Eaton Reports Third Quarter Earnings Per Share of $1.14
Date: October 19, 2009
Exceeds Guidance Due to Improved Productivity and Lower Costs
Cash From Operations in Third Quarter of $471 Million
CLEVELAND ... Diversified industrial manufacturer Eaton Corporation (NYSE:ETN) today announced net income per share of $1.14 for the third quarter of 2009, a decrease of 39 percent from net income per share of $1.87 in the third quarter of 2008. Sales in the quarter were $3.0 billion, 26 percent below the same period in 2008. Net income was $193 million compared to $315 million in 2008, a decrease of 39 percent.
Net income in both periods included charges related to the integration of acquisitions. Before these acquisition integration charges, operating earnings per share in the third quarter of 2009 were $1.21 versus $1.95 in 2008, a decrease of 38 percent.
Alexander M. Cutler, Eaton chairman and chief executive officer, said, "We are pleased with our third quarter results, which significantly exceeded our guidance. The results reflect the impact of the substantial enterprise-wide reductions in costs we have enacted during the past year. Our revenues in the third quarter grew 4 percent over the second quarter, reflecting equally the very early stages of recovery in our end markets and benefit from the strengthening of currencies against the dollar.
"The sales decline of 26 percent in the quarter consisted of a 23 percent decline in core sales and a 3 percent decline from exchange rates compared to the third quarter of 2008," said Cutler. "Our end markets declined by 24 percent in the quarter.
"Our margin performance in the third quarter was much improved, with our segment operating margin rebounding to 10.9 percent from 8.2 percent in the second quarter," said Cutler. "We realized significant improvements in the margins of our Electrical Rest of World, Truck, and Automotive segments.
"Our operating cash flow in the third quarter was $471 million and free cash flow was $431 million," said Cutler. "In the last four quarters, operating cash flow totaled $1.6 billion – the highest we have ever had in a four quarter period. This strong cash flow has allowed us to pay down debt and improve our liquidity, as has been our plan.
"As we look at our end markets, we expect the economic recovery we are beginning to experience in our early cycle markets will continue," said Cutler. "For the full year, we still believe our end markets will decline by 21 to 22 percent.
"We anticipate fourth quarter net income per share will be between $1.00 and $1.10 and operating earnings per share, which exclude charges to integrate our recent acquisitions, will be between $1.15 and $1.25," said Cutler. "Accordingly, for the full year, we anticipate that net income per share will be between $2.05 and $2.15, and operating earnings per share will be between $2.40 and $2.50."
Business Segment Results
Third quarter sales for the Electrical Americas segment were $843 million, down 20 percent compared to 2008. Operating profits in the third quarter were $142 million. Operating profits before acquisition integration charges of $1 million were $143 million, down 15 percent from results in 2008.
"End markets for our Electrical Americas segment declined 20 percent during the third quarter," said Cutler. "Activity levels in our engineering service business continue to be robust and we are starting to see orders improve in the residential electrical and single-phase power quality markets, but we expect further declines in the non-residential electrical market.
"We were particularly pleased with our 17.0 percent margin in the Electrical Americas segment," said Cutler. "This represents a new quarterly record for the segment and demonstrates the strength and end market breadth of our franchise."
Sales for the Electrical Rest of World segment were $646 million, a decline of 28 percent compared to the third quarter of 2008. The sales decline was comprised of a 5 percent decline due to foreign currency and a 23 percent decline in core sales.
The segment reported operating profits of $45 million. Excluding acquisition integration charges of $12 million during the quarter, operating profits totaled $57 million, down 46 percent compared to the third quarter of 2008.
"The European markets posted a decline of 26 percent during the quarter," said Cutler. "Asian markets declined 9 percent during the third quarter, a significant improvement from the 15 percent decline in the second quarter.
"Our margin of 8.8 percent in the quarter represented a marked improvement over the segment's second quarter margin of 4.4 percent," said Cutler.
"During the quarter, we acquired the remaining 50 percent of Micro Innovation, a Swiss-based automation company," said Cutler. "We believe this will prove to be a valuable addition to our industrial controls business."
In the Hydraulics segment, third quarter sales were $418 million, down 34 percent from the third quarter of 2008. Hydraulics markets in the third quarter declined 40 percent compared to the same period in 2008, with U.S. markets down 45 percent and non-U.S. markets down 34 percent.
Operating profits in the third quarter were $18 million. Operating profits before acquisition integration charges of $2 million were $20 million, down 72 percent compared to a year earlier.
"Global hydraulics markets showed virtually no improvement in the third quarter," said Cutler. "We do not expect the fourth quarter to be any better, and as a result, expect that for the full year the global hydraulics markets are likely to decline by 35 percent."
The Aerospace segment posted third quarter sales of $394 million, a decrease of 16 percent from the third quarter of 2008. Aerospace markets in the third quarter are estimated to have declined 14 percent. Non-U.S. markets declined 19 percent, while U.S. markets declined 11 percent.
Operating profits in the third quarter were $57 million. Excluding acquisition integration charges of $4 million, operating profits were $61 million, a decrease of 23 percent from the third quarter of 2008.
"Given the late-cycle nature of aerospace markets, volumes declined in our Aerospace business in the third quarter," said Cutler. "We anticipate that volumes are likely to remain under pressure in the fourth quarter."
The Truck segment posted sales of $401 million in the third quarter, down 35 percent compared to 2008. Truck markets in the third quarter were down 31 percent, with U.S. markets down 43 percent and non-U.S. markets down 17 percent. Operating profits were $25 million, down 74 percent versus 2008.
"Orders in the NAFTA Class 8 truck market are improving marginally," said Cutler. "Other truck markets are expected to be broadly flat over the balance of the year.
"The improvement in margins in Truck was notable, as our third quarter margin improved to 6.2 percent versus a negative margin of (.9) percent in the second quarter," said Cutler.
The Automotive segment posted third quarter sales of $326 million, down 27 percent from the third quarter of 2008. Automotive unit production in the third quarter declined 17 percent, with North American production down 21 percent and production outside the U.S. down 15 percent compared to the third quarter of 2008.
Operating profits in the third quarter were $23 million, up 21 percent compared to the third quarter of 2008. "Global automotive production improved in the third quarter, to a large extent as a result of the governmental stimulus programs," said Cutler. "We were pleased with the 7.1 percent margin we earned in Automotive in the third quarter, representing a major improvement over the negative (7.0) percent margin in the second quarter."
Eaton Corporation is a diversified power management company with 2008 sales of $15.4 billion. Eaton is a global technology leader in electrical components and systems for power quality, distribution and control; hydraulics components, systems and services for industrial and mobile equipment; aerospace fuel, hydraulics and pneumatic systems for commercial and military use; and truck and automotive drivetrain and powertrain systems for performance, fuel economy and safety. Eaton has approximately 70,000 employees and sells products to customers in more than 150 countries.
Notice of conference call: Eaton's conference call to discuss its third 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. Also available on the Web site prior to the call will be a presentation on third quarter results, which will be covered during the call.
This news release contains forward-looking statements concerning the fourth quarter 2009 and full year 2009 net income per share and operating earnings per share, and the performance of our worldwide markets. 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, energy 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, divestitures, and joint ventures; 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.
Financial Results
The company's comparative financial results for the three months and nine months ended September 30, 2009 and 2008.
Cash From Operations in Third Quarter of $471 Million
CLEVELAND ... Diversified industrial manufacturer Eaton Corporation (NYSE:ETN) today announced net income per share of $1.14 for the third quarter of 2009, a decrease of 39 percent from net income per share of $1.87 in the third quarter of 2008. Sales in the quarter were $3.0 billion, 26 percent below the same period in 2008. Net income was $193 million compared to $315 million in 2008, a decrease of 39 percent.
Net income in both periods included charges related to the integration of acquisitions. Before these acquisition integration charges, operating earnings per share in the third quarter of 2009 were $1.21 versus $1.95 in 2008, a decrease of 38 percent.
Alexander M. Cutler, Eaton chairman and chief executive officer, said, "We are pleased with our third quarter results, which significantly exceeded our guidance. The results reflect the impact of the substantial enterprise-wide reductions in costs we have enacted during the past year. Our revenues in the third quarter grew 4 percent over the second quarter, reflecting equally the very early stages of recovery in our end markets and benefit from the strengthening of currencies against the dollar.
"The sales decline of 26 percent in the quarter consisted of a 23 percent decline in core sales and a 3 percent decline from exchange rates compared to the third quarter of 2008," said Cutler. "Our end markets declined by 24 percent in the quarter.
"Our margin performance in the third quarter was much improved, with our segment operating margin rebounding to 10.9 percent from 8.2 percent in the second quarter," said Cutler. "We realized significant improvements in the margins of our Electrical Rest of World, Truck, and Automotive segments.
"Our operating cash flow in the third quarter was $471 million and free cash flow was $431 million," said Cutler. "In the last four quarters, operating cash flow totaled $1.6 billion – the highest we have ever had in a four quarter period. This strong cash flow has allowed us to pay down debt and improve our liquidity, as has been our plan.
"As we look at our end markets, we expect the economic recovery we are beginning to experience in our early cycle markets will continue," said Cutler. "For the full year, we still believe our end markets will decline by 21 to 22 percent.
"We anticipate fourth quarter net income per share will be between $1.00 and $1.10 and operating earnings per share, which exclude charges to integrate our recent acquisitions, will be between $1.15 and $1.25," said Cutler. "Accordingly, for the full year, we anticipate that net income per share will be between $2.05 and $2.15, and operating earnings per share will be between $2.40 and $2.50."
Business Segment Results
Third quarter sales for the Electrical Americas segment were $843 million, down 20 percent compared to 2008. Operating profits in the third quarter were $142 million. Operating profits before acquisition integration charges of $1 million were $143 million, down 15 percent from results in 2008.
"End markets for our Electrical Americas segment declined 20 percent during the third quarter," said Cutler. "Activity levels in our engineering service business continue to be robust and we are starting to see orders improve in the residential electrical and single-phase power quality markets, but we expect further declines in the non-residential electrical market.
"We were particularly pleased with our 17.0 percent margin in the Electrical Americas segment," said Cutler. "This represents a new quarterly record for the segment and demonstrates the strength and end market breadth of our franchise."
Sales for the Electrical Rest of World segment were $646 million, a decline of 28 percent compared to the third quarter of 2008. The sales decline was comprised of a 5 percent decline due to foreign currency and a 23 percent decline in core sales.
The segment reported operating profits of $45 million. Excluding acquisition integration charges of $12 million during the quarter, operating profits totaled $57 million, down 46 percent compared to the third quarter of 2008.
"The European markets posted a decline of 26 percent during the quarter," said Cutler. "Asian markets declined 9 percent during the third quarter, a significant improvement from the 15 percent decline in the second quarter.
"Our margin of 8.8 percent in the quarter represented a marked improvement over the segment's second quarter margin of 4.4 percent," said Cutler.
"During the quarter, we acquired the remaining 50 percent of Micro Innovation, a Swiss-based automation company," said Cutler. "We believe this will prove to be a valuable addition to our industrial controls business."
In the Hydraulics segment, third quarter sales were $418 million, down 34 percent from the third quarter of 2008. Hydraulics markets in the third quarter declined 40 percent compared to the same period in 2008, with U.S. markets down 45 percent and non-U.S. markets down 34 percent.
Operating profits in the third quarter were $18 million. Operating profits before acquisition integration charges of $2 million were $20 million, down 72 percent compared to a year earlier.
"Global hydraulics markets showed virtually no improvement in the third quarter," said Cutler. "We do not expect the fourth quarter to be any better, and as a result, expect that for the full year the global hydraulics markets are likely to decline by 35 percent."
The Aerospace segment posted third quarter sales of $394 million, a decrease of 16 percent from the third quarter of 2008. Aerospace markets in the third quarter are estimated to have declined 14 percent. Non-U.S. markets declined 19 percent, while U.S. markets declined 11 percent.
Operating profits in the third quarter were $57 million. Excluding acquisition integration charges of $4 million, operating profits were $61 million, a decrease of 23 percent from the third quarter of 2008.
"Given the late-cycle nature of aerospace markets, volumes declined in our Aerospace business in the third quarter," said Cutler. "We anticipate that volumes are likely to remain under pressure in the fourth quarter."
The Truck segment posted sales of $401 million in the third quarter, down 35 percent compared to 2008. Truck markets in the third quarter were down 31 percent, with U.S. markets down 43 percent and non-U.S. markets down 17 percent. Operating profits were $25 million, down 74 percent versus 2008.
"Orders in the NAFTA Class 8 truck market are improving marginally," said Cutler. "Other truck markets are expected to be broadly flat over the balance of the year.
"The improvement in margins in Truck was notable, as our third quarter margin improved to 6.2 percent versus a negative margin of (.9) percent in the second quarter," said Cutler.
The Automotive segment posted third quarter sales of $326 million, down 27 percent from the third quarter of 2008. Automotive unit production in the third quarter declined 17 percent, with North American production down 21 percent and production outside the U.S. down 15 percent compared to the third quarter of 2008.
Operating profits in the third quarter were $23 million, up 21 percent compared to the third quarter of 2008. "Global automotive production improved in the third quarter, to a large extent as a result of the governmental stimulus programs," said Cutler. "We were pleased with the 7.1 percent margin we earned in Automotive in the third quarter, representing a major improvement over the negative (7.0) percent margin in the second quarter."
Eaton Corporation is a diversified power management company with 2008 sales of $15.4 billion. Eaton is a global technology leader in electrical components and systems for power quality, distribution and control; hydraulics components, systems and services for industrial and mobile equipment; aerospace fuel, hydraulics and pneumatic systems for commercial and military use; and truck and automotive drivetrain and powertrain systems for performance, fuel economy and safety. Eaton has approximately 70,000 employees and sells products to customers in more than 150 countries.
Notice of conference call: Eaton's conference call to discuss its third 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. Also available on the Web site prior to the call will be a presentation on third quarter results, which will be covered during the call.
This news release contains forward-looking statements concerning the fourth quarter 2009 and full year 2009 net income per share and operating earnings per share, and the performance of our worldwide markets. 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, energy 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, divestitures, and joint ventures; 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.
Financial Results
The company's comparative financial results for the three months and nine months ended September 30, 2009 and 2008.
Kelly Jasko, (216) 523-5304
William Hartman, (216) 523-4501
William Hartman, (216) 523-4501