With Aerospace Squared Away, Will United Technologies Go Back To Big Deals?
Stephen Simpson, CFA
Stephen Simpson, CFA
Nov. 16, 2015, 10:33 AM
- Aerospace and defense shares are on the rise after calls to increase efforts to crush ISIS, the terrorist group responsible for Friday's attacks in France.
- Previously: World leaders wrap up G20 summit (Nov. 16 2015)
- Previously: French warplanes strike Islamic State targets in Syria (Nov. 15 2015)
- Related tickers: General Dynamics (GD +0.6%), Boeing (BA +0.2%), Northrop Grumman (NOC +3.2%), Lockheed Martin (LMT +2.5%), Raytheon (RTN +2.4%), Orbital ATK (OA +3.8%), Rolls-Royce (OTCPK:RYCEY +2.2%), Huntington Ingalls (HII +1.1%), Honeywell (HON +0.9%), United Technologies (UTX +0.4%), Airbus (OTCPK:EADSF), ITT (ITT +0.6%), Textron (TXT +1.7%), L-3 Communications (LLL +2.3%), BAE Systems (OTCPK:BAESY +2%), Finmeccanica (OTCPK:FINMY), Rockwell Collins (COL +1.7%).
Nov. 12, 2015, 2:26 PM
- Boeing (BA -1.5%) and Airbus (OTCPK:EADSY -3.3%) are sharply lower following engine supplier Rolls-Royce's (OTCPK:RYCEY -19.8%) warning of a weaker than expected 2015 earnings outlook and sharply weaker demand in 2016.
- Rolls-Royce, which makes engines for Boeing’s 787 Dreamliners and Airbus A380 superjumbos, says it expects sharply lower volumes of corporate jets powered by its engines next year, and that its aftermarket service segment had begun to suffer as customers use older, wide-body engines less and shift to more fuel-efficient planes.
- Rolls-Royce's gloomier outlook also comes as engines made by GE (GE -1.4%) and Pratt & Whitney (UTX +1.1%) for the Airbus A330 reportedly have driven down prices for its Trent 700 engines.
Nov. 12, 2015, 7:55 AM
- United Technologies (NYSE:UTX) has entered into accelerated share-buyback agreements with two banks to repurchase $6B of the company’s common stock.
- Deutsche Bank and JPMorgan Chase will each deliver $3B worth of stock under the program.
- Last month, United Technologies said it would increase its repurchase plan by $12B, aiming to buy back $16B worth of stock through 2017.
- UTX +0.1% premarket
Nov. 11, 2015, 7:34 AM
- Advanced technologies supplied by UTC Aerospace Systems (NYSE:UTX) helped enabled today's successful maiden flight of the Mitsubishi Regional Jet, the first passenger plane developed in Japan in more than half a century.
- The MRJ is a family of 70-90 seat next-generation regional jets under development by Mitsubishi Aircraft Corporation. The company has so far received orders for more than 400 planes.
- Related: China to take on Boeing, Airbus with first homegrown large passenger jet (Nov. 02 2015)
Nov. 3, 2015, 2:59 PM
- Lockheed Martin (LMT -0.6%) says it has received final regulatory approval from China for its $9B acquisition of Sikorsky Aircraft from United Technologies (UTX +0.8%), and expects the deal to close on Friday.
- Separately, Bloomberg reports LMT is exploring a sale of $600M in alternative assets to reduce exposure to P-E funds; the asset portfolio is said to be held by a subsidiary that manages employees’ post-retirement plans, and a deal may be completed by year-end.
- S&P downgraded LMT’s debt rating on Monday, citing its "expectation of a significant deteriorating in Lockheed’s forecasted credit metrics” as the company continues returning excess cash to shareholders despite the debt-financed acquisition of Sikorsky.
Oct. 20, 2015, 3:48 PM
- United Technologies (UTX +4%) rallies following its announced $12B boost to its stock buyback plan, even after it reported a 5.6% Y/Y decline in Q3 sales to $13.8B while earnings fell 26% to $1.36B.
- UTX already had accelerated share repurchases, buying back $4B this year - more than it did all last year - and now aims to have bought back $10B by year-end, which CEO Greg Hayes says will take advantage of “a big disconnect" between the company’s value and its share price.
- "Significant additional restructuring actions" will be announced in Q4, Hayes said in today's earnings conference call, including reduced overhead costs, but the focus will be on "factory rationalization," adding that more details would be provided in December.
- CFO Akhil Johri says he continues to expect orders to fall in China for Otis elevators after declining 19% in Q3, but Otis orders rose 47% in North America, driven by a contract win at the Hudson Yards development of new skyscrapers rising on Manhattan’s West Side.
- Despite the buybacks, UTX says it still has at least $1B on hand for acquisitions.
Oct. 20, 2015, 3:23 PM
- Lockheed Martin (LMT -0.6%) could seal an $11.25B deal to sell naval ships to Saudi Arabia as early as next year, CEO Marillyn Hewson said on today's earnings conference call.
- Saudi Arabia wants to buy four vessels based on LMT's high-speed littoral combat ship, while the Pentagon has curtailed orders for its version of the ship; the proposed Saudi deal would be one of the largest-ever overseas defense orders, and would ease concerns that export opportunities are being hurt by the strong dollar and collapsing commodity prices, which have cut the spending power of big military customers overseas.
- Hewson says LMT had an international backlog of $20B in 2014 and remains on track to raise international sales to 25% of overall revenues in coming years, citing strong demand for company products such as its F-35 and F-16 fighter jets, C-130J transport plane, and missile defense equipment.
- The CEO says LMT expects to finalize the acquisition of Sikorsky Aircraft (UTX +4.1%) by the end of the year, with the sole remaining review in China likely to conclude without any difficulty.
Oct. 20, 2015, 7:33 AM
- Net profit of $1.52B, or $1.61 per share vs. $1.85B, or $1.93 a share, in the same period a year ago. Excluding one-time items and restructuring charges, adjusted earnings per share were $1.67.
- Sales by segment: Otis +2%; UTC Climate, Controls & Security -2%; Pratt & Whitney +8%; UTC Aerospace +1%.
- UTX's Board of Directors authorized a new $12B share repurchase program, including the $6B accelerated share repurchase from net proceeds of the sale of Sikorsky (which is expected to close in Q4).
- The firm also confirmed it was on track to achieve its previous guidance range: EPS from continuing operations of $6.15-$6.30, on sales of $57B-$58B.
- UTX +0.4% premarket
- Q3 results
Oct. 20, 2015, 6:58 AM
- United Technologies (NYSE:UTX): Q3 EPS of $1.67 beats by $0.12.
- Revenue of $13.79B (-5.6% Y/Y) misses by $770M.
Oct. 19, 2015, 5:30 PM
Oct. 15, 2015, 10:10 AM
- The U.S. has approved the possible sale of nine United Tech (UTX +0.7%) UH-60M Black Hawk helicopters to Saudi Arabia in a deal valued at $495M.
- Lawmakers have 30 days to block the sale, although such action is rare since arms sales are usually well vetted in advance of a formal notification to Congress.
Oct. 15, 2015, 4:51 AM
- According to Reuters sources, Lockheed Martin's (NYSE:LMT) purchase of Sikorsky Aircraft from United Technologies (NYSE:UTX) could close by late October or early November, well before the initial year-end target.
- Lockheed announced last month that officials in the U.S., South Korea and Japan had cleared the $9B acquisition, but was still waiting for other regulatory approvals.
- China and the European Union are expected to support the deal next week.
Oct. 13, 2015, 8:22 AM
- RBC Capital has lowered its rating on United Technologies (NYSE:UTX) to sector perform from outperform, stating it now sees the stock as fairly valued given the rally over the past few weeks and no change to fundamentals.
- "We're basically looking to U.S. construction and defense for potential organic upside going forward, and these markets only make up 40% of segment operating income (post Sikorsky)," RBC declared.
- The firm also lowered its price target on the stock to $100 from $113.
- UTX -0.7% premarket
Sep. 30, 2015, 6:10 PM
- The U.S. Defense Department does not support large-scale acquisitions that could winnow its prime contractors following Lockheed Martin’s (NYSE:LMT) $9B purchase of Sikorsky (NYSE:UTX), according to comments from DoD Sec. Carter and undersecretary for acquisition, technology and logistics Frank Kendall.
- Warning that with “size comes power,” Kendall says the Pentagon will work with the Justice Department and Congress to preserve a diverse industrial base.
- The statements come ahead of the contract award for a new long-range bomber, which some analysts say could prompt a tie-up of Boeing (NYSE:BA) and Northrop Grumman (NYSE:NOC).
- U.S. defense stocks extended gains after the remarks, led by a 2.4% rally for Raytheon (NYSE:RTN).
- LMT says it disagrees with the comments, saying there is no evidence to support the view that larger defense companies reduce competition or inhibit innovation.
Sep. 30, 2015, 12:26 PM
- Airbus (OTCPK:EADSF, OTCPK:EADSY) says one of its A320neo test aircraft has suffered engine damage, which could add to pressure on the plane maker to meet a year-end deadline to bring the revamped jetliner into commercial service.
- The extent of the damage to one of the plane's two PW1100G geared turbofan engines, built by United Technologies' (NYSE:UTX) Pratt & Whitney unit, is still being assessed, Airbus says.
- Four other A320neo test planes remain flying, and Airbus says it is confident it could work with Pratt & Whitney to resume flight tests of the grounded plane "soon."
Sep. 29, 2015, 12:45 PM
- Some of the biggest U.S. weapons programs could be disrupted by a stopgap budget measure that caps federal funding at prior-year levels and prevents the launch of new programs and multiyear deals, as time is running out for lawmakers to reach an agreement on next year’s spending before the current federal budget expires on Sept. 30.
- The U.S. Air Force estimates it stands to lose $13B in additional funding from such a stopgap, affecting ~60 programs including the award of a bomber deal for which a team of Boeing (BA +0.1%) and Lockheed Martin (LMT +0.3%) is vying with Northrop Grumman (NOC +0.1%).
- The Air Force wants to protect the Boeing deal, which leaves the company responsible for any costs exceeding $4.9B; Boeing has taken $1.3B in charges because of problems with the KC-46A refueling tanker, which flew for the first time on Sept. 25, and the Air Force wants to avoid a new deal that could expose it to paying for any further glitches.
- A stopgap also could cap next year’s spending on LMT's F-35, the Pentagon’s largest program, at $8.6B vs. the requested $11B, which would cut 19 jets from next year’s planned order and disrupt efforts to cut the jet’s cost by raising annual production to 120 planes over the next three years; the F-35’s suppliers include United Technologies (UTX +0.7%) Pratt & Whitney unit, which makes the engine.
United Technologies Corp. provides products and services to the building systems and aerospace industries worldwide. The company operates through five business segments: Otis, UTC Climate, Controls & Security, Pratt & Whitney, UTC Aerospace Systems, and Sikorsky. The Otis segment designs,... More
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