How Did United Tech Perform In Q1?

United Technologies (NYSE: UTX) posted a better than expected earnings to start off 2018 on a positive footing. The company managed to beat both, the revenue and earnings estimates, by a comfortable margin, while raising its guidance as well. The company’s top line benefited on good performance across all business segments. In specific, Pratt, CCS, and Aerospace performed brilliantly through the quarter, posting good organic growth figures, while Otis continued to suffer the slowdown in China. That said, all divisions managed to post positive organic growth, representing the conglomerate’s best first quarter of organic growth since 2011.

Accordingly, management was quick to push guidance for the full year higher. EPS is now forecast to come in around $6.95-$7.15, up from $6.85-$7.10, while it expects sales of $63-$64.5 billion, up from $62.5 to $64 billion pegged earlier.

The company’s stock price fell dramatically on the open, but gradually recovered as the day went on. At the moment, we estimate the company’s stock price to be quite undervalued, with tremendous potential to grow. 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.

• Pratt & Whitney was the star of the quarter at United Tech this time around. The segment managed to post a significant 9% organic growth. This figure was driven by robust military sales and increased GTF deliveries. We expect the segment to deliver a record number of engines in the year, which is bound to grow the top line even more. In general, Pratt has about seven years of GTF backlog and have close to 9,000 total firm option orders to date. Further, the segment’s top line also benefited from strong aftermarket sales.
• While the new tax law hurt earnings in the last quarter, the law is going 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% now enables the company to repatriate close to $3 billion in overseas earnings. This essentially means that it now expects to pay off the debt on its acquisition of Rockwell Collins quicker than earlier expected.
• China continues to hurt performance at Otis on sustained pricing pressure and an adverse mix. In the quarter, while new equipment sales increased by mid-single digit growth in North America, they were more than offset by a double-digit decline in sales in China. We expect operations in the region to take a heavy toll on the overall business through most of the year.