UTC's 4Q profits jump 73%; CEO Hayes airs separation plans

Photo | Contributed United Technologies Chairman and CEO Gregory Hayes.

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By Joe Cooper

Farmington conglomerate United Technologies Corp., which plans to split into three separate companies, on Wednesday said its fourth-quarter profits soared 72.7 percent on booming aerospace sales and a favorable U.S. corporate tax rate.

For the quarter ended Dec. 31, the maker of Pratt & Whitney jet engines, Otis Elevators and Carrier air conditioners reported net income of $686 million, or $1.95 a diluted share, compared to $397 million, or $1.60 a diluted share, in the year-ago period.

Net sales jumped 15 percent to $18 billion, surpassing industry forecasts of $16.8 billion.

"2018 was a transformational year for United Technologies," said UTC CEO Gregory Hayes, who announced in November UTC’s plans to break apart by 2020, following its $30 billion acquisition of Iowa-based aviation systems maker Rockwell Collins.

The thriving aviation market drove UTC’s fourth-quarter surge, Hayes said in a conference call Wednesday morning, with newly acquired Rockwell Collins leading sales growth with $4.9 billion in revenues during the quarter, up 29 percent year-over-year.

East Hartford’s Pratt & Whitney posted $5.5 billion in sales, up 24.2 percent; Carrier reported $4.6 billion in revenue, up 2.4 percent; and Otis Elevators posted $3.3 billion in revenue, up 1.5 percent.

UTC said its 2018 organic sales, meaning revenues generated from within the company, grew 11 percent during the year, its largest growth rate in more than a decade.

In 2018, UTC posted full-year sales of $66.5 billion, up 11 percent vs. 2017. Net income in 2018 rose to $5.3 billion, or an increase of 16 percent.

For the first time in over three decades, Pratt in 2018 manufactured over 1,000 large commercial and military engines, which coincides with UTC’s overall 17 percent boost in federal defense revenues.

Meantime, Carrier also launched 100 new products, UTC sold foodservice manufacturer Taylor Co. for $1 billion and Otis for the first time had more than two million maintenance contracts.

UTC is also bullish about its 2019 revenue outlook, projecting sales in the range of $75.5 billion to $77 billion.

Separation plans

UTC currently has 15 teams with about 330 people managing its reorganization process, which Hayes said will increase to 500 people in the next few months.

Based on its work since November’s announcement, Hayes said the conglomerate sees a path to achieve the separation in no more than about 18 months. But UTC has plans to be operationally ready for separation by year-end 2019, he said.

“That means all the systems are in place, all the processes are in place, to actually be able to run the separate companies -- Otis, Carrier, and the remaining UTC,” Hayes said.

The separation closing timeline will be subject to certain tax rulings, with the separation slated for completion no later than May 2020.

Hayes expects integration costs will run between about $2.5 billion to $3 billion, comprised of “significant tax costs,” paying transfer taxes and other taxes worldwide. Transaction costs will be $500 million, including the internal and external staff working to restructure about 1,200 legal entities. Tax refinancing will also cost UTC another $300 million, Hayes forecasted.

Rockwell Collins’ integration with UTC’s aerospace segments -- which will form Collins Aerospace System -- is on pace for competition with “no surprises,” Hayes said.

UTC expects $500 million in cost savings as a result of the Rockwell Collins integration over the next four years. Hayes said the company is eyeing other cost-cutting measures to surpass the projected savings goals

Sticking with Chubb

Also Wednesday, Hayes said the company will, for now, retain its Chubb fire-safety and security business, which it attempted to sell in recent months but halted the planned divestiture due to “market volatility.”

Hayes said the United Kingdom-based producer of sprinklers, smoke detectors and fire extinguishers is still a strong business.

“This business was not broken, this business we thought, perhaps, would benefit from new ownership,” Hayes said. “We went through the process, and I think as everyone knows, the markets got really choppy in November and December. Quite frankly, we weren’t going to give the business away. We are going to keep the business.”

Hayes said UTC may have underinvested in Chubb in recent years, and now has plans to engage more incremental investments because it’s a “solid business” with a strong leadership team and a “solid footprint.”

Moving forward, Hayes said UTC will consider other divestitures that enhance “long-term shareholder value” above what the separation is expected to provide.

“We are still out there and we are still listening, and at the same time we are working very hard to get this separation done,” he said.