What To Expect From United Tech’s Q1 Earnings

by Trefis Team
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United Technologies (NYSE: UTX) posted a good quarter to finish off 2017. The results were driven primarily on notable organic growth, coupled with diligent execution of operational plans. Consequently, the company managed to beat the consensus revenue estimates by a comfortable margin. That said, the conglomerate’s earnings took a massive hit stemming from the new U.S. tax law, with the company taking a $690 million, or 90 cent per share, one-off charge due to the impact of the bill. Barring this one time hit, we expect the bill to help the company significantly going forward.

In general, the company is well positioned for future growth on the back of innovation investments, a robust backlog, and strategic cost-reduction efforts. In this respect, the company gave a rather bullish full-year 2018 earnings guidance. Adjusted earnings in the next financial year are expected to come in between $6.85-$7.10 per share, while revenues are expected to lie between $62.5-$64 billion, representing an organic growth rate of about 4-6% year over year.

At the moment, we estimate the company’s stock price to be quite undervalued. In this respect, we have created an interactive dashboard to highlight our valuation method and assumptions to best arrive at our price estimate. Click on the link to create your own forecast.

  • As mentioned above, while the new tax law hurt earnings in the last quarter, the law is expected to benefit the company greatly going forward. On average, the U.S. industrial manufacturer typically repatriates about $1 billion a year in funds from overseas. However, slashing the corporate tax rate from 35% to 21% will now enable the company to repatriate close to $3 billion in overseas earnings. This essentially means that it could now potentially pay off the debt on its acquisition of Rockwell Collins quicker than earlier expected. We expect to learn more about this on the upcoming call.
  • The out-performer last quarter was Pratt & Whitney. After suffering through many significant delays, the division recorded a superb organic growth of about 11% on higher-than-expected GTF engine deliveries. In Q4, the segment delivered 120 engines, bringing them to the mid-point of their target of 350-400 deliveries for the entire year. This is a remarkable feat considering 24o engines were delivered in the second half of the year alone. Going forward, the company hopes to ramp up production significantly in order to efficiently fulfill its backlog of 8,000 engines. The Q1 delivery figure will set the precedent of what’s to come through the year.
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