Expenses related to a completed and a pending megadeal contributed to United Technologies Corp. reporting lower third-quarter net income Tuesday.
Net income dropped 7% to $1.15 billion, which included $760 million in acquisition, restructuring and other one-time charges.
The biggest factor was $518 million in tax expenses related to its plans to spin off its Carrier and Otis business units.
UTC’s proposed purchase of defense-industry giant Raytheon, announced June 9, involves a deal currently valued at $130 billion. UTC shareholders would own 57% of the combined company.
The planned merger would combine UTC’s Collins Aerospace and Pratt & Whitney businesses with Raytheon’s Intelligence, Space & Airborne Systems and Integrated Defense & Missile Systems.
The completion of that deal would be preceded by UTC completing the spin-off of Carrier and Otis into separate publicly traded companies.
UTC reported $132 million in one-time costs related to the Carrier and Otis spin-offs, as well as $25 million related to the Raytheon merger expenses.
Gregory Hayes, UTC’s chairman and chief executive, updated UTC’s projections for the spin-offs Tuesday, citing April 1 as the spin-off date for both companies.” Hayes would serve in both roles for the combined UTC-Raytheon.
"That is, of course, subject to the timing of the tax rulings from the U.S. and Canada, which we continue to expect to receive by year-end or shortly thereafter," Hayes told analysts.
"However, no surprises with the portfolio separation, we remain on track."
UTC’s diluted earnings were $1.33 a share, down 21 cents. Adjusted net income was $1.91 billion, up 23.3%, and adjusted earnings were $2.21, up 28 cents.
The average earnings forecast was $2.03 by eight analysts surveyed by Zacks Investment Research. Analysts typically do not include one-time gains and charges in their forecasts.
UTC benefited significantly from another strong revenue performance delivered by its Collins Aerospace business unit.
UTC completed the $30 billion deal for Rockwell on Nov. 27, which included assuming $7 billion in Rockwell debt. It inherited about 1,500 employees in Winston-Salem and has about 2,500 overall in North Carolina.
Sales jumped 17.8% to $19.5 billion. Cost and expenses rose 15.1% to $17 billion.
UTC has four main operating segments: Collins Aerospace had $6.49 billion, up 64.2%; Pratt & Whitney had $5.28 billion, up 10.3%; Carrier had $4.82 billion, down 1.2%; and Otis had $3.31 billion, up 2.6%.
“United Technologies delivered another strong quarter with 5% organic sales growth, as well as margin expansion across all four businesses,” Hayes said.
“Continued strength at Collins Aerospace, including the integration of Rockwell Collins, and a lower tax rate are expected to more than offset softness we are seeing at Carrier.”
Hayes told analysts that "we have been taken out a lot of costs, we've reduced over 1,000 headcount at Carrier in the last few months and that will continue on (as Carrier) adjusts the workforce to the size of the market."
"Obviously, it's a challenge when sales are dropping in these very profitable businesses and we know the sales will come back."
UTC updated its adjusted fiscal 2019 financial guidance.
Adjusted earnings increased from a range of $7.90-$8.05 to a range of $8.05 to $8.15. The sales range was adjusted from $75.5 billion-$77 billion to $76 billion-$76.5 billion. UTC maintained its previous guidance of organic sales growth between 4% and 5%.
Shareholders from UTC and Raytheon overwhelmingly approved the deal Oct. 11. Raytheon will issue its third-quarter earnings report Thursday.
The combined corporation would have $77 billion in 2019 pro forma sales.
Combined, UTC and Raytheon would have had $24.3 billion in U.S. defense spending in 2018, trailing second-place Boeing at $27.4 billion.