United Technologies Corporation (UTX)

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United Technologies Corporation (UTX)

December 15, 2011 6:00 pm ET

Executives

Akhil Johri - Vice President, Financial Planning and Investor Relations

Gregory J. Hayes - Chief Financial Officer and Senior Vice President

Louis R. ChĂȘnevert - Chairman, Chief Executive Officer, President, Chairman of Executive Committee and Member of Finance Committee

Geraud Darnis - Chief Executive Officer of Climate, Controls & Security Systems and President of Climate, Controls & Security Systems

Analysts

Unknown Analyst

Presentation

Operator

Good evening. Welcome back to the Asia Society for the annual investor update by UTC. Before we get started, just a couple of housekeeping details. First of all, tonight's presentation is being carried live on the web. The presentation materials can be found at utc.com. And of course, legal disclaimer presentation will contain forward-looking statements, subject to risks and uncertainties that could cause actual results to differ materially.

Okay, Louis is going to talk about Goodrich in more detail just a few minutes, but let me just take a second to comment on the regulatory process to get that out of the way. As expected, we have received a second request from the U.S. government, and we're working on that response right now. We're also on track with our plans for the filings really around the world, and all of that remains on track. And there's no change to our expectation that we're going to close on Goodrich, probably by about the end of June, mid-2012. And due to the fact that we continue to work on these filings, we're not going to be taking specific questions regarding the regulatory process or other parts of the deal.

Okay. With that, let me just start with 2011, just a quick recap before we get to the guidance and Louis. As a reminder, we're going to talk to all segment results, both on '11 and for '12, adjusted for restructuring and one-time items just like we typically do. So this year, all right, no surprises here, very, very solid year, organic growth 5%, all 6 business units will show organic revenue growth. And all 6 businesses will again have double-digit operating margins for the year.

At the same time, we continue to increase our investments in game-changing technologies, in 4 GTF platforms. The X2 even on the commercial side, the Aurora furniture continue to invest. E&D is up about $275 million plus, for the year. So you have big investments, but the right thing to position the business long term. And again, continued strong execution, and a focus on 2012 with restructuring. And we started out the year with $100 million to $150 million of restructuring. We're now at $300 million plus, as we position the business for the uncertainty that we're seeing to date around the world. Since we released third quarter results back in October, order rates across the business, really no change, in line with what we had expected to see. Obviously, a slowing world economy, we've seen that in the order rates, but not a surprise, so in line with expectations.

And at this point of the year, FX, despite the recent volatility, will not have a significant impact on 2011 results. Full year average about 140, maybe 139. But again, as we sit here towards the end of December, not a big impact.

We had seen ongoing market weakness and productivity issues at F&S. As a result, tonight we're going to take down the F&S guidance one more time this year, unfortunately. So about a growth of $50 million year-over-year from $100 million previously. The good news, if there is, and the story is, the problems have been identified, they're related to productivity, they're related to some restructuring that has been going on in the field in Europe. As you roll in, the team are on top of it. It is fixable. We will fix it. And the business will grow earnings next year.

Offsetting the F&S headwind, we are going to see a little bit of an important improvement in the tax rate of about 0.5. So net-net, no change to the overall guidance for the year. Still see sales up $58 billion -- up to $58 billion, up 7%, EPS, $5.47. That's up $0.15 from last year, and a strong cash flow. Free cash flow will exceed net income for the full year, and we -- despite the fact that we suspended share buyback back in September when we announced the Goodrich acquisition, we still return 70% of free cash flow to share owners this year, in the form of dividends and share buybacks. So a very good year, a solid year, positioning the business for 2012. With that, let me hand this over to Louis ChĂȘnevert, UTC's Chairman and CEO.

Louis R. ChĂȘnevert

Well, thank you, Greg, and good evening to all of you. It's an absolute pleasure. It's hard to believe, it's already been a year, we're back in New York for the annual event. As noted, 2011, another strong year for UTC. Solid execution across the portfolio. We're well positioned to grow the base business going forward. We announced 2 transformational deal in 2011. I'm very proud that we could bring together such property. As Goodrich and IAE, of course, as you heard from Greg, it's in the regulatory approval, but we feel good for our mid-year close in '12.

Three-key points of the deal. Customer feedback has been very positive, integration planning is going very well and not laying the team and the integration group are making great progress, and we're going to be very aggressive to ensure that from day 1, after we close, we hit the ground running, so we're doing all this planning process at this point in time. And definitely, I mean, these transformational deal will drive very strong growth in 2013 and beyond. So 2012 is kind of a transition year. But after that, absence of one-time cost for the deal, and then the earnings momentum, it's going to be very, very good for our shareholder at UTC. Bottom line though, good performance in 2011, and we really laid the foundation for strong earnings growth in the future.

Now let me start this evening, perhaps, and let's look at the overall economic environment. You know, in 2011, world GDP growth was led by emerging markets. Certainly, I'm here to say that 2012, this trend will continue. That's where we see the strong momentum. But even there, with strong, it's moderating growth, as certainly in some of these emerging markets. And across the globe, we'll see uneven growth in 2012.

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