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United Technologies (UTX) Up 4.7% Since Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for United Technologies Corporation (UTX - Free Report) . Shares have added about 4.7% in that time frame.

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

United Technologies Lifts '18 View on Solid Q1 Earnings

United Technologies reported robust first-quarter 2018 results, driven by significant organic growth and diligent operational execution. The company reported adjusted earnings of $1.77 per share, which trumped the Zacks Consensus Estimate of $1.51 and rose 19.6% year over year.

Net sales in the reported quarter came in at $15,242 million, up 10.3% from the year-ago quarter’s figure. Quarterly sales exceeded the Zacks Consensus Estimate of $14,537 million. The top-line increase was driven by organic growth of 6% — the highest first-quarter growth since 2011.

Buoyed by the impressive performance, the company raised its earnings and sales guidance for 2018.

The company’s top line was driven by growth in all the segments. An increase in demand for the company’s products by the commercial aviation industry and an increase in spending by the U.S. defense industry have augmented revenues for the company. The strong aftermarket business, which sells spare parts and offers related services to keep the primary products running, drove results.

Segmental Details

Net sales of Otis were $3,037 million, up 8.3% compared with $2,804 million in the prior-year quarter and showing an organic growth of 1% for the quarter.

Aggregate quarterly revenues from UTC Climate, Controls & Security came in at $4,376 million, up 12.4% compared with $3,892 million in the year-ago quarter, with an organic growth of 7%.

Pratt & Whitney revenues were $4,329 million, up 15.2% from $3,758 million in the year-ago quarter, with an organic growth of 9%.

UTC Aerospace Systems sales came in at $3,817 million, up 5.7% from $3,611 million in the year-earlier quarter, showing an organic growth of 6% for the quarter.

Operating Profits & Margins

Operating profit was $1,982 million compared with $2,144 million in the year-ago quarter, owing to steep rise in operating expenses despite significant top-line growth. However, when adjusted for non-recurring and non-operational expenses, consolidated segment operating profit for the quarter actually rose 11.6% to $2,027 million.

Operating income for Otis inched up 0.7% year over year to $450 million as operating margin contracted 110 basis points (bps) to 14.8%. Operating income of UTC Climate, Controls & Security plunged 36.4% year over year to $592 million with steep margin contraction of 1040 bps to 13.5%.

Operating profit of Pratt & Whitney increased 16% year over year to $413 million with margins staying constant year over year at 9.5%. Operating profit of UTC Aerospace Systems improved 10.7% year over year to $588 million with margins expanding 70 bps to 15.4%.

Balance Sheet and Cash Flow

United Technologies exited the quarter with cash and cash equivalents of $7,667 million compared with $8,985 million as on Dec 31, 2017, while long-term debt stood at $24,153 million compared with $24,989 million as on Dec 31, 2017.

For the first quarter, the company generated net cash of $453 million from its operating activities, down from $993 million recorded in the year-ago quarter.

Outlook

United Technologies is poised to grow on the back of continued investments, strategic cost-reduction efforts and a favorable global macroeconomic environment. Backed by these positives, the company raised its full-year 2018 earnings and sales guidance. The company now expects adjusted earnings between $6.95 and $7.15, up from the previous range of $6.85-$7.10. Additionally, the company raised revenue guidance for 2018 from earlier range of $62.5-$64 billion to a band of $63-$64.5 billion.

United Technologies’ acquisition of Rockwell Collins, an Iowa-based avionics firm has contributed to the bullish outlook. The acquisition, slated to be completed by the third quarter of 2018, will provide a huge competitive advantage for the company and increase its bargaining power. The resultant operating synergies and lower operating costs will help it create complementary products that will help it serve evolving global customer needs.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. There has been one revision higher for the current quarter compared to four lower.

United Technologies Corporation Price and Consensus

VGM Scores

At this time, UTX has a subpar Growth Score of D, however its Momentum is doing a lot 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 D. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate that the stock is more suitable for momentum investors than value investors.

Outlook

Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Interestingly, UTX has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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