Eaton earns $114 million on sales of $1.71 billion
Tue Jul 14, 1998 -
CLEVELAND, OH.... Eaton Corporation today announced second quarter 1998 earnings per share of $1.57, down 2 percent from last year’s $1.61 per fully diluted share. Sales were $1.71 billion compared to $1.91 billion in the second quarter of 1997. Net income reached $114 million compared to last year’s $126 million.
The company's comparative financial results:
Comparative Financial Summary Condensed Consolidated Balance Sheets Business Segment Information Statements of Consolidated Income Net income for the first six months of 1998 reached $219 million, or a record $2.98 per share, on sales of $3.40 billion. Comparable first half 1997 earnings were $227 million, or $2.90 per share, on sales of $3.70 billion.
Stephen R. Hardis, Chairman and Chief Executive Officer, said, "Two weeks ago, we highlighted the difficult conditions Eaton was experiencing in its Semiconductor Equipment business. What is notable about today’s release is that, despite those difficulties, Eaton’s consolidated second quarter earnings per share came within four cents of last year’s record performance. In fact, Eaton today would have reported record earnings per share had the company not also been affected by the PACCAR and GM strikes, which together reduced second quarter earnings by about six cents per share."
Turning to Eaton’s business segments, Hardis said that although market conditions varied widely in the second quarter, Eaton’s operating performance remained solid. Said Hardis, "Excluding semiconductor equipment, second quarter business segment sales were 11 percent ahead of a year ago while operating margins were steady at 13 percent of sales."
Automotive Components sales reached a second quarter record $488 million, up 6 percent from a year ago, despite a 4 percent decline in North American light vehicle production and an 8 percent drop in Latin American volume, offset somewhat by a 5 percent increase in Europe. Operating profit reached $58 million compared to $65 million one year ago. Said Hardis, "We are struggling a bit because of continued penetration gains and stronger than expected European volumes. As a result, margins are being affected as we adjust production around the world to satisfy varying levels of global demand."
During the quarter, Eaton announced the formation of Shanghai Eaton Engine Components Company Ltd., a 55-percent-owned joint venture with Shanghai Pudong Valve Factory and Asian Nittan Pte Ltd. The venture manufactures and sells automotive and motorcycle engine valves and hydraulic valve lifters for the Chinese market. Eaton also announced it had formed Eaton Shenglong Company Ltd., a 70-percent-owned joint venture with Shenglong Group, which is producing viscous fan drives for the Chinese automotive market.
Sales of Hydraulics & Other Components were a second quarter record $158 million, 4 percent ahead of last year and consistent with the year-to-year gain in North American hydraulics shipments. Operating profits in the quarter reached $29 million compared to $30 million in 1997. Said Hardis, "As expected, orders in the mobile hydraulics industry have plateaued in recent months as the Asian crisis has hurt customer exports. Demand for Eaton products, though, has continued strong. We have been making investments in incremental capacity, which should generate operating efficiencies over the remainder of the year."
Sales of Industrial & Commercial Controls reached a record $598 million, 5 percent ahead of year-earlier results while operating profits were flat compared to a year ago at $57 million. Hardis noted that while residential construction was up 7 percent from a year ago, commercial and industrial construction markets were up only about 2 percent. Hardis pointed out that second quarter sales growth represented a slight acceleration from first quarter comparisons. Said Hardis, "The renewed pick-up in orders we first identified three months ago has continued through mid-year."
Semiconductor Equipment sales in the second quarter reached $93 million, 13 percent below year-earlier levels. This segment recorded an operating loss of $8 million compared to operating profits of $4 million one year earlier.
Truck Components continued to take advantage of strong activity levels in all of its major markets. Second quarter sales were a record $375 million, 37 percent ahead of last year’s results. Operating profits reached a record $66 million, 83 percent above last year. Noted Hardis, "Our Spicer Clutch acquisition continues to make a strong contribution, but even on a continuing operations basis, Truck Components worldwide sales were up 17 percent from a year ago."
Said Hardis, "With North American net orders and backlog for Class 8 trucks at all-time records, it is hard to imagine conditions improving much from here. However, there is also nothing in the industry or the economy to suggest that a marked deterioration is imminent. Continuing market recovery in Latin America and Europe also seems likely. Construction of a $70 million plant near Sao Paulo, Brazil to manufacture transaxles for GM’s new Corsa is on schedule and will begin production next year. The recently announced agreement to purchase Fabryka Przekladni Samochodowych (FPS), a truck transmission manufacturer in Gdansk, Poland, with annual sales of about $20 million, is an important step in a major initiative to improve the manufacturing cost structure of our European Truck operations."
Summarizing, Hardis noted that Eaton achieved record earnings per share in the first half of 1998 despite some significant challenges. "In light of this performance, it would be disingenuous to suggest we are not frustrated by the stock market’s current valuation of our shares. But we will not be distracted by it, or take actions that might improve near-term results at the expense of long-term prospects. We remain focused on building an enterprise that, through cycles, demonstrates both superior operating performance and higher sustainable growth."
Eaton Corporation is a global manufacturer of highly engineered products that serve industrial, vehicle, construction, commercial and semiconductor markets. Principal products include electrical power distribution and control equipment, truck drivetrain systems, engine components, hydraulic products, ion implanters and a wide variety of controls. Headquartered in Cleveland, the company has 49,000 employees and 150 manufacturing sites in 25 countries around the world. Sales for 1997 were $7.6 billion.
The forward-looking statements in this news release 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 are changes in global economic and market conditions, and the duration of the labor strikes currently underway at PACCAR and General Motors.