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Eaton earns $66 million on quarterly sales of $1.72 billion
CLEVELAND, OH... Eaton Corporation today announced fourth quarter 1996 sales of $1.72 billion compared to sales of $1.66 billion in the fourth quarter of 1995. Net income for the fourth quarter was $66 million, down 27 percent from last year's record $90 million. Earnings per share for the fourth quarter were $0.85, compared to $1.16 in 1995.
Net income for the full year reached $349 million, or $4.50 per share, on sales of $6.96 billion. Comparable 1995 earnings were a record $399 million, or $5.13 per share, on sales of $6.82 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 have been clear about our determination to improve Eaton's overall performance. Our fourth quarter financial results were markedly affected by $29 million of restructuring charges that will enable Eaton's 1997 performance to meet the demanding expectations of management and our owners." Hardis noted that, excluding the restructuring expenses, Eaton's fourth quarter earnings reached about $1.15 per share, essentially equal to last year's results.
"Over the course of 1996, we invested $50 million to restructure those operations which have been lagging," said Hardis. "The benefits of these expenditures, combined with the traditional focus on operational excellence by our managers, give me confidence that--assuming our markets hold up--Eaton will achieve record sales and profits in 1997."
In Eaton's largest business segment, Electrical and Electronic Controls, Hardis noted that segment sales during the fourth quarter increased 6 percent above year ago levels to a record $963 million despite the sharp downturn in the semiconductor equipment market. Said Hardis, "Sales in this segment now represent nearly 56 percent of Eaton's total. For the year, segment sales reached a record $3.87 billion, 7 percent above 1995 results."
Fourth quarter 1996 profits in the Electrical and Electronic Controls segment reached $63 million, equal to results in last year's fourth quarter, including restructuring charges of $10 million. For the year, segment profits reached a record $309 million, 8 percent above 1995 levels, and included restructuring charges of $16 million.
Hardis pointed out that sales of Industrial and Commercial Controls were particularly strong in the fourth quarter, 9 percent ahead of a year ago. Said Hardis, "We are enjoying strong activity and market share gains in Cutler-Hammer's electrical power distribution equipment business. We are also back on track to achieving the performance we expected from the 1994 acquisition of the Westinghouse's Distribution and Control Business Unit." For the year, sales of Industrial and Commercial Controls reached a record $2.1 billion, 6 percent above 1995.
Fourth quarter sales of Automotive and Appliance Controls were up over 5 percent versus one year earlier. This compares with automotive production increases of 3 percent in North America and Europe, and year-to-year appliance production gains of about 6 percent. Hardis noted that the nearly 8 percent annual increase in sales versus 1995 resulted principally from new program launches in the company's North American automotive controls business.
Sales of Specialty Controls in the fourth quarter were comparable to one year ago, due in large part to the sharp downturn in the worldwide market for semiconductor capital equipment. Said Hardis, "Sales of semiconductor equipment stabilized in the second half of 1996 at levels about 23 percent below first half levels. We continue to be encouraged by increases in the semiconductor industry's book-to-bill ratio, which are now beginning to be reflected in the equipment industry's order boards. Looking ahead, we currently anticipate year-to-year improvement in sales beginning in the second half of 1997."
Noted Hardis, "As the leading worldwide producer of ion implanters, Eaton is in an ideal position to capitalize on the technology and market trends of this very attractive but volatile industry. Despite the short-term pain, we have sustained a strong commitment to new product development in order to take full advantage of our leading position in this dynamic market." Hardis noted that, compared to last year's fourth quarter, new product spending in this business was up $4 million, and that the unit recognized about $4 million in unanticipated introduction costs for its medium current implanter product line.
In the Vehicle Components segment, Hardis said that operating results continued to vary sharply by business and region. Overall, segment sales in the fourth quarter of 1996 reached $725 million, slightly above one year earlier, while operating profits were off 47 percent to $47 million. Hardis pointed out that comparisons with year-earlier performance were affected by the second quarter 1996 acquisition of CAPCO, a Brazilian light- and medium-duty transmission manufacturer. Excluding the operating results of CAPCO, segment sales in this year's fourth quarter were about $691 million, 4 percent below one year ago, while profits were about $53 million. This year's fourth quarter results also included about $19 million in restructuring charges related principally to the segment's Latin American and European operations.
For the year, Vehicle Components segment sales reached nearly $2.98 billion, 4 percent below sales in 1995, while operating profits reached $286 million, 31 percent below 1995 levels. Excluding the operating results of the CAPCO acquisition, 1996 segment sales were $2.88 billion, with segment profits of $302 million. Total 1996 restructuring charges in the segment reached $34 million, including $15 million to continue the restructuring of the North American axle / brake business.
Hardis emphasized that, despite these disappointing results, most of the businesses included in the Vehicle Components segment demonstrated excellent performance in the fourth quarter and throughout 1996. Said Hardis, "Fourth quarter sales of Passenger Car Components were at record levels, 12 percent above year earlier levels compared with 3 percent gains in light vehicle production. Performance in our light vehicle businesses during 1996 was excellent across the board." Hardis noted that, for the year, Passenger Car Components sales reached a record $734 million, 10 percent ahead of 1995 results despite flat North American and European production.
Hardis also pointed out that Off-Highway Vehicle Components continued to demonstrate fine performance. Sales in the fourth quarter reached a record $115 million, up nearly 5 percent compared to a year ago despite a 3 percent year-to-year decline in hydraulics industry shipments. For the year, sales reached a record $475 million, up nearly 4 percent from 1995 results.
Turning to Truck Components, Hardis said, "We have been clear about our disappointment in the operating results of this business in 1996, and about the actions we are taking to return this business to traditional levels of performance." In the fourth quarter, sales reached $425 million, off 4 percent from 1995 levels. Before CAPCO, sales were $408 million, off 8 percent from year-earlier results. For the year, Truck Components sales reached $1.77 billion, or $1.71 billion excluding CAPCO, compared to 1995 sales of $1.97 billion.
"We are convinced that the $30 million we invested this year in Truck Components restructuring will pay significant dividends in 1997," said Hardis. He also pointed out that, after an expected 22 percent decline in 1996, the North American heavy truck market is showing clear signs of stabilizing. "We have seen a clear turn in new heavy truck orders over the past 4 to 5 months. The increasing momentum provides a solid foundation for our forecast that 1997 North American Factory Sales of Class 8 trucks will be essentially equal to 1996's 191,000 units."
Reviewing 1996 performance, Hardis said, "The majority of Eaton businesses demonstrated excellent performance during 1996. On balance, we have also continued to make progress turning around those businesses that have been a drag on operating results in prior years. Persistent operating issues at a few businesses have had a disproportionate effect on our results this year. The restructuring charges and tough actions by Eaton managers are focused on these lagging operations. We expect $50 million in annual mature year savings from these moves, with $25 million in net savings falling to the bottom line in 1997.
"It is also important to note that we did not waver in our dedication to programs designed to increase Eaton's sustainable growth rate in the years ahead. In the fourth quarter of 1996, spending on major new product programs was $11 million above the same period last year. During the year, spending on these programs was $37 million above 1995. In the months and years ahead, Eaton will begin to demonstrate the fruits of that investment in an accelerated flow of new products that builds upon and extends Eaton's strong franchise of businesses.
"We have also made significant progress increasing our participation in the world's developing markets. As exemplified by the results of CAPCO and all of our Latin American operations, the short-term cost of pursuing growth in these volatile markets has been high. But we have confirmed that the opportunities to manufacture and sell Eaton products around the world are extraordinary, and we are committed to taking full advantage."
"Our owners were patient with us in 1996 as we struggled to address unanticipated problems, while staying focused on the actions required to generate genuinely superior long term performance. We realize 1997 is a critical year for the company. Assuming that the markets we serve hold up, we intend to justify the confidence shown in this management team by achieving record sales and earnings in 1997."
Eaton Corporation is a global manufacturer of highly engineered products which serve vehicle, industrial, construction, commercial and aerospace markets. Principal products include truck transmissions and axles, engine components, hydraulic products, electrical power distribution and control equipment, ion implanters and a wide variety of controls. Headquartered in Cleveland, the company has 54,000 employees and 155 manufacturing sites in 26 countries around the world.