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Industrial conglomerate and Dow-30 component United Technologies (UTXFree United Technologies Stock Report) has announced June-quarter results that were a mixed bag. Earnings came in ahead of both our and Wall Street's expectations, but revenues were a tad lower than the average call. On a positive note, management raised the low end of its share-net guidance range for 2013. This is most likely the reason UTX stock rose modestly on the release. Coincidentally, this rise puts the shares up 25% year to date.

The company posted income of $1.56 billion, which translated to earnings of $1.70 per share, $0.15 higher than what we were looking for. Also, this showing is handsomely above 2012's tally of $1.33 billion in income, or $1.62 a share. The initial praise is being given to the Goodrich acquisition. This pact has upped the company's game in the aerospace field, and the units involved in this sector are reaping the benefits. At first, this purchase was scrutinized due to its lofty price tag, but now it seems the investment community will have no choice but to come around on the marriage. Operating income at the aerospace systems unit, where Goodrich now resides, more than doubled to a hair under $500 million. Too, Pratt & Whitney, a segment that focuses on engines for commercial and military aircraft, saw its profit soar 33%, to $567 million.

The top line came in at an even $16 billion, shy of our $16.38 billion expectation, but up considerably from the $13.81 billion put up last year. Wall Street can live with this perceived shortfall, especially when considering that the automotive spare parts market seems to be gaining momentum. Orders at Pratt & Whitney for spare engine parts soared 65% in the quarter, after a 14% gain in the previous interim. Aftermarket order trends are particularly encouraging. Adding Goodrich has given UTX the capabilities to match its competitors as far as the suite of products it can offer to aerospace customers. In fact, a recent note pegged the percentage of airline components that now come from United Technologies at an astonishing 65%. Market share of that magnitude adds increasing visibility to an already steady company.

Elsewhere, restructuring efforts continue in earnest. At the time Goodrich came on board, the company sold off a number of noncore units in an effort to harness its focus on the aerospace landscape. Originally, the plan called for $350 million in restructuring costs to streamline the new portfolio of assets, which included the shuttering of some facilities. Now, that number has been jacked to $450 million, a roughly 30% increase. Spending this amount should lead to greener pastures on the long-term earnings scene, but the effect will not go unnoticed for 2013.

With that, we are adding only a nickel to our full-year 2013 share-earnings expectation, even though the outperformance in the June quarter was three times as big. Management lifted the bottom end of its range from $5.85 to $6.00, with the top being our new target of $6.15. It is also worth noting that, historically, the company has set the bar low and increased the goal as the year goes on, a scenario we think is definitely in play this year.

Our top-line call is being trimmed to $64 billion, a dip of $500 million. This is basically just housekeeping from the second-quarter miss. Our overall view basically remains static. UTX has a dominant position in aerospace, a market that has shown signs of life lately and should continue to improve over the next several quarters. Sprinkle in the slow-but-steady economic improvement we envision over that span, and the situation has the potential to become a bit rosier.

From an investment perspective, we like UTX stock from a number of viewpoints. Conservative accounts have a blue chip with elevated Earnings Predictability and Price Growth Persistence, as well as our Highest rank for Safety (1). Those seeking long-term total return potential should also find these shares appealing. Even with their quotation now eclipsing the $100 mark, we think they still have room to run out to 2016-2018. Add to that a growing dividend, which is supported by hefty cash flow generation, and the potential of UTX becomes even more impressive.


About The Company:United Technologies operates in five business segments: Pratt & Whitney (revenues of $14.0 billion in 2012) makes and services aircraft engines; Otis ($12.1 billion) manufactures and services elevators; UTC Climate ($17.1 billion) makes heating, ventilating, and air-conditioning equipment; Sikorsky ($6.9 billion) makes helicopters; UTC Aerospace ($8.3 billion) produces aerospace and industrial products.

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