By Calvin Biesecker

Led by operating profit gains in five of its six segments, United Technologies [UTX] yesterday reported strong third quarter earnings and sales and the company increased its sales expectations for 2007.

Net income increased 20 percent to $1.2 billion, $1.21 earnings per share (EPS), from $996 million (99 cents EPS) a year ago, beating consensus estimates by a nickel. The quarter included a 4 cents EPS gain from the benefit of tax adjustments that more than offset restructuring costs.

Sales increased 14 percent to $13.9 billion from $12.2 billion on double-digit gains in five of its six operating segments. The weakest segment, Carrier, still managed to boost revenues 5 percent and operating profits 10 percent despite continued weakness in the United States housing market. Free cash flow was $1.1 billion.

In the aerospace segments, Sikorsky led the way with a 51 percent increase in sales to $1.3 billion and a 47 percent gain in operating profits to $103 million on higher helicopter deliveries than a year ago. Sikorsky delivered 43 helicopters in the third quarter, 25 military and 18 commercial, and is on track to deliver at least 170 this year, company officials said. Organic growth at Sikorsky was 48 percent.

At Hamilton Sundstrand sales increased 14 percent to $1.4 billion and operating earnings climbed 11 percent to $249 million on double-digit growth in the aerospace aftermarket and industrial businesses. Organic growth was 10 percent. Earnings gains were dampened somewhat by higher year over year research and development costs related to Boeing‘s [BA] 787 Dreamliner passenger jet program. With flight test and production delays recently announced in that program, UTC said its systems integration costs related to the 787 will continue longer than expected, representing a headwind against earnings next year.

UTC’s aircraft engine business Pratt & Whitney also posted a strong quarter with sales up 10 percent to $3 billion and earnings up 13 percent to $503 million. Growth was led by new engine deliveries at Pratt & Whitney Canada while large commercial engine aftermarket revenues were flat. UTC officials said that aerospace aftermarket revenues have been begun to decline to more sustainable levels. Organic sales at Pratt increased 9 percent.

UTC’s industrial and commercial businesses Otis, Fire & Security and Carrier also performed well.

For all of 2007 UTC expects earnings to be in the range of $4.22 to $4.25, which is the high end of previous guidance. Sales are expected to be around $54 billion, about $1 billion higher than the last projection, due to the strong organic growth and favorable foreign exchange rates.

UTC introduced limited guidance for 2008, projecting 10 to 14 percent earnings growth on mid single digit organic revenue gains. Key opportunities are the 787 program as it transitions to production, commercial aerospace and the geared turbofan engine business that has been selected to power Mitsubishi’s regional jet. Company officials believe the U.S. economy will continue to slow in 2008, representing an uncertainty in UTC’s outlook. Commodity prices, foreign exchange rates and commercial construction represent further uncertainties while the U.S. housing market, 787 and geared turbofan programs represent ongoing challenges, they said.