United Technologies completes big acquisition, prepares for spinoffs

Revenue for this major aircraft-component maker jumped in the most recent-quarter on the strength of a strategic acquisition. That deal gives the company more clout with its biggest clients and has also introduced plans for the spinoff of two businesses.

Those two splits could significantly add to shareholder value.


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UNITED TECHNOLOGIES CORP. (New York symbol UTX; www.utc.com) completed its acquisition of Rockwell Collins on November 26, 2018, for $30.6 billion in cash and stock (including that firm’s debt). Rockwell is a leading maker of aircraft components such as cabin interiors, computerized flight controls and air-to-ground communications equipment.

As a result of that purchase, United Technologies’ revenue in the three months ended March 31, 2019, jumped 20.5%, to $18.4 billion from $15.2 billion a year earlier. If you exclude both currency rates and Rockwell’s contributions, sales gained 8%.

The purchase gives the company more clout with big aircraft makers. To secure approval in the U.S. and other countries for the takeover, it will sell some of Rockwell Collins’ smaller businesses.

Disregarding costs to integrate Rockwell, earnings in the quarter rose 15.9%, to $1.65 billion from $1.42 billion. Due to the additional shares outstanding, earnings per share improved 7.9%, to $1.91 from $1.77.

For all of 2019, the company now expects to earn between $7.80 and $8.00 a share. That’s up from its earlier forecast of $7.70 to $8.00 a share. United Technologies trades at a moderate 17.7 times the midpoint of its new range.

Blue Chip Stocks: Spinoffs to form 3 new companies are in the works

The company still plans to spin off its Otis (elevator) and Carrier (heating and air conditioning equipment) operations as separate companies in the first half of 2020. It has yet to announce the details, but investors will not be liable for capital gains taxes until they sell their new shares.

Academic studies often show that both the parent and the new company created by the spinoff generally do better than comparable firms for at least several years after the split takes place.

Meantime, United Technologies will focus on integrating the new Rockwell operations. The company estimates it will spend $2.5 billion to $3 billion, but the plan should let United Technologies cut at least $500 million from its annual costs by the end of the fourth year.

United Technologies’ annual dividend rate of $2.94 yields 2.3%. That reflects a 5.0% increase in the quarterly payment, to $0.735 a share from $0.70, starting December 2018.

Following the split into three new companies, dividend payments from those new firms will combine to give shareholders the same quarterly payment amount of $0.735—or greater.

United Technologies’ dividend has grown an average 4.5% annually over the last 5 years.

Recommendation in Wall Street Stock Forecaster: United Technologies is a buy.

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