United Technologies Beats Profit Estimates as Sales Declineby
Weak global economy, strong dollar send revenue 4.5% lower
Company reaffirms forecast for 2016 profit and sales
United Technologies Corp.’s profit topped analysts’ estimates as the aerospace and building systems manufacturer cut costs amid declining sales in a sluggish world economy.
Fourth-quarter adjusted earnings of $1.53 a share compared with an average estimate of $1.52. With the strong U.S. dollar pressuring international business, revenue fell 4.5 percent to $14.3 billion, the company said in a statement Wednesday. Analysts had projected $15.3 billion on average, according to data compiled by Bloomberg.
“Currency is a huge headwind for us,” Chief Executive Officer Gregory Hayes said in a telephone interview. “There’s no mistaking currency as an issue.”
Hayes last month announced a $1.5 billion, multiyear restructuring plan to reduce expenses in high-cost locations as United Technologies looks to counter global economic weakness that’s crimping sales of products spanning elevators, aircraft parts and air conditioners. The company spent $400 million of that total last year and plans another $500 million of restructuring in 2016, Hayes said.
United Technologies rose 0.2 percent to $85.81 at the close in New York. The shares tumbled 16 percent last year, more than the 0.7 percent decline in the Standard & Poor’s 500 Index.
Adjusted income from continuing operations fell 14 percent to $1.3 billion.
Fourth-quarter sales decreased in all four divisions, including a 7.3 percent drop in the Otis elevator unit and a 4.6 percent slide in the Pratt & Whitney jet-engine business, the Farmington, Connecticut-based company said. New-equipment orders rose 2 percent at Otis, or 11 percent excluding the tough China market. Commercial aftermarket sales, such as replacement parts, increased 11 percent at Pratt.
“Order rates were pretty decent,” Chief Financial Officer Akhil Johri said in an interview.
Pratt & Whitney is contending with heavy costs to develop a new geared turbofan engine to power airliners including Airbus Group SE’s A320neo. The engine, which entered service this week, has met all of its key performance requirements, United Technologies said.
Profit in 2016 will be $6.30 to $6.60 a share, the company said, reaffirming an earlier forecast. Sales will be in the range of $56 billion to $58 billion.
United Technologies could spend between $1 billion and $2 billion on acquisitions this year, Hayes said. Following stock declines in 2015, the company has shifted focus to buying back its own shares rather than pursuing large deals, he said. United Technologies returned about $12 billion to shareholders last year, he said.
“We have reined in our expectations around M&A, especially big M&A in the near term,” Hayes said. “The thought of paying a big premium to buy out another company, and enrich their shareowners versus our shareowners, that just doesn’t make a lot of sense. The big play is probably off the table.”