UPDATE 4-United Tech Beats Street in Quarter, Gets Goodrich OK

Thursday, 26 July 2012 02:12 PM

* Q2 earns/share from continuing ops $1.62 vs. $1.41 Wall St view

* Gets U.S., EU OK for Goodrich buy, deal to close this week

* Cuts 2012 EPS view to $5.25-$5.35, roughly flat with 2011

* Says weak euro taking a toll on sales

* Sales fall short of Wall Street forecast (New throughout, updates with comments from CEO, analyst)

By Scott Malone

July 26 (Reuters) - United Technologies Corp posted second-quarter profit on Thursday that trounced analysts' expectations, and won final regulatory approval for its $16.5 billion takeover of Goodrich Corp, setting the stage for the deal to close by Friday.

The higher-than-expected profit overshadowed the company's warning that full-year earnings would be roughly flat with 2011 due to the weak European economy.

The world's largest maker of elevators and air conditioners said it would step up its planned restructuring spending to $500 million this year from a prior $450 million target, as it copes with a slowing economy.

"It is certainly a challenging environment out there, with a slowing global economy," said Chief Executive Louis Chenevert, on a conference call with analysts. "We know how to operate in a touch macroeconomic environment."

The Hartford, Connecticut-based company's better-than-expected profit came despite a sharper-than-expected decline in sales. Fellow blue chip 3M Co also beat quarterly earnings forecasts despite light revenue thanks to tight spending controls.

"Good execution trumped the tough environment," said Edward Jones analyst Matt Collins, in reference to United Tech. "Strong performances across the businesses more than offset the weakness at Otis, Commercial Climate & Security and Pratt & Whitney."

United Tech's Commercial Climate & Security arm includes Carrier air conditioner and its alarm products.

Second-quarter net income attributable to common shareholders came to $1.33 billion, up less than 1 percent from $1.32 billion a year earlier.

Earnings of $1.62 per share from continuing operations beat the analysts' average forecast of $1.41, according to Thomson Reuters I/B/E/S.

Revenue fell 4.6 percent to $13.81 billion from $14.47 billion and below Wall Street estimates of $14.44 billion. Factoring out the weakening euro and the sale of some businesses, revenue would have been up 1 percent.

Late on Wednesday, United Tech agreed to sell some industrial component parts of its Hamilton Sundstrand arm to Carlyle Group LP and BC Partners Ltd for $3.46 billion, just two days after reaching a $550 million deal to sell its Rocketdyne space arm to GenCorp Inc.

Those deals helped United Tech to finance its Goodrich deal without issuing large amounts of new common shares.

The quarterly earnings report treats Rocketdyne and the Hamilton industrial arms -- as well as United Tech's Clipper Windpower and fuel cell businesses, for which the company is still seeking buyers -- as discontinued.

The company expects to reach a deal to sell Clipper "imminently," Chenevert said.

United Tech shares were up 25 cents at $72.86 on the New York Stock Exchange, driven by the beat.

"They crushed it," said analyst Brian Langenberg, of Langenberg & Co.


U.S., European and Canadian authorities issued their final approvals on Thursday for the planned takeover of Goodrich. That deal, first agreed to in September, will boost United Tech's annual revenues by about $8 billion a year and expand its lineup of aerospace equipment to include landing gear, wheels and brakes.

"We anticipate closing later today or early tomorrow morning," said Chenevert.

As a condition of the approval, United Tech must sell Goodrich's power generation and small-engine control operations. Those units generate about $250 million in annual sales, United Tech said.

United Tech Chief Executive Officer Louis Chenevert shook up his company's portfolio of businesses to get the deal done, putting several business units on the block.

The Hamilton and Rocketdyne deals helped the company slash the amount of equity it must issue to fund the Goodrich acquisition. When United Tech reached the deal in September, it had planned to sell $4.6 billion in new common shares. It backed away from that move, which was unpopular with stockholders, and last month sold just $1 billion of convertible notes.

United Tech has identified $400 million in annual costs it can cut over the next five year as a result of absorbing Goodrich into its operations, Chenevet said.


United Tech lowered its full-year earnings forecast to a range of $5.25 to $5.35 per share, down from an April outlook of $5.30 to $5.50.

The company said it expected 2012 sales of $58 billion to $59 billion, compared with the previous forecast of $61 billion to $62 billion.

The euro's fall against the dollar has hit manufacturers this quarter, as it cuts the value of sales made in Europe.

It also lowered its sales forecasts for Otis elevator, largely due to weakness in China, and Pratt & Whitney, where it now expects sales of spare parts for commercial engines to fall 10 percent this year.

United Tech's industrial peers, including General Electric Co, Honeywell International Inc and Textron Inc have largely beaten Wall Street's expectations for the quarter, easing investor worries about a slowing global economy. (Reporting by Scott Malone in Boston; Editing by Lisa Von Ahn; Editing by David Gregorio)

© 2018 Thomson/Reuters. All rights reserved.

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Thursday, 26 July 2012 02:12 PM
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