By Ted Mann And Angela Chen
United Technologies Corp. Chief Executive Gregory Hayes
delivered disappointing second-quarter results in which the company
cut its annual earnings forecast after overestimating its airplane
aftermarket business and banking on an economic rebound in Europe
that failed to arrive.
Shares of the company fell more than 7% in midday trading. The
maker of Pratt & Whitney jet engines, Otis elevators and
Carrier air conditioning equipment reported a 5% decline in
second-quarter sales, driven by weakness in its Otis elevator unit,
which struggled in Europe and slowed in China, as well as the
negative effect of the strong dollar.
"To say that I'm disappointed would be a significant
understatement," Mr. Hayes said on a conference call Tuesday. "I'm
tired of delivering bad news."
The results are a setback for Mr. Hayes' planned turnaround for
the company and come a day after it announced the $9 billion sale
of its Sikorsky helicopter unit. Mr. Hayes, who took over the
company in November after the abrupt departure of former CEO Louis
Chenevert, has reshuffled leadership in a bid to help the company
deliver on its big bets on aerospace and building systems.
The company was dogged by what Mr. Hayes called an "awful" miss
in its unit, which supplies parts and systems for commercial and
military aircraft. After two years of solid growth, the unit had
projected 10% growth this year. But after sales of spare parts and
equipment for new aircraft like the Boeing 787 dropped and other
new aircraft launches were delayed, United Technologies is
forecasting a 10% sales decrease and cut its operating profit
forecast for the unit for the year between $25 million to $75
million.
The company had tried to signal its concerns about the aerospace
aftermarket business at the Paris Air Show in June, Mr. Hayes said,
but even then hadn't been able to predict how far under the target
the company would fall. But he said the company believes its new
targets are conservative and achievable.
"It's disappointing for us and disappointing for me personally,"
Mr. Hayes said in an interview. "We'll take our medicine today and
get this bad news out there."
At Otis, United Technologies has been coping with the slowing of
growth in China, which has been a robust market for the sale of new
elevators and escalators, but where the company is under pressure
to grow its service business, which could help boost profits as the
rate of new real-estate development falls.
The company said profit at the Otis elevator unit will be
between $300 million and $350 million lower than previously
thought. Last year, Otis had operating profits of $2.6 billion.
Mr. Hayes said Otis needs to increase its market share in China
and in Europe, where 1.1 million of the company's 1.9 million
installed elevators are located, rather than simply focusing on
profit margins.
"We have seen continuous erosion of Otis market share as we have
chased profit margin," Mr. Hayes said. In China, where the company
once estimated it had about 25% of the market, Otis now has
"probably less than 15," Mr. Hayes said.
With the Sikorsky deal, Mr. Hayes said he is done trimming the
conglomerate's portfolio, and wants to grow through new
acquisitions. United Technologies has a $1 billion placeholder for
acquisitions, but Mr. Hayes indicated he would aim higher.
Mr. Hayes said he plans to use most of the $6.2 billion United
Technologies will get from the sale after taxes to buy back shares,
as a way to replace the lost earnings from the sale of the unit,
which makes the military's iconic Black Hawk.
The company lowered its per-share earnings forecast to $6.45 to
$6.60 for the year from operations, down from an earlier forecast
of $6.55 to $6.85. Overall, the company reported a 8% fall in
profit to $1.54 billion from a year earlier. Total sales fell to
$16.33 billion from $17.19 billion.
Write to Ted Mann at ted.mann@wsj.com and Angela Chen at
angela.chen@dowjones.com
Access Investor Kit for United Technologies Corp.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US9130171096
Subscribe to WSJ: http://online.wsj.com?mod=djnwires