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Aerospace expected to be weak in 3Q United Tech

Friday, 19 Oct 2012 | 12:43 AM ET

HARTFORD, Conn. -- United Technologies Corp.'s third-quarter earnings results, due out before the markets open on Tuesday, will likely reflect some weakness in the aerospace market, a segment on which the company recently made a big bet.

WHAT TO WATCH FOR: The conglomerate, based in Hartford, Conn., makes jet engines, elevators, residential and commercial heating and cooling equipment and other aerospace and building systems. During the quarter, it closed on its largest acquisition, the $18.4 billion purchase of aerospace supplier Goodrich Corp. in Charlotte, N.C.

Cowen & Co. analyst Cai von Rumohr raised his 2012 earnings per share estimate to $5.30 from $5.25 to account for savings in United Technologies' aerospace business due to the Goodrich deal. But demand "remains mixed" in aerospace, he said in a recent note to investors.

David Hess, president of the conglomerate's jet engine unit Pratt & Whitney, told investors in late September that he expects a weak third quarter. United Technologies said during its second-quarter release that commercial airplane spare parts orders were down in the first half of the year by 8 percent. As a result, it revised its guidance to project a decline in orders for the year, from a previously forecast increase from 2011.

Cowen's von Rumohr said in an Oct. 16 note that equipment orders in aerospace are soft due to weak airline profits, which also hold back demand in aftermarket maintenance and repairs. And he said a "seasonal slowing" has worsened faltering demand in business jet orders.

But he said he expects "decent" third-quarter results for the defense sector. Pratt & Whitney makes military jet engines and United Technologies' Sikorsky Aircraft manufactures Black Hawk helicopters used in Afghanistan.

The analyst said Congress seems unlikely to resolve a dispute over automatic cuts of $1.2 trillion that are set to hit on Jan. 2, half of which would be in defense spending. As a result, the issue is a "growing overhang" for defense industry shares, he said.

United Technologies announced a resumption of share buybacks in September, more than a year after suspending repurchases. The amount is half of previous repurchases, as the company absorbs the huge acquisition.

WHY IT MATTERS: United Technologies' results in its aerospace, defense and home and commercial real estate businesses reflect how these segments of the economy are performing. In addition, the conglomerate's business in emerging markets in China and India show the strength of business in overseas markets.

WHAT'S EXPECTED: United Technologies is expected to post lower profit, but higher revenue in the third quarter than last year's comparable period. Analysts, on average, expect earnings of $1.18 per share, on revenue of $15.65 billion

LAST YEAR'S QUARTER: The company reported profit of $1.47 per share, on revenue of $14.8 billion in last year's July-September period.

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