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Eaton reports record sales and earnings before one-time charge
CLEVELAND, OH.... Eaton Corporation today announced record sales and, before a one-time charge, record earnings and earnings per share for the third quarter and first nine months of 1997. Sales were $1.93 billion in the third quarter of 1997 compared to $1.72 billion in the third quarter of 1996. Net income, before the one-time charge, reached $139 million, up 64 percent from last year's $85 million. Earnings per share before the charge were $1.80, compared to $1.11 in 1996.
As previously announced, Eaton took a one-time non-cash charge of $85 million against third quarter, 1997 after-tax earnings to write off the purchased in-process research and development associated with its recent acquisition of Fusion Systems Corporation. After the charge, Eaton's earnings reached $54 million, or $.70 per share.
Net income for the first nine months of 1997 reached $366 million, or $4.75 per share, before the one-time charge, on sales of $5.63 billion. Comparable 1996 earnings were $283 million, or $3.66 per share, on sales of $5.24 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, "We are very pleased with Eaton's overall financial results during the past quarter and over the course of 1997. Most of Eaton's markets are enjoying robust activity, and our results demonstrate the considerable potential of Eaton's product and market strengths. We continue to build upon those strengths through new product development, international expansion, and acquisition. We expect 1997 will be a record year for Eaton, and a year notable for the steps we have taken to implement our long-term growth strategy."
In Eaton's largest business segment, Electrical and Electronic Controls, Hardis said that activity in most markets remained firm, and that the semiconductor equipment market was beginning to rebound. Segment sales in the third quarter reached a record of $1.04 billion, 8 percent above last year's $962 million. Segment profits before the $85 million non-cash charge reached a new high of $100 million, 28 percent above last year's $78 million. Hardis noted that, before the one-time charge, Eaton's operating margin in this segment achieved an all-time high, reaching 9.6 percent.
Noted Hardis, "We continue to see strength in sales of our Industrial and Commercial Controls, which reached a record $586 million in the third quarter." Hardis attributed the 8 percent year-to-year gain to strong industrial construction markets, continued gains in Cutler-Hammer's market position, and a booming commercial aircraft market. Said Hardis, "Cutler-Hammer is also now enjoying the full benefit of the synergies we anticipated from the 1994 acquisition of Westinghouse's Distribution and Control Business Unit." During the quarter, Eaton announced the acquisition of Tycor International, a manufacturer of power conditioning and surge suppression devices that will become part of Eaton's Cutler-Hammer business. The company also announced the formation of Cutler-Hammer de Argentina, a 75 percent Eaton-owned joint venture with Electro Integral Sudamerica, to manufacture and distribute electrical equipment in the Mercosur countries.
Third quarter sales of Eaton's Automotive and Appliance Controls were off 2 percent from a year ago, reaching $277 million. Hardis pointed out that volumes were up about 5 percent but said the higher exchange value of the U.S. dollar reduced this year's sales about $20 million. During the quarter, Eaton announced it had agreed to sell its Appliance Controls business, which had 1996 sales of $440 million, to Siebe plc for $310 million. The company also announced it was building a new plant in Gdansk, Poland to manufacture automotive controls, and that it had formed a 51 percent Eaton-owned joint venture with JC Corporation to manufacture automotive controls in Korea.
Specialty Controls sales, which include Eaton's Semiconductor Equipment Operations, reached a record $179 million during the quarter, 29 percent ahead of last year. Said Hardis, "We are actively participating in the industry rebound in semiconductor equipment. After a very difficult past 12 months, we anticipate that this business will show considerable gains in the years immediately ahead." During the quarter, Eaton completed the acquisition of Fusion Systems Corporation, a leading supplier of front-end process equipment to the semiconductor industry. Excluding Fusion, Specialty Controls sales reached $163 million, 17 percent above one year ago.
In the Vehicle Components Segment, Hardis noted that the company generated record third quarter sales and profits. Segment sales were $864 million, 19 percent above last year's, while segment profits reached $110 million, 77 percent ahead of one year ago. Said Hardis, "All of the Vehicle Components businesses are performing very well. Particularly noteworthy has been CAPCO, the Brazilian transmission manufacturer that we acquired last year, where the year-over-year profits improved by more than $16 million. With a corresponding increase in sales and new business awards, Eaton is now achieving the full strategic benefits of this important acquisition."
Truck Components sales were a record $534 million, 22 percent above last year's levels. This compares with industry volumes that are up about 20 percent in North and South America and flat in Europe. Said Hardis, "Heavy truck orders in North America continue to climb, consistent with the strength in America's industrial sector. At this point, we expect 1997 North American Factory sales to be about 10 percent above last year's levels, with further modest growth anticipated for 1998. After a long decline, we are also seeing tentative signs of an industry upturn in Europe." During the quarter, Eaton completed the acquisition of Dana Corporation's worldwide Spicer® clutch business. Excluding Spicer clutch, Truck Components sales reached $518 million, 18 percent ahead of one year ago. The company also announced it had established a wholly owned enterprise, Eaton Truck and Bus Components (Shanghai) Company, Limited, to manufacture heavy truck transmissions for Chinese and other Asia / Pacific markets.
Sales of Passenger Car Components were a third quarter record $193 million, 10 percent above last year's results, despite a $12 million, or 7 percent, reduction in sales due to exchange rates. Hardis noted that this 17 percent increase in volume was well ahead of the flat output of light vehicles in North America and Europe, reflecting increasing penetration and greater participation in the burgeoning Brazilian automotive market.
Third quarter sales of Off-Highway Vehicle Components were also at record levels, reaching $137 million, 19 percent above last year. Hardis attributed the strong gains to very robust activity in the North American hydraulics market, which was up 12 percent year-to-year, and to higher levels of new product introductions for Eaton's worldwide agricultural and construction equipment customers.
Summing up, Hardis said: "So far, it has been an extraordinary year for the company. There is a rising sense of excitement and vitality--our businesses are performing well virtually across the board, and we are making notable progress building an enterprise capable of higher sustainable growth." Hardis noted that Eaton's Board had authorized an additional $500 million share repurchase program during the quarter.
"We have announced a number of significant strategic moves--acquisition of Fusion Systems and Spicer Clutch, and divestiture of Axle / Brake, Appliance Controls, and AIL Systems. The divestitures, in particular, are very difficult for a company that views its businesses more as members of the family than pieces of a portfolio. But we are convinced that, in this world of global competition, we must focus our resources and attention on those businesses with clear winning strategies and global economies of scale.
"Looking forward, we will focus on taking full advantage of the opportunities to generate higher sustainable growth of this enterprise. We remain committed to taking the actions needed to achieve superior performance in 1997, 1998 and beyond."
Eaton Corporation is a global manufacturer of highly engineered products which serve industrial, vehicle, construction, commercial and semiconductor markets. Principal products include electrical power distribution and control equipment, truck transmissions and axles, engine components, hydraulic products, ion implanters and a wide variety of controls. Headquartered in Cleveland, the company has 56,000 employees and 165 manufacturing sites in 26 countries around the world. Sales for 1996 were $7 billion.