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

Zacks Equity Research

United Technologies Corporation UTX is set to release fourth-quarter 2019 results on Jan 28, before market open.

The company delivered positive earnings surprise of 13.75%, on average, in the trailing four quarters, surpassing estimates all through. United Technologies’ earnings of $2.21 per share topped the Zacks Consensus Estimate of $2.03 by 8.87% in the third quarter.

In the past three months, the stock has gained 7.6% compared with the industry’s growth of 11.4%.



Key Factors

United Technologies has been experiencing softness in its equipment orders at its Carrier segment due to persistent lower transport refrigeration orders. Equipment orders at the segment were down 11% on an organic basis in the third quarter. The company expects organic sales for the segment to decline in the low to mid-single digit range in the fourth quarter, with a low double-digit decline in the refrigeration business.

Escalating cost of sales has been a persistent concern for United Technologies. In the second and third quarter, the company's cost of sales jumped 16% and 13.4% year over year, respectively, on account of higher tariffs. In addition, restructuring costs had an adverse impact of 6 cents on both the quarters’ bottom-line numbers. High costs and expenses are likely to have adversely impacted the company’s margin and profitability in the fourth quarter as well.

Moreover, given the company’s diverse geographic presence, its operations have been subject to economic, political and environmental risks. Unfavorable foreign currency movement had hurt United Technologies' revenues by 1 percentage point in the third quarter. A stronger U.S. dollar might have affected the company's overseas business in the fourth quarter as well.

However, in the fourth quarter, the company is likely to have benefited from continued strength in commercial aftermarket and military businesses at both Pratt & Whitney and Collins Aerospace segments and solid commercial OEM (Original Equipment Manufacturer) sales at the Pratt & Whitney segment. In addition, the company’s commercial business is likely to have performed well in the quarter on account of favorable mix in Otis new equipment orders in China and strong service business.

In the third quarter, acquisitions had a positive impact of 14% on sales, a trend that most likely continued in the fourth quarter owing to strength in the acquired Rockwell Collins business (in November 2018). The buyout has not only strengthened the company's existing product portfolio but has also aided in launching innovative solutions for aerospace customers.

Amid this backdrop, the Zacks Consensus Estimate for fourth-quarter revenues from the company's Carrier segment is pegged at $4,569 million, reflecting a decrease of 1.3% from the year-ago reported figure. The consensus mark for Pratt & Whitney segment’s revenues stands at $5,718 million, implying 3.2% increase. The consensus estimate for revenues from Collins Aerospace Systems segment is currently pegged at $6,060 million, reflecting 23.7% increase. The consensus mark for Otis segment’s revenues stands at $3,379 million, implying 2.4% growth.

Earnings Whispers

According to our quantitative model a stock needs to have the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy), or at least 3 (Hold) to increase the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

But that is not the case here as we will see below.

Earnings ESP: United Technologies has an Earnings ESP of 0.00% as both the Most Accurate Estimate and the Zacks Consensus Estimate are pegged at $1.84.

United Technologies Corporation Price and EPS Surprise

United Technologies Corporation Price and EPS Surprise

United Technologies Corporation price-eps-surprise | United Technologies Corporation Quote

Zacks Rank: United Technologies carries a Zacks Rank #4 (Sell).

Key Picks

Here are some companies you may want to consider as our model shows that these have the right mix of elements to beat estimates this earnings season:

Honeywell International Inc. HON has an Earnings ESP of +0.49% and a Zacks Rank of 3.You can see the complete list of today’s Zacks #1 Rank stocks here.

Rockwell Automation, Inc. ROK has an Earnings ESP of +1.36% and a Zacks Rank of 3.

Dover Corporation DOV has an Earnings ESP of +1.72% and a Zacks Rank #3.

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Honeywell International Inc. (HON) : Free Stock Analysis Report
 
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