New CEOs could bring significant changes to three big companies
The leadership of a company is crucial to its success, both in the short and long term. Investors in the three major companies now hope that the new CEOs will bring positive changes that will improve their performance and strengthen their market position.
Specifically, 3M, Boeing, and Johnson Controls are companies where new leadership can bring the desired improvement.
3M $MM+0.4%
3M
MMMWilliam Brown took over as CEO of 3M in early May, and his impact on investors is already evident. During his first earnings presentation, he made clear his intentions to restructure the company and fix its organic growth, which has been below expectations in recent years. Brown is emphasizing new product development, particularly through increased investment in research and development (R&D), while also looking to streamline the company's operational processes.
One of Brown's key goals is to streamline 3M's supply chain, implement "lean" manufacturing principles and improve purchasing efficiency. He also plans to increase working capital efficiency by $1 billion by reducing the time it takes the company to convert its inventory into sales revenue. This plan, while it may seem straightforward, brings a fresh wind that 3M needed.
The advantage for Brown is that he is taking over a company in a relatively good position. The recent dividend cut has freed up cash for restructuring and strategic investments. In addition, spinning off Solventum's healthcare division and retaining a 19.9% stake provides 3M with funds to address legal liabilities. Overall, Brown has a solid foundation for improving growth, margins and cash generation, which should lead to increased shareholder value.
Boeing $BA-0.3%
While 3M needs a strategic leader, Boeing needs someone who can effectively execute the plans it has laid out. Kelly Ortberg, who has extensive experience in the aerospace industry, is the ideal candidate for this role. As the former CEO of Rockwell Collins, he led its successful acquisition and subsequent integration into United Technologies, which greatly exceeded expectations in terms of economies of scale.
Ortberg will need to deliver similar results at Boeing, which is currently facing a number of challenges. The company is highly leveraged, has cash flow problems, and faces tough negotiations with its unions. In addition, its defence division is reporting losses due to challenging fixed-price projects.
Although Ortberg has a tough job ahead, Boeing has strong fundamentals - a multi-year order backlog, a steady flow of new aircraft orders and a gradually improving delivery rate. Ortberg will be able to lean on the support of his former colleagues now on Boeing's board of directors, giving him a solid foundation to meet these challenges.
Johnson Controls $JCI+2.0%
Specializing in heating, ventilation, air conditioning (HVAC) and building solutions, Johnson Controls operates in promising market segments. Its products help building owners improve energy efficiency and achieve emission reduction goals. In addition, the development of new technologies enhances the value of its products. Yet the company has recently struggled to meet its financial forecasts.
After weaker growth in 2023, when the company missed its sales targets due to unexpected inventory changes, Johnson Controls lowered its growth and earnings per share expectations in early 2024. Despite these issues, the company has strong potential, especially with the recent sale of non-core HVAC businesses, which could bring positive changes.
The new CEO's primary task will be to restore investor confidence in management's plans and ability to successfully execute those plans. If this can be done, Johnson Controls stock has significant upside potential, according to analysts.
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