Eaton Corporation release on 1998 earnings expectations

Wed Jun 24, 1998 -

CLEVELAND, OH.... Eaton Corporation announced today that, because of the severe and prolonged downturn in its semiconductor capital equipment business, it was no longer confident that the company’s 1998 earnings would exceed 1997’s record results. Despite this, the company said that it expected results for 1998 to be among the best in the company's history.

Stephen R. Hardis, Eaton’s Chairman and Chief Executive Officer, said "When Eaton released its record 1997 financial results we stated that, unless the renewed weakness in the semiconductor equipment industry proved far more severe than we or other industry participants expected, Eaton could look forward to another record year in 1998. Unfortunately, the industry downturn has been much deeper and more prolonged than anticipated. Today, industry orders are fully one third lower than six months ago, equal to the lowest levels in the past half decade, with no sign of an imminent upturn in sight. This renewed collapse is having a severe impact on the performance of Eaton’s Semiconductor Equipment business, and upon Eaton’s consolidated corporate results."

Hardis emphasized that the performance and outlook for the remainder of Eaton’s businesses remains intact. Said Hardis, "Truck Components, Commercial and Industrial Components, Automotive Components, and Hydraulics all remain on track with our expectations for a record 1998. We want to be clear that the robust performance of Eaton’s other operations should not be obscured by the difficulties in one. However, at this point we are no longer comfortable that the consolidated performance of these businesses can overcome the combined impact on 1998 earnings of the severe downturn in Semiconductor Equipment and the $1.3 billion of strategic divestitures we’ve made over the past year."

Hardis stated that, based on current orders and activity levels, 1998 sales of its Semiconductor Equipment Segment were expected to be about $330 million, 27 percent below 1997 results. The segment is currently expected to suffer an operating loss of about $40 to $45 million this year, compared to operating profits of $30 million in 1997.

Said Hardis, "We are addressing these very difficult operating conditions in an aggressive but controlled manner. To ensure that resources are appropriately sized for current market conditions, Eaton Semiconductor today announced that it was reducing its workforce by an additional 200. Total headcount this year is now down by about 600, or 24 percent, from year-end 1997, with expected annualized savings of about $60 million. We have also reduced 1998 capital spending by nearly 50 percent from planned levels, and are reviewing all product programs with respect to timing and criticality."

"However, we must sustain our commitment to critical new product developments if we are going to emerge from this extended downturn with the best in class, leading products that will enable Eaton to take disproportionate advantage of the next buying cycle. We will not give in to the temptation to meet short-term earnings expectations at the expense of long-term market leadership. It is one of the strengths of Eaton’s multi-business strategy that we can sustain our commitment to the business even in the most difficult times. In Semiconductor Equipment, as with all of Eaton’s businesses, we are playing for a long term, global win."

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 143 manufacturing sites in 26 countries around the world. Sales for 1997 were $7.6 billion.

Statements in this news release concerning 1998 earnings are forward-looking statements and thus 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 the market for semiconductor capital manufacturing equipment, the Company's ability to align its cost structure with prevailing market conditions, the length and severity of the Asian financial crisis, and the duration of the UAW strike at General Motors. The competitive, economic and technological factors identified in the Company's filings with the Securities and Exchange Commission could have a similar effect.



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