United Technologies Corp. (UTX:US) said profit and revenue next year will probably fall below analysts’ estimates as sluggish U.S. government sales and tax-law changes temper earnings growth. The shares fell.
Earnings per share will be $6.55 to $6.85, the company said yesterday at a meeting in New York. That compares with analysts’ estimates of $6.85. United Technologies said sales will climb 1.6 percent to about $64 billion. Analysts had projected $66.2 billion.
United Technologies’ initial forecast for 2014 showed the drag from waning demand for U.S. military jets and helicopters along with a slow European economic expansion. The company supplies the aerospace industry with Pratt & Whitney jet engines and makes products such as Otis elevators and Carrier air conditioners that are sensitive to the construction market.
“It’s clear to me we’ve had a softer recovery than what we expected this time last year,” Chief Executive Officer Louis Chenevert said at the meeting.
The guidance prompted Nick Heymann, a William Blair & Co. analyst in New York, to cut his rating (UTX:US) on the stock to market perform and reduce his 12-month price target by 8.7 percent to $116, citing its outlook for sales growth of 3 percent to 4 percent next year excluding the effect of acquisitions.
“The most critical issue behind our decision to lower our rating was the notable reduction in expectations for organic revenue growth in 2014,” Heymann wrote in a note to clients today.
United Technologies fell 0.7 percent to $107.35 at the close in New York. The shares climbed 31 percent this year, compared (UTX:US) with a 24 percent gain for the Standard & Poor’s 500 Index.
Profit this year will be about $6.15 per share, matching the average estimate of 22 analysts surveyed by Bloomberg.
The company will benefit from strengthening demand for Carrier air conditioners, Otis elevators and spare parts for its Pratt & Whitney jet engines and economic growth in Asia and the Americas, according to the presentation. That plays to the company’s strengths, after a reorganization, to focus on the aerospace and commercial building industries, Chenevert said.
The building and industrial systems unit, which includes Carrier and Otis, will see sales growth of about 10 percent in China and “mid-single digits” elsewhere in Asia and in the U.S. and Latin America, according to the presentation.
Operating profit at the division will grow as much as $400 million next year, more than any other part of the company.
Commercial aerospace sales, including spare parts for Pratt & Whitney engines, will rise at a “high single digit” pace in 2014, the company said.
Reduced defense spending by the U.S. government will trim profit by 12 cents a share, while tax changes will lower it by 10 cents, the company said. Sikorsky Aircraft, the company’s helicopter unit, faces sluggish growth next year as customers including the U.S. military reduce purchases, according to the presentation.
Lower pension costs will boost earnings by 30 cents a share next year, the Hartford, Connecticut-based company said.
United Technologies will spend $2 billion on dividends and $1 billion each on share buybacks and mergers and acquisitions next year, Chenevert said at the meeting.
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