United Technologies lifts forecast even as Rockwell deal drags on

Bloomberg

United Technologies Corp can’t seem to get its aerospace megadeal across the finish line. But that isn’t stopping the company from capitalising on a booming market.
The manufacturer boosted its forecast for the year and topped Wall Street’s third-quarter profit estimates as demand surged for the latest in aviation know-how. Sales at the Pratt & Whitney jet-engine operation jumped 24 percent during the quarter, the company said in a statement.
The Pratt and aerospace units were “standouts” that more than offset weakness for Otis elevators, Deane Dray, an analyst at RBC Capital Markets, said in a note.
The performance underscored the importance of aerospace to United Technologies as it looks to wrap up its $23 billion purchase of supplier Rockwell Collins Inc. Closing that acquisition will open the door for a possible breakup of the whole company.
The Rockwell deal, which was announced more than a year ago, awaits approval by Chinese authorities. While the tie-up failed to get a green light last month as Chief Executive Officer Greg Hayes had predicted, he said there are no signs the delay is caused by the US-China trade war.
“We don’t see any drama here,” Hayes said on a conference call with analysts, adding that the deal is likely to close in the near term. “There’s a lot of tension between the US and China. We just don’t see that as impacting the deal.”
The shares jumped 1.4 percent to $128.16 in New York even as the broader global markets slumped, making the stock the third best performer in the Dow Jones Industrial Average. United Technologies slid less than 1 percent this year through, trailing the Dow’s 2.4 percent advance.
PROFIT UP
Adjusted profit rose to $1.93 a share in the third quarter. That topped the $1.82 average of analyst estimates compiled by Bloomberg. Sales increased 10 percent to $16.5 billion amid gains in all four units. The aircraft-parts division boosted revenue 8.7 percent.
“Across the globe, aerospace remains strong,” Hayes said.
United Technologies said adjusted earnings will be $7.20 to $7.30 a share in 2018, up from a previous outlook for $7.10 to $7.25. This is the third consecutive quarter United Technologies has nudged up its forecast.
The improved outlook came despite challenges from trade frictions and at Otis elevators. While new-equipment orders increased, the unit is grappling with higher materials prices and a slump in South Korea, United Technologies Chief Financial Officer Akhil Johri said on the call.
Tariffs could shave five cents a share from companywide earnings this year and 15 cents in 2019, the company said.

WEIGHING BREAKUP
United Technologies is weighing a possible breakup after closing the Rockwell Collins deal. Hayes said the company still expects to announce in the coming weeks whether it will form stand-alone aerospace, climate-controls and elevator businesses.
The prospect is supported by two activist shareholders — Dan Loeb’s Third Point and Bill Ackman’s Pershing Square Capital Management — which recently took stakes in United Technologies.
Hayes again hinted that a big change could be in the works, saying that the board is open to “all potential opportunities” as it tries to maximise the value of its businesses.
“I have made my views pretty clear,” he said. “I think focused businesses do better over the long term.”