Eaton reports second quarter operating earnings of $1.24 per share

CLEVELAND, OHIO…Diversified industrial manufacturer Eaton Corporation (NYSE:ETN) today announced operating earnings per share of $1.24 for the second quarter of 2002, 32 percent above comparable results one year earlier. Sales in the quarter were $1.88 billion, 1 percent above last year. Net income before unusual items was $90 million compared to $66 million in 2001.

After all unusual items in both periods, net income in the second quarter of 2002 was 80 percent above 2001, with 2002 net income of $88 million and earnings per share of $1.21, compared to $49 million and $.69 per share in 2001.

For the first six months of 2002, operating earnings per share were $2.17 on sales of $3.60 billion. Comparable first half 2001 operating earnings were $1.98 per share on sales of $3.85 billion. Net income for the first six months of 2002 was $1.68 per share compared to $1.41 per share in 2001. In comparison to 2001, first half 2002 results were favorably impacted by $.44 per share by the adoption of Statement of Financial Accounting Standards No. 142, which discontinued the amortization of goodwill and certain intangible assets, and were unfavorably impacted by $.30 per share due to lower pension income.

Alexander M. Cutler, Eaton chairman and chief executive officer, said, "We are pleased with our second quarter results – they are at the high end of our own expectations and represent the first year-over-year improvement in our quarterly results since 2000. We are clearly realizing the benefit of the aggressive actions we have taken over the last 18 months to resize our corporation, even though the majority of our end markets remain depressed. We remain on track to realize $130 million of savings in 2002 from these restructuring actions.

"We made further progress implementing the Eaton Business System during the second quarter, with results evident in the continued tight control over working capital and capital expenditures. These improvements helped us to pay down an additional $63 million of debt during the second quarter, bringing the total reduction in debt for the first six months of 2002 to $162 million.

"While our forecast for our overall end markets has improved slightly compared to our view at the end of the first quarter, we still do not expect to see any material recovery until the end of the third quarter.

"We continue to exercise tight control of all expenditures and are fully implementing the additional restructuring activities that we announced at the beginning of this year.

Restructuring expense in the second quarter was $3 million, bringing restructuring expenses for the first half to $52 million. We still expect our full-year restructuring expenses to be $59 million.

"We are maintaining full-year operating earnings guidance of $4.25 to $4.50 per share, despite the divestiture of our Navy Controls business, which is expected to close shortly. We anticipate third quarter operating earnings per share will be in the $1.20 to $1.30 range," said Cutler.

Business Segment Results

Second quarter sales of Eaton’s largest business segment, Fluid Power, were $628 million, 4 percent below one year earlier. This compares to a decline of about 8 percent in Fluid Power’s markets, with North American fluid power industry shipments off about 4 percent, and aerospace markets off about 18 percent. Segment profits before restructuring costs were $59 million, $1 million less than last year.

"We do not anticipate a recovery in the traditional mobile and industrial hydraulics markets until year end," said Cutler. "The decline in the aerospace market has been slower than we expected. We now anticipate a 25 to 30 percent decline in commercial aerospace markets in the second half of 2002, offset by a 5 percent improvement in military markets.

"During the second quarter, we purchased the remaining 40 percent interest in our hydraulics systems joint venture company, Jining Eaton Hydraulics Company, Ltd. (JEHYCO), located in Jining, China. JEHYCO is our fourth wholly-owned business in China."

In the Industrial & Commercial Controls segment, second quarter sales were $519 million, down 8 percent from last year, and profits were $44 million before restructuring charges, down 17 percent from one year ago.

"End markets for our electrical business continued to weaken during the second quarter, with an estimated 13 percent decline in the North American markets for this business compared to last year," said Cutler. "We expect that the long-cycle, large-project portion of this business will continue to soften through the balance of this year, with a recovery not expected until year end. The residential market is one of the real bright spots for our electrical business, helping us to significantly outgrow our end markets in the second quarter."

The Automotive segment posted sales of $419 million in the second quarter, 7 percent over the comparable quarter of last year and the highest quarterly sales the Automotive segment has ever recorded. NAFTA automotive production was up 6 percent, while European production declined 1 percent, compared to the same period last year. Segment profits were $64 million, up 16 percent from a year ago.

"Our Automotive segment continued its strong performance with record sales that considerably outpaced its end markets," said Cutler. "The heavy investments we have made in new product development over the last several years are delivering real results as we have been able to accelerate the pace of new product introductions and gain market share.

"During the second quarter, further progress was made in growing our supercharger business. In Brazil we launched the smallest supercharger ever produced, for use on the new Ford Fiesta, and we began delivery of a high-efficiency supercharger for use with the new M-271 engine program of Mercedes."

The Truck segment posted sales of $315 million in the second quarter, a 21 percent increase over the comparable period last year, and recorded profits of $30 million, compared to a breakeven performance before unusual items a year ago. NAFTA heavy-duty truck production was up 24 percent and NAFTA medium-duty truck production was flat. European truck production was down 6 percent and South American production decreased by 15 percent.

"It is clear that our Truck business is in a solid period of recovery, as both NAFTA industry order levels and our own orders climbed rapidly throughout the quarter," said Cutler. "We expect third quarter NAFTA heavy-duty truck production could increase as much as 15 to 20 percent from second quarter levels, and for the full year, we now expect production of heavy-duty trucks in NAFTA to total 170,000 units. The positive impact of our extensive restructuring actions over the last two years can be seen in the $30 million of increased profit in the second quarter of 2002 on increased sales of $55 million, compared to the same period in 2001.

"NAFTA heavy-duty production will peak in the third quarter and decline in the fourth quarter. We will be closing our Shelbyville, Tennessee transmission plant in the fourth quarter as previously announced, which will keep our capacity in line with lower demand."

Eaton is a global $7.3 billion diversified industrial manufacturer that is a leader in fluid power systems; electrical power quality, distribution and control; automotive engine air management and fuel economy; and intelligent truck systems for fuel economy and safety. Eaton has 48,000 employees and sells products in more than 50 countries.

Notice of Conference Call: Eaton’s conference call to discuss its second quarter results is available to all interested parties via live audio webcast today at 10 a.m. EDT on

This news release contains forward-looking statements concerning the third quarter 2002 and the full year 2002 operating earnings per share, our worldwide markets, and expenses and benefits of our restructuring programs. These statements are subject to various risks and uncertainties, many of which are outside the company’s control. The following factors could cause actual results to differ materially from those in the forward-looking statements: unanticipated changes in the markets for the company’s business segments; failure to implement restructuring plans; unanticipated downturns in business relationships with customers or their purchases from us; competitive pressures on sales and pricing; increase in the cost of material and other production costs, or unexpected costs that cannot be recouped in product pricing; the introduction of competing technologies; unexpected technical or marketing difficulties; unexpected claims, charges or dispute resolutions; and unanticipated further deterioration of economic and financial conditions in the United States and around the world. We do not assume any obligation to update these forward-looking statements.



Contact Information

William Hartman, vice president, Investor Relations


Kristen M. Bihary, vice president, Communications