United Technologies Corporation (UTX)

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United Technologies (UTX)

Q2 2011 Earnings Call

July 20, 2011 9:00 am ET

Executives

Akhil Johri - VP, IR

Gregory Hayes - Chief Financial Officer and Senior Vice President

Analysts

Cai Von Rumohr - Cowen and Company, LLC

Robert Stallard - RBC Capital Markets, LLC

Howard Rubel - Jefferies & Company, Inc.

Terry Darling - Goldman Sachs Group Inc.

Ronald Epstein - BofA Merrill Lynch

Joseph Nadol - JP Morgan Chase & Co

Douglas Harned - Sanford C. Bernstein & Co., Inc.

Jeffrey Sprague - Citigroup

Joseph Campbell - Barclays Capital

Julian Mitchell

Samuel Pearlstein - Wells Fargo Securities, LLC

Myles Walton - Deutsche Bank AG

Deane Dray - Citigroup Inc

Presentation

Question-and-Answer Session

Joseph Campbell - Barclays Capital

I think that's just what people wanted to hear, and I think the way that Otis responds will probably be indicative of the way in which you'll recover from this. And it seems although the tabloids are all over this and it just doesn't seem to want to go away, as long as this is working sort of hand-in-hand with the authorities, it should over time go away, I would guess.

Gregory Hayes

Yes, I think the key is to work with the customers and to make sure this never happens again and to make sure that our systems are in place from a supplier quality standpoint that this kind of escape can never happen. But again, I think Otis is on top of this, and they're doing all the right things.

Joseph Campbell - Barclays Capital

Just back to the AMR thing again. So are the regular A320s, do you think an opportunity for IAE? Or as -- or are we talking about when you say there's still a competition, you're talking about those 130 neos and 300-and-some-odd options for neos?

Gregory Hayes

Well, Joe, I think those are all up for grabs. The A320 family is the first they'll be in the American fleet, and I think IAE will have a good shot at that with the V2500. We're going to pursue that aggressively with our partners as well as the opportunity for the neo. There's no fleet commonality here issue that we have to worry about. So I think we've got a good shot with American. We'll put forth our best foot, and I think we've got a great engine. And we'll hopefully have a good opportunity here.

Joseph Campbell - Barclays Capital

Do we have a sense of when this will happen?

Gregory Hayes

I think it'll be sooner rather than later. I asked Louis that question this morning. I think he mentioned before the end of the summer, we would expect to have some type of decision on the engine selection.

Joseph Campbell - Barclays Capital

But not days or weeks? Not tomorrow, but yes.

Gregory Hayes

I would say again we're seeing mid-July, probably before the 1st of September.

Joseph Campbell - Barclays Capital

Okay, great, terrific.

Gregory Hayes

Well, let me just close out. Again, solid results in the quarter, continued momentum in order trends, all good news. We're confident in our improved outlook and in our ability to outperform peers. So I thank everybody for listening in the earnings call this morning. Akhil and team will be available for you throughout the remainder of the day. So thank you again and have a wonderful day.

Operator

Again, that does conclude today's presentation. We thank you for your participation.

Operator

Good morning, and welcome to the United Technologies Second Quarter Conference Call. On the call today are Greg Hayes, Senior Vice President and Chief Financial Officer; and Akhil Johri, Vice President, Financial Planning and Investor Relations. This call is being carried live on the Internet, and there is a presentation available for download from UTC's home page at www.utc.com.

The company reminds listeners that the earnings and cash flow expectations and any other forward-looking statements provided in this call are subject to risks and uncertainties. UTC's SEC filings, including its 10-Q and 10-K reports, provide details on important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements. [Operator Instructions] Please go ahead, Mr. Hayes.

Gregory Hayes

Okay, thank you, Dana, and good morning, everyone. As you saw on the press release this morning, we had another solid quarter with organic sales growth of 6%, and that's after 9% organic growth in the first quarter. You'll recall that we actually saw the recovery in our sales group start in the second quarter of last year where we saw 4% organic growth. So with 5 consecutive quarters of organic growth under our belt, we're confident now in the sustainability of the recovery in our end markets, and we're confident in our full year forecast organic sales growth of 5%.

Earnings per share in the quarter, $1.45. That's up 21%. Continued focus on cost reduction and operating leverage from higher sales through a segment margin expansion even as we increased investments in engineering and development. It is no surprise that most of that E&D increase was at Pratt & Whitney as we continued to invest in the development of multiple Geared Turbofan platforms.

We're clearly operating in a better economic environment than a year ago. However, most measures still point to a slow and uneven recovery. High unemployment, a weak housing sector and a deficit standoff in Washington all continue to dampen consumer sentiment here in the U.S. Our European sovereign debt worries still plague financial markets and constrain government spending in the EU.

On the other hand, emerging markets continue on their growth trajectories even with the adoption of cooling measures by the various governments to hold down inflation. And importantly, airlines continue to fill seats in spite of higher airfares.

So with this uneven economic backdrop, we continue to see sales and order rates consistent with our full year expectations for most of our businesses. Carrier's Transicold business remains exceptionally strong, more than offsetting a softer U.S. residential HVAC market. This improved Carrier outlook, along with the translation-related benefits from a weaker U.S. dollar, gives us confidence to raise the sales and earnings outlook for 2011 one more time. We now expect sales of around $58 billion. That's up from $57 billion we've previously estimated, and now up nearly 7% from 2010. We also expect 2011 EPS to be in a range of $5.35 to $5.45. That's up from our previous guidance of $5.25 to $5.40. That's a range of 13% to 15% up over 2010.

The foreign exchange has clearly been a benefit so far this year, and the Euro has averaged $1.40 for the first half of the year as compared to our original assumption of $1.35. So now we're assuming that we're going to continue to see this year average of $1.40 for the balance of the year. This FX benefit and the improved Carrier outlook will more than offset additional engineering and development investments at Pratt & Whitney and a lower outlook at Fire & Security in our increased guidance.

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