United Technologies (UTX): Are Q2 Earnings Set For A Beat?

Diversified conglomerate United Technologies Corporation (NYSE:UTX) is scheduled to report second-quarter 2016 results before the opening bell on Jul 26. In the last reported quarter, the company comfortably beat the Zacks Consensus Estimate by 8 cents. On a trailing four-quarter basis, United Technologies boasts an average positive earnings surprise of 5.34%, successfully beating estimates on every occasion. Let’s see how things are shaping up for this announcement.

Key Factors in the Second Quarter

United Technologies is continuing with its strategic initiatives to trim operating costs and restructure its portfolio to focus on the core businesses. These include an overhaul of its organizational structure in the aerospace business along with some key changes in leadership positions. United Technologies believes that the streamlined organizational setup would enable it to better serve its customers. The strategic move is also expected to ensure a successful entry and production ramp-up of its Geared Turbofan engines that would pose stiff competition to other established market players.

During second-quarter 2016, United Technologies announced the expansion of its existing facility in Foley, AL. The company will be adding a new manufacturing and nacelle assembly unit in the area, ensuring around 260 new jobs in Baldwin County. UTC Aerospace Systems, a United Technologies division, is one of Alabama's largest aerospace manufacturers in terms of employee strength. The new facility will be primarily built to support the operations of Airbus A320. The nacelle system in A320neo is designed to reduce drag, which in turn will improve fuel efficiency. Currently, the facility in Foley operates the most efficient factories in the aerospace space, driven by the company’s innovative urge to improve its service.

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.

Earnings Whispers

Our proven model conclusively shows that United Technologies is likely to beat earnings this quarter as it possesses the key components. 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 perfectly 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 +1.21%.

Zacks Rank: United Technologies has a Zacks Rank #3 (Hold), which when combined with a +1.21% ESP makes us confident of a positive earnings surprise.

On the other hand, the 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:

AK Steel Holding Corporation (NYSE:AKS) , earnings ESP of +100% and a Zacks Rank #2.

LG Display Co., Ltd. (NYSE:LPL) , earnings ESP of +50% and a Zacks Rank #2.

Owens Corning (NYSE:OC) , earnings ESP of +9.41% and a Zacks Rank #1.