United Technologies Corp. (UTX) Q1 2010 Earnings Call Transcript

United Technologies Corp. (UTX) Q1 2010 Earnings Call Transcript
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United Technologies Corp. (UTX)

Q1 2010 Earnings Call

April 21, 2010 8:00 am ET

Executives

Akhil Johri - Vice President, Financial Planning and Investor Relations

Gregory Hayes – Senior Vice President, Chief Financial Officer

Analysts

Joseph Nadol - J.P. Morgan

Ron Epstein - Bank of America / Merrill Lynch

Jeff Sprague - Vertical Research Partners

Terry Darling - Goldman Sachs

Sam Pearlstein - Wells Fargo Securities

Howard Rubel - Jefferies

David Strauss - UBS (US)

Cai von Rumohr - Cowen and Company

Rob Stallard - Macquarie Research

Doug Harned - Sanford C. Bernstein

Heidi Wood - Morgan Stanley

George Shapiro – Access 342

Presentation

Operator

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» United Technologies Corp. Q4 2009 Earnings Call Transcript
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Good morning and welcome to the United Technologies first quarter conference call. On the call today are Greg Hayes, Senior Vice President and Chief Financial Officer and Akhil Johri, Vice President, Financial Planning and Investor Relations. This call is being [carried] live on the internet and there is a presentation available for download from UTC's homepage at www.utc.com.

The company reminds listeners that the earnings and cash flow expectations and any other forward looking statements provided in this call are subject to risks and uncertainties. UTC's SEC filings, including its 10-Q and 10-K reports, provide details on important factors that could cause actual results to differ materially from those anticipated in the forward looking statements.

Once the call becomes open for questions, we ask that you limit your first round of questions to two per caller to give everyone the opportunity to ask questions. You may ask further questions by reinserting yourself into the queue and then we will answer those questions as additional time permits.

Gregory Hayes

Thank you Tricia, and good morning everyone.

As you saw in the press release this morning, a great start to the year with strong performance across the business in a tough but improving end market environment. Some key take-away from this quarter: first, cost traction continues, resulting in margin expansion at each of the businesses. Second, we are seeing improvement in order trends and continued strength in our short-cycle business. And finally, we saw strong cash generation in the quarter.

If you recall, in our March investor meeting, we expressed confidence in our original EPS guidance provided back in December. This pressure from the euros weakness was partially offset, the benefits from pension, the early closing of the GE Security Deal, and strength in our short-cycle businesses.

Since that time, the euro has weakened a little bit more, but the continuing strength of cross-traction, and a broader improvement in order trends has increased our confidence in the outlook. As a result, we are going to raise the low end of our EPS guidance range to $4.50 from $4.40. So we now expect EPS to be in the range of $4.50 to $4.65. That's up 9% to 13% from 2009, and revenues still expected to be around $54 billion to $55 billion, up 2% to 4%.

Getting back to first quarter results, performance was solid across our businesses, with segment operating margin expansion of 180 basis points with 14.2% adjusted for restructuring.

On that same basis, total segment operating profit grew 13%, and a revenue decline of 1%. All six business units improved margins with Carrier, Otis and Sikorsky leading the way. Carrier's margin expansion of 390 basis points reflects strong progress from its restructuring actions and cost reduction initiatives, in addition to the benefits of the relatively easy compare given the very rough Q1 in 2009.

Earnings per share in the first quarter were $0.93. That's up 19%, and includes a charge of a little more than a penny of the recently enacted healthcare legislation which eliminated the Medicare Part-D tax subsidy. Restructuring costs were $67 million; that's slightly below the net $75 million that we had expected.

Excluding restructuring costs in both quarters and the one-time gain in last year's first quarter, earnings per share increased 13% on 1% lower revenue. Foreign currency was a benefit of $0.06. That's from translation and the positive impact of currency hedges at Pratt & Whitney Canada. Foreign currency translation also favorably impacted revenues by 3%.

Organic revenues declined by 4% in the quarter. That's a slight improvement from the 6% decline was saw in the fourth quarter. We expected organic revenues this quarter to be down, as last year's first quarter benefited from a strong backlog.

The best example is probably Pratt & Whitney Canada which shipped nearly 1000 engines in the first quarter of 2009, compared to 633 this quarter. That's down 35%. That's the lowest quarterly rate we expect this year at Pratt Canada, and for the full year, we still expect Pratt Canada to ship about 2800 engines.

Now on Slide 2, on orders. While first quarter organic revenues were down, first quarter order rates showed marked improvement with continued strength in most of our short-cycle businesses. Carrier’s U.S. residential shipments and Transicold orders were up year over year with strong improvement in truck, trailer, and containers.

In China, [inaudible] orders across our commercial business units grew by 40% and other emerging markets such as India and Brazil also saw strong improvements. Initially at Hamilton, we saw growth in the commercial aero aftermarket and at their industrial businesses.

Not surprisingly, commercial construction related orders, particularly in North America, remain weak. Akhil will take you through the details of orders by business unit in just a few minutes.

Now on Slide 3, in the quarter free cash flow of 116% of net income, our focus on working capital and control over CapEx continues to pay off, and we drove solid cash flow performance. Working capital terms improved to 8.3 even in the face of lower revenues. Capital expenditures to depreciation was slightly below 70% in the quarter.

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