CLEVELAND, OHIO… Diversified industrial manufacturer Eaton Corporation (NYSE:ETN) today announced that it now expects second quarter operating earnings per share to be 20 to 30 percent below the current analyst consensus of $1.21 per share. It also revised its expectation for full-year 2001 operating earnings to a range of $4.05 to $4.20 per share.
Alexander M. Cutler, chairman and chief executive officer, said, "We have now seen a sharp decline in virtually all of our North American markets except Aerospace. And, while Eaton’s sales have tracked at or above the trend of our markets, we have not been able to reduce structural costs as quickly as the decline in these businesses. Further, while we are hopeful that, in aggregate, we are seeing a bottoming in activity levels, there is no convincing evidence 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.
"We are working hard to size Eaton to current business conditions. The benefits of the first quarter restructuring of our Truck business are being demonstrated by the break-even performance of that business during the worst industry conditions in over a decade. In addition, the second quarter acceleration of our restructuring and integration activities in Fluid Power will be increasingly evident in our second half operating results.
"Despite much lower earnings year to date, good control over working and fixed capital has enabled Eaton’s cash generation to be fully $100 million ahead of last year’s pace, bringing our net debt-to-capital ratio down to about 51 percent from 55 percent at the beginning of the year. We now expect capital expenditures to be measurably below the level of depreciation this year as we continue to evolve this enterprise toward a less capital intensive, more flexible operating model.
"In this year’s third quarter, we anticipate gains of about $30 million from the sale of non-core businesses. We will be investing these one-time gains in actions to further reduce structural costs, principally in our Industrial & Commercial Controls segment, where we have seen a considerable market weakening late in the second quarter.
"These, and the prior actions we have taken this year, are difficult but necessary moves to ensure that, over time, we achieve a level of performance consistent with that of a premier diversified industrial company. When our markets return to more normal operating conditions – and they will – our owners, employees and customers will see the full benefits of these tough actions reflected in the superior operating performance of this changed enterprise."
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 55,000 employees work in 29 countries on six continents.
Eaton will hold a conference call that is available to all interested parties at 11 a.m. Eastern Time on Tuesday, June 26, 2001. The dial-in number is 1-888-566-6343 (712-271-0592 for international callers). The access code is EATON. A replay of the call will be available through Tuesday, July 3, 2001. The replay number is 1-800-937-6215 (402-220-9085 for international callers). The call will also be available via live audio webcast through the Eaton Investor Relations website at http://www.shareholder.com/etn/.
This news release contains forward-looking statements concerning second quarter and full year operating earnings per share, activity levels of our North American markets, Fluid Power restructuring and integration activities, fixed investment, gains from the sale of non-core businesses and the use of those gains, the return of our markets to normal and the achievement of superior 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: failure to control capital utilization, inability to divest operations at expected prices and within the expected time frame, 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.