Eaton earns $103 million on sales of $1.78 billion
CLEVELAND, OH... Eaton Corporation today announced second quarter sales of $1.78 billion compared to $1.76 billion in the second quarter of 1995. Net income in the second quarter was $103 million, down 6 percent from last year's record $110 million. Earnings per share for the second quarter were $1.32, compared with $1.41 in 1995.
Net income for the first six months of 1996 reached $198 million, or $2.55 per share, on sales of $3.52 billion. Comparable first half earnings in 1995 were $218 million, or $2.79 per share, on sales of $3.49 billion.
Comparative Financial Summary Condensed Consolidated Balance Sheets Business Segment Information Statements of Consolidated Income Stephen R. Hardis, chairman and chief executive officer, said,"It is difficult to measure up to the performance of a year ago, when our markets were still surging across the board, and Eaton took full advantage of those conditions to achieve record results. This year, activity in our markets was much more mixed. In addition, we spent about $8.5 million more than in last year's second quarter on major programs designed to increase Eaton's sustainable growth rate in the years ahead."
In Eaton's largest business segment, Electrical and Electronic Controls, Hardis said that activity remained strong. Segment sales increased more than 7 percent above year ago levels to a record $984 million, while segment profits rose 8 percent to a record $86 million. Hardis pointed out that, as in the first quarter of 1996, all of the business units of the Electrical and Electronic Controls Segment were experiencing record sales. Sales of Industrial and Commercial Controls were about 4 percent ahead of year ago levels, with continued strength in nonresidential and residential construction markets and an incipient rebound in aerospace controls offsetting a sluggish industrial controls market. Sales of Automotive and Appliance Controls were particularly strong, up 11 percent from a year ago, in an environment where North American light vehicle production was up about 5 percent and activity in European markets continued flat. Hardis attributed the better-than-market performance of this unit to new program launches in the North American automotive switch business, and to the addition of The IKU Group, a leading supplier of electric mirror actuators acquired during last year's second quarter.
Hardis also pointed out that, while sales of Specialty Controls were up over 12 percent from last year, they were essentially flat compared to this year's first quarter. "Worldwide demand for semiconductor capital equipment has slowed in lagged response to the downturn in the semiconductor industry's book-to-bill ratio. As the leading worldwide producer of ion implanters, we are seeing the effects of the slowdown in our operating results."
During the quarter, Eaton announced the acquisition of High Temperature Engineering Corporation (HTE), a manufacturer of rapid thermal processor furnaces and small batch vertical furnaces for use in semiconductor fabrication that complements Eaton's $750 million ion implantation equipment business. Last year, HTE had sales of less than $10 million.
Looking at the Vehicle Components Segment, Hardis said that results remained below expectations despite excellent performance in many of the segment's business units. Segment sales were $771 million, down about 5 percent from last year's second quarter, while segment profits were $89 million, 20 percent below last year's levels. Hardis pointed out that comparisons with year-earlier performance were affected by the acquisition earlier in the quarter of CAPCO Automotive Products Corporation, a Brazilian light- and medium-duty transmission manufacturer with 1995 sales of $176 million. Excluding the effects of CAPCO, segment sales in this year's second quarter were about $748 million, 8 percent below one year ago, while profits were about $92 million, 17 percent below last year's second quarter.
Hardis noted that sales of Passenger Car Components rose nearly 7 percent above a year ago, compared to a 4 percent increase in North American production and a flat market in Europe. Sales of Off-Highway Vehicle Components were up about 8 percent, despite generally flat markets.
Turning to Truck Components, Hardis said that, "While improved slightly from the first quarter, the performance of Truck Components remains disappointing. Excluding CAPCO, sales were off 15 percent from last year's levels, driven by a 22 percent decline in North American factory sales of Class 8 trucks, a 30 percent drop in the Latin American market, and a 4 percent decline in European production. In order to bring our North American axle/brake business up to acceptable levels of profitability, we incurred an additional $4 million expense during the second quarter. We expect to spend another $9 million to restructure this business over the remainder of 1996, and to achieve $15 million in annual savings by 1997."
During the quarter, Eaton announced it had also acquired the assets of a medium- and heavy-duty truck transmission manufacturer, Drivetrain (Pty) Ltd. of Johannesburg, South Africa. This new company, which will be known as Eaton Truck Components (Pty) Ltd., had 1995 sales of approximately $6 million.
Looking ahead, Hardis said, "The second half of 1996 remains challenging. While North American markets continue to track our expectations, the semiconductor capital equipment market will not be a source of incremental strength as we move through the remainder of the year. Europe may be even softer than our relatively pessimistic expectations, and recovery in Latin America is clearly taking longer than we earlier anticipated. While CAPCO should not have a material effect on 1996 results, we do not expect this strategic acquisition to become accretive until 1997.
"Our ability to report improved results in the second half of the year will continue to depend on our making sustained progress in addressing some of our operational problems, achieving the benefits of our earlier restructuring efforts, and success in our new product introductions. Regardless of market conditions, our commitment remains to outperform expectations based on the cyclical levels of our traditional markets."
Eaton Corporation is a global manufacturer of highly engineered products which serve vehicle, industrial, construction, commercial and aerospace markets. In addition to truck transmissions, axles and brakes, principal products include 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. Sales for 1995 were $6.8 billion.