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United Technologies Corp. Reports Operating Results (10-Q)

April 24, 2009 | About:

United Technologies Corp. (UTX) filed Quarterly Report for the period ended 2009-03-31.

United Technologies Corporation provides a broad range of high technology products and services to the building systems and aerospace industries. Those products include Pratt & Whitney aircraft engines space propulsion systems and industrial gas turbines; Carrier heating air conditioning and refrigeration; Otis elevator escalator and people movers; Hamilton Sundstrand aerospace and industrial products; Sikorsky helicopters and International Fuel Cells power systems. (Company Press Release) United Technologies Corp. has a market cap of $45.33 billion; its shares were traded at around $48.04 with a P/E ratio of 9.5 and P/S ratio of 0.7. The dividend yield of United Technologies Corp. stocks is 3.2%. United Technologies Corp. had an annual average earning growth of 13.6% over the past 10 years. GuruFocus rated United Technologies Corp. the business predictability rank of 3-star.

Highlight of Business Operations:

The decline in revenue contributed to a consolidated operating profit decline of 25%, as compared with the same period in 2008. The year-over-year decline also reflects the adverse impact of higher restructuring charges (8%) and the impact of foreign currency translation combined with currency hedges at Pratt & Whitney Canada (P&WC) (combined 6%). To help mitigate the impact of this challenging economic environment and better position us for 2010, we continue to focus on cost reduction. During the first quarter of 2009, we incurred restructuring charges of approximately $163 million to help mitigate the volume declines and to reduce structural and overhead costs across the businesses. We expect full year restructuring costs to total approximately $750 million, including the $163 million of charges incurred in the first quarter of 2009. However, with the exception of actions announced in April 2009, no specific plans for significant other actions have been finalized at this time.

2009 Actions. During the first three months of 2009, we initiated restructuring actions relating to ongoing cost reduction efforts, including workforce reductions and the consolidation of administrative offices. We recorded net pre-tax restructuring and related charges totaling $151 million as follows: Otis $21 million, Carrier $35 million, UTC Fire & Security $13 million, Pratt & Whitney $59 million, Hamilton Sundstrand $19 million, Eliminations & Other $3 million and General corporate expenses $1 million. The charges included $74 million in cost of sales, $72 million in selling, general and administrative expenses and $5 million in other income. Those costs included $140 million for severance and related employee termination costs, $6 million for asset write-downs and $5 million for facility exit and lease termination costs.

We expect the 2009 actions that were initiated in the first three months to result in net workforce reductions of approximately 3,900 hourly and salaried employees, the exiting of approximately 300,000 net square feet of facilities and the disposal of assets associated with the exited facilities. As of March 31, 2009, we have completed net workforce reductions of approximately 1,900 employees. We are targeting the majority of the remaining workforce and all facility related cost reduction actions for completion during 2009 and 2010. Approximately 80% of the total pre-tax charge will require cash payments, which we will fund with cash generated from operations. During the first three months of 2009, we had cash outflows of approximately $14 million related to the 2009 actions. We expect to incur additional restructuring and related charges of $13 million to complete these actions. We expect recurring pre-tax savings to increase over the two-year period subsequent to initiating the actions to approximately $180 million annually.

2008 Actions. During the first three months of 2009, we recorded net pre-tax restructuring and related charges and reversals of $11 million for actions initiated in 2008. The 2008 actions relate to ongoing cost reduction efforts, including selling, general and administrative reductions and the consolidation of manufacturing facilities. We recorded the charges (reversals) for the first three months of 2009 as follows: Otis $1 million, Carrier $6 million, UTC Fire & Security $1 million, Pratt & Whitney $5 million, Hamilton Sundstrand ($1 million) and Eliminations & Other ($1 million). The charges and reversals included $8 million in cost of sales and $3 million in selling, general and administrative expenses. Those costs and reversals included $5 million for severance and related employee termination costs and $6 million for facility exit and lease termination costs.

We expect the 2008 actions to result in net workforce reductions of approximately 6,300 hourly and salaried employees, the exiting of approximately 1.2 million net square feet of facilities and the disposal of assets associated with the exited facilities. As of March 31, 2009, we have completed net workforce reductions of approximately 4,800 employees and exited 100,000 net square feet of facilities. We are targeting the majority of the remaining workforce and all facility related cost reduction actions for completion during 2009 and 2010. Approximately 80% of the total pre-tax charge will require cash payments, which we will fund with cash generated from operations. During the first three months of 2009, we had cash outflows of approximately $64 million related to the 2008 actions. We expect to incur additional restructuring and related charges of $48 million to complete these actions. We expect recurring pre-tax savings to increase over the two-year period subsequent to initiating the actions to approximately $400 million annually.

We expect the 2007 actions to result in net workforce reductions of approximately 1,800 hourly and salaried employees, the exiting of approximately 500,000 net square feet of facilities and the disposal of assets associated with the exited facilities. As of March 31, 2009, we have completed net workforce reductions of approximately 1,700 employees and exited 200,000 net square feet of facilities. We are targeting the majority of the remaining workforce and facility related cost reduction actions for completion during 2009. Approximately 70% of the total pre-tax charge will require cash payments, which we will primarily fund with cash generated from operations. During the first three months of 2009, we had cash outflows of approximately $3 million related to the 2007 actions. We expect to incur additional restructuring and related charges of $1 million to complete these actions. We expect recurring pre-tax savings to increase over the two-year period subsequent to initiating the actions to approximately $110 million annually.

Read the The complete ReportUTX is in the portfolios of David Williams of Columbia Value and Restructuring Fund, David Dreman of Dreman Value Management, Kenneth Fisher of Fisher Asset Management, LLC, Kenneth Fisher of Fisher Asset Management, LLC, Jean-Marie Eveillard of Arnhold & S. Bleichroeder Advisers, LLC, Dodge & Cox.

Rating: 4.5/5 (4 votes)

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