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Industrial conglomerate and Dow-30 component United Technologies (UTX Free United Technologies Stock Report) the world's largest maker of elevators and air conditioners, reported third-quarter earnings today that were in line with expectations. Revenues missed the consensus figure by a decent amount, but investors shrugged that news off with minimal movement in the shares in early trading.

Earnings from continuing operations came in at $1.55 a share, exactly what we were calling for, and a 13% incline from the $1.37 posted in the like period for 2012. Cost savings, mainly generated from job cuts, and improving sales trends toward higher-margined products overcompensated for lesser contributions from defense-related entities. Operating profits rose in four of the company's five business units. The lone exception was Sikorksy, which makes helicopters, most notably the Black Hawk. Here, uncertainty stemming from the United States government sequestration program has had a negative impact on results. Spending cuts on federal projects are taking their toll, but luckily for UTX all other aspects of the portfolio are performing admirably despite a global economy that has been choppy at best. On that note, management lifted the lower end of its full-year EPS guidance range to $6.10, with the high point being $6.15. United Technologies has a penchant for setting the bar low and then hurdling it. Therefore, we are maintaining our $6.15 call, but are advising subscribers that a few pennies of upside potential are always a possibility.

Things on the top line were not as bright. As stated, military/defense spending is being curtailed by Washington, and we do not see this trend reversing anytime soon. UTX's military business currently constitutes about 18% of sales, so the damage is noticeable. In particular, spare parts orders at Sikorsky, which is about 80% military in nature, are down nearly 50% thus far in 2013. Total company revenues for the September interim came in at $15.46 billion, well shy of our and Wall Street's expectation of $16.2 billion. And this was in spite of an 11% rise in orders coming from China. The rest of the divisions are firing on all cylinders, but Washington cannot get its act together and the effect on the top line is evident. With that in mind, and at the behest of management, we are trimming almost $1 billion from our 2013 revenue estimate. That metric now sits at an even $63 billion. That would still represent a respectable 9% year-over-year jump. However, if the armed forces orders were coming in at more historical levels the showing would be that much more impressive.

Other news in the quarterly report showed that $500 million has been earmarked for restructuring efforts that should enhance profitability starting next year. A reduction in headcount by about 2,000 is the first step in this plan. Chief Executive Officer Louis Chenevert has stated he wants to reshape the focus of the company on the commercial, aviation, and construction industries. The $16.5 billion purchase of Goodrich, an aerospace behemoth, was the largest step towards that goal. This maneuver also proved most timely as it deemphasized the weight of defense holdings in the portfolio at a most opportune time.

United's Financial Strength remains impeccable. Its A++ rating was backed up in the term with cash flow of $1.5 billion. Share repurchases and acquisition spending tallied $330 million and $54 million, respectively. That leaves roughly $4.6 billion in cash at management's disposal as of September 30th. Returning some of this wealth to shareholders is a priority, and with that the dividend for the fourth quarter was recently lifted by 10% from $0.535, to $0.589.

Buy-and-hold seems to be the best investment approach to take with UTX stock. The company is a juggernaut in the industrial world, and is getting by quite well in spite of the military headwinds currently in its face. Starting a portfolio with this equity as a cornerstone is a strategy that few would question. Strong financials, a growing dividend, and decent 3- to 5-year appreciation potential combine to make a most enticing play for these shares.

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.