CLEVELAND ... Diversified industrial manufacturer Eaton Corporation (NYSE:ETN) today announced net income per share of $1.03 for the second quarter of 2004, an increase of 61 percent over net income per share of $.64 in the second quarter of 2003. Sales in the quarter were a record $2.40 billion, 19 percent above the same period in 2003. Net income was $161 million compared to $93 million in 2003, an increase of 73 percent.
Net income in both periods included charges for restructuring activities related to the integration of acquisitions. Before these restructuring charges, operating earnings per share in the second quarter of 2004 were $1.06 versus $.68 per share in 2003, an increase of 56 percent, and operating earnings for the second quarter of 2004 were $166 million compared to $99 million in 2003, an increase of 68 percent.
Alexander M. Cutler, Eaton chairman and chief executive officer, said, "We are very pleased with our second quarter, which came in above the high end of our guidance. Sales growth in the quarter of 19 percent consisted of 3 percent from acquisitions, 2 percent from exchange rates, and 14 percent from organic growth. Our organic growth was made up of 9 percent growth in our end markets and 5 percent growth from outgrowing our end markets.
"In the second quarter, our segment operating margin before restructuring charges was 12.4 percent, a significant step up from the 11.7 percent margin in the first quarter," said Cutler. "Our operating cash flow for the quarter, at $330 million, was a record performance for the second quarter."
"As we survey our end markets in 2004, we now anticipate growth of between 7 to 8 percent," said Cutler. "The mobile hydraulics and truck markets, in particular, are stronger than we had anticipated, as are the residential electrical markets. There are still several important end markets in which we have had very little upturn, notably nonresidential construction and the European markets, and we are not expecting significant growth in these sectors until next year."
"We anticipate net income per share for the third quarter of 2004 to be $1.00 to $1.10. We are increasing our full-year guidance for net income per share by 15 cents, to between $3.85 and $4.00. Operating earnings per share, which exclude restructuring charges to integrate our recent acquisitions, are anticipated to be between $1.05 and $1.15 in the third quarter of 2004, and we are increasing our full-year guidance for operating earnings by 15 cents, to between $4.00 and $4.15."
Second quarter sales of Eaton's largest business segment, Fluid Power, were $792 million, 13 percent above the second quarter of 2003. Both sales and operating profits for Fluid Power were all-time quarterly records. Fluid Power markets grew 12 percent compared to the same period in 2003, with North American fluid power industry shipments up 21 percent, commercial aerospace markets up 7 percent, defense aerospace markets up 11 percent, and European automotive production up 1 percent. Operating profits in the second quarter were $91 million. Operating profits before restructuring charges were $92 million, up 37 percent compared to a year earlier.
"The strong growth in the mobile and industrial hydraulics markets seen in the first quarter continued into the second quarter," said Cutler. "We anticipate that the growth in mobile and industrial hydraulics is likely to continue well into 2005. The commercial aerospace market showed the strongest quarterly growth since 2001, while defense aerospace posted another quarter of double-digit growth.
"We announced in early June the acquisition of the Walterscheid European connector business of GKN plc," said Cutler. "This acquisition, which is expected to close by the end of the third quarter, expands our product range and sales channels in Europe while also strengthening our position as a systems provider."
In the Electrical segment, second quarter sales were $697 million, up 21 percent over 2003. Excluding the impact of the Powerware and Electrum acquisitions, and the new joint venture formed with Caterpillar, second quarter sales were up 10 percent compared to 2003. Operating profits in the second quarter were $57 million. Operating profits before restructuring charges were $64 million, up 64 percent from results in 2003.
"End markets for our electrical business grew about 5 percent during the second quarter, the fastest quarterly growth since the first quarter of 2000. In addition, our operating margins expanded to 9.2 percent, compared to 8.2 percent in the first quarter," said Cutler. "We expect steady end market growth over the balance of the year, with more significant growth likely in 2005.
"We completed the acquisition of Powerware in early June," said Cutler. "We remain very excited about the new capabilities this acquisition provides and we are already finding that the combination of Powerware with our other products represents a powerful offering in the marketplace."
Reflecting progress in generating additional service and power generation revenue, the Electrical business was awarded during the second quarter with a contract from the U.S. Postal Service to test and maintain electrical switchgear, which is anticipated to total between $12 and $15 million annually over the next four years, and a contract worth $10 million to supply distribution and control equipment for a new power plant being constructed by Hitachi.
The Automotive segment posted second quarter sales of $478 million, 11 percent above the comparable quarter of 2003. Automotive production in NAFTA was flat and in Europe was up 1 percent over the second quarter of 2003. Operating profits were $65 million, up 12 percent. The second quarter operating margin was lower than that in the first quarter primarily due to higher metals prices, as expected.
"The Automotive segment again posted strong revenue growth despite flat markets," said Cutler. "We are expecting that the markets in NAFTA and Europe will be flat to slightly down over the balance of the year."
The Truck segment posted sales of $436 million in the second quarter, up 38 percent compared to 2003, and recorded operating profits of $78 million, nearly twice the profit earned in the second quarter of 2003. NAFTA heavy-duty production was up 41 percent compared to 2003, NAFTA medium-duty production was up 15 percent, European truck production was up 9 percent, and Brazilian vehicle production was up 17 percent.
"Second quarter production of NAFTA heavy-duty trucks totaled 63,000 units, about 17 percent more than in the first quarter of 2004," said Cutler. "Monthly orders for new NAFTA heavy-duty trucks during the second quarter have averaged 33,000 units. As a result, we are now estimating that the NAFTA heavy-duty market in 2004 is likely to total at least 255,000 units.
"We made progress during the quarter on both our new truck joint ventures in China," said Cutler. "We expect the medium-duty joint venture with FAW to formally start in late July. We are still on target to start production in our Eaton Fast Gear heavy-duty joint venture in the fourth quarter of this year."
Eaton Corporation is a diversified industrial manufacturer with 2003 sales of $8.1 billion. Eaton is a global leader in fluid power systems and services for industrial, mobile and aircraft equipment; electrical systems and components for power quality, distribution and control; automotive engine air management systems, powertrain solutions and specialty controls for performance, fuel economy and safety; and intelligent truck drivetrain systems for safety and fuel economy. Eaton has 55,000 employees and sells products to customers in more than 100 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 through the Investor Relations tab on Eaton's home page. This news release can be accessed under the Corporate News heading on the Eaton home page by clicking on the news release.
This news release contains forward-looking statements concerning the third quarter 2004 and full year 2004 net income per share and operating earnings per share, and the performance of our worldwide markets. These statements should be used with caution and 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; unanticipated downturns in business relationships with customers or their purchases from us; competitive pressures on sales and pricing; increases in the cost of material, energy 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, litigation or dispute resolutions; the impact of acquisitions, divestitures, and joint ventures; new laws and governmental regulations; interest rate changes; stock market fluctuations; and unanticipated 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.