United Technologies Corp. Reports Operating Results (10-Q)
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 $59.5 billion; its shares were traded at around $65.9 with a P/E ratio of 13.5 and P/S ratio of 1. The dividend yield of United Technologies Corp. stocks is 2.5%. 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 14% in the third quarter of 2009, as compared with the same period of 2008. This year-over-year decline includes the adverse impacts of higher restructuring charges (7%), adverse foreign currency translation combined with the impact of currency hedges at P&WC (combined 5%), and net divestitures (1%). To help mitigate the impact of the global economic downturn and better position us for the future, we continue to focus on restructuring and cost reduction actions. During the third quarter of 2009, we incurred restructuring charges of $231 million for actions to help mitigate the volume declines and to reduce structural and overhead costs across all of our businesses. We now expect full year restructuring costs to total approximately $800 million, including the $695 million of charges incurred in the first nine months of 2009. However, no specific plans for significant other actions have been finalized at this time. In addition to savings from restructuring, we are seeing benefits from other cost reductions, in areas such as travel, furloughs, research and development and employee attrition. This continued focus on costs that are within our control, including restructuring, has resulted in approximately $950 million of discrete cost reductions in the first nine months of 2009.
Our growth strategy contemplates acquisitions. The rate and extent to which appropriate acquisition opportunities are available, acquired businesses are effectively integrated and anticipated synergies or cost savings are achieved, can affect our operations and results. During the first nine months of 2009, our investment in businesses was approximately $557 million. Investments in the third quarter of 2009 amounted to $360 million, primarily reflecting the acquisition of additional shares of GST Holdings Limited (GST), a fire alarm system provider in China. The acquisition of these additional shares in GST increased our share ownership from 29% to 99% and further strengthens UTC Fire & Securitys presence in the Chinese fire safety industry. The remainder of our investment in businesses for the first nine months of the year consisted of a number of small acquisitions in both our commercial and aerospace businesses. We recorded the excess of the purchase price over the estimated fair value of the assets acquired as an increase in goodwill. As a result of acquisition activity, goodwill increased approximately $ 531 million in the first nine months of 2009.
Other income, net for the third quarter of 2009 includes a gain at Carrier of approximately $57 million as a result of a contribution of the majority of its U.S. residential sales and distribution businesses into a new venture and favorable pretax interest income adjustments of approximately $17 million related to global tax examination activity in the quarter. The favorable pretax interest income adjustments primarily relate to the completion of our review of the 2004 to 2005 Internal Revenue Service (IRS) audit report. The year-over-year change in other income, net of the above mentioned gains, primarily reflects lower hedging costs on our cash management activities partially offset by lower net year-over-year change in gains generated from business divestiture activity and lower interest income across the businesses. Other income, net in the third quarter of 2008, includes a $37 million non-cash gain recognized on the sale of a partial investment at Pratt & Whitney. The balance of other income is comprised of joint venture income, royalties, and other miscellaneous operating activities.
The increase in interest expense for the first nine months of 2009 as compared to the same period of the prior year is primarily the result of the issuances of $1.25 billion and $1.0 billion of long-term debt in December and May 2008, respectively, both bearing interest at 6.125% partially offset by the absence of interest expense caused by the redemption in February 2009 of our $500 million of LIBOR+.07% floating rate notes due 2009 and the repayment in June 2009 of our $400 million of 6.500% notes due 2009. Interest expense also reflects the lower cost associated with our commercial paper borrowings.
Read the The complete ReportUTX is in the portfolios of David Williams of Columbia Value and Restructuring Fund, David Williams of Columbia Value and Restructuring Fund, Kenneth Fisher of Fisher Asset Management, LLC, Kenneth Fisher of Fisher Asset Management, LLC, David Dreman of Dreman Value Management, Dodge & Cox, Jean-Marie Eveillard of Arnhold & S. Bleichroeder Advisers, LLC.