United Technologies Raises Targets, Waits on Rockwell Merger --3rd Update

By Thomas Gryta

United Technologies Corp. sought to reassure investors that its core businesses are performing well even as the company's $23 billion takeover of Rockwell Collins Inc. hangs in regulatory limbo.

The conglomerate, which makes Pratt & Whitney jet engines and Otis elevators, said Tuesday its third-quarter profit dropped 7% as higher costs offset a 10% jump in revenue. Excluding acquisitions, the company said organic sales rose 8% from a year ago.

United Technologies raised its financial targets for the rest of its fiscal year. Chief Executive Greg Hayes said he expects the Rockwell Collins deal to "happen shortly" and that he doesn't see any drama in the deal's review in China. On a conference call Tuesday, he said the deal should close in two to six weeks.

The year-old deal received U.S. regulatory approval earlier this month, but remains under review by Chinese authorities. The delays have stoked speculation that the transaction's approval could become entangled in trade tension between the U.S. and China.

The company hasn't heard anything from Chinese regulators "that would cause us to believe there is any political issues that is holding up approval on our deal," Mr. Hayes said.

He said the approval from the Justice Department came later than expected, which delayed the Chinese review process.

"Bottom line, we are still within our expected timing range for China," he said. UTC had said in mid-September that it still expected the deal to close in September. In May, Mr. Hayes said the acquisition should close in June or July.

Mr. Hayes said the delay hasn't slowed work on its portfolio review, in which it will decide on splitting into separate units. He said he expects to reveal the results of the review by mid-November, but that the board won't make a final decision until the Rockwell Collins deal is closed. United Technologies owns one of the world's biggest jet-engine makers, Pratt & Whitney, along with Otis elevators and Carrier air conditioners.

The review isn't complete, but Mr Hayes said the outcome "will not surprise anyone" and stressed his preference for a breakup.

"I've made my views clear, I think focused businesses tend to do better over the long term," he said. The decision to separate would mean exploring all options including selling businesses.

He said some businesses like Otis and Climate Controls & Security might be hard to sell because of antitrust concerns for many buyers.

United Technologies boosted its 2018 adjusted earnings outlook to a range of $7.20 to $7.30 a share, up from a previous view of $7.10 to $7.25 a share. It also raised the low end of its 2018 sales projection by $500 million and now expects $64 billion to $64.5 billion. Its free cash flow goal of $4.5 billion to $5 billion is unchanged.

Analysts expected 2018 earnings of $7.23 on revenue of $64.6 billion.

The company didn't give formal guidance for 2019 but expects growth across its divisions and hasn't changed its expected benefits from the Collins deal. It wouldn't have significant share repurchases as it focuses on cutting debt in coming years, it said.

Third-quarter net income slipped to $1.24 billion, from $1.33 billion a year earlier. The results were weighed down by restructuring charges. Total revenue rose to $16.51 billion, up from $15.06 billion a year ago. Both profit and sales exceeded Wall Street's expectations.

The company's Otis elevator division continued to struggle as business slowed in South Korea. In China, Otis reported sales rose for the first time since 2015 and prices are stabilizing on new orders.

Otis sales rose for the quarter, but operating profit fell. Margins dropped more than two percentage points as material and labor costs rose. UTC will look at "structural actions," including facility closures, if results don't show expected improvement in the fourth quarter.

United Technologies' shares rose 1.6%, to $128.45, in late-morning trading.

Write to Thomas Gryta at thomas.gryta@wsj.com

(END) Dow Jones Newswires

October 23, 2018 12:02 ET (16:02 GMT)

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