Credit: Shutterstock photoUnited Technologies Corporation UTX concluded the $9 billion sale of its Sikorsky Aircraft business to Lockheed Martin Corp. LMT . The conglomerate also updated its guidance in light of the divestiture.
For continuing operations in 2015, the company continues to expect earnings per share in a range of $6.15 to $6.30, while sales from continuing operations are anticipated to lie in the range of $57 billion and $58 billion.
United Technologies intends to use $6 billion in net proceeds from the Sikorsky divestiture for an accelerated share repurchase program, which reflects its commitment to enhance shareholder value.
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 CEO Greg 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. Also, it was hurt by waning demand as major oil exploration companies reduced their capital investments in offshore oil exploration projects.
Sikorsky's 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%.
However, the famed maker of the iconic Black Hawk and the presidential Marine One helicopters had just started to get back on its feet. In fact, despite these short-term headwinds, the unit has solid long-term growth prospects, with a backlog of $40 billion worth of orders, and several key U.S. military contracts. These include a deal to deliver a state-of-the-art presidential helicopter and a rescue chopper for the U.S. Air Force, both of which were procured in conjunction with Lockheed.
For United Technologies, the strategic divestment will infuse liquidity in its business and enable it to sharpen its focus on its core operations and improve profitability.
This step comes at a time when other conglomerates, including the giant General Electric Company GE , are also reassessing their operations to streamline businesses and determine the 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.
United Technologies currently has a Zacks Rank #3 (Hold). A better-ranked stock in the same space is Swire Pacific Ltd. SWRAY , sporting a Zacks Rank #2 (Buy).
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
