United Technologies' Profit Falls Amid Jet Engine Production Problems -- 2nd Update

United Technologies Corp. on Tuesday said revenue rose 5% in its latest quarter, and raised its full-year profit outlook as the industrial conglomerate reported its best quarter of organic growth since 2011.

Pratt & Whitney, the company's aircraft engine business, contributed the largest boost to the company's third-quarter revenue of $15.1 billion.

Sales in United Technologies's aerospace segment, which stands to benefit from a tie-up with Rockwell Collins Inc., declined slightly, though aftermarket sales in both Pratt & Whitney and the aerospace unit increased 11%.

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

United Technologies shares rose 1.7% to $122.90 in premarket trading.

Chief Executive Greg Hayes said in prepared remarks that the proposed $23 billion acquisition of Rockwell Collins would be "transformational" for the company, but stopped short of providing an update on the deal's regulatory approval process.

The deal reached last month would be the largest aerospace deal in history. If approved, it could increase United Technologies's presence as a supplier to Boeing Co. and Airbus SE engines.

Though the deal has to get through several regulators and could face some headwinds in Europe, analysts generally expect it to gain approval because United Technologies and Rockwell make different airplane parts.

People familiar with the situation have told The Wall Street Journal the deal could prompt United Technologies to make changes to its portfolio. United Technologies has said it expects the purchase to close by the third quarter of next year.

Earlier this month, United Technologies hired Siemens AG CEO Judy Marks to lead its Otis elevator and escalator manufacturing division. Otis is the smallest of the company's four divisions by revenue, accounting for about 21% of 2016 revenue, and new orders declined 4% in the latest quarter as sales increased 5%.

Overall for the third quarter, United Technologies reported a profit of $1.3 billion, down 8% from a year ago. Earnings were $1.67 a share. Excluding one-time items, the company's adjusted earnings per share were $1.73, compared with $1.76 a year ago. Analysts polled by Thomson Reuters had expected $1.69 a share.

The company recorded a $27 million charge during the quarter for transaction costs related to its work to acquire Rockwell Collins.

Write to Cara Lombardo at cara.lombardo@wsj.com

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.

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 24, 2017 13:47 ET (17:47 GMT)