Citadel Advisors and United Technologies Corporation
During 4Q14, Citadel increased its stake in United Technologies Corporation (UTX). Citadel held 4,988,081 shares of UTX in 4Q14, up from 2,740,163 shares in 3Q14. The company accounted for 0.694% of the fund’s 4Q14 portfolio. You can gain diversified exposure to UTX by investing in the Industrial Select Sector SPDR Fund (XLI) and the iShares Russell 1000 Value ETF (IWD). UTX makes up 5.27% and 0.93% of XLI and IWD, respectively.
Overview of United Technologies Corporation
United Technologies Corporation (UTC) provides high technology products and services to the building systems and aerospace industries worldwide. The company operates in five segments:
- Otis is an elevator and escalator manufacturing, installation, and service company.
- UTC Climate, Controls & Security provides heating, ventilating, air conditioning (or HVAC) and refrigeration solutions, including controls for residential, commercial, industrial, and transportation applications.
- Pratt & Whitney supplies aircraft engines for the commercial, military, business jet, and general aviation markets. P&W provides sole engine F-35 Joint Strike Fighters to Lockheed Martin Corporation (LMT).
- UTC Aerospace Systems provides technologically advanced aerospace products and aftermarket service solutions for aircraft manufacturers, airlines, regional, business and general aviation markets, military, space, and undersea operations.
- Sikorsky manufactures military and commercial helicopters and also provides aftermarket helicopter and aircraft parts and services.
UTC to spin off Sikorsky aircraft business
On March 11, UTC announced its plans to explore strategic alternatives for Sikorsky, including a tax-free spin-off. The helicopter unit reported a revenue of $7.5 billion in 2014, which represented 11.5% of UTC’s total revenue of $65 billion. UTC has already approached many companies with the proposal to acquire Sikorsky, but didn’t get a positive response.
As per CEO Greg Hayes, “The business is growing too slowly and is overly dependent on Defense Department contracts.” Defense spending by the government comes with “huge uncertainty.” He further noted that the spin-off is “very hard,” as the business has heavy tax liability.
UTX shares rose 2% on the day of this announcement.
UTC’s CEO stepped down
In November 2014, UTC’s former CEO Louis Chenevert stepped down. He was replaced by chief finance officer Gregory Hayes. Chenevert led the company for six years and started a strategic makeover at UTC. He was the man behind UTC’s massive acquisition of Goodrich. The deal shifted UTC’s focus towards the aerospace business when UTC’s major area of interest was elevators, climate control systems, and security products for commercial buildings. The company didn’t give a reason for his sudden departure.
As per a Fortune report from March 26, during Chenevert’s tenure, total returns to shareholders were 84%, 20 points higher than the S&P 500. Return on total assets in 2014 was 11.4% compared to 8.2% returns from its peer General Electric (GE).
UTC’s stock buyback program
On March 13, UTC announced its accelerated buyback program. UTC will buy back $2.65 billion of stock under the agreement with Goldman Sachs and Morgan Stanley.
In the next part of the series, we’ll discuss Citadel’s position change in Union Pacific Corporation.