United Technologies Corporation UTX reported solid second-quarter 2016 results with adjusted income (from continuing operations) of $1,508 million or $1.82 per share compared with $1,485 million or $1.67 per share in the year-ago quarter. The year-over-year increase in earnings was primarily due to higher revenues. Adjusted earnings for the reported quarter significantly beat the Zacks Consensus Estimate of $1.65.
GAAP net income (from continuing operations) was $1,420 million compared with $1,461 million in the year-ago quarter due to higher operating expenses.
Net sales for second-quarter 2016 improved to $14,874 million from $14,690 million in the year-earlier quarter. The increase in revenues was primarily attributable to improved performances from all segments, except the Otis segment. Revenues beat the Zacks Consensus Estimate of $14,634 million.
New equipment orders at Otis were down by 4% from the year-earlier quarter at constant currency. UTC Climate, Controls & Security equipment orders decreased 4% due to a decline in the transport refrigeration business. Commercial aerospace aftermarket sales rose 5% at UTC Aerospace Systems and 20% at Pratt & Whitney.
Segment Results
Despite volatility in foreign currency, revenues of most of the company's segments during the reported quarter were higher than the earlier-year quarter. Otis recorded net sales remained flat at $3,097 million. Revenues at UTC Climate Controls & Security were $4,459 million compared with $4,454 million in the year-ago quarter. Pratt & Whitney revenues increased to $3,716 million from $3,677 million in the year-ago quarter. UTC Aerospace Systems’ sales increased to $3,716 million from $3,632 million in the second-quarter 2015.
Operating profit at Otis significantly declined to $581 million in the reported quarter from $627 million in the prior-year quarter. Operating profit at UTC Climate Controls & Security increased to $872 million from $823 million in the year-ago period. Pratt & Whitney’s operating profit decreased to $386 million from $487 million in the year-earlier period, while UTC Aerospace Systems’ operating profit improved to $582 million from $580 million.
United Technologies’ consolidated operating profit in the reported quarter was $2,337 million compared with $2,415 million in the prior-year period. Operating profit margin was 16% in second-quarter 2016, down from 16.9% in the year-earlier quarter.
Balance Sheet and Cash Flow
As of Jun 30, 2016, cash and cash equivalents were $6,785 million and long-term debt was $20,130 million at quarter end. The company had a debt-to-capital ratio of 42%.
Cash flow from operations was $1,776 million for the quarter compared with $1,375 million in the year-ago quarter. Capital expenditures were $363 million in the reported quarter, up from $332 million in second-quarter 2015. Free cash flow for the quarter came in at $1,413 million.
UTX TECHS CORP Price, Consensus and EPS Surprise
UTX TECHS CORP Price, Consensus and EPS Surprise | UTX TECHS CORP Quote
Outlook
Based on the solid second-quarter results, United Technologies revised its 2016 guidance. For 2016, the company at present expects adjusted earnings to be in the range of $6.45 to $6.60 per share (prior guidance: $6.30 to $6.60) on revenues of $57 billion to $58 billion (prior guidance: $56 billion to $58 billion). The company reaffirmed its acquisition expectation of $1–$2 billion and free cash flow guidance in the range of 90–100%. It also plans to repurchase shares worth $3 billion in 2016.
United Technologies currently has a Zacks Rank #4 (Sell). Some stocks that look promising in the industry include Honeywell International Inc. HON, Leucadia National Corporation LUK and Swire Pacific Limited SWRAY. All three stocks carry a Zacks Rank #2 (Buy).
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