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

Zacks Equity Research

United Technologies Corporation UTX is set to release fourth-quarter 2018 results on Jan 23, before the market opens.

The company reported better-than-expected results in the last four reported quarters, the average positive earnings surprise being 8.23%. Notably, United Technologies’ earnings of $1.93 per share topped the Zacks Consensus Estimate of $1.81 in the last reported quarter.

Year to date, the company’s shares have rallied 7% compared with the industry’s rise of 7.9%.

 

We expect the company to score an earnings beat in the fourth quarter as well.

Why a Likely Positive Surprise

Our proven model shows that United Technologies has the right combination of the two key ingredients to beat earnings. 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 the case here as you will see below:

Earnings ESP: United Technologies has an Earnings ESP of +2.74% as the Most Accurate Estimate is pegged at $1.55, higher than the Zacks Consensus Estimate of $1.51.You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

United Technologies Corporation Price and EPS Surprise

United Technologies Corporation Price and EPS Surprise | United Technologies Corporation Quote

Zacks Rank: The company carries a Zacks Rank #3, which when combined with a positive ESP, makes us reasonably confident of an earnings beat.

Conversely, we caution against stocks with a Zacks Ranks #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is witnessing negative estimate revisions.

Factors Likely to Drive Better-Than-Expected Q4 Results

United Technologies believes that the prospects in its end markets are bright. The company expects the aerospace industry to continue gaining from the ramp up in military programs, robust global air traffic, high passenger load factor and recovery in the bizjet segments. In its Commercial building business, the company stands to gain from increased construction activity in the United States, elevated infrastructure spending in China as well as higher urbanization rate in Asia.

United Technologies has not provided any separate projection for the fourth quarter. However, a look at the yearly forecast will fairly provide a picture for the to-be-reported quarter. For 2018, the company anticipates adjusted earnings within $7.20-$7.30, higher than the previous forecast of $7.10-$7.25. The company currently expects revenues to lie in the range of $64-$64.5 billion, up from the earlier forecast of $63.5-$64.5 billion. Organic sales will likely grow 6% versus 5-6% predicted earlier.

For Otis, increased infrastructure spending in China, stabilization in service revenue in Europe, investment in digital tools and cost reduction initiatives are likely to be tailwinds. Revenues are predicted to be up low-to-single digits. However, operating results will be partially marred by increasing material costs, increased labor costs and forex issues. The Zacks Consensus Estimate for operating profits for the fourth quarter has increased 3.2% to $485 million on a year over year basis.

For UTC Climate Control and Security, continued growth in refrigeration & HVAC end markets and investment in new products are likely to drive organic sales growth. The segment’s operating results are likely to be positively impacted by higher volumes, effective pricing actions as well as cost reduction initiatives. However, higher input costs, forex issues and Taylor divestment might weigh on operating results growth. The Zacks Consensus Estimate for operating profits for the fourth quarter of 2018 has increased 15.1% to $732 million.

For Pratt & Whitney, rising demand for commercial engines and continued strength in the aftermarket will benefit sales while expectation of negative engine margin will adversely impact operating results. The Zacks Consensus Estimate for operating profits for the fourth quarter has increased 8.9% year over year to $475 million.

For UTC Aerospace Systems, strong commercial aftermarket business with increasing demand for next generation product will drive revenues. Sales are projected to grow in mid-single digits. The Zacks Consensus Estimate for operating profits for the fourth quarter has increased 25.5% year over year to $752 million.

Other Key Picks

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

ITT Inc. ITT has an Earnings ESP of +1.66% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Emerson Electric Co. EMR carries a Zacks Rank #3 and has an Earnings ESP of +0.84%.

Illinois Tool Works Inc. ITW carries a Zacks Rank #3 and has an Earnings ESP of +0.82%.

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