United Technology Corp. issued a profit warning saying that profit at its UTC Aerospace Systems and Otis Elevator units would be lower than expected for 2015. This sparked a nosedive of $8.52, or 7.7%, in the price of its stocks as the price fell to $101.96 in midday trading on Tuesday.
This was the biggest one day fall in the price of UTC stocks since 17 September 2001, when the markets reopened after the 9/11 terror attacks which forced the closure of the U.S. stock markets. On that occasion, the stock fell by $9.35 which represented 28% of its value.
UTC President and CEO Greg Hayes said in the company’s Q2 earnings statement that through the first half of 2015, the company delivered organic sales growth of 3 percent in what continues to be a slow growth economy. According to Hayes, this solid growth contributed to a 6% increase in earnings per share on a constant currency basis while also excluding the impact of gains and restructuring. In addition, the stronger U.S. dollar (USD) also negatively impacted the earnings results.
Hayes also warned of a lowered profit outlook for 2015 saying that since half of the year is now completed, it is evident that the commercial aftermath at UTC Aerospace Systems will also be significantly below the company’s expectations for the year.” He also noted the softness in Otis Europe as well as the slowdown in China as additional areas for concern with regard to performance for the rest of the year.
Otis had been a big beneficiary of the Chinese building boom of the past few years which has now slowed down in keeping with the slowdown in China. Orders levels from China for new equipment had dropped by 10% during the second quarter.
Commenting on the lowered expectations for 2015, Greg Hayes also said, “While this revised forecast is disappointing, we remain confident in our long-term outlook for the business”. The company said a cost cutting exercise would be put into effect across the board while it is also planning to spend more on share buybacks as well as on mergers and acquisitions.
UTC reported earnings of $1.5 billion which translated to $1.73 per share for Q2, with the net income figure showing a decline of 6% on the same period last year. While sales fell 5% to $16.3 billion, which was below the FactSet consensus of $16.5 billion, earnings per share excluding one-time items was $1.81, higher than the consensus expectation of $1.71 per share.