United Technologies (UTX – Free United Technologies Stock Report), a Dow-30 member that makes a bevy of industrial goods from escalators to jet engines, has reported fourth-quarter financials that missed expectations on both the top and bottom lines. The company did reiterate its guidance for 2017, which likely pleased some investors given the slow and volatile backdrop that most large industrials are seeing. Nonetheless, the shares were down slightly in early morning trading.
Revenues for the three-month period tallied $14.659 billion. That number was shy of our $14.725 billion estimate, as well as Wall Street's expectation, which was a tad lower. The figure was, however, up from the $14.3 billion registered in the same quarter of 2015. UTX has been dealing with sluggish revenue growth as it navigates the choppy global economy with the headwind of a strong U.S. dollar gusting heavily. Sales of everything from elevators to aircraft parts have been modest of late. Too, troubles on its new jet engine line grabbed headlines due to a shortfall. Originally, the Pratt & Whitney division was supposed to produce 200 of its new geared turbofan turbines in 2016. After production issues arose during the year, that amount was trimmed to 150. The unit delivered 138 of these new engines when all was said and done. Reports indicate that Bombardier (BBDB.TO) and Airbus were satisfied with this level of output, but the company needs to improve its production for 2017. Already, an aggressive target of 350-400 deliveries has been set for this year. We will be monitoring this situation closely. Even still, sales at Pratt & Whitney were up 4% during the December quarter. Elsewhere, new equipment orders at Otis, the elevator branch, have stagnated. A construction slowdown in China undermined results and prompted this metric to post a flat showing in the fourth quarter.
Share earnings clocked in at $1.56 for the December period, handsomely above the $1.37 put up in the final quarter of 2015, but shy of our call, which had risen to $1.68 in recent weeks. Profitability took a hit from the strength of the greenback, and 2016 will likely be looked back upon as the year that set up future gains. There are new heads in both the elevator and climate divisions and the portfolio has been reshaped under the leadership of CEO Gregory Hayes. The most noticeable part of this transformation was the $9 billion sale of the Sikorsky helicopter arm to Lockheed Martin (LMT). Cost reductions and disciplined capital allocation were stressed on the conference call and will be two hallmarks of operations as 2017 gets under way.
Management is sticking to the 2017 guidance ranges it provided a few weeks ago. It expects revenues to land between $57.5 billion and $59.0 billion. Too, the earnings spread was placed from $6.30 to $6.60 per share. For years, leadership has set the bar low with its initial guidance in hopes of hurdling it as the year progresses, and we see 2017 shaping up in a similar pattern. With that, we are maintaining our EPS target for 2017 at the apex of the provided range, or $6.60. Conversely, we are a bit hesitant about top-line growth, as the U.S. dollar remains a concern and global spending still weighs heavily on the situation. Therefore, we are slicing $110 million from our revenue estimate, which now sits at $58.75 billion. Other factors that will shape the 2017 showing include management's plan to earmark a few billion dollars for share repurchases and a similar amount for acquisitions. There has not been a huge splash purchase-wise since Goodrich in 2012 and with cash coffers at elevated levels (especially after the Sikorsky move), we would not be surprised if there are some irons in the fire as we speak.
We like UTX stock for a number of portfolios, but at current price points it is best served as a total-return play. The dividend is well-supported and should grow steadily out to decade's end. This stipend will soothe investor's jitters while the transformative period wears on and then mix with decent appreciation potential three to five years hence. Finances are excellent and it receives our Highest (1) ranking for Safety, so those with a conservative bent should be first in line.
About The Company:United Technologies operates in four business segments: Pratt & Whitney (revenues of $14.1 billion in 2015) makes and services aircraft engines; Otis ($12.0 billion) manufactures and services elevators; UTC Climate ($16.7 billion) makes heating, ventilating, and air-conditioning equipment; and UTC Aerospace ($14.1 billion) produces aerospace and industrial products.
