The biggest aerospace deal ever is paying off for United Technologies Corp.
The Hartford, Conn., aerospace and building systems conglomerate said April 23 that its purchase of aerospace parts maker Goodrich Corp. boosted first-quarter revenue even as sales flagged in Europe, which is struggling with a weak economy. The $18.4 billion deal was announced in 2011 and closed in July 2012.
ìGoodrich has been nothing but good news for us,î Chief Financial Officer Greg Hayes told investor analysts on a conference call.
Revenue in the January-to-March period rose 16 percent to $14.4 billion from $12.4 billion in the year-ago quarter. Excluding the Goodrich acquisition, sales declined 2 percent from a year ago. United Technologies said that was due to Europe’s slack economy and weak commercial aerospace repairs and maintenance.
Net income of $1.27 billion, or $1.39 per share, was up from $330 million, or 36 cents per share, in the year-ago quarter that included discontinued operations of companies sold by United Technologies to raise cash for its Goodrich purchase. Excluding the discontinued operations, profit in last year’s first quarter would have been $1.31 per share.
Analysts polled by FactSet, on average, expected earnings of $1.29 per share on revenue of $14.94 billion.
CEO Louis Chenevert said he expects a ìgradual resumptionî of growth this year as the economy and markets improve. In addition to the aerospace industry, commercial and residential real estate markets are important to United Technologies, which sells elevators and escalators, heating and cooling components and fire and safety equipment.
Edward Jones analyst Christian Mayes said a 29 percent increase in orders for subsidiary Otis elevator in China, the world’s largest elevator and escalator market, will likely offset weakness in Europe. He said United Technologies will likely cut costs at Goodrich and its $1.5 billion purchase of Rolls-Royce from a joint venture that makes engines for the Airbus A320.
Last year it was closing on acquisitions, this year it’s about integrating the acquisitions and finding savings, he said.
Among United Technologies’ segments, its aerospace systems business posted the biggest sales increase in the quarter, to $3.26 billion, more than double $1.24 billion posted in the first quarter of 2012.
The CFO Hayes said airline traffic is increasing and airlines are projected to earn more than $10 billion this year, buoying expectations for rising order rates in 2013.
So we’ll keep a close eye on the aerospace aftermarket, look for signs of more stabilization in Europe, but order rates and macroeconomic trends broadly support our assumption for growth as we move through the year, he said.
Automatic federal budget cuts that took effect last month are beginning to have an impact on United Technologies’ military business, with aerospace repairs and maintenance down 10 percent in the quarter, Hayes said.
Fighter jets also are standing down for the rest of the year as exhibitions are canceled, he said.
He said he’s concerned about furloughs by air traffic controllers that could drive up commercial airline costs, though that should be a ìrelatively small impactî on United Technologies. The company is standing by its estimate of a 10 cent-per share profit hit due to the federal spending cuts, Hayes said.
Sales for the quarter declined 7 percent at Sikorsky Aircraft as the helicopter manufacturer adjusts to reduced U.S. military involvement in Afghanistan. United Technologies’ climate controls and security business also posted a 7 percent drop in sales in the first quarter.
The company, which is raising significant amounts of cash from divestitures to exit non-essential business and comply with federal competition rules, said it will pay down $2 billion of debt this year, up from an earlier $1 billion estimate.