on overseas sales. Going forward, the company will focus attention on strengthening the Otis elevator business in China and meeting aggressive delivery targets for a new Pratt & Whitney jet engine.

The shares rose 2.5 percent to $107.24 at 10:06 a.m. in New York, marking the biggest gain in Dow Jones Industrial Average. The stock climbed 8.9 percent this year through Monday, compared with a 6.1 percent advance in the Standard & Poor’s 500 Index.

Assessing Brexit

United Technologies doesn’t see significant immediate effects from market disruptions surrounding the U.K.’s recent vote to leave the European Union. The Farmington, Connecticut-based maker of elevators, jet engines and building climate-control systems primarily is in long-cycle businesses, Hayes said.

“We’re really not going to see much of a short-term impact from Brexit,” he said. The U.K.’s labor policies and tax rates mean it “remains one of the most investable markets that we have in Europe.”

Adjusted earnings in the second quarter rose to $1.82 a share, beating the $1.68 average of analysts’ estimates compiled by Bloomberg. Sales rose 1.3 percent to $14.9 billion, compared with $14.7 billion expected by analysts.

The results “will likely be viewed as an encouraging ‘confirmation’ quarter despite the challenging economic global environment,” Nicholas Heymann, an analyst at William Blair & Co., said in a note. “While 2016 overall has started reasonably well for UTC, we still believe an investment in the company is likely to require extensive patience.”

Revenue climbed 3.7 percent to $3.8 billion in the Pratt & Whitney unit, which recently introduced a geared turbofan engine to power airliners such as Airbus Group SE’s A320neo. Pratt, which has won orders for about 8,200 of the new engines, has made fixes this year for issues in early-production units, including a cooling problem that forced operators to delay startup under certain conditions.

China Market

Sales for Otis, which is facing a slowdown in the Chinese construction market, were unchanged at $3.1 billion. Excluding China, new-equipment orders grew by 3 percent in the unit.

The raised forecast contrasts with the company’s struggles in 2015, when United Technologies cut the year’s profit projection more than once because of weak demand, a strong dollar and challenges in the oil and gas market.

The company announced a $1.5 billion, multiyear restructuring plan late last year to reduce expenses in high-cost locations. Hayes pointed to restructuring costs and productivity savings as significant factors in the second-quarter results.

Making Deals

Hayes, who took over as CEO in late 2014, has reorganized the company and made a series of management changes, including appointing new heads of the elevator and climate divisions. Hayes also has reshaped the portfolio through dealmaking, including a $9 billion sale last year of the Sikorsky helicopter unit to Lockheed Martin Corp.

The company is now hunting for acquisitions, but high prices are an obstacle, Hayes said.

“We’re looking for deals but we don’t actually need to do deals to grow,” he said.

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