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United Technologies (UTX) Q3 Earnings: Will It Disappoint?

Published 10/21/2016, 05:44 AM
Updated 07/09/2023, 06:31 AM

Diversified conglomerate, United Technologies Corporation (NYSE:UTX) is scheduled to report third-quarter 2016 results before the opening bell on Oct 25. In the last reported quarter, the company comfortably beat the Zacks Consensus Estimate by 17 cents. On a trailing four-quarter basis, United Technologies boasts an average positive earnings surprise of 6.46%, beating estimates on every occasion.

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

Key Factors in the Third Quarter

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 the company’s 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.

During the quarter, Pratt & Whitney, a unit of United Technologies, entered into a definitive agreement with Hanwha Techwin Co. to acquire 30% equity interest in P&W NGPF Manufacturing Company Singapore Pte. Ltd. (PWMS). Per the joint venture, Pratt & Whitney will offer its complete assistance in the sourcing of critical parts while providing capital investment requirements with Hanwha. In addition, Hanwha has also acquired a call option from Pratt & Whitney to purchase more equity by 2023. The Singapore division specializes in the manufacture of hybrid metallic fan blade parts and high-pressure turbine disks for the company’s PurePower Geared Turbofan (GTF) engine family.

In addition, UTC Aerospace Systems also introduced an advanced integrated drive generator (IDG) to gain a competitive edge over its peers with this cost and fuel efficient product. The company has reportedly worked on the project for nearly 15 years and invested millions to develop it. The IDG will help power jets such as Embraer S.A.’s (ERJ) new E190-E2 by supplying them with the constant frequency electric power needed for flights.

This new power system is cost and fuel efficient. The IDG is the first all-new integrated drive generator designed in collaboration with Pratt & Whitney. Going forward, the collaboration of the company’s top two divisions for the development of the latest IDG for aircraft is likely to reap synergistic benefits. United Technologies is likely to see a boost in its sales, following the launch of the innovative IDG.

United Technologies’ elevator and escalator business Otis, had secured many major contracts in China. Such deals are likely to enhance the company’s top-line in the yet to be reported quarter. Subsequent to the quarter, Nippon Otis Elevator Company ("Nippon Otis") completed the acquisition of Schindler Elevator K.K.’s ("Schindler Elevator") elevator and escalator service business in Japan. This deal will enhance Otis’s foothold in Japan. The company will work together, utilizing the technical expertise of Schindler Elevator to ensure that its customers continue to receive best-in-class services, while improving growth opportunities for its employees.

UTX TECHS CORP Price and EPS Surprise

UTX TECHS CORP Price and EPS Surprise | UTX TECHS CORP Quote

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 at +0.60%.

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

As it is, Sell-rated stocks (#4 and #5) should never be considered going into an earnings announcement, especially when the company is seeing negative estimate revisions.

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:

Amazon.com, Inc. (NASDAQ:AMZN) , with an Earnings ESP of +6.98% and a Zacks Rank #1 You can see the complete list of today’s Zacks #1 Rank stocks here.

TransUnion (NYSE:TRU) , earnings ESP of +3.03% and a Zacks Rank #2.

Navigant Consulting Inc. (NYSE:NCI) , earnings ESP of +6.90% and a Zacks Rank #3.

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