United Technologies Corporation Sees Strong Year Despite Dollar Strength

By Markets Fool.com

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Image source: United Technologies.

Construction and commercial aerospace providedUnited Technologies Corporation with some decent momentum in the first quarter, but it couldn't shake off the drag of a strong dollar. In a theme we'll likely see all earnings season, foreign exchange effects took 4% off of sales, leading to a 1% decline in revenue from a year ago to $14.5 billion.

Even with the decline in sales, net income was up an impressive 18% to $1.42 billion, and management said 2015 looks to be on track to be a solid year.

Construction headed for a strong year
Despite a 7% decline in revenue in the Otis Elevator division and flat revenue for UTC Climate, Controls, & Security the construction business looks like it's getting stronger in 2015. Orders for new equipment were up 8% for Otis in the first quarter and 6% for UTC Climate, Controls, & Security.

Commercial construction can be volatile, but with the economy in the U.S. and elsewhere around the world growing slowly there should be solid demand. For the full year, management expects organic sales to be up mid-single digits, although that may be canceled out on a net basis by the dollar's strength.

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Defense and aerospace diverging
It's not a surprise that commercial aerospace performed well in the quarter and military aerospace continues to struggle. The commercial business grew revenue 3%, while military aerospace revenue was flat. Government budgets aren't as tight as they were a few years ago, but there's still not a lot of spending on new airplanes or helicopters.

Image source: United Technologies.

Highlighting the difference between commercial and military markets, Pratt & Whitney shipped 166 engines to commercial buyers in the first quarter, down just one from a year ago, while military shipments dropped from 25 to 19. With commercial aviation going nowhere but up, I think the commercial side of the business will continue to be a strength even if military sales are flat to down slightly.

Sikorsky on its way out
The biggest move that happened in the first quarter was new CEO Gregory Hayes announcing that United Technologies would look for strategic alternatives for Sikorsky Helicopters. That may mean a sale to another company or a spinoff into a separate public company.

In theory, tying Sikorsky with Pratt & Whitney and UTC Aerospace Systems makes sense, but it hasn't resulted in the synergies management or investors would like. And first quarter organic sales shrank 7% at Sikorsky, so it may be time to rejuvenate the brand as a stand-alone company.

Outlook for 2015
The encouraging news for investors today was management's confidence that 2015 would play out as expected. They reiterated sales guidance of $65 billion to $66 billion for 2015, and said earnings per share would be between $6.85 and $7.05. That's not a lot of growth from $6.82 per share a year ago, but when you consider the currency headwinds and weakness in the military market it's about the best investors should expect at the moment.

If you're looking for a long-term investment that will just perform year after year United Technologies would be a solid pick, but when it comes to growth the coming years will be a challenge.

The article United Technologies Corporation Sees Strong Year Despite Dollar Strength originally appeared on Fool.com.

Travis Hoium has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.