United Technologies Inc. (UTX) reaffirmed its fiscal 2012 guidance of earnings of $5.47 a share and revenues of approximately $58 billion. However, the recent acquisition of Goodrich Corp. is expected to dilute the earnings by about 40 cents. Therefore, excluding the acquisition, the company expects earnings for next year to be in the range of $5.80 to $6.00 a share (up 6% to 10% year over year).
In September 2011, UTX had acquired Goodrich Corp. for $18.4 billion which is a global supplier of systems and services to the aerospace and defense industry. This was a strategic acquisition that complements well with UTXs’ current business. The deal is expected to close by the first half of 2012, subject to regulatory approvals.
While the acquisition is expected to boost revenues in fiscal 2012, it will not be accretive to profits atleast until fiscal 2013. But even excluding the Goodrich acquisition, revenue for fiscal 2012 is expected to be in the range $59 billion to $60 billion, compared to our estimate in the range of $58 billion to $62 billion. .
Fiscal 2012 is expected to be a year of transformation for United Technologies, as just a week after the Goodrich acquisition, the company announced plans to restructure its business portfolio. The company said it would combine the Carrier heating and cooling unit and its Fire & Safety business into one division called UTC Climate, Controls and Security Systems.
The Pratt & Whitney jet engine manufacturing business and the Hamilton Sundstrand aerospace and industrial products supply business will also be combined into one unit, UTC Propulsion and Aerospace Systems. This new structure is expected to help serve its customers better and improve its sales growth.
Speaking about the company’s performance in 2012, management stated that it expects moderate economic growth driven primarily by emerging markets. In addition, the company is positive about strong organic growth in four of its five business units.
Further, the Goodrich acquisition comes at an opportune time, just as commercial aerospace OEMs are increasing production. Therefore, we expect the company to see revenue synergies from the combination of Goodrich and Hamilton Sundstrand (the existing aerospace business).
United Technologies currently holds a Zacks Rank # 3 which implies short term ‘Hold’ rating on the stock.
