UTC Will Strengthen Its Competitive Position As It Executes Formation Of Its Umbrella Commercial Unit

by Trefis Team
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Late last year,¬†United Technologies (NYSE:UTX) announced the formation of a new organization structure which combines its existing commercial businesses – Otis elevators and escalators, Carrier heating, ventilation and air conditioning (HVAC) systems and Kidde/Chubb fire prevention and security systems – into a single business unit. This year, as the company executes the formation of this new business unit, we figure it will add growth to its results. More importantly, in the long term, this new organization structure will help strengthen United Technologies’s (UTC) position in the global building market by accelerating development of its new integrated building systems.

We currently have a stock price estimate of $121 for UTC, around 5% ahead of its current market price.

See our complete analysis of UTC here

Integrated Products Enabled By The New Unit Will Enhance UTC’s Competitive Position

As more large scale residential, commercial and industrial projects are coming into existence, especially in the emerging countries, demand is growing for integrated building systems that include fire prevention solutions, security systems, elevators, air conditioning and ventilation systems. UTC through formation of this new unit, called Building & Industrial Systems unit, is seeking to address this growing demand. Merger of the company’s existing building market related segments – Otis and Climate, Controls & Security (CCS), which includes the business of Carrier, Kidde and Chubb – will accelerate development of its new integrated products allowing it to take advantage of the growing demand for integrated building systems. Globally, very few companies possess a building market portfolio that is as wide as UTC’s. Now, with greater integration among its various building market related segments, we figure the company’s competitive position will be enhanced especially vis-a-vis the growing demand for integrated building systems.

In 2014, The New Unit Will Aid Growth At UTC’s Commercial Business

In the current year, we figure this proactive internal organization change will add to growth at UTC’s commercial segment. Last year, sales from the company’s commercial segment, which includes Otis and CCS, grew by less than 1% annually as organic growth from Otis was offset by some divestitures at CCS. This year, with additional sales expected from synergies arising out of this organization change, growth at UTC’s commercial segment will likely accelerate. Both Otis and CCS sell to and service the same set of customers – upcoming and existing buildings. Their closer working under a common unit will enable greater leverage of each other’s sales force. Coupled with Otis and CCS’s global scale that features 2,500 branches in over 60 countries, gains from increased sales force leverage will be significant. [1]

All in all, in our opinion, creation of a new umbrella commercial business unit is a step in the right direction and will help UTC stay abreast with the evolving demand patterns in the global building market.

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Notes:
  1. UTC at Barclays Industrial Select conference, February 27 2014, www.utc.com []
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