United Technologies slashes 11,600 jobs, defense sector under fire
The maker of Pratt & Whitney engines and Otis elevators today announced that it would slash 11,600 jobs and reduce its earnings guidance. Shares of the Hartford-based conglomerate, which Wall Street had liked much better than its neighbor General Electric Co. (GE), was up six percent to $39.82 in mid-morning trading. The severity of the economic slowdown caught United Technologies by surprise.
"The outlook for commercial aerospace and global construction markets has continued to deteriorate since UTC's December investor meeting and the economic recovery previously anticipated in the second half of 2009 now appears unlikely," said Chief Executive Officer Louis R. Chênevert in a company press release.
United Technologies is forecasting profit of $4 to $4.50, including 30 cents to 40 cents for the restructuring plan. That excludes one-time gains of $200 million to $350 million. In January, the company forecasted 2009 profit of $4.65 to $5.15 compared with 2008's $4.90.
The other issue for United Technologies and other military contractors are calls by President Barack Obama to save up to $40 billion by cutting spending in areas such as defense. Shares of Lockheed Martin Corp. (LMT), General Dynamics Corp. (GD), Raytheon Co. (RTN) and Northrop Grumman Corp. (NOC) are all down more than 20 percent this year. This is surprising given the industry's solid earnings.
Cutting defense programs is always politically difficult given that the defense industry supports about two million jobs. Nonetheless, the federal budget deficit is projected to hit $1.75 trillion this year. The current Pentagon budget is about $512 billion and includes funding for big ticket programs such as the Joint Strike Fighter. Calls to cut the Pentagon's budget are bound to intensify.
The layoffs at United Technologies may be a hint of things to come.