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United Technologies' (UTX) Q2 Earnings: What's in the Cards?

Zacks Equity Research

United Technologies Corporation UTX is set to release second-quarter 2019 results on Jul 23, before market open.

The company reported better-than-expected results in the last four quarters, the average positive earnings surprise being 12.85%. Its earnings of $1.91 per share topped the Zacks Consensus Estimate of $1.75 in the last reported quarter by 9.1%.

In the past six months, the company’s shares have rallied 15.3% compared with the industry’s rise of 11.7%.

Let’s see how things are shaping up prior to this announcement.

Factors to Influence Q2 Results

United Technologies is well positioned to benefit from strength in its end markets. The company expects aerospace business to continue gaining from high defence spending and strong orders in the United States. Its Commercial business stands to gain from increased refrigeration and heating, ventilation and air conditioning (HVAC) end markets' demand. All these are expected to be reflected in the upcoming results.

Coming to operating segments, strong commercial aftermarket and military businesses with increasing demand for next generation product will drive second-quarter revenues for Collins Aerospace Systems segment. In addition, solid demand for commercial and military engines, coupled with continued strength in the aftermarket business, will benefit the company’s Pratt & Whitney sales.

For Otis, higher new equipment and service orders, and stabilization in service revenues in China are likely to be tailwinds. The segment’s operating results are likely to gain from effective pricing actions and strong productivity. However, operating results will be partially offset by forex issues. United Technologies’ Carrier segment is likely to benefit from strong orders in North America residential HVAC end markets.

Notably, the Zacks Consensus Estimate for second-quarter revenues in the Otis segment is currently pegged at $3,435 million, indicating growth of 10.9% on a sequential basis. Moreover, the Carrier segment’s revenues are anticipated to be strong, with estimates pegged at $5,095 million, higher than $4,323 million reported in the previous quarter.

However, the company is currently dealing with rising costs of sales. Notably, in the first quarter, its cost of sales increased 21.5% year over year. United Technologies is currently experiencing hike in commodity prices, tariffs woes and higher logistics expenses. Also, high R&D costs could hurt its profitability.

Earnings Whispers

Our proven model provides some idea on the stocks that are about to release their earnings results. Per the model, a stock needs to have a combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy), or at least 3 (Hold) for a likely earnings beat.

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

That is not the case here as we will see below.

Earnings ESPUnited Technologies has an Earnings ESP of -0.43%, as the Most Accurate Estimate is pegged at $2.03, lower than the Zacks Consensus Estimate of $2.04.

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: The company carries a Zacks Rank #3, which increases the predictive power of ESP. However, its negative ESP makes surprise prediction difficult.

It should be noted that we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Key Picks

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

CIRCOR International, Inc. CIR has an Earnings ESP of +1.10% and a Zacks Rank of 1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Axon Enterprise, Inc. AAXN has an Earnings ESP of +10.96% and a Zacks Rank of 3.

ACCO Brands Corporation ACCO has an Earnings ESP of +0.63% and a Zacks Rank #3.

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