Was United Technologies Corporation’s (NYSE:UTX) Earnings Decline Part Of A Broader Industry Downturn?

After reading United Technologies Corporation’s (NYSE:UTX) most recent earnings announcement (30 September 2018), I found it useful to look back at how the company has performed in the past and compare this against the latest numbers. As a long-term investor I tend to focus on earnings trend, rather than a single number at one point in time. Also, comparing it against an industry benchmark to understand whether it outperformed, or is simply riding an industry wave, is a crucial aspect. Below is a brief commentary on my key takeaways.

See our latest analysis for United Technologies

Despite a decline, did UTX underperform the long-term trend and the industry?

UTX’s trailing twelve-month earnings (from 30 September 2018) of US$5.0b has declined by -3.8% compared to the previous year.

Furthermore, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of -4.3%, indicating the rate at which UTX is growing has slowed down. What could be happening here? Let’s examine what’s occurring with margins and if the entire industry is feeling the heat.

NYSE:UTX Income Statement Export November 30th 18
NYSE:UTX Income Statement Export November 30th 18

In terms of returns from investment, United Technologies has fallen short of achieving a 20% return on equity (ROE), recording 16% instead. Furthermore, its return on assets (ROA) of 5.2% is below the US Aerospace & Defense industry of 7.0%, indicating United Technologies’s are utilized less efficiently. And finally, its return on capital (ROC), which also accounts for United Technologies’s debt level, has declined over the past 3 years from 13% to 9.4%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 70% to 116% over the past 5 years.

What does this mean?

While past data is useful, it doesn’t tell the whole story. Typically companies that experience an extended period of reduction in earnings are going through some sort of reinvestment phase with the aim of keeping up with the latest industry expansion and disruption. You should continue to research United Technologies to get a more holistic view of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for UTX’s future growth? Take a look at our free research report of analyst consensus for UTX’s outlook.
  2. Financial Health: Are UTX’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

NB: Figures in this article are calculated using data from the trailing twelve months from 30 September 2018. This may not be consistent with full year annual report figures.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.