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Dow 30 Earnings: United Technologies – Fourth Quarter 2011
United Technologies, (UTX – Free United Technologies Stock Report), the U.S. industrial conglomerate that is also a Dow-30 component, has released its fourth-quarter figures for 2011. Earnings came in at $1.47 a share, a couple of pennies ahead of both our estimate and Wall Street's expectations. That number brought the full-year tally to $5.50, representing a handsome 16% year-over-year advance. Results on the top line were not as impressive, but that is to be expected given the unprepossessing economic backdrop under which the company operated throughout the year. December-term revenues were $15 billion, an increase of 0.7% versus the year-earlier amount, pushing the overall 12-month gain to 7%, on revenues banked during the first three quarters of 2011. The investment community appears to be focusing on the paltry top-line annual rise and thus these shares are off some 2% in early trading following this earnings release.
Investors will be hard pressed to find issues with United Technologies 2011 corporate showing as a whole. During a period marked by dramatically decreased capital spending, diminishing military outlays, and severe sovereign-debt concerns in a number of its European markets, the company truly flexed its muscle as a blue-chip stock. It secured a healthy bundle of orders for its new geared turbofan aircraft engine, aided, in part, by heightened jet production at Boeing and Airbus SAS. It agreed to purchase Goodrich for $16.5 billion in September (the deal should close by mid-2012), and then bought Rolls-Royce out of their joint venture that was already bearing fruit for UTX. For the year, all business units grew organically and achieved double-digit operating margins. An impressive feat in these uneasy times, and a harbinger of what should amount to another solid year in 2012.
On that note, we are maintaining our earnings call of $6.15 a share for this year, off revenues that could eclipse the $60 billion mark. This expectation comes with two caveats: First, those who adhere to management's guidance will notice that our call is a bit above the provided range of $5.80 to $6.00. This stems from management’s inclination to err on the cautious side when providing forward-looking figures. We feel this equity's elevated score for Earnings Predictability (95 out of 100) allows us some leeway in that regard. Second, this amount does not include the impact of pending acquisitions because they are not yet fully completed, as per Value Line policy. For the record, however, we think Goodrich will be dilutive to 2012 EPS by $0.40 this year, and then a sizable contributor in 2013 once all cost synergies are in place.
Staying in 2012, UTX is clearly targeting a larger slice of the commercial aerospace segment. This industry is officially out of its recessionary doldrums and growth rates here in the coming years should be bountiful. The Goodrich purchase will certainly aid in this goal, as that company is the world's largest maker of aircraft landing gear. Gains in this field will be welcome, especially when factoring in sagging defense sales. United Technologies' Sikorsky unit makes the Black Hawk helicopters, and with the anticipated troop pullouts in Iraq and Afghanistan expected to hasten this year, this division may stumble a bit. Additionally, some concerns are developing in the company's fire and security arm. Here, management is hoping to avoid any hardships by restructuring, but productivity and integration issues after a series of acquisitions are a distinct possibility.
From an investment standpoint, we think these top-quality (Safety: 1) shares are fairly valued at this juncture. When adding in the steadily growing dividend, their appeal as a total-return play out to 2014-2016 is enhanced, but not to a level where its merits are eyecatching.
About The Company:United Technologies operates in six business segments. Pratt & Whitney (24% of 2010 revenues, 23% of operating profits) makes and services aircraft engines. Otis (21%, 32%) manufactures and services elevators. Carrier (19%, 10%) makes heating, ventilating, and air-conditioning equipment. Sikorsky (14%, 12%) makes helicopters. Hamilton Sundstrand (10%, 12%) produces aerospace and industrial products. UTC F&S (12%, 11%) provides security and fire protection services. 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.