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United Technologies shares fall 7 percent on outlook cut

United Technologies Corp., which has about 500 employees in the Charlotte region, cut its 2015 profit forecast for the second time since June, citing weak demand in the units that it’s keeping while the Sikorsky helicopter division is sold.
United Technologies Corp., which has about 500 employees in the Charlotte region, cut its 2015 profit forecast for the second time since June, citing weak demand in the units that it’s keeping while the Sikorsky helicopter division is sold. AP

United Technologies Corp., which has about 500 employees in the Charlotte region, cut its 2015 profit forecast for the second time since June, citing weak demand in the units that it’s keeping while the Sikorsky helicopter division is sold.

The stock fell 7 percent to $102.71 on Tuesday in the wake of the new full-year outlook, which also lowered projected annual revenue. UTC Aerospace Systems’ aftermarket aircraft parts and Otis Elevator’s operations outside the U.S. are both faring worse than expected, Chief Executive Officer Gregory Hayes said.

“Our assumptions around the aftermarket provisioning, especially on our Aerospace Systems business, is a lot slower than what we expected, and the recovery in Europe is still in the future,” Hayes said in a telephone interview. “We don’t like doing this. It’s disappointing, but it’s just the reality that we’re facing.”

United Technologies Corp. agreed to sell its Sikorksy Aircraft business to defense company Lockheed Martin Corp. for $9 billion in cash. The divisions under pressure are pillars of Hayes’s strategy for Hartford, Conn.-based United Technologies once the sale is done.

Hayes is focusing on UTC Aerospace and Pratt & Whitney jet engines in aviation and Carrier air conditioners and Otis in building services, but faces currency headwinds and weaker foreign markets.

Excluding Sikorsky, earnings this year will be $6.15 to $6.30 a share, down from $6.35 to $6.55, United Technologies said as it reported second-quarter earnings. Full-year revenue of $57 billion to $58 billion will trail a prior range of $58 billion to $59 billion.

The revised forecast suggests the company “hasn’t been able to offset or anticipate weakness in several end markets,” Jason Gursky, a Citigroup Inc. analyst, said in a note to clients. United Technologies trimmed its 2015 earnings forecast last month, too, blaming separation costs for Sikorsky and weakness in the oil and gas markets.

United Technologies fell 4.3 percent to $105.68 at 8:57 a.m. before regular New York trading. The stock slid 3.9 percent this year through Monday, compared with a 3.4 percent increase in the Standard & Poor’s 500 Index.

While the Sikorsky sale still requires U.S. Defense Department approval, Hayes said “at the end of the day it’ll get done and I don’t see any big issues.”

United Technologies announced the $9 billion deal on Monday, saying it expects to close by the first quarter of 2016. The board also approved a 75 million-share buyback plan to offset the earnings impact of the transaction, which capped a review begun after Hayes was promoted to CEO in November.

Divesting Sikorsky could pave the way for acquisitions. Hayes said he sees “more opportunity than we did earlier this year” for deals, and he is evaluating targets valued at $500 million to $5 billion.

“We’re done shrinking UTC,” Hayes said. “We’ve done the portfolio review at the top level, we like the hand that we have today and we want to grow off of that base business.”

Second-quarter orders fell 10 percent in China in the Otis unit as net sales declined 8 percent to $3.1 billion. Revenue in the aerospace division was unchanged.

Even as quarterly sales dropped 5 percent, an improving U.S. market helped blunt some of the drag from slowing economies overseas, Hayes said.

“You’ve got the dynamic of a very strong U.S. recovery, stronger than what we had expected, and a much weaker than expected China,” he said. “Europe is just kind of muddling along.”

Second-quarter per-share profit was $1.73, topping the $1.72 average of 14 estimates compiled by Bloomberg. Foreign currency exchange had an unfavorable impact of 6 cents a share, according to the company, which says non-U.S. sales make up about two-thirds of annual revenue.

Staff writer Sarah Chaney contributed.

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