United Technologies offers air cover amid growth problems

United Technologies Corp.’s latest results suggest aerospace is still a safe place as worries mount about a slowdown in global growth.
The $96 billion conglomerate that’s planning on splitting itself into three reported a staggering 11 percent gain in revenue excluding the impact of M&A and currency swings for the final months of 2018. That was the first time quarterly organic growth stretched into the double digits since 2007, according to Bloomberg Intelligence. The increase was driven primarily by United Technologies’ Pratt & Whitney unit, where sales of its new geared turbofan jet engine drove a 22 percent surge in organic growth. The Collins Aerospace Systems segment — recently dubbed as such following the November close of the company’s $30 billion takeover of Rockwell Collins Inc. — posted a 9 percent gain in revenue excluding the impact of that acquisition.
United Technologies’ strong showing won’t mitigate concerns that the best growth is behind industrial companies. The company predicted global GDP growth would slow to 2.9% in 2019, compared with 3.2% in 2018, the latter of which was revised down from a 3.3% outlook this time last year. Its own blistering pace isn’t expected to last, either: United Technologies forecasts organic sales growth of 3% to 5% in 2019, compared with 8% for the full year in 2018.
But that’s still a comfortable gain and likely veers towards conservatism as management plays it safe in an increasingly uncertain world. Contrast that with 3M Co.’s prediction of 2 percent to 4 percent organic sales growth in 2019, an outlook analysts already think is too optimistic.
What this suggests is that even though sales may have peaked, those companies with significant aerospace exposure still have room for positive surprises. Despite its more subdued economic forecast, United Technologies expects demand for air travel to remain strong, with revenue passenger miles climbing 6 percent in 2019, compared with 6.5 percent growth in 2018.
For United Technologies specifically, its latest results also reinforce the logic of its plan to separate out its Otis elevator and Carrier climate-control businesses to focus on its aerospace operations.
At the end of the day, United Technologies’ conglomerate structure hasn’t made sense for a while and its businesses’ contrasting growth and margin profiles have long muddied up its earnings picture. This recent quarter is giving investors a sneak peak at what an aerospace-focused United Technologies would look like, and there’s good reason to like what they’re seeing. —Bloomberg