Eaton reports second quarter 2001 operating earnings per share of 94 cents


CLEVELAND, OHIO… Diversified industrial manufacturer Eaton Corporation (NYSE:ETN) today announced operating earnings per share of 94 cents for the second quarter of 2001, 43 percent below comparable results one year earlier. Sales in the quarter were $1.87 billion, 14 percent below last year. Net income from continuing operations before unusual items was $66 million versus last year?s $123 million.

During the quarter, the company recognized charges of $16 million related to the restructuring of its Truck, Fluid Power and Industrial & Commercial Controls segments. It also recorded a one-time corporate charge of $10 million related to a previously announced arbitration award. After all unusual items in both periods, second quarter net income from continuing operations was $49 million compared to $123 million one year ago.

For the first six months of 2001, operating earnings per share were $1.98 on sales of $3.85 billion. Comparable first half 2000 earnings were $3.16 per share, on sales of $4.35 billion.

Alexander M. Cutler, chairman and chief executive officer, said, "After lowering expectations three weeks ago, today we are reporting second quarter earnings near the upper end of the indicated range.

"These are tough times for U.S. manufacturing, and for Eaton. While we remain hopeful that, in aggregate, we are seeing a bottoming in activity levels, we do not anticipate that our North American markets will rebound meaningfully before year-end. In addition, European, Asian and, to a lesser extent, South American markets are beginning to decline in lagged response to the North American weakness.

"In this environment, we continue to focus intently on activities we can control. The benefits of the first quarter restructuring of our Truck business were demonstrated by its break-even performance in the second quarter despite the worst industry conditions in more than a decade, and a further ratcheting down from first quarter activity levels. The acceleration of our remaining restructuring and integration activities in Fluid Power is well underway, and improvements in operating performance should be increasingly evident later this year.

"Despite much lower earnings, we generated $110 million more cash through the first half of this year than one year ago because of good control over working and fixed capital. Our mid-year net debt-to-capital ratio stands near 50 percent compared to 55 percent at the beginning of the year.

"We have already begun to invest the expected $30 million third quarter gains from the sale of non-core businesses in a further reduction in structural costs, principally in our Industrial & Commercial Controls segment, where we expect markets to remain weak into next year.

"Automotive continues to do an excellent job juggling a record level of new platform launches while operating in very difficult markets that, in North America, seem to be showing modest signs of improvement.

"Whatever the near-term economic environment, we remain committed to demonstrating that Eaton can be a premier diversified industrial. As our markets return to more normal operating conditions, our owners, employees and customers will see the full benefits of Eaton?s focus and actions reflected in the superior operating performance of this changed enterprise."

Business Segment Results

Second quarter sales of Eaton?s largest business segment, Fluid Power, were $656 million, 4 percent below one year earlier. Excluding the impact of three acquisitions made over the past year, comparable sales were off about 8 percent compared to a nearly 19 percent drop in North American fluid power industry shipments. Segment profits before restructuring charges were $60 million, down 24 percent from one year ago.

Said Cutler, "Outside of aerospace, where we continue to expect shipments to be up 10 percent to 15 percent this year, market conditions remain very weak. This is particularly true in North America, where the decline in industry shipments has greatly exceeded that of relatively stagnant end markets for mobile and industrial hydraulics. This severe inventory liquidation by dealers and OEMs shows some signs of abating but we anticipate that end markets will remain weak throughout the remainder of 2001.

"The acceleration of our restructuring and integration activities in Fluid Power is progressing rapidly. We are creating one seamless business that is more customer oriented and cost effective. Nearly 400 positions were eliminated by mid-year, with the balance of the program to be completed by the end of this quarter."

Second quarter Industrial & Commercial Controls sales were $564 million, down almost 7 percent from last year. Excluding divestitures, sales were off about 4 percent compared to a 5 percent decline in North American markets. Segment profits were $53 million before charges, off 18 percent from one year ago.

"This segment experienced a considerable market weakening in the second quarter," said Cutler, "particularly in the more profitable distributor channel, where inventories are being sharply reduced, and in industrial controls, where industry shipments were off more than 18 percent from last year. Electrical distribution markets, more closely tied to long-cycle construction projects, have held up better, but are now off 2 percent year to year, and expected to remain weak into 2002.

"As indicated earlier, we are aggressively addressing structural costs in this business. In the second quarter, we recognized $4 million in restructuring costs and we anticipate spending about another $20 million in the current quarter."

Second quarter Automotive segment sales of $391 million were 1 percent below year ago levels excluding sales of the divested Vehicle Switch and Electronics Division, which are now reported in Divested Operations. This compares to a 10 percent decline in NAFTA automotive output, flat European production, and a 20 percent increase in South America. Segment profits of $55 million were down 13 percent from one year ago.

Said Cutler, "The Automotive segment had an excellent quarter considering still very difficult North American operating conditions and gradually weakening European markets. We are significantly outpacing industry sales trends because of penetration and market share gains. We are also managing a record level of new product launches for model years 2002 ? 2004, which are increasing current engineering and R&D costs but also give us confidence that the fine performance of this business will continue in the years ahead."

Truck segment sales of $260 million were 36 percent below last year?s second quarter. NAFTA Class 8 truck production during the period was down 47 percent, NAFTA medium duty trucks were off 34 percent, European truck output was off 4 percent and South American commercial vehicle production was down 15 percent. Before restructuring charges, the segment operated at breakeven compared to operating profits of $52 million one year ago.

Said Cutler, "We are clearly seeing the benefits of our restructuring in the operating performance of this business. Market conditions in the NAFTA region remain extraordinarily depressed. Second quarter sales were $21 million lower than depressed first quarter sales, but the business remained at breakeven. We have completed the European medium truck business restructuring and will effectively finish restructuring our European heavy truck unit this quarter.

"A year of severe production declines has eliminated much of the industry-wide glut of new trucks in NAFTA, though stocks of good used trucks remain excessive and will continue to depress production through year-end. The impact of lower diesel fuel prices, easier credit conditions and more stable freight demand should also begin to improve market conditions as we move into 2002.

Our worldwide business is now sized and structured to take full advantage of any upturn."

During the quarter, Eaton acquired the commercial clutch manufacturing assets of Transmisiones TSP, S.A. de C.V., for an undisclosed amount.

Eaton Corporation is a global $8 billion diversified industrial manufacturer that is a leader in fluid power systems, electrical power quality, distribution and control, automotive engine air management and fuel economy, and intelligent truck systems for fuel economy and safety. Eaton?s 54,000 employees work in 29 countries on six continents.

Notice of Conference Call: Eaton?s conference call to discuss its second quarter results is available to all interested parties via live audio webcast at 10 a.m. EST, on Eaton?s Investor Relations website at

This news release contains forward-looking statements concerning our markets, our European heavy truck unit and our Fluid Power, Automotive and overall operating performance. These statements are subject to various risks and uncertainties, many of which are outside the company?s control. The following factors could cause actual results to differ materially from those in the forward-looking statements: unanticipated changes in the markets for the Company?s business segments, failure to implement integration and restructuring plans, unanticipated downturn in business relationships with customers or their purchases from us, competitive pressures on sales and pricing, increases in the cost of material and other production costs that cannot be recouped in product pricing and further deterioration of economic and financial conditions in the United States and around the world. We do not assume any obligation to update these forward-looking statements.


Contact Information

Renald Romain