Eaton reports record sales and earnings per share
CLEVELAND, OHIO....Eaton Corporation (NYSE:ETN) today announced record sales and earnings per share for the second quarter of 1999. Sales in the quarter were $2.30 billion, 34 percent above the second quarter of 1998. Earnings per share of $1.71 were 9 percent above last year's $1.57 per fully diluted share. Net income was $125 million compared to last year's $114 million.
Net income for the first six months of 1999 reached $209 million, or $2.88 per share, on sales of $3.96 billion. Comparable first half 1998 earnings were $219 million, or $2.98 per share, on sales of $3.40 billion.
The company's comparative financial results: Comparative Financial Summary Condensed Consolidated Balance Sheets Business Segment Information Statements of Consolidated Income Stephen R. Hardis, Chairman and Chief Executive Officer, said, "Our results speak to the evolving nature of Eaton Corporation. Indeed, we believe the quarter marks an important milestone in the recognition of Eaton as a diversified industrial manufacturer capable of superior operational performance, balanced earnings and higher sustainable growth."
"All of our businesses performed well given varied market conditions. We were particularly pleased by Semiconductor Equipment, which returned to double-digit profitability in the quarter. We are also making steady progress integrating Aeroquip-Vickers into the family of Eaton businesses. In our first quarter together, Aeroquip-Vickers added about $0.12 to Eaton's quarterly earnings per share prior to restructuring charges of $0.03."
Hardis noted that earlier this month the company completed the sale of 1.625 million common shares. Last week, Eaton announced it had signed a definitive agreement to sell the Engineered Fasteners business unit to TransTechnology Corporation for $173 million in cash. The combined proceeds of $320 million will be used to pay down a portion of the debt incurred to finance the Aeroquip-Vickers acquisition.
Said Hardis, "It's great to have earnings back on track, particularly when the recovery in semiconductor equipment has just begun and the market for hydraulics is still depressed. It means that we're beginning to see the benefits of the major initiatives we undertook throughout Eaton to reduce costs.
"Our challenge continues to be to meet our year 2000 earnings commitments while laying the foundation for sustainable earnings growth thereafter. In that respect, it is heartening to have Aeroquip-Vickers make an immediate contribution to earnings. Other areas of intense focus include: our new product and international growth initiatives; our $150 million cost-out program; and implementation of the Eaton Business System, which emphasizes achieving best practices consistently in every Eaton business.
"Eaton is now a very different company, and we're increasingly excited about our prospects."
Last week, Eaton announced selected revisions to its business segments to reflect the Aeroquip-Vickers acquisition, the anticipated divestitures of its Engineered Fasteners and Fluid Power business units, and to better align segments with markets served and reporting relationships.
Sales and profits in the Automotive Components segment were at record levels. Second quarter sales of $480 million were 10 percent above one year ago. This compares to an 11 percent increase in North American light vehicle production, a 2 percent increase in European output and a 30 percent year-to-year decline in South American production. Segment profits during the quarter were up 20 percent to $65 million. Hardis attributed the above-market performance to penetration gains across Eaton's product line.
Second quarter sales of Fluid Power & Other Components were $661 million, 267 percent above year earlier results. Segment profits, at $60 million, were 70 percent ahead of one year earlier. Including Aeroquip-Vickers in 1998 results on a pro forma basis, sales were off 8 percent from one year ago while profits were off 31 percent. Said Hardis, "Activity in mobile and stationary fluid power markets remains very depressed, with industry shipments off 11 percent versus last year. Given those conditions, we are encouraged by the positive contribution of Aeroquip-Vickers to Eaton earnings, and we are very pleased with the dedicated and productive efforts of the combined 'integration' and 'run' teams to build a world-leading Fluid Power business.
"While industry orders are essentially flat versus the first quarter, we don't anticipate a meaningful upturn before year-end. Restructuring expenses and a higher equity base will lower the net contribution of Aeroquip-Vickers during the remainder of the year. But, assuming markets do gradually improve, we are increasingly confident that this acquisition will add at least $0.50 per share to Eaton's year 2000 earnings per share."
Sales of Industrial & Commercial Controls were a record $578 million, up 4 percent from year-earlier results, compared to about a 1 percent increase in the North American market for electrical distribution equipment and industrial controls. Segment profits were 8 percent ahead of last year at $49 million. Hardis noted that Cutler-Hammer's North American orders in the second quarter were 14 percent ahead of one year ago. He attributed above-industry growth to strong residential and commercial construction markets, new multi-product "solutions" packaging, and the success of the new Engineering Service business unit.
Second quarter Semiconductor Equipment sales were $98 million, 6 percent above last year and well above the 10 percent decline in industry shipments. Operating profits were $10 million compared to an operating loss of $8 million. Said Hardis, "Our results reflect the early hard-earned benefits of our operational restructuring more than a resurgent market. But the equipment market is rebounding, with the second quarter book-to-bill ratio above 1.20. Our second quarter orders were 47 percent ahead of last year, and are at the highest level since late 1997. Customer reception to Eaton's new generation of semiconductor equipment validates our uninterrupted R&D spending over the past two difficult years, and should be reflected in sustained higher sales in the year ahead."
Truck Components sales were a record $407 million, 8 percent above one year ago. This compares with a 24 percent increase in North American Class 8 production, a 2 percent drop in European heavy truck production, and a decline of more than 40 percent in South American commercial vehicle production. Segment profits were flat compared to a year ago at $61 million. Said Hardis, "We are operating well beyond our production 'sweet spot,' utilizing Eaton's worldwide capacity to satisfy NAFTA heavy truck demand, which is now running above a 310,000 annual rate."
Last month the company announced it would invest more than $100 million to build a new truck transmission manufacturing plant in Mexico to meet unprecedented market demand and support Eaton's increasing market share for commercial truck components throughout NAFTA. Said Hardis, "Trucking continues to gain share in this world of just-in-time production and logistics. With the U.S. manufacturing sector also regaining momentum, we think the heavy truck market will continue near these levels for some time yet to come."
Eaton Corporation is a global manufacturer of highly engineered products that serve industrial, vehicle, construction, commercial, aerospace and semiconductor markets. Principal products include hydraulic products and fluid connectors, electrical power distribution and control equipment, truck drivetrain systems, ion implanters and a wide variety of controls. Headquartered in Cleveland, the company has 64,500 employees and 215 manufacturing sites in 25 countries around the world. Sales for 1998 were $6.6 billion. On April 9, 1999 Eaton acquired Aeroquip-Vickers, Inc., which had sales of $2.1 billion in 1998.
The forward-looking statements in this news release concerning the Aeroquip-Vickers acquisition should be used with caution. They are subject to various risks and uncertainties, many of which are outside the control of the company. Important factors which could cause actual results to differ materially from those in the forward-looking statements include changes in global economic and financial conditions, the markets for fluid power and other components and Eaton's ability to successfully implement the integration of Aeroquip-Vickers. We do not assume any obligation to update these forward-looking statements.