Forum List » Value Ideas and Strategies
Share and discuss value investing ideas and investing strategies.
New Topic
Goto Thread: PreviousNext
Goto: Forum ListMessage ListNew TopicLog In
United Technologies: Creating a Niche in the Diversified Industrial industry
Posted by: abirk (IP Logged)
Date: April 23, 2014 04:54PM

The diversified industrial industry plays a great role for the prosperity of an economy. United Technologies Corporation (UTX) is one of the best companies operating in this industry. This Hartford, Conn.-based company provides a broad range of high-technology products and services to the global aerospace and building systems industries. Its operations include original equipment manufacturing (OEM), and extensive related aftermarket parts and services in both its commercial and aerospace businesses. The company's main customers include both private and government companies and its businesses are geographically diversified, continuing to evolve with the globalization of world economies.

Tracking the Performance

On April 22, 2014, United Technologies reported a higher-than-expected first 2014 quarterly profit. Revenue growth across its aerospace and commercial building segments and strong sales in China accelerated its profit. The company reported earnings from continuing operations of $1.32 per share versus $1.39 in the year-ago quarter. Restructuring costs are the main reason for this decrease in earnings.

Sales were of $14.75 billion, increased 2%, reflecting the benefit of organic growth (5 points) partially offset by net divestitures (2 points) and adverse foreign exchange (1 point). First quarter segment operating profit increased 4% over the prior year quarter. Adjusted for restructuring costs and net one-time items, segment operating profit grew 9%.

Income from continuing operations for the quarter stood at $1.213 billion versus $1.27 billion in the prior-year quarter. Recurring EPS for the quarter increased 10.0% year over year to $1.41 per share. The company continues to maintain a strong cash flow position. As of March 31, 2014, cash and cash equivalents were $4.5 billion with long-term debt of $19.7 billion. The company had a debt-to-capital ratio of 37.0%. Further, United Technologies repurchased shares worth $335 million during the quarter.

Segment Performance

This diversified industrial giant operates through its five business segments to provide high-tech products and services to aerospace industries and building systems around the globe. These five segments include: Otis, UTC Climate, Controls & Security, Pratt & Whitney, UTC Aerospace Systems and Sikorsky. A chart has been provided below to show the company’s segment performance.

Positive Outlook

The company expects its 2014 sales to be $64 billion. Further, it has increased the lower end of its EPS guidance from $6.55 to $6.85 per share to $6.65 to $6.85 per share. Based on additional restructuring projects, United Technologies expects to increase restructuring spending from $300 million to $375 million in 2014. Also, the company continues to expect share repurchase, acquisitions and debt pay down of $1 billion each in 2014. United Technologies expects organic growth to continue to accelerate in 2014 and beyond as there is a great growing momentum in its markets. A chart has been provided below to show the company’s 2014 expectations.

Company’s Growth

United Technologies’ main growth drivers are urbanization and penetration, replacement/modernization, life safety, security, efficiency and environment, and regulatory changes. Another chart has been provided below to show the company’s first quarter 2014 sales growth.

Charts from company website

China at a Glance

Otis elevators and escalators is the largest business division of United Technologies. Otis deals in elevators, escalators, moving walkways and the maintenance of this technology. China is the largest market for elevators in the world. During the quarter, new equipment orders at Otis increased 9% over the year-ago first quarter, led by 27% growth in China. Recently, United Technologies announced that they started a Joint Venture production facility to develop and manufacture electric power systems for China's C919 airliner.

On a Concluding Note

The company’s strengths can be seen in multiple areas such as good positioning to capture growth, focused portfolio and organization, continued investment, relentless focus on cost reduction, and effective cash redeployment. Further, the company is well-positioned in China due to its new manufacturing facility. The company is well ahead of other global rivals including Schindler, Mitsubishi and Toshiba. I am therefore pretty bullish that this diversified industrial giant won’t let its investors down in the near future.

Stocks Discussed: UTX,
Rate this post:

Rating: 5.0/5 (1 vote)

Sorry, only registered users may post in this forum.

Please Login if you have an account or Create a Free Account if you don't
Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)

GF Chat