By Calvin Biesecker
United Technologies [UTX] yesterday reported mixed fourth quarter results to end an otherwise solid year despite a tough global economy.
Net income in the quarter was up 8 percent to over $1.1 billion, $1.23 earnings per share (EPS), from just under $1.1 billion ($1.08 EPS) a year ago, matching analysts’ estimates. Earnings were aided by a net gain of six cents due to certain divestitures, sales of securities and favorable tax adjustments.
Sales dipped 1 percent to $14.5 billion from $14.7 billion. Organic sales actually grew 3 percent but were more than overcome by a hit on foreign exchange impacts. Free cash flow was a strong $1.6 billion.
The multi-industrial company expects a challenging 2009 with sales expected to be down due to falling demand in its non-aerospace markets although for now it is maintaining the earnings guidance that it gave in December. However, UTC officials are hopeful that economic stimulus packages that have already been approved and are awaiting approval by Congress will spur consumer spending in the United States, leading to a modest economic recovery later this year that in turn bodes well for the company.
Most of the company’s operating segments, excluding the Carrier heating and air conditioning business, boosted profits, let by Sikorsky and Hamilton Sundstrand. Profits at Sikorsky were up on a 25 percent surge in sales due to the deliver of 64 large helicopters, 38 of which were for military customers. For the year, Sikorsky delivered 204 large helicopters, beating its target of 200.
Hamilton Sundstrand benefited from higher system sales to commercial airplane makers and for industrial products, offsetting a dip in spare parts for the commercial aerospace market.
At Pratt & Whitney, which also enjoyed a sales boost, commercial engine revenues were up while spare parts sales fell.
For 2008 net income increased 11 percent to $4.7 billion ($4.90 EPS) from $4.2 billion ($4.27 EPS). Sales increased 7 percent to $58.7 billion from $54.8 billion with 5 percent of the gain organic. Free cash flow was $5 billion, which helped drive $3.2 billion in share repurchases for the year and $1.4 billion in acquisitions.
This year sales are expected to be around $57 billion. Revenues at Hamilton, Pratt and Sikorsky are expected to be up while the company’s non-aerospace commercial business is expected to be down. Earnings are still expected to be between $4.65 and $5.15 EPS although UTC is already facing headwinds here due pension needs and deteriorating market conditions.
The company is accelerating restructuring plans for 2009 and expects to spend $150 million in the first quarter, mainly for lower overhead such as headcount reductions. That $150 million in restructuring costs is what had been planned for the year and it is expected to be offset by various gains.
UTC had only planned to spend $150 million in restructuring costs last year but ended up spending nearly $400 million. JP Morgan aerospace and defense analyst Joseph Nadol believes it’s reasonable to add $200 million to the company’s restructuring plans this year, which could lower EPS by 15 cents.
Company officials said on yesterday’s earnings call that they are looking at additional restructuring costs, some of which is already factored into guidance.