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United Technologies (UTX) Q4 Earnings: What's in Store?

Diversified conglomerate, United Technologies CorporationUTX is scheduled to report fourth-quarter 2016 results before the opening bell on Jan 25. In the last reported quarter, the company comfortably beat the Zacks Consensus Estimate by 8 cents. On a trailing four-quarter basis, United Technologies boasts an average positive earnings surprise of 5.54%, beating estimates on every occasion.

Let's see how things are shaping up for this announcement.

Key Factors in the Fourth Quarter

During the quarter, United Technologies' subsidiary Pratt & Whitney secured the joint Type Certification from the Federal Aviation Administration and the European Aviation Safety Agency for its PurePower Geared Turbofan engine in Airbus A321neo aircraft. The two companies have worked together for the past six years, and this certification helps strengthen their ties further. This also helps augment the company's goodwill and boost its top-line in the upcoming quarter results.

In addition, the company entered into a deal with a popular low-cost Mexican airline company, VivaAerobus. Per the new pact, Pratt & Whitney's PurePower Geared Turbofan Engine has been used in VivaAerobus' aircraft A320neo. A320neo made its first passenger flight on Oct 18, 2016 from Monterrey to Guadalajara, Mexico. Pratt & Whitney has secured more than 8,400 Geared Turbofan Engine orders from almost 80 end-users, located across all its business hubs. This product would likely boost United Technologies' revenues in the to-be-reported quarter.

During the quarter, the company continued to secure various deals across all of its segments which will have a positive impact on its revenues.

On Dec 14, United Technologies reiterated its earlier view for 2016. The company also provided an initial guidance for 2017 based on current business scenario and market expectations. For 2016, the company continues to expect adjusted earnings in the range of $6.55-$6.60 per share on revenues of $57-$58 billion. This represents organic sales growth of 2-3% on a year-over-year basis. The company reaffirmed its acquisition expectations of $1-$2 billion and free cash flow guidance in the range of 90-100%. It also plans to repurchase shares worth $3 billion in 2016. United Technologies stated that its plan to return $22 billion in cash to shareholders from 2015 through 2017 remains on track.

With over 8,000 employees, United Technologies has a considerable presence in the U.K, registering approximately $2 billion in revenues from the region in 2015 out of the overall tally of $56.1 billion. Consequently, the company is susceptible to high operating risks following the Brexit referendum. Fluctuations in foreign currency exchange rates also affect its net investment in foreign subsidiaries and may cause instability in cash flows related to foreign denominated transactions. These undermine its long-term growth to some extent.

United Technologies relies on suppliers, including third-party contract manufacturing and commodity markets to secure raw materials, parts, components and sub-systems. This exposes the company to market price volatility and availability risks. A disruption in deliveries from suppliers, supplier capacity constraints, contract manufacturer production disruptions, price changes, or decreased availability of raw materials or commodities, could have an adverse effect on its ability to meet delivery schedules and increases operating costs. These headwinds look all the more potent with the strengthening of the U.S. dollar.

Earnings Whispers

Our proven model does not conclusively show that United Technologies will beat earnings this time. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) for this to happen. This is not the case here as you will see below.

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is currently 0.00%. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Zacks Rank: United Technologies' Zacks Rank #3 when combined with 0.00% ESP makes surprise prediction uncertain.

We caution against stocks with a Zacks Rank #4 or #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

United Technologies Corp. Price and EPS Surprise

United Technologies Corp. Price and EPS Surprise | United Technologies Corp. Quote

Stocks to Consider

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Fifth Third Bancorp FITB , with an Earnings ESP of +4.65% and a Zacks Rank #1. You can see the complete list of today's Zacks #1 Rank stocks here .

The Bank of N.T. Butterfield & Son Limited NTB , with an Earnings ESP of +1.82% and a Zacks Rank #1.

Canadian National Railway Company CNI , with an Earnings ESP of +2.17% and a Zacks Rank #2.

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Canadian National Railway Co. (CNI): Free Stock Analysis Report

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United Technologies Corp. (UTX): Free Stock Analysis Report

Bank of NT Butterfield & Son Ltd. (NTB): Free Stock Analysis Report

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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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