United Technologies Corporation (UTX) has increased the lower end of its expected 2011 earnings per share range to $5.20 from $5.05, and expects EPS of $5.20 to $5.35.
The company reaffirmed expectations for FY2011 sales of $56 billion to $57 billion, and free cash flow equal to or exceeding net income attributable to common shareowners.
UTX had earlier reported fourth-quarter 2010 earnings per share from continuing operations of $1.34, above the Zacks Consensus Estimate of $1.29. The year-over-year increase in the company’s earnings, along with improved margins, was led by the sustained cost reduction efforts of the company.
Total revenue in the quarter increased by 6% year over year to $14.9 billion, including organic growth of 6%. Revenue was above the Zacks Consensus Estimate of $14.7 billion. Total segment operating margin at 14.6% was 140 basis points higher than the prior year, with five out of six segments above the 10% mark.
Adjusted for restructuring and one-time items, segment operating margin of 15.4% was 100 basis points higher than the prior year. A solid performance delivered in FY 2010 led the company to increase its 2011 sales outlook to $56-$57 billion.
United Technologies has strong market positions in aerospace/defense and global infrastructure with a portfolio that includes: Carrier, Otis, Hamilton Sundstrand, Pratt & Whitney, Sikorsky and Fire & Security. The company invests in game-changing technology across the business, with its Aerospace companies continuing to make progress on their key development programs.
For example, the Pratt GTF core has accumulated more than 260 hours, validating the performance expectations, and Sikorsky’s Canadian Maritime helicopter continues its successful flight testing with first deliveries scheduled for the end of the year.
The company is expected to deliver double-digit earnings growth in FY10, given restructuring savings and an improving end-market environment. Emerging markets continued to do well, with particular strength in India and Brazil, where combined orders for the commercial business units grew by over 25% during the second quarter of 2010.
In addition to restructuring savings, the company is also seeing the benefits of other cost reduction actions in areas such as travel, furloughs and E&D employee attrition. The company’s cost reduction initiatives have led to a year-over-year increase in its consolidated and segment margins and have also expanded earnings.
The company’s most significant actions were at Carrier, related to ongoing portfolio transformation initiatives in overhead cost reduction projects, and at Hamilton Sundstrand, which continues to advance the low-cost sourcing strategy.
The financial performance of the company depends on conditions in the construction and aerospace industries. The company is also highly dependent on the U.S. government’s budgetary allocation for defense.
A reduction in capital spending in the commercial aviation or defense industries could have a significant effect on demand for UTX’s products and an adverse impact on its financial performance or its results of operations. Its business may also be affected by government contracting risks.
Pratt & Whitney segment supplies aircraft engines for the commercial, military, business jet and general aviation markets. It also manufactures aerospace propulsion systems for the U.S. space shuttle program.
United Technologies Corporation provides high technology products and services to the building systems and aerospace industries worldwide. Growth is attributable to acquisitions and the internal development of existing businesses.
Otis, Carrier and UTC Fire & Security (collectively referred to as the commercial businesses) serve customers in the commercial and residential property industries worldwide. Carrier also serves commercial, industrial, transport refrigeration and food service equipment customers.
Pratt & Whitney, Hamilton Sundstrand and Sikorsky (collectively referred to as the aerospace businesses) primarily serve commercial and government customers in both the original equipment and aftermarket parts and services markets of the aerospace industry. Hamilton Sundstrand and Pratt & Whitney also serve customers in certain industrial markets. Honeywell International Inc (HON) is a major competitor.
We currently have a Neutral recommendation on United Technologies Corporation.
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