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United Technologies (UTX - Free United Technologies Stock Report), a Dow-30 component consisting of jet engine maker Pratt & Whitney, Otis elevator, Carrier heating and cooling and other aerospace and building systems companies announced mixed first-quarter results. Earnings beat expectations, but the ongoing nature of this tally was not high, as businesses that the manufacturer has put up for sale were not factored in. Plus, a sizable tax benefit cushioned the figure. Also, year-over year revenue comparisons entered the red for the first time since the first quarter of 2010, reflecting what is still a shaky backdrop for the industrial conglomerate. In other news, management stated that the company's $16.5 billion acquisition of aerospace maker Goodrich (GR) is still expected to close by mid-year; however, we are growing more skeptical on this aggressive target due to the fact that European regulators, who are currently dealing with severe macroeconomic conditions brought on by the sovereign-debt crisis, could stretch their deliberations into the late summer.

Even with this uncertainty, investors remained upbeat with regard to UTX shares. The stock was up slightly in the early trading hours of Tuesday morning.

More specifically, share net came in at $1.31. Results were peppered with one-time and nonrecurring items, some of which were operational, and others that will be excluded from our presentation. For example, a settlement with the U.S. Internal Revenue Service resulted in a $203 million gain, a good portion of which was offset by $0.09 a share worth of restructuring costs. Management is maintaining its 2012 profit range at $5.30 to $5.50, and we continue to think it can reach the top of that scale, which would represent basically flat earnings versus the $5.49 figure put up last year. Investors should note though that this tally is banking on ongoing cost-reduction efforts and strong execution. Any setbacks on these fronts and year-over-year EPS will probably decline.

From a top-line perspective, sales were $12.4 billion, an annual decline of 2%. Divestitures and adverse foreign currency translations were the primary culprits behind this phenomenon, but others factors were at work also. European operations remain downtrodden, and the commercial construction market in the region is anemic. Also, orders at Otis were down 9% year over year because of a slow start to the year in China. Looking ahead, though China's results should perk up, no signs of a turnaround are evident on the horizon in Europe. With that, we are scaling back our 2012 revenue estimate from $63.8 billion, to $61.5 billion.

A number of areas did manage to shine however, led by the North American Residential HVAC segment. New equipment orders here were up by a double-digit percentage. Carrier residential cooling systems were in high demand in the United States, as unseasonably warm weather had consumers looking for air conditioning much earlier than usual. Channel checks report that this momentum has carried over into the first three weeks of April.

Still, the current investment focus around these shares remains the ongoing portfolio flux. The company is in the midst of large scale changes under the leadership of CEO Louis Chenevert. In the next few months, UTX aims to close the largest acquisition in its history, the aforementioned Goodrich pact. Additionally, it is looking to sell off three smaller businesses in an effort to raise cash and bypass selling shares to fund the Goodrich deal. Rocketdyne, Clipper Windpower, and Hamilton Sundstrand's industrial equipment operations are each on the block. An agreement on Rocketdyne is believed to be in final negotiations, and initial bids for the Hamilton branches were "a little better than expected'' according to top brass.

We continue to view UTX shares as an ideal core holding for most portfolios. The stock is a relatively safe (Safety: 1) play for those who believe, as we do, that the global economy is in the early stages of a slow-but-steady recovery. Moreover, this equity's dividend has not faltered in recent years like many of its rivals. Currently, it is running at a 2.4% yield rate, and we anticipate this metric will be maintained, if not improved, out to 2015-2017. Once the dust settles on its many pending transactions, the company's potential should be further enhanced, and operations will be focused on areas with good growth characteristics and reliable revenue streams.

About The Company:United Technologies operates in six business segments. Pratt & Whitney (revenues of $13.4 billion in 2011) makes and services aircraft engines. Otis ($12.4 billion) manufactures and services elevators. Carrier ($12.0 billion) makes heating, ventilating, and air-conditioning equipment. Sikorsky ($7.4 billion) makes helicopters. UTC F&S ($6.9 billion) provides security and fire protection services. Hamilton Sundstrand ($6.2 billion) produces aerospace and industrial products. The company also has a power division dealing in fuel cells. International operations account for nearly half of revenues.


At the time of this article’s writing, the author did not have positions in any of the companies mentioned.