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Why Is United Technologies (UTX) Up 9.3% Since Last Earnings Report?

Zacks Equity Research

It has been about a month since the last earnings report for United Technologies (UTX). Shares have added about 9.3% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is United Technologies due for a pullback? 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 catalysts.

United Technologies' Q4 Earnings and Revenues Beat

United Technologies reported better-than-expected results for fourth-quarter 2018.

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Earnings and Revenues

Quarterly adjusted earnings came in at $1.95 per share, surpassing the Zacks Consensus Estimate of $1.51. The bottom line also came in higher than the year-ago figure of $1.60 per share.

Notably, the company reported adjusted earnings of $7.61 for 2018, an increase of 14.4% from the prior year.

Revenues in the reported quarter came in at $18,044 million, up 15.1% year over year. The top line also outpaced the Zacks Consensus Estimate of $16,789 million. The improvement was driven by 11% contribution from organic sales growth and 4% positive impact of acquisitions, partially offset by 1% negative impact of currency translation.

For 2018, the company reported total revenues of $66,501 million compared with $59,837 million in the previous year.

Segmental Breakup

Otis' revenues in the reported quarter were $3,300 million, up 1.5% year over year. Aggregate sales of the Carrier segment increased 2.5% to $4,631 million. Pratt & Whitney's fourth-quarter revenues came in at $5,543 million, up 24.3% from the year-ago quarter. The top-line performance of the Collins Aerospace Systems improved 28.8% to $4,900 million.

Notably, the company recently worked on its portfolio restructuring initiative. The acquired Rockwell Collins assets and United Technologies' UTC Aerospace Systems have formed a new unit — Collins Aerospace Systems.

In addition, the company intends to divide its businesses into three independent companies — United Technologies, Otis and Carrier.

Costs and Margins

Cost of products and services sold during the December-end quarter was $13,747 million, up 16.5% year over year.

Selling, general and administrative expenses in the fourth quarter flared up 11.3% year over year to $1,915 million.

Adjusted operating margin in the quarter was 12.5%, down 110 basis points from the year-ago figure.

Balance Sheet/Cash Flow

United Technologies exited 2018 with cash and cash equivalents of $6,152 million compared with $8,985 million of the previous year. Long-term debt was $41,192 million compared with $24,989 million in the previous year.

For 2018, the company generated net cash of $6,322 million from its operating activities, down from $5,631 million recorded a year ago. The company's capital expenditures were down 2.5% to $780 million.

Outlook

United Technologies is poised to grow on the back of continued investments, stronger end-market demand and strategic cost-reduction efforts. Backed by these positives, the company has given bullish full-year 2019 earnings guidance. Adjusted earnings are currently anticipated to lie within the $7.70-$8.00 per share range. Additionally, the company has given revenue guidance for 2019 between $75.5 billion and $77 billion (estimating organic growth of 3-5% year over year).

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

Currently, United Technologies has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

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

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise United Technologies has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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