Eaton reports record first quarter earnings per share
Wed Apr 15, 1998 -
CLEVELAND, OH.... Eaton Corporation today announced first quarter 1998 sales of $1.69 billion compared to $1.79 billion in the first quarter of 1997. Net income for the first quarter was $105 million, up 4 percent from last year’s $101 million. Earnings per share on a fully diluted basis were $1.42, a first quarter record and 10 percent above the fully diluted $1.29 reported in the first quarter of 1997.
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 1997 strategic repositioning program reduced sales by about $200 million, and pretax profits by $13 million, compared to a year ago. We have also seen a relapse in the worldwide semiconductor equipment market that seriously affected Eaton’s first quarter sales and profits.
"Eaton’s ability to produce record earnings per share in the face of these hurdles demonstrates the financial strengths and balance of our company," Hardis said.
During the first quarter, Eaton had a one-time net pretax gain of $43 million, related principally to the January 2, 1998 sale of its worldwide axle and brake business to Dana Corporation. This gain was entirely offset by charges of $33 million related to restructuring actions and a $10 million contribution to Eaton’s Charitable Trust.
Said Hardis, "We continue to make the investments required to ensure that Eaton offers market leading products at global best costs. Nonetheless, and despite tough comparisons all year long, we expect Eaton to report record earnings per share again in 1998."
On April 2, 1998, Eaton announced it would change its business segment reporting to focus on the following five business segments: Automotive Components, Hydraulics & Other Components, Industrial & Commercial Controls, Semiconductor Equipment, and Truck Components. Hardis noted that first quarter market conditions in these businesses varied widely.
"Automotive Components sales reached a record $523 million during the first quarter, up 7 percent from a year ago, despite a stronger U.S. dollar that reduced sales by $14 million," Hardis said. "This 10 percent volume increase compares to a 2 percent rise in North American automotive production, nearly a 25 percent drop in South America, and a 6 percent rise in Europe." Operating profit in the quarter reached $66 million before restructuring charges of $8 million, 4 percent ahead of one year ago. Said Hardis, "We are clearly enjoying the benefits of above-market growth in this business, even though we struggled a bit to keep up with unexpectedly strong demand from our European customers."
During the quarter, Eaton announced the purchase of GT Products, a manufacturer of fuel system components that regulate fuel flow and vapor emissions in fuel tanks. On April 1, Eaton concluded the previously announced sale of its automotive leaf spring business to Oxford Automotive, Inc.
Hardis said that demand for Eaton’s hydraulics products was also very strong in the first quarter. Sales of Hydraulics & Other Components reached a record $162 million, 12 percent ahead of one year ago and well above the 8 percent increase in the North American hydraulics market. Operating profits reached $30 million, 12 percent ahead of last year’s results. Said Hardis, "So far, the impact of the Asian crisis on this market has been modest, and new product introductions continue to drive Eaton’s above-market sales gains."
Sales of Industrial & Commercial Controls reached a first quarter record $551 million, 3 percent ahead of year earlier results. Operating profits, before restructuring costs of $15 million, were flat compared to a year ago, at $46 million. Hardis noted that, while U.S. residential construction remains robust, industrial and other nonresidential construction in the first quarter was virtually flat with year ago levels. Said Hardis, "U.S. capital spending plans remain strong and, after a six month pause, we are beginning to see a renewed pick-up in our orders for electrical distribution and industrial control products."
Semiconductor Equipment sales in the first quarter reached $79 million, about level with year earlier levels. This segment recorded an operating loss of $14 million compared to break-even results one year earlier. Said Hardis, "The renewed collapse of the semiconductor equipment market could not have come at a worse time in view of our major new product programs, the Fusion Systems acquisition, and our capacity expansion plans. We have made necessary operating adjustments, including a 13 percent reduction in headcount and a 42 percent reduction in budgeted 1998 capital spending. Much of the new product investment must continue, however, to assure that we emerge from the current downturn with the market-leading, 300 millimeter tools that will drive the next generation of wafer fab buys.
"We currently expect second quarter shipments to remain near year ago levels and, burned by the aborted late-1997 rebound, we are shy about speculating beyond mid-year. However, we are convinced that investments like the $12 million year-to-year increase in first quarter new product spending will reinforce and extend our market leading positions, enabling this business to take even better advantage of the inevitable industry rebound."
In sharp contrast to semiconductor equipment, Hardis noted that boom conditions continue to characterize the North American heavy truck industry. First quarter sales of Truck Components were a record $372 million, 47 percent above last year’s results. Operating profits before $10 million of restructuring expenses reached $67 million, 111 percent above last year’s levels. Said Hardis, "Our Spicer Clutch acquisition continues to perform above expectations, but even on a continuing operations basis Truck Components sales are up 24 percent." This compares to heavy truck market increases of about 25 percent in North America and 15 percent in Europe, and a 25 percent decline in South America.
Said Hardis, "North American net orders for Class 8 trucks continue at all-time record levels. At this point, it looks like 1998 production may eclipse the 1995 record of 245,000 units. As the operating results demonstrate, Eaton is bringing the benefits of this market strength to the bottom line."
Summing up, Hardis pointed out, "It is the financial strength and balance of the company that enables Eaton to sustain new product developments and to make productivity-enhancing investments even when individual markets are down sharply. Over time, that builds an ever stronger, more rapidly growing enterprise better able to take full advantage of global market opportunities."
Hardis also pointed out the higher quality of Eaton’s earnings as a result of the 1997 strategic repositioning program. "Based on a comparison of 1997 results, and allowing for restructuring charges, operating margins in the first quarter of 1998 are a full percentage point higher, despite an increase in R&D spending as a percent of sales from 4.2 percent to 4.9 percent." Finally, Hardis noted that the company used its financial strength to return nearly $600 million in capital to the owners over the past six months via share repurchases. "We will continue to take the actions required to build an enterprise capable of higher sustainable growth, and to deliver superior long term returns for the owners."
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 145 manufacturing sites in 27 countries around the world. Sales for 1997 were $7.6 billion.