Why Is United Technologies (UTX) Down 9.5% Since Last Earnings Report?

A month has gone by since the last earnings report for United Technologies (UTX). Shares have lost about 9.5% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is United Technologies due for a breakout? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

United Technologies Q4 Earnings and Revenues Beat

United Technologies reported better-than-expected fourth-quarter 2019 results. Quarterly adjusted earnings came in at $1.94 per share, surpassing the Zacks Consensus Estimate of $1.84. However, the bottom line was lower than the year-ago figure of $1.95.

The company reported adjusted earnings of $8.26 for 2019, an increase of 8.5% from the prior year.

In the fourth quarter, revenues came in at $19,551 million, up 8.4% year over year. The top line also outpaced the consensus estimate of $19,424 million. The rise was driven by 1% contribution from organic sales growth and 8% positive impact of acquisitions, partially offset by 1% negative impact of currency translation.

In 2019, the company reported total revenues of $77,046 million compared with $66,501 million in the previous year.

Segmental Breakup

Otis’ revenues for the reported quarter were $3,362 million, up 1.9% year over year. Aggregate sales for Carrier totaled $4,501 million, down 2.8%. Pratt & Whitney’s fourth-quarter revenues were $5,642 million, up 1.8% while the same for Collins Aerospace Systems surged 31.5% to $6,444 million.

Costs and Margins

Cost of products and services sold during the fourth quarter was $14,734 million, up 7.2% year over year.

Selling, general and administrative expenses jumped 20.8% to $2,314 million.

Adjusted operating profit margin was 13.1%, up 60 basis points.

Balance Sheet/Cash Flow

Exiting the fourth quarter, United Technologies had cash and cash equivalents of $7,378 million, up from $6,152 million on Dec 31, 2018. Long-term debt was $37,788 million, down from $41,192 million recorded at the end of 2018.

During the quarter, the company generated $2,782 million cash from operating activities compared with $2,005 million a year ago. Its capital expenditures were up 15% to $897 million.

Outlook

For 2020, the company estimates Pratt & Whitney segment’s sales to be up in the mid-single digit range, while Collins Aerospace segment’s sales are projected to decline in low single digit.

Adjusted operating profit for Pratt & Whitney is estimated to rise the range of $225-$275 million from its reported figure in 2019. Collins Aerospace segment’s adjusted operating profit is projected to decline in the range of $275-$325 million from 2019.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -11.68% due to these changes.

VGM Scores

At this time, United Technologies has a nice Growth Score of B, a grade with the same score on the momentum front. 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 B. If you aren’t focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. It’s no surprise United Technologies has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.

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