Record Second Quarter Operating Cash Flow of $745 Million
Restructuring Program Proceeding as Planned
2016 Operating Earnings Per Share Guidance Narrowed and Midpoint Affirmed
DUBLIN, Ireland ... Power management company Eaton Corporation plc (NYSE:ETN) today announced that net income and operating earnings per share were $1.07 for the second quarter of 2016. Operating earnings exclude acquisition integration charges, which were negligible in the second quarter of 2016 and were $12 million in the second quarter of 2015. Operating earnings per share were down 8 percent from the second quarter of 2015. Sales in the second quarter of 2016 were $5.1 billion, 5 percent lower than the same period in 2015.
Craig Arnold, Eaton chairman and chief executive officer, said, “Our second quarter results came in above the midpoint of our guidance, reflecting solid performance despite weak conditions across many of our markets.
“Our 5 percent sales decline in the second quarter consisted of a 4 percent decline in organic sales and an additional 1 percent decline from negative currency translation,” said Arnold. “Our organic sales decline in the quarter was as expected.
“We generated $745 million of operating cash flow in the second quarter, a second quarter record,” said Arnold. “For the first half of 2016, operating cash flow totaled a record $1.116 billion. We continued to return substantial cash to our shareholders during the quarter, repurchasing $224 million of our shares, making our first half repurchases a total of $324 million.
“Our restructuring program is proceeding as planned,” said Arnold. “We spent $35 million in the second quarter, in line with our guidance. For full-year 2016, we are now planning to spend $145 million in restructuring costs, $5 million more than our previous guidance. We expect that restructuring savings for 2016 will also be $5 million more than our previous guidance. As a result, we continue to expect that our restructuring program will deliver $174 million of incremental profit in 2016 compared to 2015.
“Our segment margins were 15.4 percent, and excluding the restructuring costs incurred in the quarter, 16.0 percent,” said Arnold.
“We continue to expect a decline in organic revenue in 2016 of between 2 and 4 percent,” said Arnold. “We now estimate the impact of negative currency translation to be $225 million, $25 million higher than our previous estimate.
“We anticipate operating earnings per share for the third quarter of 2016 to be between $1.10 and $1.20,” said Arnold. “We are maintaining the midpoint of our guidance for full year operating earnings per share, but narrowing our guidance range to between $4.20 and $4.40.”
Business Segment Results
Sales for the Electrical Products segment were $1.8 billion, flat compared to the second quarter of 2015. Organic sales grew 1 percent while negative currency translation was 1 percent. Operating profits, excluding acquisition integration charges of $1 million, were $323 million, up 15 percent over the second quarter of 2015.
“Our operating margins in the second quarter were 18.1 percent, and excluding restructuring costs of $9 million, a very strong 18.6 percent,” said Arnold. “Our bookings in the second quarter in the Electrical Products segment were down 2 percent from the second quarter a year ago, driven by declines in the Americas and APAC. Orders in EMEA grew modestly.”
Sales for the Electrical Systems and Services segment were $1.4 billion, down 5 percent from the second quarter of 2015. Organic sales were down 3 percent and currency translation was negative 2 percent. Segment operating profits were $178 million, down 22 percent from the second quarter of 2015.
“As we expected, organic sales declined in the second quarter, reflecting the softness we saw in bookings over the last six months,” said Arnold. “Operating margins were 12.5 percent, and excluding restructuring costs of $3 million, 12.7 percent. Our margins were impacted by the continued weakness in large industrial projects and oil and gas markets.
“Bookings in the second quarter were down 2 percent from the second quarter of 2015, driven by declines in the Americas and APAC,” said Arnold. “Orders in EMEA showed strong growth during the quarter.”
Hydraulics segment sales were $589 million, down 8 percent from the second quarter of 2015. Organic sales in the quarter declined 7 percent and currency translation was negative 1 percent. Operating profits in the second quarter were $59 million, down 21 percent from the second quarter of 2015.
“Our operating margins in the quarter were 10.0 percent, and excluding restructuring costs of $18 million, 13.1 percent,” said Arnold. “Hydraulics orders in the second quarter of 2016 were down 2 percent. We believe that our hydraulics markets are stabilizing.”
Aerospace segment sales were $447 million, down 2 percent from the second quarter of 2015. Organic sales were flat and negative currency translation was 2 percent. Operating profits in the second quarter were $83 million, up 8 percent over the second quarter of 2015.
“Our operating margins in the quarter were 18.6 percent,” said Arnold. “Bookings in the quarter were down 1 percent compared to the second quarter of 2015, primarily driven by a decline in business jet orders. Orders for commercial aircraft, the commercial aftermarket, and the military aftermarket all showed strong growth.”
The Vehicle segment posted sales of $831 million, down 16 percent compared to the second quarter of 2015. Organic sales declined 14 percent and negative currency translation was 2 percent. The segment reported operating profits in the second quarter of $137 million, down 28 percent from the second quarter of 2015.
“Our operating margins in the quarter were 16.5 percent, and excluding restructuring costs of $5 million, 17.1 percent,” said Arnold.
“North American Class 8 truck production declined 29 percent in the second quarter compared to the second quarter of 2015,” said Arnold. “We continue to expect full-year 2016 production to be 230,000 units.”
Eaton is a power management company with 2015 sales of $20.9 billion. Eaton provides energy-efficient solutions that help our customers effectively manage electrical, hydraulic and mechanical power more efficiently, safely and sustainably. Eaton has approximately 96,000 employees and sells products to customers in more than 175 countries.
Notice of conference call: Eaton’s conference call to discuss its second quarter results is available to all interested parties as a live audio webcast today at 10 a.m. United States Eastern time via a link on the center of Eaton’s home page. This news release can be accessed under its headline on the home page. Also available on the website prior to the call will be a presentation on second quarter results, which will be covered during the call.
This news release contains forward-looking statements concerning third quarter 2016 operating earnings per share, full-year 2016 operating earnings per share, 2016 organic revenue growth, the effects of currency translation, the costs and benefits of planned restructuring actions, and growth in our end 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; unanticipated changes 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 performance of recent acquisitions; unanticipated difficulties integrating acquisitions; new laws and governmental regulations; interest rate changes; changes in tax laws or tax regulations; stock market and currency 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.
The company’s comparative financial results for the six months ended June 30, 2016.