UTX United Technologies Corporation

By Thomas Gryta and Dave Sebastian 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (July 24, 2019).

United Technologies Corp. executives defended their deal making and slightly raised the company's 2019 profit outlook on the strength of its aerospace business.

The industrial conglomerate is pursuing a restructuring that will split it into three companies by mid-2020. It also closed its acquisition of aircraft-parts maker Rockwell Collins late last year, and last month agreed to merge with defense contractor Raytheon Co.

Activist investors have attacked the Raytheon deal, in particular, saying United Technologies risks losing its focus. But in an interview, finance chief Akhil Johri deflected the criticism.

"Things are starting to come together," he said. "The investments are paying off."

The Farmington, Conn.-based company also is dealing with pressures from trade tensions, including higher U.S. tariffs on inputs, and the grounding of Boeing Co.'s MAX jets . In the recent quarter, the company said increased volume and pricing for some of its products offset tariff costs.

United Technologies provides numerous parts for the Boeing airplane and still expects an earnings reduction of as much as 10 cents a share for 2019 if production of the aircraft continues at current rates, which Mr. Johri said is likely.

He said the new Collins Aerospace division and its aftermarket business are benefiting from the grounding as airlines and maintenance shops make sure they have plenty of spare parts to keep their non-MAX fleet flying. For the MAX components Collins makes, the company is relying on Boeing to lead the way, Mr. Johri said.

"We are doing what Boeing tells us," he said. "We do things as per their instructions."

United Technologies aimed to narrow its focus by splitting off its Otis elevator and Carrier air-conditioner businesses. But since the Raytheon deal was announced, activist investors Pershing Square Capital Management and Third Point LLC have criticized the company for branching out again.

"Yes, we understand some of our shareholders' concerns that it dilutes in the near term," Mr. Johri said Tuesday. But for long-term shareholders with a horizon of five years or more, he said, "this deal would be something that people would be supporting."

Short-term investors, he said, can expect the company to return $18 billion to $20 billion in cash to shareholders over three years, almost double what Raytheon and United Technologies as separate companies could do in total.

Mr. Johri conceded it could take some time for investors to appreciate the company's strategy. "It was a surprise," he said of the decision to merge with Raytheon. "It took me a couple of months to get my head around the benefits of this."

Chief Executive Greg Hayes said on a conference call Tuesday that the Raytheon deal will give the new company "the scale to compete anywhere" in the aerospace sector. He said the separation of Otis and Carrier remains on track.

United Technologies reported a second-quarter profit of $1.9 billion, down from $2 billion a year earlier. Adjusted per-share earnings of $2.20 exceeded the $2.05 consensus estimate from analysts, according to Refinitiv. Revenue rose to $19.63 billion from $16.7 billion.

The company projected 2019 adjusted earnings of $7.90 to $8.05 a share, up from previous guidance of $7.80 to $8 a share. Its sales expectations held at $75.5 billion to $77 billion.

Otis saw improvement in China, Mr. Johri said, but Carrier's business grew more slowly than expected on weakness in the Middle East, the Americas and Europe. He said broader economic pressure in Europe is expected to hurt results across the entire business.

United Technologies now expects $600 million in savings from the Collins deal this year, an increase of $100 million. The combined company, valued at more than $100 billion after planned spinoffs, would be the world's second-largest aerospace-and-defense company by sales behind Boeing.

Write to Thomas Gryta at thomas.gryta@wsj.com

(END) Dow Jones Newswires

July 24, 2019 02:47 ET (06:47 GMT)

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