United Technologies CEO Chenevert Unexpectedly Steps Down

United Technologies Corporation (NYSE:UTX) got some unexpected news this morning with it was announced that CEO Louis Chenevert would be immediately retiring from his chief executive and chairman posts.  United Technologies was quick to move and name a successor, Gregory Hayes, former United Technologies Chief Financial Officer.

United Technologies Louis Chenevert

Many are speculating that Chenevert’s departure had to do with the several high profile miscues from the company’s Pratt & Whitney division, which makes plane engines.  There was a major fire at a Bombardier, Inc. (TSE:BBD.A) (TSE:BBD.B) plant involving a test plane and, probably the most embarrassing, was the grounding of the US military’s entire F-35 fleet due to engine issues.

This Tiger Cub Giant Is Betting On Banks And Tech Stocks In The Recovery

D1 CapitalThe first two months of the third quarter were the best months for D1 Capital Partners' public portfolio since inception, that's according to a copy of the firm's August update, which ValueWalk has been able to review. Q2 2020 hedge fund letters, conferences and more According to the update, D1's public portfolio returned 20.1% gross Read More

Chenevert refocused United Technologies into two main divisions

Chenevert was CEO for six years and did make some important and big changes during his time as chief executive.  Chenevert refocused the company into two main divisions: aerospace and building services.  United Technologies Corporation (NYSE:UTX) has lucrative government contracts to provide parts for F-35, Black Hawk helicopters, and more.  However, the company does have a big stance in the building services industry as well.  The company owns Carrier climate control systems, fire and home security, Otis elevators, and Goodrich Corp, which was purchased in 2012 for $16.5 billion.  These divisions and segments make up the building services division of the business and it is certainly a lucrative aspect for them.  However, Nick Heymann, William Blair & Co. analyst, says that the aerospace and building service industries are in “multiyear transitions”.

While it is not immediately known why CEO Chenevert stepped down so abruptly, the stock is relatively steady for enduring big news like this, down only -.92%.  Analysts are concerned and want to know reasoning behind the departure, however, they did show confidence and liking for Hayes being named the successor.  “This has come out of the blue, and as far as we know was not planned,” Robert Stallard, an analyst with RBC Capital Markets, “At this early stage we’re wary of speculating as to why Mr. Chenevert has decided to abruptly step down, but we view Mr. Hayes as a highly competent CFO, who is well regarded by investors” (Bloomberg).

United Technologies’ financials

United Technologies Corporation (NYSE:UTX) has a market cap of $100.56 billion and is rated a “buy” by analysts.  Price to earnings comes in at 16.29, price to forward earnings is at 15.14, PEG is 1.47, price to free cash flow comes in at 32, total debt to equity is .59, earnings growth is forecast for 16.10% this year, 5.87% next year and 11.08% over the next five years.   United Technologies is up 2.65% in the past year, but is down nearly -1% year to date.

Overall, United Technologies Corporation (NYSE:UTX) has underperformed broader market and certainly the high profile miscues with the F-35 engines and delays hurt the stock, which has been in a downtrend since July.  It is too early and too recent to speculate the reasoning behind Chenevert’s departure and entrance into retirement, but there certainly has been a lack of results in the past two years that could be seen as part of the decision.  For now, investors look to Hayes for a rebound and revamp of the company.

Disclosure: No positions