Eaton reports fourth quarter operating earnings of 65 cents per share
CLEVELAND, OHIO… Diversified industrial manufacturer Eaton Corporation (NYSE:ETN) today announced operating earnings per share of 65 cents for the fourth quarter of 2001, 37 percent below comparable results one year earlier. Sales in the quarter were $1.69 billion, 13 percent below last year. Net income before unusual items was $47 million compared to $72 million in 2000.
During the quarter, the company recognized pre-tax charges of $25 million related to the restructuring of its operations. After all unusual items in both periods, fourth quarter net income was $30 million with earnings per share of $.42, compared to $58 million and $.83 last year.
For the full year 2001, operating earnings per share were $3.30 on sales of $7.3 billion. Comparable earnings in 2000 were $5.28 per share, on sales of $8.3 billion. After all unusual items in both periods, full year net income per share for 2001 was $2.39 on net income of $169 million, which is comparable to $5.00 per share and net income of $363 million in 2000 for continuing operations.
Alexander M. Cutler, Eaton chairman and chief executive officer, said, "Eaton’s fourth quarter earnings are in line with our expectations, in spite of weaker end markets than we had anticipated at the beginning of the quarter. Our credible operating performance in this continued period of end market weakness is a direct testament to the effectiveness of our restructuring actions and the continued focused efforts of Eaton employees around the world.
"2001 was an exceptionally challenging year, as market conditions declined all year long. In this difficult operating environment, Eaton’s operating results were bolstered by our early decisions to resize the corporation. Eaton incurred $119 million of restructuring charges, which should deliver $100 million of net savings in 2002. Throughout 2001, another major focus was to strengthen our balance sheet. We have achieved exceptional results in this respect. Eaton’s net debt leverage is now below 47 percent, having paid off more than $560 million of debt during 2001.
"Our forecast for our end markets during 2002 has changed. In several of our businesses, the markets were not as strong in the fourth quarter as had been anticipated. We expect that Eaton’s end markets will decline further in the first quarter and will remain below current levels until the second half of 2002.
"We remain focused on controlling our expenses, working capital and capital expenditures in this uncertain economic environment. We have initiated an additional $55 million of restructuring actions in our Truck, Fluid Power and Industrial & Commercial Controls segments. The majority of these costs will be incurred in the first quarter of this year. We expect that these additional restructuring actions will produce approximately $30 million of savings in 2002.
"Our 2002 operating earnings guidance is $4.25 to $4.50 per share, including the $.87 per share positive impact of the Statement of Financial Accounting Standards No. 142 related to goodwill and other intangible assets. We anticipate that first quarter 2002 operating earnings per share will be in the $.85 to $.95 range. Eaton will be significantly cash flow positive again in 2002," said Cutler.
Business Segment Results
Fourth quarter sales of Eaton's largest business segment, Fluid Power, were $578 million, 8 percent below one year earlier. This compares to a decline of about 10 percent in Fluid Power’s markets, with North American fluid power industry shipments off about 15 percent, and aerospace markets off about 5 percent. Segment profits before restructuring costs were $41 million, down 43 percent from a year ago.
"The traditional mobile and industrial hydraulics markets have remained very weak and we still do not anticipate significant recovery in these markets until the middle of the second half of 2002," said Cutler. "The anticipated weakening of the aerospace market is materializing. We continue to foresee a 25-30 percent decline in the commercial aircraft markets this year, offset by a 5 percent improvement in military markets. As the result of the comprehensive resizing of our Fluid Power business in 2001, this segment is well positioned for a solid rebound in 2002."
During the quarter, the company announced its new Hydraulic Launch Assist technology, which has the potential to improve the fuel economy of commercial vehicles by 25 to 35 percent. The sales potential for this new technology could approach $500 million by mid-decade.
In addition, new multi-year order commitments were announced recently, including approximately $1 billion for the Lockheed Martin Joint Strike Fighter program and multi-year programs totaling nearly $250 million with GE, Airbus and BMW.
Fourth quarter Industrial & Commercial Controls sales were $528 million, down 14 percent from last year. Excluding divestitures, sales were off about 12 percent, compared to an estimated 27 percent decline in North American markets. Segment profits were $44 million before restructuring charges, down 31 percent from one year ago.
"We are now seeing a significant weakening of the end markets for this segment," said Cutler. "Traditionally a late-cycle business, the large-project business is weakening and we expect that the market conditions in this segment will not improve until the end of 2002. We have outgrown our end markets, despite these poor conditions. We are particularly pleased with the continued growth and improved profitability of our Engineering Services and Systems (CHESS) business. And we expect that the benefits of our restructuring efforts will drive improved levels of profitability in 2002."
Fourth quarter Automotive segment sales of $354 million were virtually the same as a year ago, compared to a 3 percent decrease in NAFTA automotive production and a 3 percent decrease in European automotive production. Segment profits were $44 million, compared to $46 million a year ago.
"Our Automotive segment recorded another strong quarter of performance, during a time of weekly fluctuations in customer demand," said Cutler. "For both the fourth quarter and full year 2001, we have once again clearly outgrown the end markets, and we expect to continue this level of performance in 2002."
Yesterday the company announced that it received a contract from General Motors Corporation’s Tier One mirror suppliers to provide memory glass and power-folding mirror actuators for a wide range of pick-up trucks and sport utility vehicles, beginning in 2002. The full life of the contract has a revenue value of $160 million. During the quarter, the company announced that it completed the acquisition of the European portion of the vehicle mirror actuator business of Donnelley Corporation, located in Manorhamilton, Ireland.
Fourth quarter Truck segment sales of $235 million were 14 percent below those in the same period last year. NAFTA heavy truck production for the quarter was down 30 percent, NAFTA medium-duty truck production was up 5 percent, European truck production was down 17 percent and South American production was down by 8 percent. Before restructuring charges, segment operating losses were $9 million compared to $12 million a year ago.
"After three quarters of breakeven operating results, the Truck segment showed a loss in the fourth quarter of 2001," said Cutler. "Compared to fourth quarter 2000, losses were reduced by $3 million on a $38 million drop in volume. Given the continued decline in our Truck segment’s end markets, it is clear that the benefits of our restructuring program are being realized. We expect that NAFTA heavy-duty truck production will reach 150,000 units in 2002, up marginally from 2001 levels. As the market begins to strengthen later this year and then more strongly in 2003, we are very confident of the earnings leverage in this business."
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 49,000 employees and sells products in more than 50 countries.
Notice of Conference Call: Eaton’s conference call to discuss its fourth quarter results is available to all interested parties via live audio webcast today at 10:00 a.m. EST on Eaton’s Investor Relations website at http://www.shareholder.com/etn/.
This news release contains forward-looking statements concerning the first quarter 2002 and the year 2002 operating earnings per share, our worldwide markets, benefits from our restructuring programs, cash flow and volumes from new business awards. These statements are subject to various risks and uncertainties, many of which are outside of 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 downturn in business relationships with customers or their purchases from us, competitive pressures on sales and pricing, increases in the cost of material and other production costs or unexpected costs that cannot be recouped in product pricing, introduction of competing technologies, unexpected technical or marketing difficulties, 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.