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United Technologies (UTX)
Q3 2012 Earnings Call
October 23, 2012 8:00 am ET
Gregory J. Hayes - Chief Financial Officer and Senior Vice President
Joseph B. Nadol - JP Morgan Chase & Co, Research Division
Jeffrey T. Sprague - Vertical Research Partners Inc.
Carter Copeland - Barclays Capital, Research Division
Douglas S. Harned - Sanford C. Bernstein & Co., LLC., Research Division
Howard A. Rubel - Jefferies & Company, Inc., Research Division
Heidi Rolande Wood - Morgan Stanley, Research Division
Myles A. Walton - Deutsche Bank AG, Research Division
Cai Von Rumohr - Cowen and Company, LLC, Research Division
Ronald J. Epstein - BofA Merrill Lynch, Research Division
Robert Stallard - RBC Capital Markets, LLC, Research Division
Shannon O'Callaghan - Nomura Securities Co. Ltd., Research Division
Julian Mitchell - Crédit Suisse AG, Research Division
Samuel J. Pearlstein - Wells Fargo Securities, LLC, Research Division
Previous Statements by UTX
» United Technologies Corp. - Shareholder/Analyst Call
» United Technologies Management Discusses Q2 2012 Results - Earnings Call Transcript
» United Technologies Management Discusses Q1 2012 Results - Earnings Call Transcript
This call is being carried live on the Internet, and there is a presentation available to download from UTC's website at www.utc.com.
Please note the company will speak to results from continuing operations except where otherwise noted. They will also speak to segment results adjusted for restructuring and onetime items as they usually do.
The company also 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 J. Hayes
Okay, thank you, Stephanie. Good morning, everyone. You saw on the press release this morning, third quarter earnings per share of $1.37 is down 4% versus 2011. The Goodrich acquisition, previously anticipated to be about $0.10 diluted in the quarter, did not have an impact on EPS due to lower onetime deal-related costs, lower amortization and better underlying performance of the business. IAE also had a solid performance in the quarter and contributed $0.03 of EPS.
Restructuring charges were also lower than we expected due to a shift in the timing from the third to the fourth quarter and were completely offset by onetime gains. There was also a $0.04 benefit versus prior year on the tax line in the third quarter, which we talked to you about in our September investor meeting. The year-over-year benefit from restructuring and taxes nearly offset the $0.07 adverse impact from foreign exchange and a 2% decline in organic sales, driven mainly by the slowing global economy and a decline in U.S. defense spending.
Organic sales declined 12% at Sikorsky and were down 1% and 2%, respectively, at Otis and Climate, Controls & Security. Organic sales at Aerospace Systems were up 6% but as you heard from Dave Hess, we've yet to see a recovery in Pratt's large commercial engine aftermarket business. Organically, Pratt & Whitney's large spares sales declined 25% in the quarter, and we now expect the full year to be down high teens.
For UTC, we now expect full year sales of approximately $58 billion at the low end of our previous guidance range, driven by lower organic sales and partially offset by favorable FX compared to our last forecast.
In spite of the top line softening, we continue to expect earnings per share of $5.25 to $5.35 for 2012. With a solid start at Goodrich, better visibility on the amortization and lower-than-expected deal costs, we estimate that Goodrich dilution, excluding the impact of share repurchase, will be approximately $0.10 for 2012 as opposed to our prior expectation of $0.20. That's about $125 million better. And we expect a $50 million pretax benefit from our full year tax rate of 29%. That's 50 basis points lower than our previous guidance.
Against an uncertain macroeconomic environment headed into 2013, we are preemptively increasing restructuring by $100 million in the fourth quarter. We now plan to invest $600 million this year, up from our previous estimate of $500 million. And for the full year, we now expect restructuring to be equal to onetime gains. And as spare order rates have remained depressed at Pratt & Whitney, we're also lowering Pratt's operating profit estimate by $75 million for the year.
So let me sum it all up. There's $175 million of upside; that's Goodrich, $125 million; and the tax rate of $50 million, offset by $100 million of additional restructuring and $75 million of headwind from Pratt commercial spares. There's also some favorability from the weaker dollar versus our previous FX guidance and this should help offset potentially softer top line at some of the commercial units.
Okay, now on to Slide 2, the third quarter. Total sales were up 6%, with acquisitions net of divestitures contributing 11 points of growth. The net acquisition benefit more than offset 3 points of unfavorable FX and 2 points of organic decline. The drop in organic sales is just a reflection of the global economic environment. North America is still struggling to gain traction, a slight recession in Europe and slowing growth in emerging markets.
At the commercial businesses, North American organic sales were flat in the quarter and are only up 1% year-to-date. In Europe, in the commercial businesses, sales are actually down 3% while sales in the BRIC countries grew 2%. That was driven by double-digit growth in Russia and India.
In Aerospace, robust commercial OEM organic growth was more than offset by weakness in the commercial aftermarket and military businesses. Commercial OEM sales were up 14%, led by double-digit growth in Aerospace Systems and Sikorsky. Commercial aftermarket, however, was down 14%, with the mid-teens decline at Pratt & Whitney more than offsetting mid-single digit growth at Aerospace Systems and 20% growth at Sikorsky. Sikorsky continues to feel the impact of reduced DOD spending with military sales down nearly 20% while Pratt & Whitney saw military sales up 20% on the back of F119 spare engine deliveries, which will wrap up later this year.