United Technologies’ Sikorsky CMH-53 contract is expected to be finalized over the next 30 days; as previously noted, an additional charge is expected and should be disclosed with second quarter 2014 financial results in late July.
The total losses for the program are not expected to exceed $500 million pretax, but will exceed the estimated remaining $340 million pretax loss, as a result of additional requirements, retrofit costs, and extension of the program schedule. United Technologies Corporation (UTC) anticipates switching to percentage-of-completion accounting on the contract (currently 70%-75% complete), allowing most of the contract losses not currently in 2014 guidance to be offset by favorable one-time items.
As a result, UTC is reaffirming its guidance for 2014 EPS of $6.65-$6.85.
Urbanization and commercial air travel are the two mega-trends that will drive UTC’s long-term growth; UTC needs to execute in its aerospace businesses but is looking for acquisitions (most likely overseas) to add to building and industrial systems.
The key for UTC to capitalize on these two mega-trends will be sharply expanding its aftermarket service contracts for its elevator installed base in China and the ability to develop a program to share the much larger-than-normal ramp-up in fuel savings for airlines using its new GTF engine.
UTC believes that it has made the right changes in its portfolio over the past three years and its long-term growth should be much higher as a result; in Abu Dhabi’s newest Midfield Airport, UTC’s Carrier, Otis, and Fire & Security won the entire project’s HVAC, elevator, and building control needs.
UTC expects its GTF PurePower commercial aircraft engine on the A320 and A321 neo (particularly those requiring higher thrust) to continue to dominate platforms where both its engine and those of its competitors are offered.
UTC faces a massive ramp-up in volumes at its aerospace businesses, particularly for Pratt & Whitney; Boeing’s (BA $129.59) Partners for Progress discussions are continuing favorably, and over time it is possible that Pratt & Whitney’s GTF PurePower engine will power Boeing narrow-body aircraft.
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