Eaton reports record sales and earnings for fourth quarter and full year

Tue Jan 20, 1998 -

CLEVELAND, OH.... Eaton Corporation today announced all-time record sales, earnings and earnings per share for the fourth quarter of 1997. Sales in the quarter were $1.93 billion compared to $1.72 billion in the fourth quarter of 1996. Net income reached $129 million, up 95 percent from last year's $66 million, which had been reduced by a $23 million after tax restructuring charge. Earnings per share for the fourth quarter were $1.70 compared to $0.85 in 1996, or $1.15 per share excluding last year's restructuring charge.

During the fourth quarter, Eaton had one-time net gains of $69 million, or $0.90 per share, related to the December 1, 1997 divestiture of its Appliance Controls business and the October 1, 1997 sale of its AIL Systems Inc. subsidiary. These gains were entirely offset by the previously announced $54 million charge related to the redemption of the 7 percent debentures due April 1, 2011, and by a $15 million after tax charge related to restructuring actions in the current quarter.

Sales, net income and earnings per share for 1997 also established new records. Net income for the full year reached $410 million, or $5.34 per share, on sales of $7.56 billion. Comparable 1996 earnings were $349 million, or $4.50 per share, on sales of $6.96 billion. Before special items in both years, earnings increased 31% to $6.45 per share in 1997 from $4.91 in 1996.

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, "1997 has proved to be a watershed year for Eaton Corporation. We achieved record financial results throughout the year. Just as important, we implemented the critical strategic repositioning moves that will enable the company to demonstrate higher sustainable earnings growth in the years ahead. Unless the crisis in Asia has a far greater effect upon our customers than we currently anticipate, we would expect another year of record results in 1998."

Reviewing operating results in Eaton's largest business segment, Electrical and Electronic Controls, Hardis said activity in most markets remained firm and that the semiconductor equipment market was continuing its rebound. Segment sales reached a fourth quarter record of $1.01 billion, 5 percent above last year's $963 million. For the year, sales reached $4.03 billion, 4 percent above 1996 results.

Fourth quarter 1997 profits in the Electrical and Electronic Controls segment reached $81 million before restructuring charges of $18 million, 11 percent ahead of last year's $73 million before $10 million of restructuring expense. For the year, segment profits reached $339 million before charges, 4 percent ahead of 1996 results on a comparable basis.

Noted Hardis, "We continue to enjoy robust market conditions for our Industrial and Commercial Controls based on steady gains in construction markets and the continued boom in commercial aircraft production." Fourth quarter sales were $563 million, 6 percent ahead of one year ago. For the year, sales reached $2.25 billion, 7 percent ahead of 1996 results. During the quarter, Eaton announced the purchase of Swiss-based Rheodata S.A., a producer of hydraulic magnetic circuit breakers for the European market. It also announced the establishment of the Engineering Services and Systems business, headquartered in Pittsburgh, to provide global support to customers of its Cutler-Hammer business unit.

Fourth quarter sales of Automotive and Appliance Controls were down nearly 10 percent from year ago levels, reaching $257 million. As previously announced, Eaton completed the divestiture of its Appliance Controls business to Siebe Plc effective December 1, 1997. Hardis noted that sales of Automotive Controls during the period were up 3 percent in dollar terms and that the strength of the U.S. dollar versus major European currencies had reduced sales by about 4 percent. This 7 percent volume increase compares with about a 3 percent year-to-year increase in automotive production in North America and Europe.

Specialty Controls sales, which include Eaton's Semiconductor Equipment Operations, reached $194 million in the fourth quarter, 32 percent above year earlier results. Excluding the effects of the third quarter 1997 acquisition of Fusion Systems, a leading supplier of front-end process equipment to the semiconductor industry, Specialty Controls sales were up 18 percent to $174 million. For the full year, Specialty Controls sales reached $656 million, 3 percent ahead of 1996. Excluding Fusion, full year sales trailed 1996 results by 2 percent.

Said Hardis, "Eaton's fourth quarter sales benefited from the continuing rebound in the worldwide semiconductor equipment market. And while second half-1997 industry orders ended somewhat stronger than we anticipated, it is clearly too early to determine the impact of the Asian economic crisis on our customers' demand for front-end processing equipment. Industry estimates for 1998 shipments range from flat to 20 percent growth, with Eaton's current estimates around the middle of that range."

In the Vehicle Components segment, Hardis said that the company generated record fourth quarter sales and profits. Segment sales reached $920 million, 27 percent ahead of one year ago, while segment profits reached $124 million before $6 million of restructuring charges, 88 percent above last year's $66 million before restructuring charges of $19 million. For the year, segment sales reached $3.46 billion, 16 percent above 1996 results, while profits before charges reached $455 million, 42 percent ahead of 1996 results on a comparable basis.

"After a difficult 1996, the 1997 performance of this segment demonstrates that Eaton managers met the full challenge to achieve performance excellence," Hardis said.

Truck Components sales in the fourth quarter reached a record $576 million, up 36 percent from last year. Excluding Eaton's Spicer Clutch unit, which was acquired from Dana Corporation in the third quarter of 1997, sales were 24 percent above one year ago. For the year, sales reached $2.10 billion, 19 percent ahead of 1996; excluding Clutch, 1997 sales were 15 percent above one year ago.

Said Hardis, "North American factory sales of Class 8 trucks rose about 13 percent in 1997 to 216,000 and, based on current backlogs and the pace of orders, 1998 production looks set to rise another 5 to 10 percent. The European market was also up last year, though a more modest 6 percent, and we expect that pace of improvement to continue through 1998. The effects of the current austerity plan in Brazil make that market more problematic after a 30 percent rise in 1997."

During the quarter, Eaton announced it would build a new $70 million plant in Brazil to expand production of light-duty transmissions for General Motors - Brazil. On January 2, 1998, the company announced it had completed the divestiture of its worldwide Axle/Brake business to Dana Corporation.

Sales of Passenger Car Components reached a fourth quarter record $207 million, 12 percent above last year's results, despite an $11 million, or 5 percent, reduction in sales due to exchange rates. Hardis noted that this 17 percent increase in volume compared to a 3 percent increase in automotive production in North America and Europe, and about a 9 percent increase in Latin American volume. He attributed Eaton's outsized gains to continued penetration of selected automotive products, and greater participation in Latin American markets. For the year, sales of Passenger Car Components reached $808 million, 10 percent above 1996 results.

Sales of Eaton's Off-Highway Components also continued to demonstrate robust growth, rising 19 percent in the fourth quarter, compared to one year earlier. For the year, sales were up 15 percent to a record $548 million. Hardis noted that Eaton's sales gains in 1997 were double the pace of the hydraulics industry, a result he attributed to a faster pace of new product introductions for Eaton's worldwide agricultural and construction equipment customers.

Summing up, Hardis said, "1997 has been a great year for Eaton. Good market conditions, the benefits of prior year restructuring activities, and the extraordinary efforts of Eaton employees worldwide paid off in record financial results for our owners. We achieved this performance while spending $80 million more than just two years ago to accelerate the pace of new product development and international expansion.

"We also completed the strategic repositioning moves that were critical to building an enterprise capable of higher sustainable growth. Divesting Eaton businesses is always difficult but, in the final analysis, we believe that Axle / Brake, Appliance Controls, and AIL Systems - and their employees - will be better served by owners who can take full strategic advantage of those businesses. The major acquisitions we accomplished - Spicer Clutch and Fusion Systems - build upon and extend the considerable strengths of our Truck Components and Semiconductor Equipment businesses. We believe that the combination of these strategic moves has increased our inherent growth rate by about 10 percent.

"Finally, we also returned $334 million to the owners over the course of the year via share repurchases. By the end of the first quarter of 1998, we expect to use the net proceeds from the 1997 divestitures to reduce the number of shares outstanding to about 71 million. Looking forward, our strategic repositioning moves are now substantially completed. While the crisis in Asia is unsettling, our markets to date appear to be holding up well. The energies of this management team will be focused on taking full advantage of the operational and strategic strengths of this corporation."

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 49,000 employees and 145 manufacturing sites in 28 countries around the world.




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Renald Romain


William Hartman, vice president, Investor Relations