Eaton Reports Record Earnings Per Share
Date: October 24, 2011
Earnings Per Share Increase 37 Percent on 15 Percent Revenue Growth
Record Quarterly Segment Margins
Operating Cash Flow of $642 Million
Affirms Midpoint of Full Year Earnings Guidance
CLEVELAND ... Diversified industrial manufacturer Eaton Corporation (NYSE:ETN) today announced record net income per share of $1.07 for the third quarter of 2011, an increase of 37 percent over the $0.78 earned in the third quarter of 2010. Sales in the third quarter were $4.12 billion, 15 percent above the third quarter of 2010. Net income in the third quarter was $365 million compared to $268 million in 2010.
Net income in both periods included charges for integration of acquisitions. Before these acquisition integration charges, operating earnings per share in the third quarter of 2011 were $1.08 compared to $0.79 per share in 2010, an increase of 37 percent. Operating earnings in the third quarter were $367 million compared to $272 million in 2010.
Alexander M. Cutler, Eaton chairman and chief executive officer, said, "Our record third quarter results were at the midpoint of our guidance range, which we had increased in our July earnings release. This achievement is despite our incurring $0.06 per share of non cash mark-to-market losses on commodity hedge contracts resulting from the virtually unprecedented declines in metals prices which occurred during the last two weeks of September. We also achieved record operating margins and very strong cash flow in the third quarter, demonstrating that our business is continuing to perform well despite the uncertainty affecting the world economy and a number of our end markets.
"Sales in the third quarter increased 15 percent compared to the third quarter of 2010," said Cutler." The 15 percent sales growth was comprised of 11 percent core growth, 2 percent from acquisitions, and 2 percent from foreign exchange. End markets grew 11 percent in the quarter.
"We are very pleased with our 14.6 percent segment operating margin in the third quarter, setting a new segment operating margin record," said Cutler.
"Our operating cash flow in the third quarter was $642 million, almost equal to the record operating cash flow we recorded in the fourth quarter of 2008," said Cutler. "We took advantage of our strong cash flow and the depressed price of our shares to buy back 2 percent of our outstanding shares during the third quarter, at an average price of just over $39 per share.
"We anticipate net income per share for the fourth quarter of 2011 to be between $1.04 and $1.14," said Cutler. "Operating earnings per share for the fourth quarter, which exclude charges to integrate our recent acquisitions, are anticipated to be between $1.06 and $1.16.
"We are affirming the midpoint of our full year earnings guidance as we continue to anticipate record operating earnings per share in 2011, our 100th anniversary year," said Cutler. "Our guidance for net income per share is between $3.91 and $4.01 and for operating earnings per share is between $3.95 and $4.05. This represents growth in 2011 operating earnings per share of between 41 and 44 percent."
Business Segment Results
Third quarter sales for the Electrical Americas segment were $1.07 billion, up 11 percent compared to 2010 and a quarterly record sales level for this segment. Operating profits in the third quarter were $156 million. Excluding acquisition integration charges of $3 million during the quarter, operating profits were $159 million, up 13 percent over results in 2010.
"Our margin in the third quarter was impacted by the dramatic decline in commodity prices during the second half of September, resulting in mark-to-market commodity hedge costs of $11 million during the quarter," said Cutler. "These costs reduced our operating margin in the quarter by 1.0 percentage points.
"End markets for our Electrical Americas segment grew 11 percent during the third quarter," said Cutler. "As we had anticipated, the nonresidential construction markets in the U.S. have bottomed and are starting to show modest growth.
"Our bookings in the Electrical Americas segment, adjusted for foreign exchange, increased 21 percent compared to the third quarter of 2010," said Cutler. "We now expect that our Electrical Americas markets in 2011 will grow by 8 percent, 1 percent higher than we anticipated in July."
Sales for the Electrical Rest of World segment were $755 million, an increase of 7 percent compared to the third quarter of 2010. The sales increase was comprised of a 7 percent increase from foreign currency and a 2 percent increase from acquisitions, offset by a 2 percent decline in core sales. The segment reported operating profits of $62 million.
"Our margins in the Electrical Rest of World segment were impacted by the large decrease in the residential solar market and the dramatic decline in commodity prices during the last half of September, resulting in mark-to-market commodity hedge costs of $11 million during the quarter," said Cutler. "The hedge costs reduced our operating margin in the quarter by 1.5 percentage points.
"Our markets in the third quarter grew 1 percent," said Cutler. "Our bookings for the Electrical Rest of World segment, adjusted for foreign exchange and acquisitions, declined 9 percent in the quarter driven by a drop in the residential solar inverter market. For all of 2011, we now believe that the markets in our Electrical Rest of World segment will grow by 6 percent, down from the 7 percent we expected in July."
Hydraulics segment sales were $717 million, up 23 percent compared to the third quarter of 2010. Global hydraulics markets were up 14 percent in the quarter, with U.S. markets up 18 percent and non-U.S. markets up 11 percent. Operating profits in the third quarter were $109 million. Excluding acquisition integration costs of $1 million during the quarter, operating profits were $110 million, up 45 percent over the third quarter of 2010.
"Global hydraulics markets in the third quarter continued the strong rebound we saw in the first half, although we did see weakness in the Chinese construction equipment markets," said Cutler. "Our bookings, adjusted for foreign exchange, increased 20 percent in the third quarter. For all of 2011, we believe global hydraulics markets will grow 17 percent, 1 percent lower than we had expected in July.
"We were pleased to close our acquisition of German filtration company E. Begerow during the third quarter," said Cutler.
Aerospace segment sales were $420 million, up 8 percent compared to the third quarter of 2010. Aerospace markets were up 7 percent compared to the third quarter of 2010. Operating profits in the third quarter were $71 million, up 16 percent over the third quarter of 2010.
"As we expected, our Aerospace margins rebounded in the third quarter, rising to 16.9 percent," said Cutler. "We believe the development program issues we encountered in the first half of 2011 are now behind us.
"Aerospace bookings increased 16 percent during the third quarter, adjusted for foreign exchange, reflecting improved bookings in commercial OEM and aftermarket," said Cutler. "We now believe that our Aerospace markets will grow by 5 percent in 2011, 1 percent higher than we anticipated in July."
The Truck segment posted sales of $715 million in the third quarter, up 34 percent compared to 2010 and a record quarterly sales level for this segment. Truck production in the third quarter was up 25 percent, with U.S. markets up 51 percent and non-U.S. markets up 7 percent. The segment reported operating profits of $139 million.
"We now expect the NAFTA Class 8 market to total 255,000 units, a small reduction from our forecast in July," said Cutler. "Outside NAFTA, we are seeing a continuation of modest growth.
"Our Truck segment is performing very well," said Cutler. "We are at record sales levels despite the NAFTA markets still operating well below the peak levels of 2006. This reflects the substantial growth we have had in our non-NAFTA truck business over the last five years."
The Automotive segment posted third quarter sales of $442 million, up 13 percent over the third quarter of 2010. Global automotive markets were up 8 percent, with U.S. markets up 13 percent and non-U.S. markets up 6 percent. The segment reported operating profits of $62 million.
"Global automotive production in the third quarter of 2011 was unusually strong, and this strength, along with solid execution across our business, allowed us to earn very attractive margins," said Cutler.
Eaton Corporation is a diversified power management company with 2010 sales of $13.7 billion. Celebrating its 100th anniversary in 2011, 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 73,000 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 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 discussed during the call.
This news release contains forward-looking statements concerning our fourth quarter 2011 tax rate, our fourth quarter and full year 2011 net income per share and operating earnings per share, and 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; the availability of credit to customers and suppliers; 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 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 three months and nine months ended September 30, 2011.
Record Quarterly Segment Margins
Operating Cash Flow of $642 Million
Affirms Midpoint of Full Year Earnings Guidance
CLEVELAND ... Diversified industrial manufacturer Eaton Corporation (NYSE:ETN) today announced record net income per share of $1.07 for the third quarter of 2011, an increase of 37 percent over the $0.78 earned in the third quarter of 2010. Sales in the third quarter were $4.12 billion, 15 percent above the third quarter of 2010. Net income in the third quarter was $365 million compared to $268 million in 2010.
Net income in both periods included charges for integration of acquisitions. Before these acquisition integration charges, operating earnings per share in the third quarter of 2011 were $1.08 compared to $0.79 per share in 2010, an increase of 37 percent. Operating earnings in the third quarter were $367 million compared to $272 million in 2010.
Alexander M. Cutler, Eaton chairman and chief executive officer, said, "Our record third quarter results were at the midpoint of our guidance range, which we had increased in our July earnings release. This achievement is despite our incurring $0.06 per share of non cash mark-to-market losses on commodity hedge contracts resulting from the virtually unprecedented declines in metals prices which occurred during the last two weeks of September. We also achieved record operating margins and very strong cash flow in the third quarter, demonstrating that our business is continuing to perform well despite the uncertainty affecting the world economy and a number of our end markets.
"Sales in the third quarter increased 15 percent compared to the third quarter of 2010," said Cutler." The 15 percent sales growth was comprised of 11 percent core growth, 2 percent from acquisitions, and 2 percent from foreign exchange. End markets grew 11 percent in the quarter.
"We are very pleased with our 14.6 percent segment operating margin in the third quarter, setting a new segment operating margin record," said Cutler.
"Our operating cash flow in the third quarter was $642 million, almost equal to the record operating cash flow we recorded in the fourth quarter of 2008," said Cutler. "We took advantage of our strong cash flow and the depressed price of our shares to buy back 2 percent of our outstanding shares during the third quarter, at an average price of just over $39 per share.
"We anticipate net income per share for the fourth quarter of 2011 to be between $1.04 and $1.14," said Cutler. "Operating earnings per share for the fourth quarter, which exclude charges to integrate our recent acquisitions, are anticipated to be between $1.06 and $1.16.
"We are affirming the midpoint of our full year earnings guidance as we continue to anticipate record operating earnings per share in 2011, our 100th anniversary year," said Cutler. "Our guidance for net income per share is between $3.91 and $4.01 and for operating earnings per share is between $3.95 and $4.05. This represents growth in 2011 operating earnings per share of between 41 and 44 percent."
Business Segment Results
Third quarter sales for the Electrical Americas segment were $1.07 billion, up 11 percent compared to 2010 and a quarterly record sales level for this segment. Operating profits in the third quarter were $156 million. Excluding acquisition integration charges of $3 million during the quarter, operating profits were $159 million, up 13 percent over results in 2010.
"Our margin in the third quarter was impacted by the dramatic decline in commodity prices during the second half of September, resulting in mark-to-market commodity hedge costs of $11 million during the quarter," said Cutler. "These costs reduced our operating margin in the quarter by 1.0 percentage points.
"End markets for our Electrical Americas segment grew 11 percent during the third quarter," said Cutler. "As we had anticipated, the nonresidential construction markets in the U.S. have bottomed and are starting to show modest growth.
"Our bookings in the Electrical Americas segment, adjusted for foreign exchange, increased 21 percent compared to the third quarter of 2010," said Cutler. "We now expect that our Electrical Americas markets in 2011 will grow by 8 percent, 1 percent higher than we anticipated in July."
Sales for the Electrical Rest of World segment were $755 million, an increase of 7 percent compared to the third quarter of 2010. The sales increase was comprised of a 7 percent increase from foreign currency and a 2 percent increase from acquisitions, offset by a 2 percent decline in core sales. The segment reported operating profits of $62 million.
"Our margins in the Electrical Rest of World segment were impacted by the large decrease in the residential solar market and the dramatic decline in commodity prices during the last half of September, resulting in mark-to-market commodity hedge costs of $11 million during the quarter," said Cutler. "The hedge costs reduced our operating margin in the quarter by 1.5 percentage points.
"Our markets in the third quarter grew 1 percent," said Cutler. "Our bookings for the Electrical Rest of World segment, adjusted for foreign exchange and acquisitions, declined 9 percent in the quarter driven by a drop in the residential solar inverter market. For all of 2011, we now believe that the markets in our Electrical Rest of World segment will grow by 6 percent, down from the 7 percent we expected in July."
Hydraulics segment sales were $717 million, up 23 percent compared to the third quarter of 2010. Global hydraulics markets were up 14 percent in the quarter, with U.S. markets up 18 percent and non-U.S. markets up 11 percent. Operating profits in the third quarter were $109 million. Excluding acquisition integration costs of $1 million during the quarter, operating profits were $110 million, up 45 percent over the third quarter of 2010.
"Global hydraulics markets in the third quarter continued the strong rebound we saw in the first half, although we did see weakness in the Chinese construction equipment markets," said Cutler. "Our bookings, adjusted for foreign exchange, increased 20 percent in the third quarter. For all of 2011, we believe global hydraulics markets will grow 17 percent, 1 percent lower than we had expected in July.
"We were pleased to close our acquisition of German filtration company E. Begerow during the third quarter," said Cutler.
Aerospace segment sales were $420 million, up 8 percent compared to the third quarter of 2010. Aerospace markets were up 7 percent compared to the third quarter of 2010. Operating profits in the third quarter were $71 million, up 16 percent over the third quarter of 2010.
"As we expected, our Aerospace margins rebounded in the third quarter, rising to 16.9 percent," said Cutler. "We believe the development program issues we encountered in the first half of 2011 are now behind us.
"Aerospace bookings increased 16 percent during the third quarter, adjusted for foreign exchange, reflecting improved bookings in commercial OEM and aftermarket," said Cutler. "We now believe that our Aerospace markets will grow by 5 percent in 2011, 1 percent higher than we anticipated in July."
The Truck segment posted sales of $715 million in the third quarter, up 34 percent compared to 2010 and a record quarterly sales level for this segment. Truck production in the third quarter was up 25 percent, with U.S. markets up 51 percent and non-U.S. markets up 7 percent. The segment reported operating profits of $139 million.
"We now expect the NAFTA Class 8 market to total 255,000 units, a small reduction from our forecast in July," said Cutler. "Outside NAFTA, we are seeing a continuation of modest growth.
"Our Truck segment is performing very well," said Cutler. "We are at record sales levels despite the NAFTA markets still operating well below the peak levels of 2006. This reflects the substantial growth we have had in our non-NAFTA truck business over the last five years."
The Automotive segment posted third quarter sales of $442 million, up 13 percent over the third quarter of 2010. Global automotive markets were up 8 percent, with U.S. markets up 13 percent and non-U.S. markets up 6 percent. The segment reported operating profits of $62 million.
"Global automotive production in the third quarter of 2011 was unusually strong, and this strength, along with solid execution across our business, allowed us to earn very attractive margins," said Cutler.
Eaton Corporation is a diversified power management company with 2010 sales of $13.7 billion. Celebrating its 100th anniversary in 2011, 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 73,000 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 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 discussed during the call.
This news release contains forward-looking statements concerning our fourth quarter 2011 tax rate, our fourth quarter and full year 2011 net income per share and operating earnings per share, and 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; the availability of credit to customers and suppliers; 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 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 three months and nine months ended September 30, 2011.
Scott Schroeder, Media Relations (216) 523-5150
Donald Bullock, Investor Relations (216) 523-5127
Donald Bullock, Investor Relations (216) 523-5127