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Why Is United Technologies (UTX) Up 2.9% Since the Last Earnings Report?

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It has been about a month since the last earnings report for United Technologies Corporation . Shares have added about 2.9% in that time frame, outperforming the market.

Will the recent positive trend continue leading up to the stock’s next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

United Technologies Q1 Earnings Beat, Reaffirms View

United Technologies reported first-quarter 2017 adjusted earnings (from continuing operations) of $1.48 per share, which beat the Zacks Consensus Estimate of $1.39.

GAAP earnings (from continuing operations) were $1.73 per share compared with $1.42 in the year-ago quarter. The company’s bottom line benefited from organic sales growth, driven by robust performance of the company’s operational segments.

Adjusted net sales for the first quarter were $13,815 million compared with $13,357 million in the year-earlier quarter. Revenues beat the Zacks Consensus Estimate of $13,316 million. The rise was primarily attributable to improved performance across all its segments.

Segmental Results

Despite persistent volatility in foreign currency, revenues from most of the company's segments were higher than the prior-year period. Adjusted revenues at UTC Climate Controls & Security were $3,892 million, up from $3,728 million in the year-ago quarter. Pratt & Whitney’s revenues increased to $3,758 million from $3,588 million in the year-ago quarter. UTC Aerospace Systems’ sales were $3,611 million compared with $3,505 million in first-quarter 2016. Otis’ revenues were $2,804 million compared with $2,715 million in the prior-year quarter.

Adjusted operating profit at UTC Climate Controls & Security decreased to $607 million from $634 million in the year-ago quarter. Pratt & Whitney’s operating profit declined to $393 million from $415 million in the year-earlier period while UTC Aerospace Systems’ operating profit improved year over year to $599 million from $551 million. Operating profit at Otis declined to $457 million in the reported quarter from $481 million in the prior-year quarter.

United Technologies’ adjusted consolidated operating profit in the reported quarter was $1,939 million, down from $2,007 million in the prior-year period. Operating profit margin came in at 14.6%, down from 15.4% in the year-earlier period.

Balance Sheet and Cash Flow

As of Mar 31, 2017, cash and cash equivalents were $7,156 million. Long-term debt was $20,898 million. The company maintained its debt-to-capital ratio at 46%.

Cash flow from operations was $993 million compared with $798 in the year-ago period while capital expenditures were $325 million. Free cash flow for the quarter came in at $668 million.

Guidance Reaffirmed

Incorporating its improved expectations for organic sales growth in the near future, United Technologies reaffirmed its guidance for 2017. The company expects adjusted earnings in the range of $6.30–$6.60 per share on revenues of $57.5–$59 billion.

The company’s acquisition pool is expected to lie within $1 billion to $2 billion, while free cash flow is expected in the range of 90–100% of net income. It also plans to repurchase shares worth $3.5 billion in 2017.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed a downward trend in fresh estimates. There have been three downward revisions for the current quarter compared to one upward.

VGM Scores

At this time, United Technologies' stock has an average Growth Score of 'C', however its Momentum is doing a bit better with a 'B'. Charting a somewhat similar path, the stock was allocated a grade of 'C' on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of 'C'. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our styles scores, the stock is more suitable for momentum investors than value and growth investors.

Outlook

While estimates have been broadly trending downward for the stock, the magnitude of these revisions has been net zero. Notably, the stock has a Zacks Rank #2 (Buy). We are looking for an above average return from the stock in the next few months.

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