CLEVELAND ... Diversified industrial manufacturer Eaton Corporation (NYSE:ETN) today announced a net loss per share of $0.30 for the first quarter of 2009. This compares to net income per share of $1.64 in the first quarter of 2008. Sales in the quarter were $2.8 billion, 20 percent below the same period in 2008, reflecting the impact of the global recession. Net income was a loss of $50 million.
Net income in both periods included charges for integration of acquisitions. Before acquisition integration charges, the operating loss per share in the first quarter of 2009 was $0.22 versus operating earnings per share of $1.70 in 2008. The operating loss for the first quarter of 2009 was $36 million compared to operating earnings of $256 million in 2008.
Alexander M. Cutler, Eaton chairman and chief executive officer, said, “Our first quarter results reflect the impact of the severe downturn in many of our end markets and the expenses associated with personnel reductions made in the first quarter. Weaker than expected markets were partially offset by lower than originally anticipated severance expense. The lower severance expense was primarily due to the length of time it has taken to conclude severance plans in several countries. The sales decline in the first quarter of 20 percent consisted of a 20 percent decline in organic growth, an 8 percent decline due to lower foreign exchange rates, and 8 percent growth from acquisitions. Our end markets declined 21 percent in the quarter.
“We generated strong cash flow in the first quarter, with operating cash flow totaling $107 million and free cash flow totaling $59 million, the second highest free cash flow for the first quarter we have ever had,” said Cutler. “In addition, we issued $550 million of term debt in March, at attractive rates. The combination of our strong cash flow and the term debt issuance allowed us to reduce commercial paper at the end of March to $172 million, a substantial reduction from the $767 million of commercial paper outstanding at the end of December.
“We have been very pleased with our cash generation over the last six months, the two most challenging quarters of the current recession,” said Cutler. “Our operating cash flow over the last six months totaled $731 million.
“We now anticipate our end markets for all of 2009 will decline between 15 and 16 percent as the recovery in the U.S. and Western European economies will be pushed out one quarter, with the recovery now more likely to begin in the first quarter of 2010,” said Cutler. “As a result of the expected greater market decline in 2009, we are continuing to adjust our corporate-wide resource levels.
“Given the uncertain end market demand, it is very difficult to provide guidance for the second quarter. Assuming our sales in the second quarter total between $3.0 billion and $3.1 billion, coupled with the additional charges we expect in the quarter, we anticipate net income per share for the second quarter of 2009 to be approximately $0.15 and operating earnings per share, which exclude charges to integrate our recent acquisitions, to be approximately $0.25. As a result of our lower market forecast for 2009, we are lowering our full-year guidance to net income per share of between $2.10 and $2.60 and operating earnings per share of between $2.50 and $3.00. Our second half 2009 and full year 2010 results will be strengthened by the savings from the resource adjustment actions taken during the first half of 2009.
Business Segment ResultsSales for the Electrical Americas segment were $859 million, down 6 percent from 2008. Operating profits were $106 million. Excluding acquisition integration charges of $1 million during the quarter, operating profits were $107 million, down 25 percent from 2008.
“End markets for our Electrical Americas segment declined 10 percent during the first quarter,” said Cutler. “While our large project business held up well, our short-cycle component businesses all registered steep declines.
“Our bookings in the Electrical Americas segment, adjusted for foreign exchange and acquisitions, were down 11 percent from the first quarter a year ago.”
Sales for the Electrical Rest of World segment were $544 million, an increase of 38 percent over the first quarter of 2008. The 38 percent sales increase was made up of 70 percent growth from acquisitions, offset by a 16 percent decline from foreign exchange and a volume decline of 16 percent. The segment reported an operating loss of $6 million. Excluding $16 million of charges to integrate our recent acquisitions, the segment had operating profits of $10 million, down 52 percent compared to the first quarter of 2008.
“The markets in Europe and Asia Pacific declined markedly in the first quarter and our bookings declined by 20 percent,” said Cutler. “We experienced significant inventory destocking in most of our channels as customers moved aggressively to reduce their inventory levels. We are starting to see some signs that Asian markets are stabilizing, but have yet to see such signs in Europe.”
Hydraulics segment sales were $430 million, down 35 percent compared to the first quarter of 2008. Global hydraulics markets were down approximately 30 percent in the quarter.
Operating profits in the first quarter were $6 million. Excluding acquisition integration charges of $1 million during the quarter, operating profits totaled $7 million, a decrease of 91 percent from the first quarter of 2008.
“The hydraulics markets in the first quarter suffered from prolonged shutdowns and cancellations of orders by many OEM customers. In addition, our distributor channel partners also significantly curtailed their level of orders,” said Cutler. “For all of 2009, we now believe hydraulics markets are likely to decline by 25 percent.”
Aerospace segment sales were $418 million, 3 percent lower than the first quarter of 2008. Aerospace markets declined 4 percent compared to the first quarter of 2008.
Operating profits in the first quarter were $71 million. Excluding acquisition integration charges of $2 million during the quarter, operating profits were $73 million, an increase of 4 percent compared to a year earlier.
“We anticipate the global aerospace market will decline by about 5 percent in 2009,” said Cutler. “The decline is driven by reduced commercial passenger traffic and by a sharp decline in business jet production.”
The Truck segment posted sales of $292 million, down 49 percent compared to the first quarter of 2008. The segment reported an operating loss in the first quarter of $34 million.
Truck production in the first quarter is forecasted to have declined by 27 percent, with U.S. markets down 32 percent and non-U.S. markets down 20 percent. While it is difficult to determine precisely, it appears that purchases of components by global truck OEMs and aftermarket channel partners declined even more severely than truck production, as significant destocking occurred throughout the channel.
The Automotive segment posted first quarter sales of $270 million, down 50 percent from the first quarter of 2008. The segment posted an operating loss in the first quarter of $46 million. Excluding acquisition integration charges of $1 million, the operating loss was $45 million. Global automotive markets were down 40 percent, with U.S. markets down 51 percent and non-U.S. markets down 35 percent.
“The world auto markets in the first quarter suffered their sharpest decline in decades,” said Cutler. “For the year as a whole, we now anticipate global automotive markets will decline by 23 percent, with U.S. production down 25 percent and non-U.S. production down 22 percent.”
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 75,000 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 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 on the home page. Also available on the Web site prior to the call will be a presentation on first quarter results, which will be covered during the call.
This news release contains forward-looking statements concerning the second quarter 2009 sales, second quarter and full year 2009 net income per share and operating earnings per share, our worldwide markets, and our growth in relation to 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; 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.
Financial ResultsView the company’s comparative financial results for the three months ended March 31, 2009.
Kelly Jasko (216) 523-4736 (Media Relations)
William C. Hartman (216) 523-4501 (Investor Relations)
