Eaton Reports Third Quarter Net Income and Operating Earnings Per Share of $1.15

Date: November 1, 2016

Net Income Per Share up 20 Percent over Third Quarter of 2015

Operating Earnings Per Share up 19 Percent over Third Quarter of 2015

Midpoint of Full Year Earnings Per Share Guidance Reduced by 2 Percent

Announces Expanded Restructuring Program


DUBLIN, Ireland ... Power management company Eaton Corporation plc (NYSE:ETN) today announced that net income and operating earnings per share were $1.15 for the third quarter of 2016. Net income per share in the third quarter of 2016 was up 20 percent over the third quarter of 2015. Operating earnings per share, which exclude $1 million of acquisition integration charges in the third quarter of 2016 and $10 million in the third quarter of 2015, were up 19 percent over the third quarter of 2015.

Sales in the third quarter of 2016 were $5.0 billion, down 4 percent from the same period in 2015. The sales decline consisted of 3 percent from a decline in organic sales and 1 percent from negative currency translation.

Craig Arnold, Eaton chairman and chief executive officer, said, “Our third quarter operating earnings per share were at the midpoint of our guidance despite third quarter sales coming in 1 percent lower than our expectations. We had previously expected organic sales for the third quarter to be the same as in the second quarter.

“Our segment margins were strong, at 16.0 percent, and excluding restructuring costs incurred in the quarter, 16.5 percent,” said Arnold. “Our strong margins were a result of tight cost control and higher restructuring savings. Our restructuring costs in the quarter came in at $23 million, slightly under our estimate at the start of the quarter.

“Our operating cash flow in the third quarter was $798 million, keeping us on trajectory to meet our cash flow guidance for the year,” said Arnold. “We continued to return substantial cash to our shareholders, repurchasing $243 million of our shares in the quarter. So far in 2016, our repurchases total $567 million, 2.0 percent of our shares outstanding at the beginning of the year.

“Looking at full-year 2016, we now expect a decline in organic revenue of approximately 4 percent,” said Arnold. “We are maintaining our estimate of the impact of negative currency translation at $225 million.

“We anticipate net income and operating earnings per share for the fourth quarter of 2016 to be between $1.05 and $1.15,” said Arnold. “For the full year, we expect net income and operating earnings per share to be between $4.15 and $4.25, a decline of 2 percent at the midpoint from our prior guidance.

“The decline in orders in several of our end markets in the third quarter suggests to us that sales in the fourth quarter of 2016 and in 2017 are likely to be soft,” said Arnold. “As a result, we anticipate expanding our 2017 restructuring program to a cost of $180 million, compared to our prior guidance of $130 million.”

Business Segment Results
Sales for the Electrical Products segment were $1.8 billion, flat compared to the third quarter of 2015. Operating profits, excluding acquisition integration charges of $1 million during the quarter, were $332 million, up 2 percent over the third quarter of 2015.

“Our operating margins in the third quarter were 18.8 percent,” said Arnold. “Our bookings in the third quarter in the Electrical Products segment were down 1 percent from the third quarter of 2015, driven by a decline in the Americas while EMEA and APAC were flat.”

Sales for the Electrical Systems and Services segment were $1.4 billion, down 3 percent from the third quarter of 2015. Organic sales were down 2 percent and currency translation was negative 1 percent. Segment operating profits were $197 million, up 18 percent over the third quarter of 2015.

“Our operating margins were 13.7 percent, and excluding restructuring costs of $7 million, 14.2 percent,” said Arnold. “While an improvement over the second quarter of 2016, our margins are still being negatively impacted by weakness in large industrial projects and oil and gas markets.

“Bookings in the third quarter were down 5 percent from the third quarter of 2015, driven by declines in the Americas and EMEA,” said Arnold. “Orders in APAC showed double-digit growth during the quarter.”

Hydraulics segment sales were $562 million, down 6 percent from the third quarter of 2015, entirely due to a decline in organic sales. Operating profits in the third quarter were $61 million, an increase of 39 percent over the third quarter of 2015.

“Our operating margins in the quarter were 10.9 percent, and excluding restructuring costs of $10 million, 12.6 percent,” said Arnold. “Hydraulics orders in the third quarter of 2016 were down 3 percent, with a modest decline in the Americas, a larger decline in EMEA, and growth in APAC.”

Aerospace segment sales were $436 million, down 3 percent from the third quarter of 2015, entirely due to negative currency translation. Operating profits in the third quarter were $88 million, up 11 percent over the third quarter of 2015.

“Our operating margins in the quarter were a record 20.2 percent,” said Arnold. “Bookings in the quarter were up 15 percent compared to the third quarter of 2015, driven by strong growth in commercial and military OEM orders. Aftermarket orders grew 5 percent, with particular strength on the commercial side.”

The Vehicle segment posted sales of $786 million, down 12 percent from the third quarter of 2015, entirely due to a decline in organic sales. Operating profits in the third quarter were $122 million, down 10 percent from the third quarter of 2015.

“Our operating margins in the quarter were 15.5 percent, and excluding restructuring costs of $5 million, 16.2 percent,” said Arnold.

“North American Class 8 truck production declined 35 percent in the third quarter of 2016 compared to the third quarter of 2015,” said Arnold. “We now expect full-year 2016 production to be 225,000 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 95,000 employees and sells products to customers in more than 175 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. 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 third quarter results, which will be covered during the call.

This news release contains forward-looking statements concerning fourth 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.

Financial Results
The company’s comparative financial results for the nine months ended September 30, 2016.



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