United Technologies To Exit Sikorsky Helicopter Business, Cuts 2015 EPS Outlook

(RTTNews) - Diversified conglomerate United Technologies Corp. (UTX) announced Monday that it will pursue the separation of the Sikorsky helicopter business, subject to final Board approval. A decision on whether Sikorsky will be spun off or sold is expected by the end of the third quarter.

This announcement follows a review of strategic alternatives for Sikorsky Aircraft Corp. announced earlier in March 2015.

"Our strategic review has confirmed that exiting the helicopter business is the best path forward for United Technologies. Sikorsky is the world's premier helicopter company and through a series of strategic wins is well positioned for long-term growth. However, separation of Sikorsky from the portfolio will allow both United Technologies and Sikorsky to better focus on their core businesses," said UTC President and CEO Gregory Hayes said.

Sikorsky is one of the world's largest helicopter makers with $7.5 billion in sales last year to a range of military and civilian buyers. The company could reportedly fetch around $10 billion in a full sale.

The proposed separation of Sikorsky from the portfolio will better position United Technologies to focus on providing high-technology systems and services to the aerospace and building industries.

A Wall Street Journal report in mid-May had revealed that United Technologies is talking to potential buyers for its Sikorsky Aircraft business. Boeing Co. (BA), Airbus Group NV (EADSY) and Lockheed Martin Corp. (LMT) were among the companies exploring bids for Sikorsky or, alternatively, for a minority stake.

According to the report, one sticking point of a potential sale is the tax bill. The corporate predecessor to United Technologies bought Sikorsky in 1929, meaning the gain from a sale could garner a large tax bill. As a result, when United Technologies said it was exploring strategic alternatives for the unit earlier this year, it indicated a potential tax-free spin-off as the most likely outcome.

Excluding the Sikorsky business, the company said it now expects fiscal 2015 earnings in a range of $6.35 to $6.55 per share on projected sales of between $58 billion and $59 billion. The company also continues to expect organic sales growth of 3 to 5 percent and cash flow from operations less capital expenditures in the range of 90 to 100 percent of net income attributable to common shareowners.

Including Sikorsky, the company now anticipates full-year 2015 earnings in a range of $6.55 to $6.85 per share, down from the previous expectation of $6.85 to $7.05 per share.

The reduction in the earnings expectation range reflects approximately $0.10 to $0.20 of one-time separation costs along with a $0.10 decline in Sikorsky's operational expectations for the year due to weakness in the oil and gas markets.

While reporting financial results for the first quarter, the company had projected earnings in the range of $6.85 to $7.05 per share, on annual sales between $65 billion and $66 billion and 3 to 5 percent organic top line growth.

On average, analysts polled by Thomson Reuters currently expect the company to report earnings of $7.00 per share and revenues of $65.11 billion for the full-year 2015. Analysts' estimates typically exclude special items.

UTX closed Friday's regular trading session at $117.60, down $0.72 or 0.61% on a volume of 2.35 million shares.