CLEVELAND ... Diversified industrial manufacturer Eaton Corporation (NYSE:ETN) today announced net income per share of $.85 for the first quarter of 2004, an increase of 70 percent over net income per share of $.50 in the first quarter of 2003. Sales in the quarter were a record $2.24 billion, 16 percent above the same period in 2003. Net income was $134 million compared to $72 million in 2003, an increase of 86 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 first quarter of 2004 were $.88 versus $.53 per share in 2003, an increase of 66 percent, and operating earnings for the first quarter of 2004 were $138 million compared to $77 million in 2003, an increase of 79 percent.
Alexander M. Cutler, Eaton chairman and chief executive officer, said, "We are very pleased with our first quarter, which exceeded our previous guidance. Sales growth in the first quarter of 16 percent consisted of 2 percent from acquisitions, 4 percent from higher exchange rates, and 10 percent from organic growth. Our organic growth was made up of 6 percent growth in our end markets and 4 percent growth from outgrowing our end markets.
"In the first quarter, our segment operating margin before restructuring charges was 11.7 percent, the best quarter we have had since the second quarter of 2000," said Cutler.
"As we survey our end markets in 2004, we now anticipate growth of between 5 to 6 percent versus our original expectation for the year of 4 percent," said Cutler. "The mobile hydraulics markets, in particular, are stronger than we had anticipated, as are the residential electrical markets. Partially offsetting these stronger markets is the nonresidential electrical market, which is weaker than we anticipated."
During the quarter Eaton bought back 4.2 million shares, as announced in January, at an average price of $59 per share. The total expenditure on the repurchases was $250 million.
"We anticipate net income per share for the second quarter of 2004 to be $.90 to $1.00. We are raising our full-year guidance for net income per share by $.50, to between $3.65 and $3.80. Operating earnings per share, which exclude restructuring charges to integrate our recent acquisitions, are anticipated to be $.95 to $1.05 in the second quarter of 2004. We are raising our full-year guidance for operating earnings per share by $.50, to between $3.75 and $3.90."
Business Segment Results
First quarter sales of Eaton's largest business segment, Fluid Power, were $768 million, 10 percent above the first quarter of 2003. Both sales and operating profits for Fluid Power were all-time quarterly records. Fluid Power markets grew 8 percent compared to the same period in 2003, with North American fluid power industry shipments up 10 percent, commercial aerospace markets up 6 percent, and defense aerospace markets up 13 percent. Operating profits in the first quarter were $81 million. Operating profits before restructuring charges were $82 million, up 30 percent compared to a year earlier.
"The mobile and industrial hydraulics markets had strong growth in both sales and orders during the first quarter," said Cutler. "We anticipate that the growth in mobile hydraulics is likely to continue throughout 2004. The commercial and defense aerospace markets were also a bit stronger than expected in the first quarter."
In the Electrical segment, first quarter sales were $611 million, up 19 percent over 2003. Excluding the impact of the Delta acquisition and the new joint venture formed with Caterpillar, first quarter sales were up 12 percent compared to 2003. Operating profits in the first quarter were $45 million. Operating profits before restructuring charges were $50 million, up 52 percent from results in 2003.
"End markets for our electrical business grew about 2 percent during the first quarter," said Cutler. "Growth appears to be accelerating modestly but significant pockets of weakness still exist, particularly for larger industrial and commercial projects.
"We announced in early March the acquisition of the Electrum Group," said Cutler. "This acquisition, while small in size, significantly expands our capabilities to serve the telecommunications, data center and government power markets."
The Automotive segment posted first quarter sales of $478 million, 9 percent above the comparable quarter of 2003. Automotive production in NAFTA and in Europe was flat compared to the first quarter of 2003. Operating profits were $69 million, up 11 percent.
"Automotive segment revenue posted strong growth despite flat markets, reflecting the significant product and platform wins we have generated over the last couple of years," said Cutler. "We continue to expect that, for 2004 as a whole, both the NAFTA and Europe automobile markets will be flat."
Among significant new business booked in the first quarter were contracts to supply locking differentials to Hyundai and Kia for several new vehicle programs. These contracts are expected to total approximately $150 million over the next six years.
The Truck segment posted sales of $381 million in the first quarter, up 39 percent compared to 2003, and recorded operating profits of $61 million, nearly three times the profit earned in the first quarter of 2003. NAFTA heavy-duty production was up 47 percent compared to 2003, NAFTA medium-duty production was up 22 percent, European truck production was down 2 percent, and Brazilian vehicle production was up 14 percent.
"First quarter production of NAFTA heavy-duty trucks totaled 52,000 units, slightly more than in the fourth quarter of 2003," said Cutler. "Monthly orders for new NAFTA heavy-duty trucks during the first quarter have been running above 30,000 units. As a result, we are growing increasingly confident that the NAFTA heavy-duty market in 2004 is likely to total at least 240,000 units.
"On March 31 we announced an agreement to form a joint venture in China with First Auto Works (FAW) to produce medium-duty transmissions for commercial vehicles," said Cutler. "This investment is particularly exciting given FAW's position as the largest manufacturer of commercial vehicles in China."
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 and powertrain controls for fuel economy; and intelligent drivetrain systems for fuel economy and safety in trucks. Eaton has 51,000 employees and sells products to customers in more than 100 countries.
Notice of Conference Call: Eaton's conference call to discuss its first 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 second quarter 2004 and full year 2004 net income per share and operating earnings per share, and 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; acquisitions and divestitures; 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.