United Technologies (UTX – Free United Tech. Stock Report), an industrial conglomerate and a Dow-30 component, has reported financial results for the first quarter of 2017. Revenues and earnings surpassed both our and Wall Street's expectations, and management reaffirmed its outlook for the year as a whole. The stock headed for a 1%-plus gain in price during the early stages of trading after the release.
Revenues for the three-month period ended March 31st came in at $13.82 billion, whereas we were estimating something in the $13.48 billion range. What is most encouraging is that the top-line beat was broad-based, with contributions from each of the company's four major business units; Otis elevator revenue rose 3.3%, to $2.8 billion, Climate and Security sales jumped 4.4%, to $3.9 billion, Pratt & Whitney engine receipts grew 4.7%, to $3.8 billion, and Aerospace saw a 3.0% increase in its top line, to $3.6 billion. Investors were particularly interested in getting a look at the Pratt & Whitney results after some enthusiasm began on Lockheed Martin's conference call earlier this week. That company's leadership said that it sees larger international orders for F-35s coming as 2017 wears on. P&W supply the engines for these aircrafts. Geographically speaking, orders in Europe soared 30% versus last year's amount, a welcome sign of strengthening economic conditions on that continent. But, China remains a large concern. Orders here fell 10% in dollar terms (1% in volume) as that country continues to deal with a cooling economy. Management did state that it is looking to get active on a consolidation trend among local elevator manufacturers in China, which would likely give Otis a shot in the arm over the coming quarters. Regardless, the backdrop across the Far East needs to be constantly monitored for UTX followers.
From an earnings standpoint, share net registered $1.48 for the first quarter. We had pegged this figure at an even $1.40 and the Street consensus was a penny beneath that. Some headlines are touting a $1.73 EPS amount, but we caution subscribers that this metric is earnings per share attributable to common shareholders and includes a one-time gain of $0.25 a share. This amount is excluded in our presentation, as per Value Line convention. Elsewhere, the company received a good deal of positive publicity when it worked with President Trump to maintain nearly 1,000 jobs at an Indianapolis plant used by its Carrier arm. Initially, these jobs were heading to Mexico. The plan is still to move 550 jobs to Mexico from that plant, as well as 700 jobs from a factory in Huntington, Indiana, but a link was established between the industrial conglomerate and the new Administration. Partially due to this, UTX is often named as a potentially sizable benefactor if the President delivers on his promises, like today's announcement on tax reform. If indeed the corporate tax rate is slashed by the numbers that are being thrown around in the media, the market may well climb markedly, and so too should UTX stock.
For the year as a whole, management backed up its previously issued guidance target ranges. Our figures were already near the apex of these brackets, and based on the solid first-quarter showing, we are now placing our revenues and earnings expectations at the very top. With that, management's projected spreads were sales of $57.5 billion to $59.0 billion translating to earnings per share of $6.30 to $6.60. To be precise, we are hiking our revenue estimate by $1.25 billion, to $59.0 billion, and our bottom-line call by a nickel, to $6.60. Investors should note that these numbers include no positive effects of the aforementioned possible tax reform at this juncture.
The primary draw on UTX stock in the present market is its dividend yield. The payout is well supported and should rise steadily out to 2020-2022. It currently is running about 25 basis points higher than the Value Line median and combines with decent appreciation potential over that span to give this blue chip worthwhile total-return potential in the long term. Even with our improved 2017 earnings outlook, bottom-line growth for this year should be flat, though we do anticipate a return to growth mode for 2018. That said, there does not appear to be a great urgency to rush into these shares presently.
About The Company: United Technologies operates in four business segments: Pratt & Whitney (revenues of $14.9 billion in 2016) makes and services aircraft engines; Otis ($11.9 billion) manufactures and services elevators; UTC Climate ($16.9 billion) makes heating, ventilating, and air-conditioning equipment; and UTC Aerospace ($14.5 billion) produces aerospace and industrial products.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
