Date: January 22, 2008
Eaton Reports Fourth Quarter Net Income Of $1.71 Per Share, Up 8 Percent
Eaton Increases Dividend By 16 Percent
CLEVELAND ... Diversified industrial manufacturer Eaton Corporation (NYSE:ETN) today announced net income per share of $1.71 for the fourth quarter of 2007, an increase of 8 percent over net income per share of $1.59 in the fourth quarter of 2006. Sales in the quarter were $3.4 billion, 10 percent above the same period in 2006. Net income was $256 million compared to $241 million in 2006, an increase of 6 percent.
Net income in both periods included charges related to acquisition integration. Before acquisition integration charges, operating earnings per share in the fourth quarter of 2007 were $1.79 compared to $1.66 per share in 2006, an increase of 8 percent. Operating earnings for the fourth quarter of 2007 were $269 million compared to $251 million in 2006, an increase of 7 percent.
Sales growth in the fourth quarter of 10 percent consisted of 4 percent from acquisitions, 4 percent from higher exchange rates, and 2 percent from organic growth. End markets in the fourth quarter declined by 1 1/2 percent.
For the full year 2007, sales were a record $13.0 billion, 7 percent above 2006. Net income was a record $994 million, an increase of 5 percent over 2006, and net income per share of $6.62 rose 6 percent. Operating earnings per share for 2007 of $6.90 rose 8 percent above 2006. Operating earnings in 2007 totaled a record $1,036 million versus $977 million in 2006, an increase of 6 percent.
Alexander M. Cutler, Eaton chairman and chief executive officer, said, “We had a good fourth quarter, with results above the high end of our guidance despite weakness in several of our end markets in the United States. We had a record 13.5 percent segment operating margin, with all segments earning well in excess of 12 percent. The balance of earnings in the quarter was attractive, with our Electrical and Fluid Power businesses representing over 70 percent of our overall segment operating earnings. It is worth noting that our lower tax rate, resulting principally from the impact of higher income in our foreign operations and the favorable resolution of several foreign audits, offset a number of previously unexpected items. Those items included higher corporate expenses we elected to incur in preparation for the two large acquisitions we announced in late December and the impact of short-term capacity constraints in our electrical business, which is now operating at record levels.
“Looking at 2007 as a whole, we had a very strong year,” said Cutler. “Our sales in 2007 grew 7 percent despite the downturn in the NAFTA class 8 truck market, and our operating earnings per share grew 8 percent. Our return on equity was 22 percent. And we concluded the year by announcing two significant acquisitions—Moeller and Phoenixtec—which will substantially grow our electrical business and also will significantly expand our mix of international sales.
“As we survey our end markets in 2008, we anticipate our markets will grow by approximately 4 percent. While our U.S. markets--which in 2008 are expected to represent about 45 percent of our sales--are likely to grow by 2 to 3 percent, our international markets are likely to grow by 5 to 6 percent,” said Cutler.
“We expect to outgrow our end markets in 2008 by approximately $275 million, and we also expect to record approximately $2.2 billion of growth from the full-year impact of the nine acquisitions we completed in 2007 and the two acquisitions we have announced but not yet completed,” said Cutler. “As a result, we anticipate our revenues in 2008 will grow 25 percent compared to 2007.”
In light of its strong results and future prospects, Eaton is increasing its quarterly dividend by 16 percent, from $.43 per share to $.50 per share.
“We anticipate net income per share for the first quarter of 2008 to be $1.50 to $1.60, and for the full year to be $7.25 to $7.75,” said Cutler. “Operating earnings per share, which exclude charges to integrate our recent acquisitions, are anticipated to be $1.60 to $1.70 for the first quarter of 2008, and $7.75 to $8.25 for the full year.”
Business Segment Results
Fourth quarter sales for the Electrical segment were a record $1.3 billion, up 17 percent over 2006. Operating profits in the fourth quarter were $164 million. Operating profits before acquisition integration charges were $168 million, up 17 percent over results in 2006.
“End markets for our electrical business grew about 11 percent during the fourth quarter, a continuation of the rapid growth we have seen all year,” said Cutler. “In 2008, we expect our markets to grow approximately 5 to 6 percent, with growth in the global nonresidential electrical and power quality markets offsetting a decline in the residential electrical market in the United States and several European countries.
“We expect the acquisitions of Moeller and Phoenixtec will close in the first quarter,” said Cutler. “These acquisitions are expected to add approximately $1.9 billion of sales in 2008.”
In the Fluid Power segment, fourth quarter sales were $1.2 billion, 17 percent over 2006. Excluding acquisitions completed within the last year, sales grew 11 percent. Operating profits in the fourth quarter were $143 million. Operating profits before acquisition integration charges were $158 million, up 37 percent compared to a year earlier.
Fluid Power markets grew 3 percent compared to the same period in 2006, with global hydraulics shipments up 2 percent, commercial aerospace markets up 8 percent, and European automotive production up 5 percent. The defense aerospace markets declined 4 percent in the fourth quarter compared to the prior year, but were flat compared to the third quarter of 2007.
“The global hydraulics market grew slowly in the fourth quarter, with good growth outside the United States being offset by a decline in the United States,” said Cutler. “For 2008, we anticipate a slight decline in construction equipment production in the United States and an increase in production outside the United States. Global agricultural equipment production is expected to post solid growth. Industrial hydraulics markets are likely to post modest growth. In total, we expect global hydraulics markets to grow 1 percent in 2008.
“Growth in the commercial aerospace market is expected to be in high single digits, while defense aerospace markets are expected to post modest growth,” said Cutler. “Overall, we expect our aerospace markets to grow about 6 percent.
“We achieved 13.7 percent operating margins in our Fluid Power segment in the fourth quarter, which was a quarterly record,” said Cutler. “We anticipate full-year operating margins in both hydraulics and aerospace will improve in 2008.”
The Truck segment posted sales of $532 million in the fourth quarter, down 14 percent compared to 2006. Operating profits in the quarter were $80 million, up 5 percent compared to the fourth quarter of 2006.
NAFTA heavy-duty truck production was down 51 percent compared to 2006, NAFTA medium-duty truck production was down 35 percent, European medium-duty truck production was up 12 percent, Brazilian vehicle production was up 24 percent, and Brazilian agricultural equipment production was up 63 percent.
“Production of NAFTA heavy-duty trucks in 2007 totaled 212,000 units,” said Cutler. “We are maintaining our forecast that production in 2008 will be 240,000 units. However, we do expect production in the first quarter of 2008 to be relatively flat with the fourth quarter of 2007, which will lead to a steep growth in production rates later in the year.”
The Automotive segment posted fourth quarter sales of $396 million, up 10 percent over the comparable quarter of 2006. Operating profits were $50 million, up 47 percent over operating profits before acquisition integration charges in the fourth quarter of 2006.
Automotive production in NAFTA grew by 1 percent compared to the fourth quarter of 2006, while European production grew 5 percent.
“Our Automotive segment margins in the fourth quarter held up well despite the weakness in NAFTA production volumes,” said Cutler. “For 2008, we anticipate weaker production in NAFTA, modest growth in European production, and strong growth in South American and Asian production.”
Eaton Corporation is a diversified industrial manufacturer with 2007 sales of $13.0 billion. Eaton is a global leader in electrical systems and components for power quality, distribution and control; fluid power systems and services for industrial, mobile and aircraft equipment; intelligent truck drivetrain systems for safety and fuel economy; and automotive engine air management systems, powertrain solutions and specialty controls for performance, fuel economy and safety. Eaton has 64,000 employees and sells products to customers in more than 140 countries.
Notice of conference call: Eaton’s conference call to discuss its fourth quarter results is available to all interested parties as a live audio webcast today at 10 a.m. Eastern time via the microphone on the right side of Eaton’s home page. This news release can be accessed under its headline on the home page.
This news release contains forward-looking statements concerning the first quarter 2008 and full year 2008 net income per share and operating earnings per share, our worldwide markets, our growth in relation to end markets, and our growth from acquisitions. These statements should be used with caution and 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; unanticipated downturns 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, or unexpected costs that cannot be recouped in product pricing; the introduction of competing technologies; unexpected technical or marketing difficulties; unexpected claims, charges, litigation or dispute resolutions; the impact of acquisitions and divestitures; unanticipated difficulties integrating acquisitions; new laws and governmental regulations; interest rate changes; stock market fluctuations; and unanticipated 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.
Kelly Jasko (216) 523-5304 (Media Relations)
William C. Hartman (216) 523-4501 (Investor Relations)