UNITED TECHNOLOGIES CORP. $97(New York symbol UTX; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 887.0 million; Market cap: $86.0 billion; Price-to-sales ratio: 1.4; Dividend yield: 2.6%; TSINetwork Rating: Above Average; www.utc.com) has four main businesses: Climate, Controls & Security (30% of revenue, 32% of earnings) makes heating and air conditioning equipment under the Carrier brand, as well as burglar alarms and fire-safety products; Aerospace Systems (25%, 24%) makes enginecontrol systems and other parts for aircraft; Pratt & Whitney (23%, 17%) manufactures aircraft engines; and Otis (22%, 27%) makes elevators.
Major takeover paid off
The company’s revenue rose 7.1%, from $54.3 billion in 2010 to $58.2 billion in 2011. In 2012, it paid $18.3 billion for North Carolina-based Goodrich Corp., which makes aircraft parts (such as landing gear, wheels and brakes) and maintains and fixes planes. However, it also sold smaller businesses, so its revenue fell 0.8%, to $57.7 billion, in 2012.
Revenue rebounded to $62.6 billion in 2013, thanks to a full year’s contribution from Goodrich. In 2014, revenue improved again, to $65.1 billion.
Earnings rose 13.9%, from $4.4 billion in 2010 to $5.0 billion in 2011. Per-share earnings gained at a faster pace of 15.8%, from $4.74 to $5.49, on fewer shares outstanding. Earnings fell slightly, to $5.34 a share (or a total of $4.8 billion), in 2012 but recovered to $6.82 a share (or $6.2 billion) in 2014.
These results include the Sikorsky helicopter business, which United Technologies recently sold to Lock-heed Martin for $9 billion. In 2014, Sikorsky supplied 11% of its revenue.
The cash from the sale will help the company with its plan to buy back up to $16 billion worth of its shares between 2015 and 2017.
A great mix of acquisitions and R&D
United Technologies is also considering enhancing its commercial businesses with small acquisitions. It can easily afford to do so: as of September 30, 2015, its long-term debt was $19.4 billion, or a moderate 23% of its market cap, and it held cash of $5.5 billion.
In addition, the company continues to devote about 4% of its revenue to developing successful new products. For example, its new PurePower jet engines are 15% more fuel-efficient than current models and up to 75% quieter. More than 70 customers have now ordered a total of 7,000 of these engines.
United Technologies gets about 40% of its revenue from overseas, so the high U.S. dollar hurts the contribution from its foreign businesses. That’s partly why its earnings will probably fall to $6.30 a share in 2015. However, they should rise to $6.60 a share in 2016, and the stock trades at an attractive 14.7 times that forecast.
21 years of rising dividends
The company’s improving earnings should also give it more room to raise its $2.56 dividend, which yields 2.6%. United Technologies has paid dividends continuously since 1936 and has increased its payout each year since 1994.
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