United Technologies Corporation (NYSE/UTX) Stock Drops 7.7% as Sales Plunge

United Technologies
Source: Wikimedia

United Technologies Corporation (NYSE/UTX) cut its profits outlook for the second time in just over a month, saying there is weak demand in units making aerospace parts and Otis elevators.

On Tuesday July 21st, the company reported second-quarter earnings above expectations. However, the company slashed its forecast for the rest of 2015. The slowdown in the Chinese economy is the major reason for the cut in the company’s outlook. (Source: United Technologies, July 21, 2015.)

Following the news, the shares fell 7.69% to $101.99 during the noon trading session on Tuesday.

United Technologies’ second-quarter diluted earnings per share (EPS) came in at $1.84, higher than the consensus expectation of $1.71. The company reported sales of $16.3 billion, down five percent and lower than the forecast for $16.5 billion.

Although the earnings came higher than expectations, the cut in the outlook discouraged investors. The company announced that sales from continuing operations are expected to be between $57.0 billion and $58.0 billion, down from a previous range of $58.0 billion to $59.0 billion.
“With six months of trends behind us, it is now clear the commercial aftermarket at UTC Aerospace Systems will be significantly below our expectations for the year. This, along with continuing softness in Otis Europe and a slowing China, led us to reassess our 2015 outlook for UTC Aerospace Systems and Otis,” CEO Gregory Hayes said in the earnings statement.

The company is expected to face weak demand from its Chinese customers. Last month, China’s central bank downgraded its 2015 economic forecasts, including gross domestic product (GDP) growth to seven percent from 7.1% annually.

The recent turmoil in the Chinese stock market may also be an indication of financial crisis.

For investors, a slowing China may impact companies like United Technologies even further. The company produces a variety of sophisticated products which have specific customers. If, in this case, China begins to decrease its demand, it will have a significant impact on the company.