Throughout fiscal 2005 and to date in fiscal 2006, conglomerated defense contractor United Technologies (NYSE:UTX) has consistently proven that analyst expectations of its earnings were overly conservative. But it hasn't always been that way. In fiscal 2004, the company missed Wall Street's targets three times out of four. Which has investors wondering: When UT reports its fiscal Q2 2006 results early tomorrow morning, will it revert to the past, or continue wowing the critics?

What analysts say:

  • Buy, sell, or waffle? Twenty analysts follow United Technologies. Of these, 18 rate the stock a buy; the two holdouts only rate it, well, a hold.
  • Revenues. Overall, Wall Street expects 6% revenue improvement tomorrow, to $11.8 billion.
  • Earnings. Likewise with profits, which are predicted to rise 6% to $1.01 per share.

What management says:
It isn't always easy getting a handle on a conglomerate like United Technologies. These corporate profit machines may do a good job of spinning out cash, but the number of moving parts involved in the process can boggle the mind. UT made the job of monitoring its progress a bit easier this year, however, when CEO George David promised investors that the firm's "cash flow after capital expenditures" (Foolishly known as free cash flow) would be "equal to net income for the year."

What management does:
Speaking of net earnings, despite some margin erosion toward the top end of its income statement, United Technologies has done a good job of preserving its bottom line. Rolling gross margins are down about 50 basis points over the past 18 months, and rolling operating margins are down about 20, but the firm is actually more profitable today than when those margins were higher.

Margins %

12/04

3/05

6/05

9/05

12/05

3/06

Gross

28.7%

28.0%

28.9%

29.0%

28.0%

28.2%

Op.

13.1%

12.5%

13.5%

13.7%

12.7%

12.9%

Net

7.1%

7.3%

7.4%

7.4%

7.2%

7.3%

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Wall Street's analysts seem supremely confident in the company's worthiness as an investment. That's surprising, I'd say, considering the only modest growth in sales and profits that they're predicting for tomorrow.

On the other hand, last quarter's stellar performance does support Wall Street's confidence in the company's abilities. United Technologies posted strong double-digit growth in both sales and profits in the quarter ended in March, and although much of the growth came from acquisitions, fully 9% of sales growth -- half again as much as is expected tomorrow -- was organic. With the strike at the firm's Sikorsky division now behind it, and the CEO having already raised his prediction for UT's full-year earnings once, it's entirely possible that while Wall Street says it's looking for just $0.06 more in earnings this quarter than a year ago, it's in fact expecting to see even more.

Competitors

  • Boeing (NYSE:BA)
  • General Electric (NYSE:GE)
  • Honeywell (NYSE:HON)
  • L-3 (NYSE:LLL)
  • Siemens (NYSE:SI)
  • Textron (NYSE:TXT)

For full details on UT's Q1 2006 performance, read Stephen Simpson's "UTXcellent".

Fool contributor Rich Smith does not own shares of any company named above.