United Technologies (NYSE:UTX) has scheduled to announce its second quarter earnings on Thursday, July 26. The company posted declines in revenue and net income in the previous quarter,\ on a year-over-year basis due to impact of slowing growth in construction industry of China and higher restructuring costs.  We anticipate the trends to continue in to second quarter and impact revenue growth provided by higher sales at Carrier heating, ventilation and air-conditioning (HVAC) systems business division of the company. On the whole, we anticipate moderate growth in the second quarter, compared to the year-ago quarter.
We currently have a stock price estimate of $102 for the company, significantly above its current market price.
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Slowing growth in the Chinese construction industry
In the previous quarter, sales in the Otis business division of the company declined due to decline in sales from China. The ongoing efforts of the Chinese government to control rising real estate prices as part of its larger objective to control high inflation has had an adverse effect on the high-end construction market, which constitutes nearly 50% of Otis’ sales in China. As a result, we anticipate lower sales in the Otis division of the company in the second quarter. The division designs, manufactures and sells elevator and escalator systems under the brand name Otis and constitutes nearly 30% of the overall company value.
Higher restructuring costs
Also, in the first quarter of 2012, United Technologies initiated several restructuring activities, including reduction in workforce and consolidation of field operations to achieve lower cost structures. As a result, it incurred restructuring costs totaling $111 million in the first quarter. The company anticipates to incur a further $339 million in restructuring costs in remainder of 2012. This will impact margins for the company during the second quarter and remainder of 2012.
Sales growth in Carrier HVAC systems
However, we anticipate higher sales from U.S. in Carrier HVAC systems business division of the company due to a warmer than usual summer. This will drive top line growth for the company in the second quarter. The division constitutes approximately 17% of the overall company value.
On the whole, we anticipate moderate growth for the company in the second quarter, driven by a warmer than usual summer in the U.S. resulting in higher sales at Carrier HVAC division, and offset by slowdown in Chinese construction industry that is impacting sales in the Otis business division of the company.Notes: