Jet-Engine Maker Struggles -- WSJ

By Thomas Gryta and Cara Lombardo Features Dow Jones Newswires

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (October 25, 2017).

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United Technologies Corp.'s profit fell as the conglomerate battled production problems with a new jet engine and weak demand for its Otis elevators in China.

The company said it booked a nearly $200 million charge in the quarter ended Sept. 30 as it was forced to set aside more of its latest Pratt & Whitney engines so they could be used to fix existing planes rather than supply new ones for customers such as Airbus SE.

New engines are generally sold at a loss, with service fees bringing in profits in subsequent decades of use. The new geared turbofan engine has allowed Pratt to better compete with General Electric Co., but some initial durability issues slowed deliveries and frustrated customers.

Those engine issues should be fixed by the end of the year, the company said. Chief Financial Officer Akhil Johri said the "charge takes care of an uncertain cloud that was hanging over us."

The Farmington, Conn., company shipped 120 new geared turbofan engines last quarter, putting the year's total at 254, keeping it on track for 350 to 400 deliveries this year, Mr. Johri said.

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United Technologies said its third-quarter sales rose 5% to $15.06 billion, while net income dropped 10% to $1.33 billion.

Otis continued to struggle in China. Unit orders in the country rose 8% but were flat in dollar terms. Prices are dropping, Mr. Johri said, and customers are opting for elevators with fewer features.

Price drops have traditionally been offset by obtaining cost cuts from suppliers, but that is becoming harder to do because of commodity prices. "Suppliers are pushing back more," Mr. Johri said, so United Technologies may have to charge its own customers more.

The company said there is overcapacity in China but that Otis should still have flat or increased earnings next year. United Technologies earlier this month named Siemens USA CEO Judy Marks to run the Otis division.

Last month, United Technologies reached a deal to buy airplane-parts maker Rockwell Collins for $23 billion, in the biggest aerospace deal in history.

Sales in United Technologies' aerospace segment, which stands to benefit from a tie-up with Rockwell, declined slightly.

The company now expects adjusted per-share earnings of $6.58 to $6.63 for the year, up from $6.45 to $6.60. It also narrowed its revenue outlook to $59 billion to $59.5 billion, from $58.5 billion to $59.5 billion.

Write to Thomas Gryta at thomas.gryta@wsj.com and Cara Lombardo at cara.lombardo@wsj.com

(END) Dow Jones Newswires

October 25, 2017 02:47 ET (06:47 GMT)