UTC Guides Lower Growth, Stock Price Slides
UTC management’s 2014 guidance has disappointed Street expectations, and resulted in a 2% fall in its stock price during pre-market trading
Company Chairman and CEO Louis R. Chenevert disappointed investors in United Technologies Corporation’s (UTX) annual investor and analyst meeting yesterday with the management’s tepid forecast for fiscal year 2014.
Chenevert said the company is preparing for slower growth in the global economy, particularly in China and other emerging markets in the Asia-Pacific region. UTC expects organic revenues to grow between 3-4% to $64 billion next year, and earnings to be around $6.55-6.85 per share. On the other hand, analysts had expected revenues of $66.3 billion, and $6.84 in per share earnings.
Chenevert said the management has allocated around $2 billion for dividends in 2014. The company has also provisioned $1 billion each for a share buyback program and potential acquisitions.
The company sees increased urbanization and growth in commercial aviation as growth drivers going forward. The management also plans on focusing on relentless cost-cutting and effective cash deployment to increase shareholder value in the company.
United Technologies’ stock price is down 1.5% in pre-market trading.
The company expects sales in the Asia-Pacific to drive growth in the mid to high single-digits; Europe, Middle East and Africa is expected to be up negligibly; while North America is expected to grow in the mid single-digits.
UTC’s Defense Aerospace business is estimated to shrink 3-5% on the back of military budget cuts, which are expected to be around $52 billion for the next year. The management expects cuts in government spending to have a negative effect of approximately $0.12 on the company’s annual per share earnings.
However, the company expects Commercial Aerospace revenues to grow in the high single-digits. The management has forecasted 2014 capex to be around $2 billion, primarily due to its focus on new technologies to drive growth in the Commercial Aerospace business.
UTC is expecting total Commercial Businesses, which contributed 50% of the company’s 2012 revenues, to grow in the mid-single digits. The Otis elevator brand, which is part of UTC’s commercial business, is expected to grow in the low double-digits, led by 10% growth in the Americas. Otis sales are expected to be up in the mid-teens in the Asia-Pacific region. The company is projecting growth in its Residential HVAC (heating, ventilation, and air conditioning) business to be in the mid to high single-digits, while Commercial HVAC is expected to grow in the mid single-digits.
The company also revised its full-year 2013 revenue expectations lower, saying the company is likely to end the year with revenues of $63 billion, instead of earlier expectations of $64-65 billion. The management reaffirmed that full-year earnings would clock in at $6.15 per share, which is a 15% increase year-over-year (YoY). The stock is up almost 30% year-to-date.