United Technologies Beats on Q2 Earnings, Shares Slide

United Technologies Corp (UTX) reported second quarter 2014 net income of $1,680 million or $1.84 per share up from $1,560 million or $1.70 in the year-ago quarter. The reported EPS beat the Zacks Consensus Estimate of $1.79. The increase in earnings was primarily driven by higher revenues. However, the second quarter results failed to cheer investors’ sentiment and the shares dropped marginally on Oct, 22 driven by lower orders and sales from Pratt & Whitney business.

Total revenue for the second quarter edged up 7% year over year to $17,191 million. The reported revenues were above the Zacks Consensus Estimate of $16,689 million. The increase in revenues was driven by organic growth, partially offset by divestitures.

New equipment orders at Otis were up 3% from the year-earlier quarter, driven by growth in North America. UTC Climate, Controls & Security equipment orders increased 2% organically. Commercial spares orders increased 28% at UTC Aerospace Systems. However, large commercial engine spares orders were down 6% at Pratt & Whitney.

Segment Results

Otis reported revenues of $3,365 million in the second quarter, up 7.2 % year over year. At the same time, revenues at UTC Climate Controls & Security decreased 2.5 % year over year to $4,429 million. Pratt & Whitney revenues decreased 0.8 % year over year to $3,592 million in the second quarter. UTC Aerospace systems sales increased to $3,636 million from $3,321 million in the year-ago quarter. However, Sikorsky sales stood at $2384 million versus $1,566 million in the year-ago quarter.

Otis reported operating profit of $693 million in the second quarter, up 6.6% year over year. At the same time, operating profit at UTC Climate Controls & Security increased 8.4% year over year to $815 million. Pratt & Whitney’s operating profit decreased 23.8% year over year to $432 million in the second quarter, while UTC Aerospace systems operating profit increased to $602 million from $499 million in the year-ago quarter. However, Sikorsky’s operating loss was $317 million versus operating profit of $156 million in the year-ago quarter. Consolidated segment operating profit in the second quarter stood at $2,355 million versus $2,507 million in the year-ago quarter.

Balance Sheet and Cash Flow

The company continues to maintain a strong cash flow position. As of Jun 30, 2014, cash and cash equivalents were $4,962 million with long-term debt of $17.8 billion. The company had a debt-to-capital ratio of 36.0%. Cash flow from operations was $1.7 billion, while capital expenditures were $406 million in the quarter. The company repurchased shares worth $335 million during the quarter.

Outlook

The company increased the lower end of its EPS guidance for 2014 from $6.55–$6.85 per share to $6.75 to $6.85 per share. Also, the company expects 2014 cash flow from operations less capital expenditures to range from 90 – 100 % of net income. In addition, the company expects share repurchase of $1.25 billion and acquisitions of less than $1 billion for 2014.

United Technologies currently has a Zacks Rank #2 (Buy). Other stocks that look promising and are worth a look include Noble Group Limited (NOBGY), carrying a Zacks Rank #1 (Strong Buy), and CLARCOR Inc (CLC) and Macquarie Infrastructure Company LLC (MIC), both carrying a Zacks Rank #2 (Buy).