360° Coverage : Restructuring Charges Clip UTC's Earnings Despite Healthy...

2 Updates

Restructuring Charges Clip UTC's Earnings Despite Healthy Growth In Sales Driven By Commercial Aviation

Apr 25 2014, 12:58pm CDT | by

United Technologies‘s first quarter earnings were impacted by restructuring charges, which more than offset the strong organic growth in its sales. The industrial conglomerate’s earnings fell by 5%...

Filed under: news


22 weeks ago

Restructuring Charges Clip UTC's Earnings Despite Healthy Growth In Sales Driven By Commercial Aviation

Apr 25 2014, 12:58pm CDT | by

United Technologies‘s first quarter earnings were impacted by restructuring charges, which more than offset the strong organic growth in its sales. The industrial conglomerate’s earnings fell by 5% annually to $1.32 per share despite a 5% organic growth in its sales. In our view, though these restructuring charges impacted the company’s first quarter earnings, they will be beneficial over the long term, as they will help expand the company’s operating margins making it more competitive. In the first quarter, excluding the impact from these restructuring activities which included headcount reductions, plant closures and consolidations, United Technologies’s earnings rose by 10% annually.

Growth in the company’s first quarter sales was driven by the global commercial aviation sector and the U.S. housing market, partially offset by a weak U.S. military market. With the war in Afghanistan coming to an end, demand for new military equipment as well as service of existing equipment from the U.S. government is falling. This is weighing on sales of UTC”s aerospace segments namely Pratt & Whitney, UTC Aerospace Systems and Sikorsky. However, sales across these three UTC segments rose in the first quarter due to growth from the global commercial aviation market offsetting the weak demand from the U.S. military.

Driven by healthy growth in its organic sales, the company also reaffirmed its 2014 sales guidance of $64 billion. Cost reductions achieved through restructuring activities also propelled UTC to raise the lower end of its 2014 earnings guidance. The company now expects 2014 earnings of $6.65-6.85 per share, up from $6.55-6.85 per share it expected earlier.

We currently have a stock price estimate of $121 for UTC, marginally above its current market price. We are in the process of incorporating the first quarter earnings and shall update our analysis shortly.

See our complete analysis of UTC here

Restructuring Activities Dig Into UTC’s First Quarter Profits

UTC undertakes restructuring activities such as headcount reductions and plant consolidations from time to time in an attempt to lower its operating costs. However, as these activities have one-time costs associated with them, they reduce profits for the quarter they are executed in. Last year, the company incurred $481 million in these restructuring costs, but they helped expand its segment operating margins to nearly 16%, from under 15% in 2012. In 2014, UTC anticipates to incur restructuring costs of $375 million, out of which it incurred $125 million in the first quarter. At the same time, these activities helped expand the company’s first quarter segment operating margin by 90 basis points, on a year-over-year basis.

We figure higher operating margins driven by these restructuring activities will enable UTC to compete more aggressively, as higher margins enable competitive pricing. This has been evident at UTC’s Otis segment which makes elevators and escalators. Large scale restructuring at this segment enabled it to compete more aggressively with lower-priced local alternatives in China, contributing to its overall growth. So, in our opinion, over the long term, gains from these restructuring activities will more than offset their one-time costs.

Commercial Aviation & U.S. Housing Market Drive Sales Growth In Q1

Excluding the effect from restructuring activities, all five UTC segments posted strong growth in their profits. Results at the company’s aerospace segments – Pratt & Whitney, UTAS and Sikorsky – were driven by higher demand from the global commercial aviation sector. As major airplane manufacturers including Boeing and Airbus raised their production rates to make timely deliveries against their soaring orders, shipments of commercial engines from Prat & Whitney and airplane components from UTAS rose. At the same time, higher demand for commercial helicopters from the global offshore oil production sector drove growth in Sikorsky’s first quarter results.

Results at UTC’s building market related segments – Otis and Climate, Controls & Security – also posted healthy growth in the first quarter on higher demand from the U.S. housing market and recovering construction spending from Europe. Higher demand from the U.S. housing market increased residential heating, ventilation, and air-conditioning system sales at CCS by 21% year-over-year. The company during its earnings presentation said that this growth in residential HVAC sales indicates that the U.S. housing market will likely continue to grow for the foreseeable future, as residential HVAC sales are generally a good indicator of the health of the U.S. housing market. In 2007, UTC’s residential HVAC sales tanked foretelling the upcoming housing downturn. Thus, we figure UTC’s building market related CCS segment could see healthy growth in the coming quarters. CCS provides Carrier branded HVAC systems as well as Kidde/Chubb branded building fire and security solutions.

See More at Trefis | View Interactive Institutional Research (Powered by Trefis)
Get Trefis Technology/>

Like our charts? Embed them in your own posts using the Trefis WordPress Plugin.


4 weeks ago

Khazanah throws MAS RM6b lifeline

Aug 29 2014 5:01pm CDT | Source: Business Times Singapore

August 30, 2014 1:15 AMKHAZANAH Nasional will inject RM6 billion (SS$2.4 billion) over three years to resuscitate loss-making Malaysia Airlines (MAS) under a recovery plan that includes even an Act of Parliament. Other key moves are migrating its operations, assets and liabilities to a new company (NewCo) and slashing the w ...
Source: Business Times Singapore   Full article at: Business Times Singapore


4 weeks ago

MAS posts loss of RM307m for Q2

Aug 28 2014 5:00pm CDT | Source: Business Times Singapore

August 29, 2014 1:13 AMMALAYSIA Airlines (MAS) registered a loss of RM307 million (S$122 million) for the second quarter to end-June, but warned of worse to come in the second half when the "full financial impact of ...
Source: Business Times Singapore   Full article at: Business Times Singapore


Don't miss ...


<a href="/latest_stories/all/all/30" rel="author">Forbes</a>
Forbes is among the most trusted resources for the world's business and investment leaders, providing them the uncompromising commentary, concise analysis, relevant tools and real-time reporting they need to succeed at work, profit from investing and have fun with the rewards of winning.


blog comments powered by Disqus

Latest stories

Short, intense workouts boost memory
Washington, Oct 2 (IANS) An intense workout for as little as 20 minutes can enhance episodic or long term memory about previous events by about 10 percent in healthy young adults, say researchers.
Substance abuse related to future violence among mentally ill
Washington, Oct 2 (IANS) A study conducted by the University of Buffalo suggests that reducing substance abuse can lessen violent acts by patients with severe mental illness.
Revealed: How species react to climate change
Washington, Oct 2 (IANS) Researchers at the University of Maryland Center for Environmental Science and the University of Vermont in the US have developed a new tool to overcome a major challenge of predicting how organisms may respond to climate change.
New Zealand ready to fight Ebola
Wellington, Oct 2 (IANS) Though there are no signs of the Ebola virus in New Zealand, the country has prepared itself to fight the epidemic if it occurs.

Latest from the Network

UN chief slams terror attacks in Syria
United Nations, Oct 2 (IANS) UN Secretary General Ban Ki-moon has condemned the twin bomb attacks near a school in Syria that killed 31 people. Several children were among those killed in the Wednesday attack in the...
Read more on Politics Balla
C.J. Spillman Being Investigated for Sexual Assault
Dallas Cowboys safety C.J. Spillman is being investigated for sexual assault.According to ESPN Dallas' Calvin Watkins and Todd Archer, the alleged incident took place at the Gaylord Hotel on Sept. 20, a day before the...
Read more on Sport Balla
Zach Braff defends Kickstarter project
Zach Braff has hit back at criticism of his Kiskstarter project. The multimillionaire actor and filmmaker - who is best known for playing the character of Dr. John Dorian on US sitcom 'Scrubs' - felt his the response to...
Read more on Movie Balla
Modi visit very successful: US think tank
Washington, Oct 2 (IANS) Prime Minister Narendra Modi's US visit was "very successful" on many counts as he reached out to various interest groups in the US in unprecedented ways, according to a leading US think tank...
Read more on Politics Balla
IOC 'satisfied' with Rio 2016 preparations
Rio de Janeiro, Oct 2 (IANS) The International Olympic Committee (IOC) said it was 'satisfied' with the state of preparations for the Rio 2016 Olympic Games. IOC representatives completed a three-day visit of Rio...
Read more on Sport Balla
Asian Games: Indian women paddlers Manika, Ankita ousted
Incheon, Oct 2 (IANS) Indian women paddlers Manika Batra and Ankita Das lost their respective matches and were knocked out of the women's singles table tennis event of the 17th Asian Games here Thursday. Manika was...
Read more on Sport Balla
With Modi momentum, US seeks enhanced energy collaboration
Washington, Oct 2 (IANS) With Indian Prime Minister Narendra Modi "providing a new momentum", the US has suggested four areas where India and the US can enhance collaboration in energy and sustainable development. "We...
Read more on Politics Balla
Indian women's kabaddi team in final
Incheon, Oct 2 (IANS) Defending champion India stayed on course for their second consecutive Asian Games gold medal in women's kabaddi as they marched into the final, beating Thailand 41-28 in the semi-final at the...
Read more on Sport Balla
Obama very pleased with Modi visit
Washington, Oct 2 (IANS) President Barack Obama was "very pleased" with and "enjoyed" Prime Minister Narendra Modi's visit as it reflected the depth of the strong relationship between the US and India, according to the...
Read more on Politics Balla
Leonardo DiCaprio won't have a joint birthday party with Kate Winslet
Leonardo DiCaprio refuses to have a joint 40th birthday party with Kate Winslet. The 'Divergent' star - who will celebrate the milestone in October 2015 - has been close friends with the actor for almost 20 years and he...
Read more on Celebrity Balla