Strength in diversity for industrial conglomerate

Industrial conglomerates have fared better than most in the global financial crisis, driven by pent-up demand. One good example is United Technologies Corporation (UTC), which has reported a 9 per cent leap in third-quarter net income to $1.4bn compared with the same period last year.UTC, based in Hartford, Connecticut, has six principal brands - Carrier, Otis, UTC Fire and Security in the built-environment sector and Hamilton Sundstrand, Pratt & Whitney and Sikorsky in aerospace. These are all multi-billion dollar businesses in their own right. A smaller seventh unit, UTC Power, develops and produces fuel cells for a range of applications but does not report separate financial results.

All six main segments reported sales growth, but Otis, the lift manufacturer, and Sikorsky, which builds commercial and military helicopters, were among the strongest performers.

“This was another solid quarter for UTC, with continued organic sales growth across all six of our businesses,” said Louis Chênevert, UTC chairman and chief executive officer. Cash generation was also strong, improving the year-end outlook for shareholders.

With the help of favourable foreign exchange rates, new equipment orders at Otis were up 19 per cent over Q3 2010 and commercial HVAC (heating, ventilation and air conditioning) new equipment orders at Carrier grew 11 per cent. Commercial spares orders at Hamilton Sundstrand were up 24 per cent and at Pratt & Whitney’s large engine business grew 3 per cent, after growing 35 per cent in the year ago third quarter.

“We announced two transformational deals recently,” Chênevert continued. “The acquisition of Goodrich will bring complementary products of two great companies together to offer more intelligent and more integrated systems for our aerospace customers. The agreement with Rolls-Royce to restructure IAE ownership and to partner on next generation mid-size aircraft engines further validates the game changing Geared Turbofan technology.”

Matt Collins from analysts Edward Jones said the success of the acquisition will depend on the strength of the economy. “If Boeing and Airbus successfully ramp up production over the next five years, Goodrich should be a home run,” he commented.

Despite these excellent results, 2012 looks to be much more difficult for UTC. Reduced US defence spending, increased engineering development costs and continuing uncertainty in the Eurozone make a hefty trio of challenges.

“We have just come out of a very good quarter and we have good growth - I think it is going to be a very good year at UTC,” said Greg Hayes, chief financial officer. “Markets around the world are in line with expectations - the aero markets remain robust, the airlines are making money, if not on tickets then fees. The after sales market continues its recovery that started in the third quarter last year.

“The commercial construction markets are still weak, there’s no surprise there, although the market in China is still strong, driven by social housing projects. Infrastructure projects are not growing and we expect that to continue. Growth will continue in China next year but at a tepid 9 per cent.

“The emerging markets really are providing the lift. That is the beauty of the UTC model. You have got these global brands, a global footprint, and it is tough in some markets but it is better in some others.”

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