Strength in diversity for industrial conglomerate
Six global brands strengthen UTC's resilience in uncertain markets
Six global brands strengthen UTC’s resilience in uncertain markets
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.”
Aviation engine giants collaborate
There has been another significant milestone for UTC this year aside from the acquisition of GF Goodrich, namely the restructuring of its participation with Rolls-Royce in International Aero Engines (IAE), which produces the V2500 engine for the Airbus A320 family of aircraft.
In a deal that is described as ‘win-win’ for both parties, Rolls-Royce will sell its shares in IAE to Pratt & Whitney for $1bn. In addition to the cash, Rolls-Royce will receive an agreed payment for each hour flown by the current installed fleet of V2500-powered aircraft for 15 years from completion of the transaction.
Pratt & Whitney may offer some of the shares to its IAE partners MTU Aero Engines and Japanese Aero Engines Corporation.
Since its creation almost 30 years ago IAE has become a major force in international aviation with around 4,500 V2500 engines in service and approximately 2,000 on order.
However the deal does not end the collaboration between the two engine giants. Pratt & Whitney and Rolls-Royce have formed a new partnership to power future mid-size aircraft. They will establish a joint venture company, in which each will hold an equal share, to develop new engines for the next generation of aircraft that will replace today’s mid-size fleet. This is a fast-growing segment with predicted demand for around 20,000 new aircraft (or nearly 45,000 engines) over the next 20 years.
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