Jet Engine Maker to Cut Jobs
United Technologies Corp., the maker of Pratt & Whitney jet engines, said it will cut as many as 5,000 jobs as September’s terrorist attacks threaten to bankrupt airlines and trigger a recession.
The reductions are about 3% of the total work force and will take place in the next year. About 2,500 will be cut at Pratt & Whitney and 1,500 at Hamilton Sundstrand aerospace equipment. Most of the rest of the cuts will be at Carrier air conditioning. Third-quarter profit rose 14%, matching forecasts.
Chief Executive George David is counting on the company’s Otis elevator and Carrier units to sustain profit growth as airlines pare schedules by about 20% and cancel orders for engines and spare parts. United Technologies said last month that the airline industry slump may cut fourth-quarter profit to about a third lower than analysts’ forecasts, or $250 million.
“The game’s changed for them,” said Greg Locraft, an analyst at MFS Investment Management, before earnings were released. MFS owned United Technologies shares until last month. “They’re good managers, so we may be back. For now, we’re much more concerned about the demand environment at the airlines.”
Third-quarter net income rose to $565 million, or $1.12 a share, from $496 million, or 98 cents, in the year-earlier period, led by higher sales and profit at Pratt & Whitney and Otis. Revenue rose 7% to $6.92 billion from $6.47 billion, the company said in a statement.
Shares of United Technologies rose 98 cents on Tuesday to close at $54 on the New York Stock Exchange. They had declined 33% this year, compared with a 17% dip in the Standard & Poor’s 500 index.
At Carrier, the biggest maker of air conditioners, operating profit declined 57%, and sales rose 5.6% to $2.23 billion, United Technologies said. Investors blamed the drop in profit on the company’s failure to cut costs fast enough after acquisitions in the commercial refrigeration industry and after demand slowed in North America.
“The outlook for 2002 for the company’s aerospace businesses is unclear and we are very disappointed by Carrier’s performance,” Credit Suisse First Boston analyst Michael Regan wrote in a report. He has a “buy” rating on the stock and doesn’t own the shares. “But [United Technologies] has taken the steps necessary to get this division back on track.”
United Technologies said third-quarter restructuring expenses included $129 million at Carrier; $72 million at Otis; and $15 million at Pratt & Whitney and its flight operations, and also a lower tax rate. Most of the job cut expenses will be in the fourth quarter.
At Otis, the biggest elevator maker, sales rose 3.3% and operating profit dropped 18%. Before the effects of a rising U.S. dollar and restructuring costs, profit would have risen 20% and sales 8%, the company said. At Pratt & Whitney, operating profit rose 12% on a 6.2% increase in revenue, led by military sales and service for commercial aircraft. Inventory stockpiles are about 40% less than the last aerospace slowdown in 1991, David said on a conference call.
United Technologies plans to provide its 2002 forecast in December. It’s expected to earn $3.66 a share, the average estimate of analysts polled by Thomson Financial/First Call.
