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Why United Technologies' Diversification Is Good News

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First-quarter numbers from diversified manufacturer United Technologies (NYSE: UTX  ) might send mixed signals to some investors. This was the first earnings release after the company decided to acquire aircraft component manufacturer Goodrich (NYSE: GR  ) in a whopping $16.5 billion deal. United Tech plans to sell off three of its non-core units to help fund this acquisition.

Let's get a clearer picture of United Technologies by excluding the assets being sold off and trying to find out whether the company can be a solid pick in the long run.

A quick look at the quarter
Just like some other industrial goods manufacturers, United Technologies benefited from a strong wave of demand in the U.S., which offset a recessionary phase in Europe and a slowdown in growth in China. Take, for instance, UTX's elevator unit, Otis, whose sales dipped by as much as 20% in China because of a fall in commercial construction.

To sum it up, the company's top line slid by 2% to $12.42 billion. However, barring the effect of discontinued operations, UTX's profits increased to $1.26 billion, a 19% increase as compared to last year. This translates into earnings of $1.31 per share, which beat analyst expectations of $1.20 per share.

Cooler scenario
UTX took a hit as its climate control and carrier business, which brings in over 30% of the company's total sales, recorded a 6% fall in revenue this quarter, as sales of products such as air conditioners remained low throughout January and February. However, thanks to the weather becoming warmer, demand picked up dramatically in March in its home market, improving residential orders to the tune of 10%.

Industry peers also went through a somewhat similar situation. A sluggish housing and commercial construction market led to inventory destocking by vendors, which hurt sales of heating and cooling products maker Emerson Electric (NYSE: EMR  ) .

At the same time, UTX reported that due to the low level of inventories earlier, vendors have been scrambling to replenish their stock, thereby boosting volumes. This signals better sales for this unit in the company's next quarter. And that's not the only bright spot.

Revenue from its aerospace segment, Pratt & Whitney, which accounts for nearly one- fourth of the company's top line, surged by 6.2%, while sales of the company's industrial unit surged 8.6% as well.

The Foolish bottom line
If you consider the overall situation, United Technologies has managed to perform above expectations, thanks to its diversified business model. The company could successfully offset weakness in one sector by outperforming in another. For the full year, the company expects to earn profits between $5.30 and $5.50 per share. To stay updated on this stock, add United Technologies to your Watchlist. Click here, it's free!

Navjot Kaur does not own shares of any of the companies mentioned in this article. Motley Fool newsletter services have recommended buying shares of Emerson Electric. The Motley Fool has a disclosure policy.

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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Related Tickers

10/24/2016 4:01 PM
UTX $99.52 Up +0.85 +0.86%
United Technologie… CAPS Rating: ****
EMR $50.31 Up +0.20 +0.40%
Emerson Electric CAPS Rating: ****
GR.DL $0.00 Down +0.00 +0.00%
Goodrich Corp CAPS Rating: ****