United Technologies (UTX) rounded out a solid 2011 with another decent but less-than-impressive quarter. Though we plan to revisit our assumptions on the industrial conglomerate, we don’t expect to make a material change to our fair value estimate at this time.
Organic revenue growth was a mere 2% in the fourth-quarter, but the meager growth was more due to significant strength in the aerospace aftermarket in the prior-year period than any underlying weakness. Order growth, however, was a bit lighter than we had hoped. New equipment orders at Otis advanced only 2%, while commercial HVAC new equipment orders at Carrier expanded 5%. Commercial spares orders at Hamilton Sundstrand were up 17%, but spares orders at Pratt & Whitney’s large engine business fell 16%, lapping 45% growth in the prior-year period. We expect some pressure at Sikorski given the increased pressure on military spending under the current and perhaps next administration.
United Tech’s fourth-quarter adjusted segment operating margin came in at 15.4%, roughly 20 basis points better than the year-ago measure, despite higher research and development expense. Fourth-quarter earnings per share came in at $1.47, up 12% and slightly better than consensus expectations. Looking ahead, United Tech is confident that it will deliver on its previously-issued 2012 earnings per share guidance of $5.80 to $6 (up 6% to 9%), excluding its recent acquisition of Goodrich. The firm’s sales, excluding Goodrich, are expected to hit $60 billion, and the firm expects free cash flow conversion to be 100% of net income, which would reflect strong earnings quality.
All things considered, we like United Tech and would strongly consider adding it to our portfolios on a pullback to the low $70s, the lower end of our fair value range.