Louis Chenevert, chairman & CEO United Technologies officialy opening their new Pratt & Whitney,engine assembly and testing plant in Mirabel Que.Mario Beauregard
The Quebecker who led U.S. aerospace manufacturer United Technologies Corp. as chairman and chief executive officer for six years has stepped down unexpectedly, just days before a key meeting with investors.
The move by Louis Chenevert, 57, announced Monday, caused a stir in U.S. markets as retail investors expressed frustration for the lack of explanation offered by the company, one of the world's largest manufacturers with a nearly $100-billion (U.S.) market capitalization. United Technologies is the parent company of Pratt & Whitney, a maker of jet engines, and also controls Otis elevators among other businesses.
The stock fell 1.4 per cent to $108.79 in trading on the New York Stock Exchange.
"Something doesn't smell quite right here," Yale School of Management professor Jeffrey Sonnenfeld told business network CNBC. "[You] don't want to surprise analysts, employees, shareholders by this kind of news. Nobody saw it coming."
Companies the size of United Technologies typically telegraph such management changes months or even years in advance. The reaction to United's lack of disclosure in this case highlights what can happen when they fail to follow that accepted practice and provide details.
In a news release posted to its website, Hartford, Conn.-based United said Mr. Chenevert informed the board of directors of his retirement as chairman and CEO effective immediately. He will be replaced as CEO by chief financial officer Greg Hayes, a 25-year veteran of the company, while Edward Kangas, the board's lead independent director, will replace him in the chairman's role.
In the news release, United also reaffirmed its earnings per share guidance for 2014 of $6.75 (U.S.) to $6.85 on sales of about $65-billion.
Later in a regulatory filing, United said Mr. Chenevert has agreed to continue as an employee of the company until January 3, 2015. It wasn't immediately clear what his new role would be.
A spokesman for the manufacturer said his stepping down was "entirely unrelated" to the financial performance of the company. United separately told analysts that there was also no financial impropriety.
Shares of United climbed 53 per cent over the course of Mr. Chenevert's tenure, a time during which he streamlined operations to focus on aerospace components and building systems. But recent months have seen the company underperform its peers.
United's Pratt & Whitney division suffered two setbacks earlier this year when its newly-designed turbofan plane engine experienced trouble in one of Bombardier Inc.'s C Series test jets and another engine slated for Lockheed Martin Corp.'s F-35 Joint Strike Fighter caught fire.
"[This] was a major surprise," JPMorgan analyst Joseph Nadol said of the management change, adding he sees two possibilities for what happened: Either unspecified personal circumstances prevented Mr. Chenevert from continuing in the role as CEO or he left due to a strategic disagreement with the board. The analyst said one possible area of conflict could be whether to keep the company's building systems and aerospace units together or break them up.
"Chenevert preferred to hold the company together, and his resignation could be a sign the board will pursue a split," Mr. Nadol said in a research note. Another analyst, Robert Stallard with RBC Capital Markets, declined to speculate but noted Mr. Hayes is well regarded by investors and has done a good job flagging possible elements that could impact earnings to the downside.
United is scheduled to hold its annual investor day on December 11. Investors will be watching for any change in strategy and longer-term outlook.
Nicolas Van Praet