United Technologies Corp. [UTX] on Wednesday posted higher sales and earnings in the fourth quarter driven by strong organic growth at Pratt & Whitney and Collins Aerospace and strong operating profit in its climate control business.

UTC’s earnings were also aided by a lower than expected tax rate in the fourth quarter.

Net income in the quarter increased 73 percent to $686 million, 83 cents earnings per share (EPS), from $397 million (50 cents EPS) a year ago, driven primarily by lower taxes followed by higher operating profit. Adjusted per share results, which exclude restructuring charges and a charge related to undistributed foreign earnings, were up 22 percent to $1.95 EPS, easily topping consensus estimates by 40 cents a share.

Sales rose 15 percent to $18 billion from $15.7 billion a year ago with 11 percent of the growth organic and the remainder from the acquisition of the former Rockwell Collins last November, which contributed $778 million during the last five weeks of the year.

UTC Chairman and CEO Gregory Hayes. Photo: UTC

At aircraft engine maker Pratt & Whitney, organic sales were up 22 percent on the strength of higher shipments of commercial geared turbofan engines, large commercial aircraft engines, and F135 engines for the F-35 fighter aircraft, and growth in commercial and military aftermarket revenue.

Operating profit was down at P&W due to negative margin on the geared turbofan engines, product mix that favored lower margins, foreign exchange rate pressure, and higher development and operating costs.

Collins Aerospace, which was formed through the combination of Rockwell Collins and legacy UTC aerospace business, grew organic sales 9 percent with military work up 12 percent on aftermarket and F-35 volume and commercial up 8 percent. Operating profit was down slightly due to headwinds from the Rockwell Collins acquisition.

Sales were up slightly at both the Otis and Carrier segments, which also posted robust operating profits.

UTC Chairman and CEO Gregory Hayes said on the company’s earnings call that ongoing plans to separate into three publicly traded companies are on track. The goal is to be “operationally ready for separation by the end of this year” but the timing of the actual split is within 18 months, he said.

The exact timing of the separation is subject to tax rulings but is expected by May 2020, about 18 months from when the plans were announced in conjunction with closing the Rockwell Collins acquisition. UTC will continue with a focus on the aerospace businesses and Otis and Carrier will become their own entities.

There are currently 330 people on 15 separate teams working on the spin-off process and in the next few months there will be about 500 people working on the separation, Hayes said.

For the year, UTC’s net income increased 16 percent to $5.3 billion ($6.50 EPS) from $4.6 billion ($5.70 EPS) in 2017. At the operating level, profits were higher at Carrier and Collins Aerospace.

Sales increased 11 percent to $66.5 billion from $59.8 billion, with 8 percent of the gain organic. Sales were higher at all four segments.

Free cash flow in the quarter was $1.2 billion and $4.4 billion for 2018.

In 2019, UTC expects sales to be between $75.5 billion to $77 billion, with organic growth between 3 to 5 percent. Organic growth at P&W is forecast to be up in the high-single digits with Collins Aerospace expected to be up in the mid-single digits. Organic growth at Otis and Carrier is pegged to be up in the low to mid-single digit range.

Free cash flow in 2019 is expected to be in the $4.5 billion to $5 billion range.

UTC is forecasting a downtick in world gross domestic product in 2019, estimating 2.9 percent versus 3.2 percent in 2018. North America, China and Western Europe are expected to post the biggest declines followed by the Asia Pacific region, excluding China. Latin America is forecast to see improved GDP.