OTPP and United Technologies
The Ontario Teachers’ Pension Plan (or OTPP) added a new position in United Technologies Corp. (UTX) during the third quarter that ended in September. The position accounted for 0.13% of the fund’s total portfolio.
Overview of United Technologies Corp.
UTX is based in Hartford, Connecticut. It provides high-technology products and services to the building and aerospace industries. Its operations are classified into five business segments:
- Otis and UTC Climate
- Controls & Security
- Pratt & Whitney
- UTC Aerospace Systems
Otis and UTC Climate and Controls & Security are referred to as the “commercial businesses.” Pratt & Whitney, UTC Aerospace Systems, and Sikorsky are collectively referred to as the “aerospace businesses.”
Last year, UTC announced the formation of UTC Building and Industrial Systems. It’s a new organizational structure consisting of Otis and UTC Climate and Controls & Security. This new organizational structure was targeted to improve the delivery of more integrated solutions to customers as well as accelerating innovation.
Shares tumble in July
Shares fell after the second quarter results in July. UTC saw 6% decline in orders for spares within Pratt & Whitney’s large commercial engine business. It increased 18% in the second quarter last year. Last year, news reports noted that Pratt’s new, geared turbofan commercial engines were involved in a fire on a Bombardier Inc. CSeries jet in May and on the Pentagon’s new F-35 joint strike fighter in June.
The Sikorsky business also saw a loss of $438 million due to a contract amendment signed with the Canadian government for the Cyclone Helicopter program.
Posts increased earnings and revenue growth across all five business segments
For 3Q14, UTC posted earnings per share (or EPS) of $2.04 and net income of $1.9 billion. They were up 32% and 31%, respectively, compared to the same quarter last year. Sales grew 5% to $16.2 billion. Sales were driven by organic growth. The results beat estimates. UTC said in its 10Q filing that during the quarter, all five business segments experienced organic sales growth.
UTC Aerospace Systems’ organic growth was driven by higher commercial original equipment manufacturer (or OEM) and aftermarket volumes. Otis saw growth from higher new equipment sales volume in China and the Middle East. Pratt & Whitney saw growth from higher commercial aftermarket and Pratt & Whitney Canada sales volumes. Organic growth at Sikorsky was led by higher international military volumes and customer-funded development programs.
Creates shareholder value through dividends and buyback
UTC paid cash dividends on its common stock every year since 1936. Recently, it declared a quarterly dividend of $0.59 per share. During the nine months ending September 30, 2014, UTC repurchased ~9.6 million shares for ~$1.1 billion. It expects 2014 full year share repurchases to be ~$1.5 billion.
OTPP’s other positions in 3Q14
As discussed earlier, OTPP added new positions in The Priceline Group Inc. (PCLN), XPO Logistics Inc. (XPO), United Technologies Corp. (UTX), Grupo Aval Acciones y Valores S.A. (AVAL), and Alibaba Group Holding (BABA). Top positions exited in 3Q14 were in Melco Crown Entertainment (MPEL) and HollyFrontier Corp. (HFC).
In the next part of this series, we’ll discuss OTPP’s new position in AVAL.