April 14, 2008
Eaton Reports First Quarter Net Income Per Share Up 5 Percent to $1.64 and Raises Guidance for the Year
CLEVELAND … Diversified industrial manufacturer Eaton Corporation (NYSE:ETN) today announced net income per share of $1.64 for the first quarter of 2008, an increase of 5 percent over net income per share of $1.56 in the first quarter of 2007. Sales in the quarter were $3.5 billion, 12 percent above the same period in 2007 and a record for the first quarter. Net income was $247 million, also a record for the first quarter.
Net income in both periods included charges for integration of acquisitions. Before acquisition integration charges, operating earnings per share in the first quarter of 2008 were $1.70 versus $1.62 per share in 2007, an increase of 5 percent. Operating earnings for the first quarter of 2008 were $256 million compared to $243 million in 2007.
Alexander M. Cutler, Eaton chairman and chief executive officer, said, “We had a strong first quarter, with operating earnings per share at the top end of our guidance. Sales growth in the first quarter of 12 percent consisted of 2 percent from organic growth, 6 percent from acquisitions, and 4 percent from higher foreign exchange rates. Our end markets grew 2 percent in the quarter.
“We continue to anticipate growth of 4 percent in our end markets in 2008, with international markets modestly stronger than our expectations in January and U.S. markets slightly weaker,” said Cutler. “In the first quarter, our end markets performed about as we had expected, buoyed by the strength in international markets.
“We anticipate net income per share for the second quarter of 2008 to be between $1.80 and $1.90. Operating earnings per share, which excludes charges to integrate our recent acquisitions, are expected to be between $1.90 and $2.00 in the second quarter of 2008. Due to the strong first quarter results, we are raising our full-year guidance by $.05 per share, to net income per share of $7.30 to $7.80 and operating earnings per share of $7.80 to $8.30.”
Business Segment Results
Sales for the Electrical segment were a record $1.3 billion, up 20 percent over 2007. The 20 percent growth in sales includes 11 percent growth from acquisitions. Operating profits were $160 million. Excluding acquisition integration charges of $3 million during the quarter, operating profits were $163 million, up 34 percent from 2007.
“End markets for our electrical business grew 7 percent during the first quarter,” said Cutler. “Both U.S. and non-U.S. markets grew 7 percent in the quarter. For the full year, we are maintaining our prior forecast that our global electrical markets will grow by 5 to 6 percent.
“Our bookings in the Electrical segment, adjusted for foreign exchange and acquisitions, were up 3 percent from the first quarter a year ago, continuing the strong momentum in our Electrical segment,” said Cutler. “Our orders in the first quarter were a new quarterly bookings record for the segment.
“The operating margin of 12.5 percent in the quarter was a record for a first quarter,” said Cutler. “We completed the acquisition of Phoenixtec in February and Moeller in early April. The performances of both businesses so far in 2008 are running ahead of our original expectations.”
Hydraulics segment sales were a record $657 million, up 14 percent compared to the first quarter of 2007. Our global hydraulics markets were up 4 percent in the quarter, with non-U.S. markets up 8 percent while U.S. markets were flat.
Operating profits in the first quarter were $78 million. Excluding acquisition integration charges of $2 million during the quarter, operating profits totaled $80 million, an increase of 14 percent over the first quarter of 2007.
“The hydraulics markets in the first quarter performed as expected, with continued strong international growth offsetting flat U.S. markets,” said Cutler. “Based on the strength outside the U.S., we now believe the global hydraulics markets for 2008 will grow 2 percent versus our prior estimate of 1 percent growth.”
Aerospace segment sales were a record $430 million, 23 percent above the first quarter of 2007. The 23 percent growth in sales includes 11 percent growth from acquisitions. Our aerospace markets grew 6 percent compared to the first quarter of 2007.
Operating profits in the first quarter were $63 million. Excluding acquisition integration charges of $7 million during the quarter, operating profits were $70 million, an increase of 35 percent compared to a year earlier.
“We anticipate the global aerospace market will grow 7 percent in 2008, slightly stronger than our expectations at the start of the year,” said Cutler.
“The aerospace business signed several new contracts during the quarter,” said Cutler. “The expected lifetime revenues from the new contracts, based on the production schedules of the associated platforms, total approximately $110 million.”
The Truck segment posted sales of $567 million, down 2 percent compared to the first quarter of 2007. Truck markets in the first quarter were down 9 percent, with U.S. markets down 24 percent and non-U.S. markets up 17 percent.
Operating profits in the first quarter were $85 million, a decline of 21 percent from 2007.
“First quarter production of NAFTA heavy-duty trucks totaled 49,000 units, just slightly ahead of production in the fourth quarter of 2007 but still down 34 percent from the first quarter of 2007,” said Cutler. “We expect modest growth in second quarter production, and for 2008 as a whole, we now estimate the NAFTA heavy-duty market to total 230,000 units. This compares to our original expectation of 240,000 units.”
The Automotive segment posted first quarter sales of $538 million, 2 percent higher than the comparable quarter of 2007. Global automotive markets were down 1 percent, with U.S. markets down 8 percent and non-U.S. markets up 5 percent.
Operating profits in the first quarter were $46 million. Excluding acquisition integration charges of $1 million, operating profits were $47 million, down 25 percent from 2007.
“The strike at an automotive supplier which impacted production at several U.S. vehicle manufacturers reduced our revenues and margins for the quarter,” said Cutler. “We anticipate the labor situation will be resolved during the second quarter and, as a result, U.S. production should recover in the second quarter. For the year as a whole, we anticipate our global automotive markets will be flat, with U.S. production down 5 percent offset by growth of 4 percent in production outside the U.S.”
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; hydraulics components, systems and services for industrial and mobile equipment; hydraulics, fuel and pneumatic systems for commercial and military aircraft; 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 79,000 employees and sells products to customers in more than 150 countries.
Notice of Conference Call: Eaton’s conference call to discuss its first quarter results is available to all interested parties via live audio webcast today at 10 a.m. Eastern time by clicking on the microphone on the right side of Eaton’s home page. This news release can also be accessed on the home page by clicking “view article” under the news release headline.
This news release contains forward-looking statements concerning the second 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; strikes or other labor unrest; 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.