UTC Has Strong Quarter, Sees Challenges For Pratt

The second-quarter financial results of United Technologies Corp., Connecticut's largest employer, beat Wall Street expectations, and the company said Thursday it now expects higher full-year earnings than previously projected.

But UTC also said high oil prices and the fragile state of the airline industry pose challenges for its aerospace businesses, especially East Hartford-based Pratt & Whitney.

UTC reported net income of $1.3 billion for the quarter, up 11 percent over the same quarter last year on sales of $15.7 billion, up 13 percent.

Earnings per share were up 14 percent to $1.32, which was 2 cents above the consensus estimate of 16 analysts polled by Thomson Reuters.



Profits after restructuring and other charges were up at five of UTC's six operating units, which make jet engines, helicopters, aircraft parts, elevators, air-conditioning and heating systems and security systems.

"United Technologies put in a strong performance in a tough environment," said Richard Tortoriello, an equity analyst with Standard & Poor's in New York who maintains a "buy" rating on the company's stock.

Otis Elevator Co. and UTC Fire & Security, the relatively new but fast-growing security business, performed especially well in the quarter, with profits at both growing more than 24 percent. Otis sales in Asia, especially China, remain strong.

Only Carrier Corp., which recorded $46 million in restructuring and other charges, failed to increase profits in the quarter. The weak housing market continues to be a problem for the company, the world's largest air-conditioner maker. Commercial refrigerator sales were also weak in some markets, company officials said.

While sales and profits rose for all three of UTC's aerospace units, most dramatically at Stratford-based Sikorsky Aircraft, Pratt's gains were modest due to slackening demand for spare parts and service. Profits at the East Hartford-based jet engine maker grew less than 5 percent on sales growth of 6 percent.

Pratt's main nonmilitary customers — commercial airlines — are taking desperate measures to remain in business in the face of unprecedented fuel prices. Some major airlines have grounded older, fuel-guzzling aircraft, or said they plan to, which means they need fewer spare parts for the engines.

Pratt makes a significant amount of its money on selling spare parts and maintenance and repair services.

"There's no doubt that the aerospace aftermarket is cooling down, and it's going to go down further," Tortoriello said.

Sikorsky delivered 53 large helicopters in the last three months, and UTC executives said the unit would meet its full-year goal of delivering more than 200. Sikorsky's profits were up 28 percent on sales growth of 9 percent.

Hamilton Sundstrand, based in Windsor Locks, had profit growth of 14 percent on sales that were up nearly 18 percent.

Despite "moderation in our commercial aerospace aftermarkets," UTC said it now expects full-year sales of $60 billion and earnings in a range of $4.80 to $4.95 a share, up from $4.65 to $4.85.

"While the challenges in the world's economies we saw at the outset of the year are materializing, especially with higher oil prices impacting the airlines and the U.S. economy generally, we remain confident in our ability to deliver on this increased guidance given the balance across UTC's businesses and the strength in our backlogs," CEO Louis Chenevert said in a statement.

Restructuring costs clipped 6 cents from UTC's per-share earnings, the company said, but the weak dollar offered a foreign currency exchange benefit of 4 cents a share. Rising costs of some metals will force the company to spend more than anticipated on commodities this year.

UTC said it plans to double restructuring spending in 2008 and probably spend more than $2 billion on buying back its own shares, a common tactic for supporting the stock price. The company spent $719 million on share repurchases in the second quarter and more than $1.5 billion in the first half of the year.

Like that of many major aerospace and defense companies, UTC's stock has been trading at or near its low for the year. UTC shares closed at $64.70 Thursday, up almost 6 percent.

Pratt will be a focus of restructuring efforts going forward, UTC executives said in a conference call with Wall Street analysts on Thursday. Executives did not say what they would do, but they said recent restructuring actions elsewhere within UTC had been "primarily people-related."

Pratt officials would not comment Thursday on their restructuring plans.

UTC has eliminated about 2,500 workers in 2008, about 1 percent of its worldwide workforce, executives said. There have been no layoffs in Connecticut.

A representative of Pratt's main union, the International Association of Machinists and Aerospace Workers, said the company had not told him of any plans to cut jobs at Pratt's Connecticut plants.

"If they had any kind of restructuring in mind that would affect our membership, they would normally let us know ahead of time," said James Parent of IAM's District 26.

In 2008 so far, Pratt employment has remained level. A few dozen workers have accepted voluntary buyouts, Parent said, but the company has added people elsewhere. Statewide, Pratt's hourly workforce is just shy of 4,100, Parent said.

However, he added, "every day you read something else about the airline industry. That without a doubt impacts us."

UTC Role In WTC Project

Otis Elevator and Carrier are the big names in buildings at parent United Technologies Corp. But UTC's smallest business unit has landed the company's latest construction coup.
South Windsor-based UTC Power will provide supplemental power generation for one of New York City's most prominent and emotionally charged construction projects, the redevelopment of the World Trade Center site, company and New York officials said Wednesday.
UTC Power will provide 12 fuel cells for the four main towers planned within the 16-acre trade center site, including the 1,776-foot-tall Freedom Tower, now scheduled for completion in 2012.
The deal, for $10.6 million, would produce the single greatest concentration of power — 4.8 megawatts — generated by UTC fuel cells at one site and one of the biggest fuel cell installations in the world, the parties said.

The company's biggest existing installation — seven 200-kilowatt fuel cells capable of generating 1.4 megawatts — is also in New York state, at a Verizon facility on Long Island. One megawatt is enough power for 800 to 1,000 average homes.

The generating capacity of the fuel cells at the trade center site represents a small fraction of the total power needs of the planned towers. But the use of fuel cells in so prominent a project appears to offer a significant endorsement of the technology, which has struggled to find widespread market acceptance.

The New York Power Authority, which negotiated the trade center deal, is the first announced customer for UTC Power's newest fuel cell unit, which can produce 400 kilowatts of power, twice as much as its predecessor. The new model is not yet in production, but the company is scheduled to deliver the first units for the Freedom Tower next year.

"This is the day you dream about," UTC Power President Jan van Dokkum said in an interview after the announcement. The company expects to announce several other deals soon, he said.
Fuel cells combine hydrogen and oxygen to create electricity, heat and water. The process requires natural gas, but doesn't burn it, and gives off almost no carbon dioxide. The fuel cells will recycle their heat for use in the trade center towers' heating and cooling systems, further reducing demand on the power grid.

Promoted for their ability to generate electric power independent of fossil fuel-burning power plants and without creating hazardous byproducts, fuel cells have yet to spark widespread demand, in part because of their expense.
UTC Power declined to say how much it charges for a complete fuel cell unit. At $10.6 million for the delivery and commissioning of 12 fuel cells, the power authority would pay nearly $900,000 for each.

Since the early 1990s, UTC Power has sold about 270 fuel cells for use in buildings. Some are no longer in service. The company also makes them for use in vehicles, such as city buses.
UTC Power expects that rising energy costs will make fuel cells more attractive and that as production volume increases, prices will come down.
Michael Saltzman, a spokesman for the power authority, was unable to say Wednesday what percentage of the towers' total estimated power need would be met by the fuel cells. He said it was small.

The authority, which provides electricity for use by government agencies in New York City, has long been an advocate of fuel cells as one method of reducing reliance on the electric grid. It has bought them from UTC Power for use in several facilities, mostly small ones, such as wastewater treatment plants, hospitals and the Central Park police station, which relies entirely on a fuel cell for power.

A UTC Power fuel cell unit will soon be installed at the Bronx Zoo's lion house.
The Port Authority of New York and New Jersey is the landlord for the trade center site and is building the Freedom Tower, the first of the towers to rise at the Lower Manhattan site. Developer Larry Silverstein is building three other towers on the site and others in the area.
Otis has contracts to provide at least 87 elevators and two escalators for trade center redevelopment projects, a spokeswoman said. Carrier officials could not be reached for comment Wednesday.

United Tech hiking prices at building units -exec

Diversified U.S. manufacturer United Technologies Corp (UTX.N: Quote, Profile, Research) is pushing through price increases at most of its construction-related businesses, a top executive said on Tuesday.
"We're pushing price across most of our businesses on the commercial side and it's actually getting traction," said Greg Hayes, vice president of accounting and finance. "You have to push price when costs go up."
The company's commercial units include Otis and Carrier, which are respectively the world's largest makers of elevators and air conditioners, as well as refrigeration, security and fire-safety systems used in commercial buildings.
The Hartford, Connecticut-based company said on Monday that Carrier would be raising prices by about 6 percent in North America by mid-July.
Hayes said the company was facing higher costs for copper, steel and aluminum as well as higher transportation costs as a result of surging energy prices. Overall materials inflation has outpaced its expectations so far this year, he said.
United Tech also makes jet engines and helicopters. (Reporting by Scott Malone; Editing by Braden Reddall)