This summary is based on the fourth quarter fiscal 2006 earnings call conducted by United Technologies Corporation (UTX) on January 23, 2007.
Key Investors Issues
- Earnings per share increased 23% over the prior year to 87 cents.
- Quarterly revenue of $12.8 billion represents a growth of 14%
- The company repurchased $738 million worth shares in the quarter.
- For fiscal 2007, the firm projects EPS of $4.05 to $4.20, on revenue of $51 billion.
Fourth Quarter Fiscal 2006 Financial Highlights
For the quarter, revenues were $12.8 billion, 14% higher than a year ago.
Organic revenue growth in the quarter was a full 10% and it was double-digit rates in four of the firm’s six businesses. Foreign exchange added another three points to revenue in the quarter as the fourth quarter 2006 average euro rate of $1.27 was significantly higher then last years fourth quarter average of $1.19.
Earnings per share of 87 cents was up 23% as compared to last years fourth quarter.
This comparison excludes the impact of the adoption of FIN 47 back in 2005. After adjusting for restructuring, the firm saw double-digit operating profit growth at four of its businesses. The strong commercial aerospace market continued to benefit both Pratt & Whitney and Hamilton Sundstrand, resulting in operating profit growth of 15% and 16% respectively. The company did see overall commercial after-market growth of about 20% in the quarter. The combined book-to-bill rate at both Pratt & Whitney and Hamilton Sundstrand was slightly below 1. UTC Fire & Security also delivered strong operating profit growth as they continued to build a platform for sustained double-digit operating margins.
These businesses more than offset small operating profit drops at both Carrier and Sikorsky. Carrier, although significantly impacted by a rapid slowdown in the North American HVAC market, recorded an operating profit of just over $200 million for the fourth quarter. Full year operating profit at Carrier was $1.2 billion, that’s up about 5% over 2005. Sikorsky continued to struggle with the production ramp-up challenges in the fourth quarter as evidenced by an operating profit margin of only 5.5%. Neither of these two issues are a surprise and the firm expects both businesses to improve significantly as it moves through 2007.
The tax rate in the quarter was a bit over 26%.
This provided the firm with about 2 cents benefit as compared to its target effective tax rate of 28%. This benefit is primarily from the recently reenacted R&D tax credit. For 2007, the firm will be targeting an effective tax rate of 28%.
Restructuring charges in the quarter were $82 million or about 5 cents a share.
Total restructuring charges for the year exceeded one-time favorable items by about a penny of EPS.
Free cash flow in the fourth quarter was very strong at $1.3 billion or 115% of net income.
Fourth quarter cash flow was driven by working capital reduction, reflecting inventory reduction of over $500 million and solid collections. Included in the quarter was a $159 million of voluntary cash contribution to pension plan and $485 million of cash taxes bid.
Acquisition spending, including debt assumed, was $514 million in the quarter approximately half of the $1 billion total for the year. The acquisition of Page Aerospace by Hamilton Sundstrand, Red Hawk by UTC Fire & Security, and Longville Group by Carrier were all completed during the fourth quarter.
Fiscal 2006 Financial Highlights
- Earnings per share for the year were $3.71, that’s up 19% over 2005 and keep 2006 results follow 18% EPS growth in 2005 on top of 19% during 2004.
- During the same three-year period, the firm invested over $1 billion in restructuring to continue to improve the businesses, including nearly $300 million during 2006. These restructuring actions will continue to provide year-over-year benefit in 2007.
- For the year, revenue growth was a solid 12% with 9% of that coming organically. This continued a recent trend of significantly higher than GDP levels of organic growth, with 2006 is 9% growth following 7% organic growth in 2005 and 8% organic growth in 2004. The firm has got a stable of great new products from Otis’s Gen2 elevator to Carrier SEER 13 System to Skiorsky new Black Hawk family of helicopter to Pratt & Whitney’s new line of very late Jet engines the PW600 family. These products coupled with the firm’s strong position in emerging markets of the world like China will continue to driver healthy organic growth.
For the year, free cash flow reached 3.85 billion or 103% of net income, which is inline with the guidance. Cash pension contribution for the year totaled 190 million.
