United Technologies to Spin off Black Hawk-Maker Sikorsky? - Analyst Blog
United Technologies Corporation UTX announced that it is contemplating strategic alternatives for its Sikorsky helicopter unit, in the first significant move by the company's new chief executive officer Gregory Hayes to revamp the conglomerate's portfolio.
The company's board authorized the review process, which is expected to conclude before the end of this year. The conglomerate made special mention of a potential tax-free spin-off of the helicopter unit being in the cards.
The decision would be the latest upheaval for United Technologies, whose CEO Louis Chenevert abruptly stepped down from his post in November, with CFO Hayes replacing him.
Sikorsky, which generates about two-thirds of its sales from U.S. defense contracts, did not measure up to the performance of the other units of the company, according to Hayes. The unit has been facing pressure amid soft military spending and weak demand from oil-field services companies, following the plunge in crude prices.
The famed maker of the iconic Black Hawk and the presidential Marine One helicopters had just started to get back on its feet. It recently secured several high-profile new contracts, including the new presidential helicopter program with Lockheed Martin Corporation LMT.
Its sales of $7.5 billion last year accounted for about 11% of United Technologies' $65 billion in revenue. However, Sikorsky's operating profit margin for the year lagged the conglomerate’s other units at 2.9%.
Also, the strategic fit of Sikorsky with the U.S. conglomerate has been questioned time and again by analysts. Just last December, speculations about the possible divestiture of Sikorsky were rife, prompting the new CEO to assure investors that he was going to reassess the company’s portfolio, but that he had no immediate plans to divest Sikorsky.
While Hayes is currently focused on spinning off Sikorsky, there might be acquisition interest for the helicopter maker as well, from companies in the U.S. or Europe. Per some analysts, a standalone Sikorsky could be an enticing takeover target for aerospace giant The Boeing Company BA or Textron Inc.
This step from United Technologies comes at a time when other conglomerates, including the giant General Electric Company GE, are also reassessing their operations to streamline businesses and determine best strategic fits. Hayes is attempting to capitalize on growth in commercial aerospace and rapid urbanization in emerging markets, and divesting the low-growth-potential helicopter unit will mark his first stride towards the same.
Shares of United Technologies have climbed almost 6% since Hayes took over, compared to a 1% decline for the S&P 500 index, suggesting that investors are optimistic about Hayes’ capabilities.
United Technologies currently carries a Zacks Rank #3 (Hold).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
BOEING CO (BA): Free Stock Analysis Report
UTD TECHS CORP (UTX): Free Stock Analysis Report
LOCKHEED MARTIN (LMT): Free Stock Analysis Report
GENL ELECTRIC (GE): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research
