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United Technologies (UTX) Down 3% Since Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for United Technologies CorporationUTX . Shares have lost about 3% in the past month, outperforming the market.

Will the recent negative trend continue leading up to its next earnings release, or is UTX due for a breakout? 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 drivers.

United Technologies Q4 Earnings Beat, 2018 View Solid

United Technologies reported healthy fourth-quarter 2017 results driven by significant organic growth and diligent execution of operational plans. GAAP earnings from continuing operations for the reported quarter were $397 million or 50 cents per share compared with $1,013 million or $1.25 per share in the year-earlier quarter. Excluding restructuring and other non-recurring items, adjusted earnings for the reported quarter were $1.60 per share, which beat the Zacks Consensus Estimate of $1.56. The company reported adjusted earnings of $6.65 for the year ended Dec 31, 2017. GAAP earnings for full-year 2017 were $5.70 per share compared with $6.12 per share of the prior-year quarter.

Net sales in the reported quarter came in at $15,680 million compared with $14,659 million in the year-ago quarter. Quarterly sales exceeded the Zacks Consensus Estimate of $15,400 million. The top-line increase was primarily attributable to organic growth of 5% - the highest since 2014. Growth in revenues across all segments of the company helped drive total revenues. 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 helped augment revenues for the company. The strong aftermarket business, which sells spare parts and offers related services to keep the primary products running, has also benefited results.

For 2017, the company reported total revenues of $59,837 million compared with $57,244 million in the previous year.

Segmental Details

Net sales of Otis were $3,250 million compared with $3,063 million in the prior-year quarter showing an organic growth of 3% for the quarter.

Aggregate quarterly revenues from UTC Climate, Controls & Security came in at $4,520 million compared with $4,249 million in the year-ago quarter, with an organic growth of 3%.

Pratt & Whitney revenues were $4,461 million, up from $3,992 million in the year-ago quarter, with an organic growth of 11%.

UTC Aerospace Systems sales came in at $3,803 million, up from $3,598 million in the year-earlier quarter, showing an organic growth of 5% for the quarter.

Costs and Margins

Operating profit for the reported quarter was $1,952 million compared with $1,639 million in the year-ago period despite rise in operating expenses owing to significant top-line growth.

Operating income for Otis decreased 8.9% year over year to $470 million with margin contraction of 230 basis points making operating margin 14.5%. Operating income of UTC Climate, Controls & Security decreased 6.1% year over year to $636 million with margin contraction of 180 basis points making operating margin 14.1%. Operating profit of Pratt & Whitney increased 6.6% year over year to $436 million with margin contraction of 40 basis points making operating margin 9.8%. Operating profit of UTC Aerospace Systems improved 3.6% year over year to $599 million with margin contraction of 30 basis points making operating margin 15.8%.

Balance Sheet and Cash Flow

United Technologies exited 2017 with cash and cash equivalents of $8,985 million compared with $7,157 million of the previous year while long-term debt stood at $24,989 million compared with $21,697 million of the previous year.

For 2017, the company generated net cash of $5,631 million from its operating activities, down from $6,412 million recorded in the year-ago period.

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 has given bullish full-year 2018 earnings guidance. Adjusted earnings are currently anticipated to lie within the $6.85-$7.10 per share range. Additionally, the company has given revenue guidance for 2018 between $62.5-$64 billion (estimating organic growth of 4-6% year over year).

United Technologies' acquisition of Rockwell Collins, an Iowa-based avionics firm has helped create this 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 lower for the current quarter. While looking back an additional 30 days, we can see even more upward momentum. There have been only two moves up in the last two months.

United Technologies Corporation Price and Consensus

United Technologies Corporation Price and Consensus | United Technologies Corporation Quote

VGM Scores

At this time, UTX has an average Growth Score of C, however its momentum is doing a bit better with a B. Following the exact same course, the stock was also allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

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

Based on our scores, the stock is equally suitable for value and momentum investors while growth investors may want to look elsewhere.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision looks promising. 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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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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