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United Technologies Unrealistic Guidance in Changed Market Securities Class Action

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Two Aircraft in Flight

United Technologies Corporation has been in existence since 1934. But in 2013 and 2014, changes in the market for aircraft parts began substantially affecting its earnings—a problem the complaint for this class action claims the company did not disclose, in violation of Securities Exchange Act of 1934. The complaint supports its contentions with information obtained from anonymous former employees.

The class for this action is all persons or entities who acquired UTC common stock between December 11, 2014 and July 20, 2015.

UTC sells high-tech products and aftermarket service to the building systems and aerospace industries. It has five principal business segments, one of which is UTC Areospace Systems (UTAS).

In 2014, UTC hired a new CEO, Gregory J. Hayes, who was known as a “straight shooter” and a “realist who borders on the pessimistic”. On December 11, 2014, the company announced earnings per share guidance for 2015 of $7.00 to $7.20 per share, based in part on expected “high single digit” growth in aftermarket sales for UTAS. Because of Hayes’ reputation, the complaint says, analysts believed that these figures were accurate or even low.

On January 26, 2015, the company revised the figures slightly downwards, to $6.85 to $7.05, ostensibly because of the strengthening of the US dollar and pension discount rate headwinds, but confirmed that “business fundamentals and operational expectations have not changed…” Between January and June, the company had multiple chances to revise this number even further downwards, but chose not to do so, even stating that there was “no change” in its guidance.

Unfortunately, the complaint for this class action says, a number of factors had been eating into UTC’s profits in the UTAS segment:

  • Commercial aircraft manufacturers were stockpiling parts and selling them directly to airlines.
  • Boeing’s “Partnering for Success” Program was forcing UTC to make substantial cuts to its sales prices.
  • Airlines were creating alliances or collective to buy parts at lower prices.
  • Airlines were more often purchasing counterfeit parts.

The complaint claims that the company was fully aware of these problems, but that it insisted on announcing targets it could not meet, then passing the unrealistic expectations on to its business units. The complaint says the business units “pulled in” sales, or got customers to buy at earlier dates, thus taking sales from future periods to meet current targets.

On June 15, 2015, at the Paris Air Show, the company suggested that figures would be lower than anticipated, the complaint says, and on July 21, the company finally revised its guidance to $6.15 to $6.30 per share. At each of these revelations, the stock price fell, as the company admitted its guidance had been “overly optimistic” and “way too aggressive” originally.

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