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Mark Vickery

United Technologies Beats Estimates

UTX ITT

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United Technologies Corp. (UTX - Analyst Report), a leading provider of high-technology products, reported fourth quarter 2012 earnings of $1.04 per share versus $1.42 in the year-ago quarter. The reported earnings beat the Zacks Consensus Estimate of $1.02. For 2012, EPS of $5.35 was essentially flat compared to  the prior year, but ahead of the Zacks Consensus Estimate of $5.32.

Total revenue for the fourth quarter grew 14% year over year to $16.4 billion, but marginally missed the Zacks Consensus Estimate of $16.5 billion. Organic sales growth was flat in the quarter and foreign currency translation had a negative impact of 1 point.

However, acquisitions contributed 15 points growth to the top line. For 2012, total revenue stood at $57.7 billion, up 4% year over year, including the effects of net acquisitions (6 points) and negative foreign currency translation (2 points).

New equipment orders at Otis were up 12% over the year-earlier quarter. North American Residential HVAC new equipment orders at the company’s UTC Climate, Controls & Security was up 20%. Commercial spares orders at Pratt & Whitney's large engine business dipped 8%, while that of UTC Aerospace Systems declined 4%.  However, large commercial engine spares orders were up 46 % at Pratt & Whitney.

Segment Results

Otis reported revenues of $3,205 million in fourth quarter down 0.18% year over year. At the same time, revenue at UTC Climate Controls & Security declined 6% year over year to $4,147 million. Pratt & Whitney revenue increased 10.5% year over year to $3891 million in fourth quarter while  UTC Aerospace systems sales went up 60% year over year to $3174 million. Additionally, Sikorsky sales were up 3% year over year to $2176 million in fourth quarter.

Balance Sheet and Cash Flow

The company continues to maintain a strong cash flow position.  As of Dec, 30, 2012, cash and cash equivalents were $4.8 billion with long-term debt of $21.6 billion. The company had a debt to capital ratio of 46.0%. Cash flow from operations was $6.6 billion, while capital expenditures were $1.4 billion for 2012.  

In order to come up with innovative products amid a challenging macroeconomic environment, United Technologies invested $2.4 billion in developing game-changing technologies and nearly $600 million on restructuring initiatives.

Outlook

Cocurrent with the strong quarterly and full-year results and based on its improved order trends, sales in 2013 are expected to be in the range of $64 billion to $65 billion, while earnings are expected to be in the range of $5.85 to $6.15 per share.

United Technologies repositioned its portfolio in fiscal 2012 with the completion of the Goodrich acquisition and IAE transactions and the divestiture of several non-strategic assets with its main focus on the core markets.

However, the company needs to be wary of its competitors, which include formidable names such as ITT Corporation (ITT) and Federal Signal Corp (FSS).

United Technologies currently has a Zacks Rank #3 (Hold). One of its competitors, Tyco International Ltd (TYC) carries a Zacks Rank #1 (Strong Buy).

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