January 24, 2018

UTC 4Q profits decline based on tax charge hit


Farmington conglomerate United Technologies Corp. said Wednesday its fourth quarter profits declined even as sales grew, largely because of the short-term impact of tax reform.

For the fourth quarter, UTC's net income declined to $397 million, or 50 cents a share, from $1 billion, or $1.28 a share, in the year-ago period.

For the entire year, net income declined to $4.5 billion, or $5.76 a share, from $5 billion, or $6.19 a share, in the year-ago period.

In the fourth quarter, net income was down primarily due to a $722 million tax charge related to tax reform. For the full year, associated tax charges of $667 million had a similar impact, the company said.

"UTC had a strong finish to 2017," said UTC CEO Gregory Hayes. "Sales, adjusted [earnings per share] and free cash flow were all above the top end of our expectations. Our focus on innovation, execution and cost reduction led to our best year of organic sales growth since 2014, with all businesses contributing."

Despite the immediate impact of tax charges related to new tax laws, he said, each of UTC's businesses grew sales in the fourth quarter.

Commercial aftermarket sales were up 25 percent at Pratt & Whitney, and up 10 percent at UTC Aerospace Systems. Otis' new equipment orders increased 1 percent versus the prior year, with growth in the U.S. and Europe and continued pricing pressure in China. Equipment orders at UTC Climate, Controls & Security increased 9 percent, UTC said.

In a conference call, Hayes referenced a strong 2018 predicated in part on the planned acquisition of Rockwell Collins, which recently received shareholder approval. He also noted: " While there will be challenges to overcome, I think we have a very bright future."

One of those challenges involves some performance issues with Pratt & Whitney's geared turbofan engine (GTF).

Asked if early challenges for the engines altered expectations on profitability, Hayes said, "No."

"Given the long-term nature of the contracts we had, this is not a significant impact to fleet profitability," Hayes said. "There are 3,000 Airbus aircraft that haven't had engine selection [yet]; we think we'll get our fair share of those."

Another company official noted that as Pratt improves its GTF performance, profitability will also improve.

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