United Technologies Plans $1.5 Billion Restructuring Program

Updated on
  • Earnings in 2016 are forecast to be $6.30 to $6.60 a share
  • Company will look to cut expenses in high-cost locations

United Technologies Corp. unveiled a $1.5 billion restructuring program as the aerospace and building systems manufacturer looks to counter slow global growth and headwinds in several key businesses.

Reducing expenses in high-cost locations will be the focus of a plan that will run through 2018, Chief Executive Officer Gregory Hayes said Thursday at the company’s annual outlook meeting in New York. The restructuring, including reducing the manufacturing footprint in the U.S. and Europe, will result in $900 million of annual savings when it’s done, he said.

“It is about doing more with less,’’ Hayes said. “Productivity remains a way of life at UTC.’’

The shares rose as much as 1.8 percent in extended trading in New York after United Technologies announced the program and forecast 2016 profit in line with analysts’ estimates. Projected earnings next year of $6.30 to $6.60 a share compare with the $6.58 average of 21 analysts’ estimates compiled by Bloomberg.

Hayes, who took over in late 2014, called the forecast “conservative and achievable.” He is seeking to reassure investors after the company lowered its outlook multiple times this year on issues including foreign exchange and weakness in Europe and China.

‘About Credibility’

“What we don’t want to do is go through another year like 2015 because ultimately it’s about credibility,” he said. “I want investors to be confident that when we tell them we’re going to hit a number, we’re going to hit the number.”

Boosting investor confidence is “the most important thing management can accomplish at this point,” Carter Copeland, a Barclays analyst, said in a Dec. 9 note.

United Technologies declined about 18 percent this year to $93.87 at the close Thursday, compared with a 0.3 percent decrease for the Standard & Poor’s 500 Index.

Hayes used his first full year as CEO to narrow the company’s focus on aerospace and building systems through steps including selling the Sikorsky helicopter division to Lockheed Martin Corp. He will look to overcome headwinds in the Otis elevator business in China and expenses related to a new jet-engine program in the Pratt & Whitney unit.

Global Economy

Global economic growth is slow and is “probably going to be that way for a number of years,” Hayes said. United Technologies is planning for the U.S. dollar to be at parity with the euro next year.

Earnings this year will be $6.20 to $6.30, the company said, raising the low end of the range by 5 cents.

United Technologies in October boosted a stock repurchase program by $12 billion as the company said it plans to return $22 billion to shareholders by 2017. While the emphasis has shifted toward buybacks, United Technologies will continue to consider acquisitions if it can find worthy targets, Hayes said.

“It’s not a target-rich environment in aerospace. The biggest opportunity is in HVAC,” he said. The company has a placeholder of $1 billion to $2 billion for deals in 2016.

(Updates with comments from CEO in third paragraph.)
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