Adjusted Earnings Per Share of $1.18 for the Third Quarter Excluding Charges of $0.05 Per Share Related to Acquisitions and Divestitures and $0.02 Per Share Related to Multi-Year Restructuring Program
Reaffirming Midpoint and Narrowing Full Year Free Cash Flow Guidance to Between $2.4 Billion and $2.6 Billion
November 3, 2020
DUBLIN, Ireland … Power management company Eaton Corporation plc (NYSE:ETN) today announced that earnings per share were $1.11 for the third quarter of 2020. Excluding charges of $0.05 per share related to acquisitions and divestitures and $0.02 per share related to a multi-year restructuring program, adjusted earnings per share were $1.18.
Sales in the third quarter of 2020 were $4.5 billion. Organic sales were down 9 percent, and the divestitures of the Lighting and Automotive Fluid Conveyance businesses reduced sales by 8 percent, partially offset by 2 percent growth from acquisitions.
Craig Arnold, Eaton chairman and chief executive officer, said, “Our third quarter was stronger than expected, with organic sales down 9 percent, 6 percent better than the midpoint of our guidance range and up 16 percent over the second quarter. We are pleased with our solid results despite the impact of the COVID-19 pandemic.”
“Third quarter segment margins were 17.6 percent, a decremental margin of 25 percent,” said Arnold. “Our decremental margin performance was at the low end of our guidance range. This is a result of strong execution and continued focus on cost controls to offset pandemic-driven volume declines.”
“Operating cash flow in the third quarter was $921 million, and free cash flow was $832 million,” said Arnold. “Our operating cash flow over the last nine months has totaled $2.0 billion, and free cash flow has totaled $1.7 billion. We remain on track to achieve the midpoint of our guidance for 2020 full year free cash flow, which we are narrowing to between $2.4 billion and $2.6 billion.”
“We repurchased $177 million of our shares in the third quarter, making our year-to-date repurchases a total of $1.5 billion,” said Arnold. “For the full year 2020, we continue to target share repurchases of between $1.7 billion and $1.9 billion.”
“The outlook for the fourth quarter remains uncertain due to how the on-going pandemic will impact activity levels in North America and Europe,” said Arnold. “Having said that, most of our businesses are showing good momentum and we remain optimistic the momentum will continue through the end of the year.”
Business Segment Results
Sales for the Electrical Americas segment were $1.7 billion, down 17 percent from the third quarter of 2019, driven by a 20 percent reduction from the divestiture of the Lighting business. Organic sales were up 3 percent and the acquisitions of Innovative Switchgear and Power Distribution, Inc. added 1 percent, while negative currency translation reduced sales by 1 percent. Operating profits were $377 million. Excluding the divested Lighting business, operating profits were up 9 percent over the third quarter of 2019.
“Operating margins were a strong 22.2 percent, up 280 basis points over the third quarter of 2019,” said Arnold. “Our Electrical Americas segment continues to show resilience in challenging conditions, delivering not only strong operating margins but also solid organic sales growth.”
“The twelve-month rolling average of our orders in the third quarter, excluding Lighting, was down 1 percent,” said Arnold. “Despite the slight decline, we saw particular strength in residential and data center orders, and the backlog at the end of September remained strong, up 11 percent over September 2019.”
Sales for the Electrical Global segment were $1.2 billion, down 8 percent from the third quarter of 2019. Organic sales were down 10 percent, partially offset by positive currency translation of 2 percent. Operating profits were $198 million, down 21 percent from the third quarter of 2019.
“Operating margins were 16.6 percent, a decrease of 280 basis points from the third quarter of 2019, reflecting the continued challenges in the oil and gas and industrial markets,” said Arnold. “The twelve-month rolling average of our orders in the third quarter was down 6 percent, also driven by declines in oil and gas and industrial markets. We saw particular strength in residential, data center, and utility markets. The September backlog grew 7 percent over September 2019.”
Hydraulics segment sales were $439 million, down 15 percent from the third quarter of 2019, driven entirely by a decline in organic sales. Organic revenue declined due to continued weakness at both OEMs and distributors. Operating profits were $43 million, down 16 percent from the third quarter of 2019.
“Operating margins in the third quarter were 9.8 percent, flat with the third quarter of 2019,” said Arnold. “Orders in the third quarter increased 8 percent over the third quarter of 2019, driven by strength in agriculture and construction equipment end markets.”
“We remain on track to close the Hydraulics sale to Danfoss by the end of the first quarter of 2021,” said Arnold.
Aerospace segment sales were $540 million, down 13 percent from the third quarter of 2019, driven by the continued downturn in commercial aviation partially offset by growth in military sales. Organic sales were down 26 percent, partially offset by a 12 percent increase from the acquisition of Souriau-Sunbank and 1 percent from the impact of positive currency translation. Operating profits were $100 million, down 35 percent from the third quarter of 2019.
“Operating margins in the quarter were 18.5 percent, representing strong performance in light of the impact of the pandemic on sales,” said Arnold. “The twelve-month rolling average of our orders in the third quarter was down 22 percent, driven by the downturn in commercial markets. Backlog at the end of September was down 11 percent compared to September 2019.”
The Vehicle segment posted sales of $573 million, down 25 percent from the third quarter of 2019. Organic sales were down 20 percent. The divestiture of our Automotive Fluid Conveyance business at the end of last year reduced revenues by 4 percent, and currency translation was negative 1 percent. Operating profits were $80 million, down 42 percent from the third quarter of 2019.
“Conditions have improved in vehicle markets and we are seeing higher NAFTA Class 8 production as well as increased global light vehicle production,” said Arnold. “We expect these trends to continue through year end.”
eMobility segment sales were $79 million, flat with the third quarter of 2019. Organic sales were down 1 percent, which was offset by positive currency translation of 1 percent. The segment recorded an operating loss of $2 million.
Eaton’s mission is to improve the quality of life and the environment through the use of power management technologies and services. We provide sustainable solutions that help our customers effectively manage electrical, hydraulic, and mechanical power – more safely, more efficiently, and more reliably. Eaton’s 2019 revenues were $21.4 billion, and we sell products to customers in more than 175 countries. We have approximately 92,000 employees. For more information, visit www.eaton.com.
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 11 a.m. United States Eastern Time via a link on 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 performance of our end markets, expected restructuring charges and benefits, anticipated share repurchases, the impact of the pandemic on the fourth quarter, the completion date of the sale of our Hydraulics business, and full year 2020 free cash flow. 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: the course of the COVID-19 pandemic and government actions related thereto; 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; natural disasters; the performance of recent acquisitions; unanticipated difficulties completing or 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.
Contact: Margaret Hagan, Media Relations, +1 (440) 523-4343
Yan Jin, Investor Relations, +1 (440) 523-7558