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$UTX to acquire aircraft parts manufacturer $COL for $140 per share in cash and $UTX stock, split between $93.33 in cash & $46.67 in $UTX stock. Under the deal, $COL and $UTX aerospace systems segment will be combined to create a new business unit named Collins Aerospace Systems. The deal is expected to generate cost synergies in excess of $500MM.
With regard to $COL acquisition, $UTX still does expect to close the deal sometime in midyear. $UTX is working through the second request with the DOJ right now. $UTX had earlier expected to fund part of the cash aspect of the deal through foreign cash and now the company is going to bring back about $1Bil a year to pay down the debt.
$UTX feels good about EPS growth outlook of $6.85-7.10, with all four business units contributing. As in the prior years, $UTX's earnings growth will be weighted more towards the back half of the year as it gets the benefit of cost reduction efforts. $UTX sees 1Q18 EPS to be basically flat to 2017, on the profile of the commercial businesses.
Operationally, $UTX continued to execute against its growing aerospace backlog. At Pratt & Whitney, $UTX shipped 374 Geared Turbofan engines in 2017, which is in the range of its 350-400 target and nearly triple its 2016 shipments. The company successfully implemented the engine improvements that it promised to customers in 2017.
$UTX announced the transformative $COL acquisition which will create a premier aerospace supplier. As a result of this proposed transaction, together with the investments in the company's businesses and in its digital strategies, $UTX is positioned well for years to come. The company expects all of its businesses to grow sales and earnings in 2018.
$UTX expects FY18 adjusted EPS of $6.85-7.10 and total sales of $62.5-64Bil, which includes organic sales growth of 4-6%. The company predicts free cash flow in the range of $4.5-5.0Bil. In 2018, $UTX expects accelerating organic sales and adjusted EPS growth along with strong cash generation. The outlook excludes proposed $COL acquisition.
$UTX's commercial aftermarket sales for 4Q17 were up 25% at Pratt & Whitney, and up 10% at UTC Aerospace Systems. Otis new equipment orders rose 1% at constant currency, with solid growth in the U.S. and Europe and continued pricing pressure in China. Equipment orders at UTC Climate, Controls & Security increased 9% organically.
$UTX reported a drop in 4Q17 earnings due to charge related to tax law changes and restructuring items. Income from continuing operations fell to $486MM or $0.50 per share from $1.12Bil or $1.26 per share last year. Net sales was $15.7Bil, up 7% over a year ago including 5 points of organic sales growth. Adjusted EPS rose 3% to $1.60.
$UTX successfully priced an offering of EUR750MM of senior floating rate notes due 2019. The offering is expected to close on Nov. 13, 2017. Net proceeds from the offering are expected to be used to fund the repayment of commercial paper and for general corporate purposes.
For 3Q17, $UTX's Aerospace Systems delivered 4% profit growth on flat organic sales. With solid year-to-date results at Aerospace Systems, $UTX continues to expect operating profit to be up $50-100MM for the full-year 2017 and likely toward the high end of the range on low single digit organic sales growth.
$UTX's Pratt & Whitney has increased the allocation of GTF production to the spare engine pool, which lowers total negative engine margin. This, along with the higher commercial aftermarket volume, leads $UTX to expect 2017 operating profit to be down $125-175MM, but likely closer to the $125MM end of the range.
For full-year 2017, $UTX still sees operating profit at Otis to be down $125-175MM at actual FX. $UTX remains confident that Climate, Controls & Security will deliver low to mid-single digit organic sales growth and that operating profit growth will be at the low end of the $100-150MM range at actual FX.
$UTX's sales from Otis for 3Q17 rose 2% organically, while operating profit fell 7% at constant currency. Contribution from higher volume and productivity was more than offset by continued pricing and mix pressure, predominantly in China as well as strategic investments in service and E&D. FX translation was 1 point tailwind to sales and earnings.
$UTX, which recently declared dividend of 70 cents a share, said new equipment orders at Otis for 3Q17 were down 4% at constant currency versus the prior year. Equipment orders at UTC Climate, Controls & Security rose by 2% organically. Commercial aftermarket sales were up 11% at both Pratt & Whitney and UTC Aerospace Systems.