Note: Eaton Corporation completed the spin-off of its remaining 82 percent ownership of Axcelis Technologies, Inc. effective December 29, 2000. As such, accounting rules require that the operating results of Axcelis be reported as a discontinued operation. For purposes of continuity and comparability with previously reported results, this press release text reports Eaton fourth quarter and full year 2000 results as if Axcelis were a continuing operation through year-end, unless specifically noted otherwise. The accompanying financial summary treats Axcelis as a discontinued operation on a retroactive basis.
CLEVELAND, OHIO… Diversified industrial manufacturer Eaton Corporation (NYSE:ETN) today announced operating earnings per share of $1.40 during the fourth quarter of 2000, 12 percent below one year earlier. Sales in the quarter were $2.14 billion, 3 percent below last year. Net income before unusual items was $98 million versus last year?s $119 million.
Net income, including restructuring charges in both years and a gain on the sale of a business in 1999, was $84 million, or $1.20 per share, in the fourth quarter of 2000 compared to $224 million, or $2.98 per share, for the comparable quarter of 1999.
Sales and operating earnings per share for the full year 2000 were at record levels. Net income before non-recurring items reached $473 million, or $6.52 per share, on sales of $8.99 billion. Comparable 1999 earnings were $439 million, or $5.95 per share, on sales of $8.40 billion. Including all unusual items, earnings reached $6.24 per share in 2000 compared to $8.36 per share in 1999.
Alexander M. Cutler, chairman and chief executive officer, said, "We are pleased to report fourth quarter results in line with our expectations and those of the investment community, despite the increasingly challenging economic environment. As promised, Eaton delivered record operating earnings per share this year despite the severe downturn in the North American heavy truck market. This is a first. Our diversification paid off again in the fourth quarter, with notable performances by our Industrial & Commercial Controls and Fluid Power segments offsetting extraordinarily difficult conditions in Truck Components. We achieved a fourth quarter consolidated operating margin of 10 percent.
"We also delivered exceptional value to our owners this year via the IPO and year-end spin-off of Axcelis to our owners. In addition to $300 million of proceeds to Eaton, the combined market value of Eaton and Axcelis outperformed the market in 2000 by roughly $1 billion. Looking ahead, we see a very bright future for Axcelis as a fully independent entity, and wish our former colleagues all the best.
"After a record 2000, we believe Eaton has earned the right to be considered a legitimate diversified industrial. The challenge for Eaton in 2001 is to continue to reap the benefits of diversification and to leverage the Eaton Business System. Excluding Axcelis, Eaton's operating earnings per share this year reached $5.28. Our goal, despite an uncertain economy and significantly lower vehicle markets, will be to equal or exceed our 2000 results.
"Through superior performance, we intend to demonstrate that Eaton deserves to be recognized, and valued, as a premier diversified industrial enterprise."
Fourth quarter Automotive Components sales were $428 million, 6 percent below one year earlier, in large part because of the weak euro exchange rate. Cutler noted that a 2 percent decline in volume compared favorably with the trend of Eaton?s light vehicle markets, including a 7 percent drop in production in the NAFTA region, a 3 percent decline in Europe, and a 27 percent rise in South American output. He attributed the above market volume performance largely to new product introductions. Segment profits in the quarter were $45 million, down $14 million from year-earlier results.
Fluid Power sales were a fourth quarter record $631 million, with a weaker euro's impact on sales offset by acquisitions. The 5 percent volume increase compares to a flat year-to-year trend of North American fluid power markets and a 2 percent increase in aerospace markets. Segment profits before restructuring charges were $72 million, up 16 percent from one year ago.
Said Cutler, "We are pleased with the performance of Fluid Power, especially in the context of soft industry conditions and the ongoing integration of Aeroquip-Vickers, Inc. We have now completed the most difficult aspects of our manufacturing integration. Overall, the acquisition added about 70 cents to Eaton?s earnings per share in 2000.
"We remain cautious about the prospects for fluid power markets in 2001, given the current stagnant trend in industry orders, but aerospace markets should be at least 10 percent above 2000. Our volumes should exceed market trends due to the three acquisitions we completed over the course of 2000, and the addition of SEHYCO, which is now expected to close at the end of February. Profits in 2001 will also benefit from the additional 25 cents per share accretion generated by completion of our Aeroquip-Vickers integration."
During the quarter, Eaton announced it had agreed to purchase Sumitomo Heavy Industries? 50 percent interest in Sehyco, the two companies? Japanese hydraulic products joint venture, for an undisclosed amount.
Industrial & Commercial Controls sales and profits were at fourth quarter records. Sales of $616 million were 3 percent above last year, with a 5 percent increase in Cutler-Hammer sales offset by year-to-year declines in Navy and Commercial Controls. This compares to about a 4 percent increase in North American shipments of distribution equipment and industrial controls. Segment profits of $64 million were 25 percent higher than last year at 10.3 percent of sales.
Said Cutler, "The performance of this business continues to be impressive. Fourth quarter Cutler-Hammer orders were up 6 percent with disproportionate strength in distribution equipment offsetting weakness in industrial controls. CHESS, our engineering services business, was in the black during the quarter. While we expect moderating volume growth compared to last year, we anticipate another record year from Industrial & Commercial Controls in 2001."
At year end, the company sold its power tool switch product line, with annual sales of about $40 million, to Tyco International, Ltd. for an undisclosed amount.
Fourth quarter Truck Components sales were 36 percent below one year ago, at $273 million. This compares to a 50 percent decline in NAFTA production of Class 8 trucks, a 30 percent drop in NAFTA medium-duty truck production, a 2 percent rise in European truck output and a 4 percent increase in South American commercial vehicle production. The segment had an operating loss of $12 million compared to profits of $54 million before restructuring charges one year ago.
Said Cutler, "The NAFTA heavy truck industry suffered a 25 percent drop during 2000, with all of that production decline occurring in the second half of the year. This is unprecedented, especially during a period of still generally favorable macroeconomic conditions. As industry leaders, we have been fully affected by this extraordinary volatility, and have been unable to reduce resources at the same pace as orders. We are continuing to win new business on a global scale. But, we have determined that the costs of serving demanding customer needs in the context of unprecedented volatility have become unacceptably high.
"As recently announced, Truck Components will evolve to a business model that is less vertically integrated, takes better advantage of our global presence, and focuses on those areas where Eaton brings distinctive value to the marketplace. We expect to take a $55 million charge during 2001 to restructure this business, with about $40 million recognized in the first quarter and the balance of the expense recognized over the remainder of the year. Recurring annual savings from the restructuring are anticipated to reach $40 million, with a payback period of approximately 18 months.
"The result will be a more flexible, more profitable organization that is less affected by the inevitable ups and downs of this dynamic, growth market, and can better serve the needs of our customers, suppliers, employees and owners."
During the quarter, the company announced a multi-year, $250 million agreement to supply medium-duty truck transmission components to DaimlerChrysler AG in Brazil.
Eaton is a global diversified industrial manufacturer of highly engineered products that serve industrial, vehicle, construction, commercial and aerospace markets. Principal products include hydraulic products and fluid connectors, electrical power distribution and control equipment, truck drivetrain systems, engine components and a wide variety of controls. The company has 59,000 employees and 195 manufacturing sites in 24 countries.
Notice of Conference Call: Eaton's conference call to discuss its fourth quarter results is available to all interested parties via live audio webcast at 10 a.m. EST, on the company's investor relations Web site, http://www.shareholder.com/etn/.
This news release contains forward-looking statements concerning the prospects for the fluid power markets, the company?s volumes and profits in the Fluid Power segment, volume growth in the Industrial and Commercial Controls segment and the company's expected charge to restructure its Truck Components segment. 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 costs in implementing the restructuring of the Truck Components business and the operations of that business thereafter, unanticipated changes in the heavy- and medium-duty truck markets, the fluid power markets or the industrial and commercial controls markets, a significant downturn in business relationships with customers or their purchases from us, competitive pressure 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.