Please ensure Javascript is enabled for purposes of website accessibility

3 Things United Technologies Corporation's New CEO Wants You to Know

By Rich Smith - Jan 4, 2015 at 6:00PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

First and foremost, you know there's a new CEO, right?

It's a new year, investors, and what better way to start off a new year than with a new CEO?

That, at least, appears to be the thinking at United Technologies (RTX -0.19%), where the board of directors recently replaced CEO Louis Chenevert after his abrupt retirement, promoting CFO Gregory Hayes to take his place. And so far, so good.

Congratulations, shareholders. You've got a new CEO. Photo source: United Technologies.

Last month, Hayes stepped up to the mic to tell investors 2014 is still looking like "a solid year." Furthermore, the new CEO promises that "with strong backlog and orders momentum exiting the year, we anticipate continued organic sales growth in 2015 across each of our businesses."

"Despite a slow-growth global economy," said Hayes, the company remains on target for 4% organic sales growth in 2014, with companywide sales approximating $65 billion. Earnings will fall in the middle of UTC's previously promised range -- $6.80 per share.

This was Hayes' first, and probably most important, big reveal in his big new job: The old CEO didn't depart because UTC is falling apart, so investors can relax -- as of today, everything's steady as she goes.

Happy new year?
What may worry investors more is what happens in 2015. On one hand, Hayes says per-share profits will range between $7 and $7.20, for 3% to 6% total growth. (That's unlikely to inspire any New Year's celebrations, given that 2014 earnings growth was about 9%.) On the other hand, Hayes noted that 2015 sales will rise to between $66 billion and $67 billion.

But here's the thing: While Hayes says sales growth will include 3% to 5% organic growth, the projected rise from $65 billion to $66 billion or $67 billion implies only 1.5% to 3.1% growth in total revenues.

That's curious. Ordinarily, companies ossify with age, posting slower "organic" growth in core operations, and supplementing that with revenue from new acquisitions -- "inorganic growth." But at UTC, the reverse seems to be happening. Somehow, the company expects to grow faster organically than it grows overall.

Growing by shrinking?
The only way this makes sense is if Hayes is planning to sell off bits and pieces of United Technologies. That way, core revenues can grow at 3% to 5% even as overall revenues don't ... because subsidiaries and their revenue streams are being sold off. Indeed, according to The Wall Street Journal, Hayes is reviewing his company's "myriad businesses" for potential sales. (He even joked that he'd sell off something as key as Otis elevators "at the right price.")

Currently, "major" sales aren't planned, but there could be some minor tweaks. These might include, one imagines, such business lines as Taylor Company, which makes frozen yogurt machines, or Kidde, which sells residential smoke alarms and related equipment. Such minor divestitures could shave a percent or two off total revenue growth, without giving up much organic growth in the company's core aerospace and building systems businesses.

Meanwhile, longer term, the Journal notes that Hayes is still "hunting for a major acquisition" to replace revenues lost via small divestitures, and continue the company's march toward a promised "$100 billion in revenues" by 2020.

So to sum up? If you're a UTC shareholder, the three big things your new CEO wants you to know are:

  • The ship is not sinking. Profits for this year remain intact.
  • Tweaks to the business are in the works.
  • Up to and including one very major acquisition, that could transform the business and get United Technologies stock (which is currently lagging the S&P badly) growing once again.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Raytheon Technologies Corporation Stock Quote
Raytheon Technologies Corporation
$90.08 (-0.19%) $0.17

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/22/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.