1Q 2015 Earnings Conference Call April 21, 2015

Transcription

1 1Q 2015 Earnings Conference Call April 21, 2015

2 This presentation includes statements that constitute forward-looking statements under the securities laws. Forward-looking statements often contain words such as believe, expect, plans, project, target, anticipate, will, should, see, guidance, confident and similar terms. Forward-looking statements may include, among other things, statements relating to the plans, strategies, and objectives of UTC for future operations, including statements relating to a potential strategic alternative transaction relating to Sikorsky, or the terms, timing or structure of any such transaction (or whether any such transaction will take place at all); the future performance of UTC or Sikorsky if any such transaction is completed; future and estimated sales, earnings, cash flow, charges, expenditures and share repurchases; anticipated growth in sales; new products and their entry into service; anticipated benefits of organizational changes; and other measures of financial or operational performance. There can be no assurance that any transaction or future events will occur as anticipated, if at all, or that actual results will be as expected. All forwardlooking statements involve risks, uncertainties and assumptions that may cause actual results to differ materially from those expressed or implied in the forwardlooking statements. Risks and uncertainties include risks related to a potential separation of, or any other transaction relating to, Sikorsky; the effect of economic conditions in the markets in which we operate, including financial market conditions; fluctuation in commodity prices, interest rates and foreign currency exchange rates; future levels of research and development spending; levels of end market demand in construction and in the aerospace industry; levels of air travel; financial condition of commercial airlines; the impact of government budget and funding decisions on the economy; changes in government procurement priorities and funding; weather conditions and natural disasters; delays and disruption in delivery of materials and services from suppliers; company- and customer- directed cost reduction efforts and restructuring costs and consequences thereof; the impact of acquisitions, dispositions, joint ventures and similar transactions; challenges in the development and production of new products and services; the impact of diversification across product lines, regions and industries; the impact of legal proceedings, investigations and other contingencies; pension plan assumptions and future contributions; the effect of changes in tax, environmental and other laws and regulations and political conditions; and other factors beyond our control. The level of share repurchases depends upon market conditions and the level of other investing activities and uses of cash. The forward-looking statements speak only as of the date of this presentation and we undertake no obligation to update or revise any forward-looking statements as of a later date. For additional information identifying factors that may cause actual results to vary materially from those stated in forward-looking statements, see our reports on Forms 10-K, 10-Q and 8-K filed with or furnished to the SEC from time to time, including, but not limited to, the information included in UTC's Forms 10-K and 10-Q under the headings Business, Risk Factors, Management's Discussion and Analysis of Financial Condition and Results of Operations and Legal Proceedings and in the notes to the financial statements included in UTC's Forms 10-K and 10-Q.

3 2015 EXPECTATIONS ($, EPS) ($ billions, sales) E Sales $65B $66B EPS range $6.85 $7.05 Free cash flow* 90% 100% of net income attributable to common shareowners Sales adjusted for the impact of Accounting for Collaborative Arrangements includes discontinued operations * See free cash flow definition and reconciliation in appendix 1

4 ORGANIC SALES GROWTH (VPY%) Quarterly Trend 1Q 2015 Building & Industrial Total = 3% 5 5 Americas EMEA 1 Asia 6 Aerospace Commercial Aero 3 1Q14 2Q14 3Q14 4Q14 1Q15 Military Aero flat See appendix for definition and reconciliation of organic sales 2

5 KEY MARKET TRENDS 30 (VPY %) constant currency) (10) Otis New Equipment Orders Climate, Controls and Security Global Equipment Orders* Pratt & Whitney Commercial Aftermarket Sales Aerospace Systems Commercial Aftermarket Sales 1Q 14 2Q 14 3Q 14 4Q 14 1Q 15 *Includes North America Residential HVAC equipment sales as a proxy for orders 3

6 UTC 1Q 2015 Sales of $14.5B, down 1% 3 points organic more than offset by 4 points unfavorable FX EPS of $1.58, up 20% 1Q 2015 includes 7 net gain for restructuring & one-time items 1Q 2014 includes 9 net charge for restructuring & one-time items 7% EPS increase, adjusted* Free cash flow** 67% of net income attributable to common shareowners Share repurchase of $3B * Adjusted for restructuring and one-time items see appendix for reconciliation ** See free cash flow reconciliation and definition in appendix 4

7 1Q 2015 SEGMENT HIGHLIGHTS Otis Reported Adjusted* YOY Var.* Sales 2,745 2,745 (7%) Operating profit (9% ) ROS 19.2% 19.4% (0.5) pts. Organic sales up 2% New equipment up high-single digit Operating profit* up 1% at constant currency Solid new equipment volume Net productivity gains Continued headwind in Europe service ($ millions) New equipment orders up 8% at constant currency Americas up high-single digit EMEA up 37% China down 12%; units flat Otis was awarded the contract to supply 73 units of elevators and escalators, and maintenance for landmark project 30 Hudson Yards in NYC. * Adjusted for restructuring and one time items - see appendix for reconciliation See appendix for definition and reconciliation of organic sales 5

8 1Q 2015 SEGMENT HIGHLIGHTS UTC Climate, Controls & Security ($ millions) Reported Adjusted* YOY Var.* Sales 3,852 3,852 0% Operating profit % ROS 18.9% 16.3% 1.2 pts. Organic sales up 6% Transicold up high-teens U.S. Commercial HVAC up high-single digit EMEA up low-single digit Asia down low-single digit Operating profit* up 14% at constant FX Organic volume contribution Benefit from non-operating gains Operating margin* up 120 basis points Carrier was selected to provide chillers and air-handling units to the Sheikh Jaber Al Ahmad Culture Centre in Kuwait. Otis previously won a contract to provide elevators. This prestigious project is considered a first of its kind in Kuwait. * Adjusted for restructuring and one time items - see appendix for reconciliation See appendix for definition and reconciliation of organic sales 6

9 1Q 2015 SEGMENT HIGHLIGHTS Pratt & Whitney Organic sales flat Commercial aftermarket sales up 2% Timing and mix of engine shipments Reported Adjusted* YOY Var.* Sales 3,332 3,332 0% Operating profit % ROS 12.6% 13.0% 0.1 pts ($ millions) Operating profit* flat Favorable commercial aftermarket mix Lower E&D More negative engine margin Pension headwind Pratt & Whitney congratulates Embraer on the KC-390 aircraft s first flight in Brazil. The KC-130 is powered by Pratt s V2500-E5 engine. Photo copyright Embraer * Adjusted for restructuring and one time items - see appendix for reconciliation See appendix for definition and reconciliation of organic sales 7

10 1Q 2015 SEGMENT HIGHLIGHTS UTC Aerospace Systems ($ millions) Reported Adjusted* YOY Var.* Sales 3,548 3,548 3% Operating profit % ROS 16.0% 17.4% 0.1 pts Organic sales up 7% Commercial sales up 10% Military sales down mid single digits Operating profit* up 4% Continued cost reduction Benefit from contract settlements Pension headwind Higher licensing income The U.S Federal Aviation Administration (FAA) has approved a four-person life raft manufactured by UTC Aerospace Systems affiliate in Bengaluru, India for direct export to U.S. aircraft manufacturers. The 2,400 employee Bengaluru unit is among the first Indian entities to export an aviation product directly to aircraft manufacturers in the U.S. UTC Aerospace Systems expects to gain similar FAA product approvals in the future. * Adjusted for restructuring and one time items - see appendix for reconciliation See appendix for definition and reconciliation of organic sales 8

11 1Q 2015 SEGMENT HIGHLIGHTS Sikorsky ($ millions) Reported Adjusted* YOY Var.* Sales 1,267 1,267 (7%) Operating profit (11%) ROS 7.3% 7.3% (0.3) pts Organic sales down 7% Lower commercial OE volumes Lower military and commercial aftermarket volumes Development program growth Operating profit* down 11% Lower sales volume CMHP headwind During the quarter, Sikorsky s S-97 RAIDER initiated bladed ground testing on the first prototype aircraft. This stands as a major milestones in the progression of this key program. * Adjusted for restructuring and one time items - see appendix for reconciliation See appendix for definition and reconciliation of organic sales 9

12 SUMMARY Q Highlights: Organic sales increase of 3% EPS up 7%, ex. restructuring and one-time items Segment operating margin* up 20 bps to 15.6% 2015 outlook reaffirmed: Sales $65B $66B EPS range $6.85 $7.05 Free cash flow** 90% - 100% of net income attributable to common shareowners * Adjusted for restructuring and one-time items see appendix for reconciliation ** See free cash flow reconciliation and definition in appendix See appendix for definition and reconciliation of organic sales 10

13 Appendix

14 2015 EXPECTATIONS Organic sales change Reported sales change Operating profit change** (Ex FX & Ex Pension) Reported Operating profit change** Building & Industrial Systems* up mid single digit flattish $ M ($50) 0 Pratt & Whitney up low single digit up low single digit ($25) 50M ($125) (50M) UTC Aerospace Systems up mid single digit up mid single digit $ M $ M Sikorsky up mid single digit up mid single digit $0 25M $0 25M *Building & Industrial Systems expectations assumes 1.13 Euro, overall UTC expectations assumes 1.10 Euro **Excludes restructuring & one-time items 12

15 1Q 2015 Restructuring and non-recurring items $ per share impact (after-tax) Restructuring costs included in Operating Profit (0.07) Non-recurring items included in Operating Profit UTC Climate, Controls & Security fair value adjustment 0.14 related to acquisition of a controlling interest Total restructuring and non-recurring (EPS)

16 1Q 2015 SALES GROWTH Total Growth Organic FX Net Acquisitions Otis (7%) 2% (9%) 0% CCS 0% 6% (7%) 1% Pratt & Whitney 0% 0% (1%) 1% Aerospace Systems 3% 7% (3%) (1%) Sikorsky (7%) (7%) 0% 0% Total UTC (1%) 3% (4%) 0% Organic sales growth represents the total reported increase within the Corporation s ongoing businesses less the impact of foreign currency translation, and acquisitions and divestitures completed in the preceding twelve months and significant non-recurring items. Organic growth includes the net impact of transactional foreign exchange hedging. 14

17 SELECTED METRICS Q1 Q2 Q3 Q4 FY Q1 Q2 Q3 Q4 YTD Pratt & Whitney engine shipments Military Large commercial Pratt & Whitney Canada , Sikorsky aircraft shipments Military platforms Commercial platforms

18 SEGMENT DATA ($ Millions except per share amounts) st st 2nd 3rd 4th 2014 Qtr. Total YTD Qtr. Qtr. Qtr. Qtr. Total YTD Otis Net Sales 2,745 2,745 2,955 3,365 3,326 3,336 12,982 Operating Profit (a) ,640 Operating Profit % 19.2% 19.2% 19.3% 20.6% 21.1% 20.2% 20.3% UTC Climate, Controls & Security Net Sales 3,852 3,852 3,851 4,429 4,351 4,192 16,823 Operating Profit (a), (i), (q) ,782 Operating Profit % 18.9% 18.9% 13.9% 18.4% 18.5% 14.9% 16.5% Pratt & Whitney Net Sales 3,332 3,332 3,329 3,592 3,564 4,023 14,508 Operating Profit (a), (b), (c), (j) ,000 Operating Profit % 12.6% 12.6% 11.7% 12.0% 17.8% 13.6% 13.8% UTC Aerospace Systems Net Sales 3,548 3,548 3,450 3,636 3,535 3,594 14,215 Operating Profit (a) ,355 Operating Profit % 16.0% 16.0% 17.1% 16.6% 16.3% 16.4% 16.6% Sikorsky Net Sales (d) 1,267 1,267 1,361 2,384 1,620 2,086 7,451 Operating Profit (a), (e), (d) (317) Operating Profit % 7.3% 7.3% 6.3% -13.3% 9.4% 14.3% 2.9% Total Segments Net Sales 14,744 14,744 14,946 17,406 16,396 17,231 65,979 Operating Profit 2,336 2,336 2,171 2,225 2,870 2,730 9,996 Operating Profit % 15.8% 15.8% 14.5% 12.8% 17.5% 15.8% 15.2% Corporate, Eliminations, and Other Net Sales: Other (203) (203) (201) (215) (228) (235) (879) Operating Profit: General corporate expenses (110) (110) (112) (119) (124) (133) (488) Eliminations and other (a), (f) (27) 261 Consolidated Net Sales 14,541 14,541 14,745 17,191 16,168 16,996 65,100 Operating Profit 2,274 2,274 2,098 2,355 2,746 2,570 9,769 Operating Profit % 15.6% 15.6% 14.2% 13.7% 17.0% 15.1% 15.0% Interest expense, net (g), (k), (m), (n) (218) (218) (225) (206) (186) (265) (882) Income from continuing operations before income taxes 2,056 2,056 1,873 2,149 2,560 2,305 8,887 Income tax expense (h), (l), (o), (p) (558) (558) (567) (359) (608) (730) (2,264) Income from continuing operations 1,498 1,498 1,306 1,790 1,952 1,575 6,623 Net income 1,498 1,498 1,306 1,790 1,952 1,575 6,623 Less: Noncontrolling interest in subsidiaries' earnings (72) (72) (93) (110) (98) (102) (403) Net income attributable to common shareowners 1,426 1,426 1,213 1,680 1,854 1,473 6,220 1st st 2nd 3rd 4th 2014 Qtr. Total YTD Qtr. Qtr. Qtr. Qtr. Total YTD Continuing Operations Earnings per share - basic $ Earnings per share - diluted Weighted average number of shares outstanding: (In Millions) Basic shares Diluted shares Q1 Total YTD Q1 Q2 Q3 Q4 Total YTD Effective Tax Rate 27.2% 27.2% 30.3% 16.7% 23.8% 31.7% 25.5% 16

19 SEGMENT DATA - NOTES The earnings release and conference-call discussion adjust 2015 and 2014 segment results for restructuring costs as well as certain non-recurring items. The following items are included in current and prior year results: (a) Restructuring costs as included in 2015 and 2014 segment results for continuing operations: Restructuring Costs Restructuring Costs Q1 Total YTD Q1 Q2 Q3 Q4 Total YTD Operating Profit: Otis UTC Climate, Controls & Security Pratt & Whitney UTC Aerospace Systems Sikorsky (3) 14 Total Segments General corporate expenses Eliminations and other Total UTC (b) Q2 2014: Approximately $60 million charge to adjust the fair value of a Pratt & Whitney joint venture investment. (c) Q2 2014: Approximately $22 million charge for impairment of assets related to a joint venture. (d) Q2 2014: A cumulative adjustment to record $830 million in sales and $438 million in losses based upon the change in estimate required for the contractual amendments signed with the Canadian Government on the Maritime Helicopter program. (e) Q2 1014: Approximately $28 million charge for the impairment of a Sikorsky joint venture investment. (f) Q2 2014: Approximately $220 million gain on an agreement with a state taxing authority for the monetization of tax credits. (g) Q2 2014: Approximately $21 million of favorable pre-tax interest adjustments, primarily related to the conclusion of the IRS's examination of the Company's 2009 and 2010 tax years. (h) Q2 2014: Approximately $253 million of favorable income tax adjustments related to the conclusion of the IRS's examination of the Company's 2009 and 2010 tax years, as well as the settlement of (i) Q3 2014: Approximately $30 million net gain from UTC Climate, Controls & Security's ongoing portfolio transformation, primarily due to a gain on the sale of an interest in a joint venture in North America. (j) Q3 2014: Approximately $83 million net gain, primarily as a result of fair value adjustments related to a business acquisition. (k) Q3 2014: Approximately $23 million of favorable pre-tax interest adjustments, primarily related to the resolution of disputes with the Appeals Division of the IRS for the Company's tax years. (l) Q3 2014: Approximately $118 million of favorable income tax adjustments, primarily related to the resolution of disputes with the Appeals Division of the IRS for the Company's tax years. (m) Q4 2014: Approximately $143 million of unfavorable pre-tax interest accruals related to the ongoing dispute with German tax authorities concerning a 1998 reorganization of the corporate structure of (n) Q4 2014: Approximately $88 million of favorable pre-tax interest adjustments, primarily related to conclusion of litigation and the resolution of disputes with the Appeals Division of the IRS regarding Goodrich Corporation s 2000 to 2010 tax years. (o) Q4 2014: Approximately $267 million of unfavorable income tax accruals related to the ongoing dispute with German tax authorities concerning a 1998 reorganization of the corporate structure of Otis operations in Germany. (p) Q4 2014: Approximately $180 million favorable tax adjustment primarily associated with management s decision to repatriate additional high taxed dividends in (q) Q1 2015: Approximately $126 million gain as a result of a fair value adjustment related to the acquisition of a controlling interest in a UTC Climate, Controls & Security joint venture investment. 17

20 SEGMENT DATA United Technologies Corporation Segment Net Sales and Operating Profit Adjusted for Restructuring and Other Costs and Non-Recurring Items (in millions) Quarter Ended March (Unaudited) Year to date 2015 Quarter Ended March 31 Quarter Ended June (Unaudited) Quarter Ended September 30 Quarter Ended December 31 Year Ended 2014 Net Sales Otis $ 2,745 $ 2,745 $ 2,955 $ 3,365 $ 3,326 $ 3,336 $ 12,982 UTC Climate, Controls & Security 3,852 3,852 3,851 4,429 4,351 4,192 16,823 Pratt & Whitney 3,332 3,332 3,329 3,592 3,564 4,023 14,508 UTC Aerospace Systems 3,548 3,548 3,450 3,636 3,535 3,594 14,215 Sikorsky 1,267 1,267 1,361 1,554 1,620 2,086 6,621 Segment Sales 14,744 14,744 14,946 16,576 16,396 17,231 65,149 Eliminations and other (203) (203) (201) (215) (228) (235) (879) Consolidated Net Sales $ 14,541 $ 14,541 $ 14,745 $ 16,361 $ 16,168 $ 16,996 $ 64,270 Adjusted Operating Profit Otis $ 533 $ 533 $ 587 $ 714 $ 718 $ 708 $ 2,727 UTC Climate, Controls & Security ,868 Pratt & Whitney ,063 UTC Aerospace Systems ,437 Sikorsky Adjusted Segment Operating Profit 2,303 2,303 2,296 2,828 2,820 2,850 10,794 Eliminations and other (26) 42 General corporate expenses (110) (110) (112) (119) (124) (129) (484) Adjusted Consolidated Operating Profit $ 2,241 $ 2,241 $ 2,223 $ 2,738 $ 2,696 $ 2,695 $ 10,352 Adjusted Segment Operating Profit Margin Otis 19.4% 19.4% 19.9% 21.2% 21.6% 21.2% 21.0% UTC Climate, Controls & Security 16.3% 16.3% 15.1% 19.0% 18.2% 15.7% 17.0% Pratt & Whitney 13.0% 13.0% 12.9% 14.4% 15.7% 13.8% 14.2% UTC Aerospace Systems 17.4% 17.4% 17.3% 16.7% 17.0% 17.6% 17.1% Sikorsky 7.3% 7.3% 7.6% 9.6% 9.4% 14.1% 10.6% Adjusted Segment Operating Profit Margin 15.6% 15.6% 15.4% 17.1% 17.2% 16.5% 16.6% The preceding data provides segment net sales, operating profits and operating profit margins as adjusted for restructuring and other costs. Management believes these adjusted results more accurately portray the ongoing operational performance and fundamentals of the underlying businesses. The amount and timing of restructuring and other costs and non-recurring activity can vary substantially from period to period with no assurances of comparable activity or amounts being incurred in future periods. These amounts have therefore been adjusted out in the preceding schedule in order to provide a more representative comparison of current year operating performance to prior year performance. 18

21 KEY DATA ($ millions) 1Q 15 1Q 14 Free cash flow* 962 1,002 Debt/capital** 42% 37% Net debt/capital** 36% 32% Capital expenditures Share repurchase 3, Acquisitions*** * See free cash flow reconciliation ** Adjusted to reflect the accounting for noncontrolling interests *** Includes debt assumed 19

22 FREE CASH FLOW RECONCILIATION ($ millions) Net income attributable to common shareowners 1Q 15 1Q 14 from continuing operations 1,426 1,213 Depreciation & amortization Change in working capital (639) (521) Other Cash flow from operations 1,310 1,335 Capital expenditures (348) (333) Free cash flow 962 1,002 Free cash flow, which represents cash flow from operations less capital expenditures, is the principal cash performance measure used by the company. Management believes free cash flow provides a relevant measure of liquidity and a useful basis for assessing the Corporation s ability to fund its activities, including the financing of acquisitions, debt service, repurchases of the Corporation s Common Stock and distribution of earnings to shareholders. Others that use the term free cash flow may calculate it differently. The reconciliation of net cash flow provided by operating activities prepared in accordance with Generally Accepted Accounting Principles to free cash flow is above. 20