October 20, 2015 / 11:20 AM / 2 years ago

United Technologies profit beats forecasts; buyback, restructuring planned

4 Min Read

The ticker symbol for United Technologies is displayed on a screen on the floor of the New York Stock Exchange July 20, 2015.Brendan McDermid

(Reuters) - United Technologies Corp (UTX.N) reported a drop in third-quarter profit that still beat analyst expectations, and its chief executive said the industrial manufacturer would announce a significant restructuring before the end of the year.

The U.S. aerospace and building systems conglomerate also revealed plans on Tuesday to buy back $12 billion of its stock, sending its shares up 4.9 percent to $96.51 in afternoon trading.

"Significant additional restructuring actions" will be announced in the fourth quarter, Chief Executive Greg Hayes told analysts on a conference call. "We have seen some opportunities to do some longer-term structural cost reduction."

The company will seek to cut overhead costs, but the focus will be on "factory rationalization," Hayes said.

He said the company would provide more details in December.

Edward Jones analyst Jeff Windau said there were likely restructuring opportunities "across the board," while noting that United Technologies' commercial buildings segment had faced challenges in China and Europe.

"They’re trying to do what they usually do which is aggressively control costs, and maybe they’re doubling down in that respect to manage to a higher earnings figure," said Moody's analyst Russell Solomon.

The company backed its 2015 profit forecast, after cutting it three times earlier in the year, which had driven the stock down some 20 percent this year through Monday.

Including $4 billion in repurchases made so far this year, United Technologies said it would expect to complete $16 billion of share repurchases through 2017.

The new buyback includes a $6 billion accelerated share repurchase using proceeds from its sale of its Sikorsky helicopter unit to Lockheed Martin (LMT.N), which United Technologies expects to close in the fourth quarter.

Deals Still Possible

"There is such a disconnect between the trading price and the intrinsic value that we find that doing share buyback is the best M&A that we can do in the short run," Hayes said in an interview.

Even with the share repurchase, Hayes said United Technologies could still make acquisitions.

"We’re looking at those deals in the $1 (billion) to $5 billion range and clearly we have the capacity to continue to do those deals," Hayes said.

For the third quarter, United Technologies said net income fell to $1.36 billion from $1.85 billion a year ago.

Earnings from continuing operations declined to $1.61 per share from $1.93 a share a year ago. Analysts, on average, were expecting $1.55 a share, according to Thomson Reuters I/B/E/S.

Revenue fell 5.7 percent to $13.79 billion, about $770 million below analysts' expectations.

Sales fell 1 percent, excluding the negative impact from currency swings. The company cited a delay in jet engine deliveries for its Pratt & Whitney division that it expects to recover in the fourth quarter.

"Considering the revenue headwinds that UTX faced in the quarter, we view this as a good operating performance," RBC Capital Markets analyst Robert Stallard said in a research note.

Reporting by Lewis Krauskopf in New York; Editing by Bernadette Baum

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