Industrial goods manufacturer United Technologies Corporation (UTX) delivered stellar fourth-quarter 2014 results riding high on healthy margin improvement and six consecutive quarters of organic sales growth. The company reported fourth-quarter 2014 net income of $1,473 million or $1.62 per share, up from $1,463 million or $1.58 in the year-ago quarter.
The reported earnings for the quarter included unfavorable one-time and restructuring costs. Excluding the one-time items, recurring earnings for the quarter were $1.88 per share, which comprehensively beat the Zacks Consensus Estimate of $1.61.
Total revenue for the fourth quarter edged up 1.4% year over year to $16,996 million. The increase in revenues was primarily driven by organic growth, partially offset by currency translation effects. The reported revenues missed the Zacks Consensus Estimate of $17,120 million.
For full-year 2014, United Technologies reported net income of $6,220 million or $6.82 per share, considerably up from $5,721 million or $6.21 in the prior year. Total revenue for full-year 2014 improved to $65,100 million from $62,626 million in 2013.
New equipment orders at Otis were up 12% from the year-earlier quarter, driven by growth in North America. UTC Climate, Controls & Security equipment orders increased 11% organically. Commercial spares orders increased 5% at UTC Aerospace Systems, while Commercial aftermarket sales were down 6% at Pratt & Whitney.
Segment Results
Otis reported revenues of $3,336 million in the fourth quarter, relatively flat year over year. Revenues at UTC Climate Controls & Security also remained unchanged year over year at $4,192 million. Pratt & Whitney revenues declined marginally to $4,023 million in the fourth quarter from $4,089 million in the year-earlier period. UTC Aerospace systems sales increased 4.1% to $3,594 million. Sikorsky sales stood at $2,086 million versus $1,897 million in the year-ago quarter.
Operating profit of Otis decreased slightly to $674 million in the reported quarter from $684 million in the previous year. Operating profit at UTC Climate Controls & Security remained flat at $623 million. Pratt & Whitney’s operating profit improved 17.9% year over year to $547 million in the reported quarter, while UTC Aerospace systems operating profit increased to $588 million from $517 million in the year-ago quarter. Sikorsky’s operating profit increased 57.7% year over year to $298 million. Consolidated segment operating profit in the fourth quarter stood at $2,570 million versus $2,330 million in the prior-year period, reflecting an improvement of 10.3% with operating margin of 15.8% versus an operating margin of 14.6% in the year-earlier quarter.
United Technologies recently made some startling announcements to revamp its aerospace unit. These include an overhaul of its organizational structure in the aerospace business along with some key changes in the leadership positions within it. The aerospace business of the company consists of Sikorsky aircraft and the UTC Propulsion & Aerospace Systems (PAS), which includes UTC Aerospace Systems and Pratt & Whitney divisions. Earlier on Jul 26, 2012, United Technologies acquired Goodrich Corporation and combined it with the legacy Hamilton Sundstrand division to form a new division named UTC Aerospace Systems. The operations of the company were classified into five principal business segments: Otis; UTC Climate, Controls & Security; Pratt & Whitney; UTC Aerospace Systems; and Sikorsky.
With the successful integration of Goodrich Corporation, United Technologies now intends to eliminate the UTC PAS organizational structure. Consequently, Pratt & Whitney and UTC Aerospace Systems, which were both formerly under the PAS structure, will continue as stand-alone business units.
Balance Sheet and Cash Flow
The company continues to maintain a strong cash flow position. At year-end 2014, cash and cash equivalents were $5,235 million with long-term debt of $17,872 million compared with respective tallies of $4,619 million and $19,741 million in 2013. The company had a debt-to-capital ratio of 38.0%.
Cash flow from operations aggregated $2,310 million for the quarter to bring the tally for 2014 to $7,336 million, compared with the respective tallies of $2,613 million and $7,505 million in the prior-year period. Capital expenditures were $557 million in the quarter. The company repurchased shares worth $1.5 billion throughout the year.
Outlook
With a strong performance in the quarter driven by robust growth dynamics factored by a healthy order backlog and organic growth, United Technologies expects healthy top-line growth. However, due to strengthening of the US dollar and additional pension discount rate headwind, the company has trimmed its earlier guidance for 2015.
The company presently expects total revenue in 2015 to aggregate within $65 billion and $66 billion, slightly down from $66 billion and $67 billion anticipated earlier. Earnings are anticipated to vary within $6.85–$7.05, down from $7.00–$7.20 per share. Total capital expenditures are expected to be $1.7 billion in 2015, with share repurchase of $3 billion and acquisitions of approximately $1 billion.
United Technologies presently has a Zacks Rank #4 (Sell). Other better-ranked companies in the industry include Federal Signal Corp (FSS), Keppel Corporation Limited (KPELY) and Swire Pacific Limited (SWRAY), each carrying a Zacks Rank #2 (Buy).
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