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'Tough' 2Q expected for United Technologies

Tue, 07/24/2012 - 8:13am
STEPHEN SINGER - AP Business Writer - Associated Press

United Technologies Corp. will release its second-quarter earnings results before the markets open on Thursday.

WHAT TO LOOK FOR: The conglomerate, based in Hartford, Conn., makes jet engines, elevators, heating and cooling equipment for homes and businesses and other aerospace and building systems. It's in the process of selling several businesses to help finance its largest acquisition to date; $16.5 billion for aerospace supplier Goodrich Corp. in Charlotte, N.C.

Cowen and Co. analyst Cai von Rumohr said recently that more details about the Goodrich deal "could outweigh a well-advertised tough" second quarter.

United Technologies announced Monday it's selling its rocket propulsion business for $550 million. Industrial businesses of its Hamilton Sundstrand segment and a wind power company also are up for sale.

The company has warned of slowing economic growth in the United States, China and Europe, the impact of rising oil prices on airline customers and the debt crisis in Europe. Chief Financial Officer Greg Hayes told investor analysts last month that orders for Otis elevator in China are down about 20 percent since June 2011.

And he said India's economy is "a little bit more uncertain" following the devaluation of the rupee in the last four years.

Von Rumohr said aerospace and defense contractors — United Technologies' Pratt & Whitney sells military jet engines and Sikorsky Aircraft manufactures the Black Hawk — should produce "decent" second-quarter results. But Congress seems unlikely to resolve the threat of automatic defense spending cuts until late this year, he said, "making it a growing overhang for stocks."

Edward Jones analyst Matt Collins said in a client note that a key risk to his "Buy" rating is a "muted rebound" in commercial aerospace and commercial construction markets. The conglomerate's overseas operations also expose it to currency and geopolitical risks, he said.

WHY IT MATTERS: United Technologies' markets span aerospace, defense and home and commercial real estate markets and the conglomerate's reach extends into emerging markets in China and India, its results indicate how key segments of the domestic and international economies are performing.

WHAT'S EXPECTED: United Technologies is expected to post lower profit and revenue in the second quarter than last year's comparable period. Analysts polled by FactSet expect United Technologies to earn $1.42 per share on revenue of $14.5 billion, compared with $1.45 per share and revenue of $15.08 billion in last year's April-June period.

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