War! Huh-yeah. What is it good for? -- The Temptations

Well, if you ask United Technologies (NYSE:UTX), it'd probably tell you it's pretty good for profits. The defense contractor extended its streak of "earnings beats" to in excess of two years in April. On Wednesday, UTC goes for an even 10 straight quarters when reporting Q2 2007 results.

What analysts say:

  • Buy, sell, or waffle? Nineteen analysts follow United Technologies, down two from last quarter. Seventeen say buy it. Two say hold it.
  • Revenues. On average, Wall Street is looking for 9% revenue growth to $13.34 billion.
  • Earnings. Profits are predicted to rise 5.5% to $1.15 per share.

What management says:
CEO George David characterized UTC's Q1 performance as "excellent" back in April -- and but for a fine imposed on the firm's Otis elevator unit by the European Commission, it would have been. The fine cost UTC $0.07 per share in profits, but didn't slow down Otis one bit. On the contrary, David announced that "orders for new elevators were up 27% from a year ago" in the quarter.

Combined with "strong" commercial aerospace markets and continued sales growth in the Carrier air conditioning unit, David reiterated previous guidance for the year, predicting $4.05-$4.20 per share in profit.

What management does:
Paying the European piper took a chunk out of UTC's margins; big enough to make itself felt even in the rolling results we summarize below. Still, the company's net margins appear to be on a generally upward trend. They compare favorably to rivals like Boeing (NYSE:BA), American Standard (NYSE:ASD), Honeywell (NYSE:HON), and Textron (NYSE:TXT), but less so to titan of industry General Electric (NYSE:GE).





























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:
We've written in the past of David's near obsession with making sure his company's cash flow backs up its reported earnings under GAAP. In this regard, he lamented last quarter that free cash flow "was well below our net income standard on the payment of the Otis European Commission fine and materially higher tax payments in Canada," putting the total hit to the firm's wallet at about $500 million. Worse (from a cash flow perspective), "Carrier's inventories built seasonally and aerospace inventories remain[ed] high," a fact David attributed to the need to maintain a base for strong sales growth in aerospace.

Regardless, David refused to lower the bar for future quarterly goals. He predicted that in the second half of the year, inventory trends will "reverse," and the firm will, "as usual," end the year with free cash flow approximating net income. The second-half timeline gives UTC a bit of wiggle room with tomorrow's news. What we'll really want to look at is whether management just uses it, or cites some unanticipated event as forcing it to renege on this goal, and produce less cash profit than we've been led to expect.

What did we expect out of UTC last quarter, and what did we get? Find out in:

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

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.