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Date October 24, 2008.
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Eaton Reports Third Quarter Earnings Per Share Growth Of 9 Percent.
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CLEVELAND …Diversified industrial manufacturer Eaton Corporation (NYSE:ETN) today announced net income per share of $1.87 for the third quarter of 2008, an increase of 9 percent over net income per share of $1.71 in the third quarter of 2007. Sales in the quarter were $4.1 billion, 25 percent above the same period in 2007. Net income was $315 million compared to $258 million in 2007, an increase of 22 percent. |
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Net income in both periods included charges related to the integration of acquisitions. Before these acquisition integration charges, operating earnings per share in the third quarter of 2008 were $1.95 versus $1.79 in 2007, an increase of 9 percent.
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Alexander M. Cutler, Eaton chairman and chief executive officer, said, “Our third quarter operating earnings were in the middle of our guidance, despite the global financial instability experienced during the quarter. Sales growth of 25 percent in the quarter consisted of 4 percent from organic growth, 19 percent from acquisitions, and 2 percent from exchange rates. Our end markets grew by 2 percent this quarter and we outgrew end markets by 2 percent. |
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“Eaton’s diversification strategy is working. Our improved geographic and business balance allowed us to post strong earnings despite the turmoil in world financial markets,” said Cutler.
“Our margin performance in the third quarter was also strong, with our largest segment -- Electrical -- realizing a record operating margin before acquisition integration charges of 14.1 percent. |
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“The severe issues in world financial markets have started to impact markets for our products. While it is not possible to forecast with precision the prospective impact upon our end markets, prudence suggests anticipating a significant slowdown,” said Cutler. “While our year-over-year end market growth in the third quarter was 2 percent, we anticipate fourth quarter growth in our end markets to be flat with the prior year. |
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| “Accordingly, we now anticipate that fourth quarter net income per share will be between $1.55 and $1.65 and operating earnings per share, which exclude charges to integrate our recent acquisitions, will be between $1.70 and $1.80,” said Cutler. “Note that acquisition integration charges are expected to rise in the fourth quarter compared to the level in the third quarter as we continue to integrate our recent electrical acquisitions. |
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| “For the full year, due to our reduced outlook for the fourth quarter, we anticipate that net income per share will be between $7.10 and $7.20, and operating earnings per share will be between $7.45 and $7.55,” said Cutler. |
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| Business Segment Results |
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| Third quarter sales for the Electrical segment were $1.94 billion, up 59 percent over 2007 and a quarterly record. Operating profits in the third quarter were $259 million, also a quarterly record. Operating profits before acquisition integration charges of $14 million were $273 million, up 71 percent over results in 2007. |
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| “End markets for our electrical business grew about 4 percent during the third quarter,” said Cutler. “Despite the difficulties in the financial markets, the global electrical distribution and control markets and electrical power quality markets have held up well, although there are early indications that markets are beginning to slow. As a result, we expect end market growth in the Electrical segment over the balance of the year to be closer to 2 percent. |
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| “We are very pleased with the record 14.1 percent operating margin we achieved in the quarter, reflecting the enhanced balance and performance of our electrical business,” said Cutler. “Our electrical business continues to benefit from a strong order backlog, with orders in the quarter up 6 percent over the third quarter of 2007. |
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| “Among significant new business received in the third quarter was a contract with BT for the supply and installation of DC power systems and related products,” said Cutler. “Revenues over the four-year life of the contract are estimated to total $100 million.” |
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| In the Hydraulics segment, third quarter sales were $638 million, 7 percent above the third quarter of 2007. Hydraulics markets in the third quarter grew 3 percent compared to the same period in 2007, with U.S. markets up 3 percent and non-U.S. markets up just under 4 percent. |
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| Operating profits in the third quarter were $71 million. Operating profits before acquisition integration charges were $72 million, up 14 percent compared to a year earlier. |
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| “The U.S. and European hydraulics markets experienced a lower growth rate in the third quarter compared to the second quarter,” said Cutler. “We anticipate that the rate of growth in the fourth quarter will likely decline more, but still remain positive. |
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| “We have expanded our European hydraulics business with the acquisition at the beginning of October of Integrated Hydraulics, a U.K. manufacturer of screw-in cartridge valves and manifold systems,” said Cutler. |
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| The Aerospace segment posted third quarter sales of $469 million, an increase of 12 percent over the third quarter of 2007. Aerospace markets in the third quarter grew 2 percent. Non-U.S. markets are estimated to have grown 15 percent, driven by strong deliveries by Airbus, while U.S. markets declined 5 percent, driven by a significant decline in shipments of new aircraft from Boeing as a result of the strike. |
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| Operating profits in the third quarter were $75 million. Excluding acquisition integration charges of $4 million, operating profits were $79 million, an increase of 10 percent over the third quarter of 2007. |
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| “The U.S. markets were impacted in the quarter by the strike at Boeing and a reduction in the size of commercial airline fleets,” said Cutler. “We anticipate aerospace markets to grow 2 percent in the fourth quarter. |
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| “In early October we were awarded a contract with Embraer to supply four systems on the new Legacy 450 and 500 business jets,” said Cutler. “We anticipate revenues of $100 million over the life of these programs.” |
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| The Truck segment posted sales of $620 million in the third quarter, up 15 percent compared to 2007. Truck markets in the third quarter were up 6 percent, with U.S. markets up 3 percent and non-U.S. markets up 11 percent. Operating profits were $95 million, the same as in 2007. |
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| “Third quarter production of NAFTA heavy-duty trucks totaled 51,000 units, about 12 percent less than in the second quarter,” said Cutler. “We expect that production in the fourth quarter will decline further. As a result, we estimate full-year NAFTA heavy-duty truck production will total 200,000 to 205,000 units. The lower volumes in the NAFTA heavy-duty truck market are being offset somewhat by continued strength in the Brazilian vehicle and agricultural equipment markets. |
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| “We are very pleased with the 15.3 percent operating margin posted by our truck business in the quarter,” said Cutler. “The margin reflects the diversity of our products and operating geographies, as well as the success of our reconfigured manufacturing footprint.” |
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| The Automotive segment posted third quarter sales of $446 million, down 14 percent from the third quarter of 2007. Automotive unit production in the third quarter declined 6 percent, with North American production down 17 percent and production outside the U.S. up 2 percent compared to the third quarter of 2007. |
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| Operating profits in the third quarter were $18 million. Operating profits before acquisition integration charges were $19 million, down 63 percent compared to the third quarter of 2007. |
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“The North American markets were weak all quarter, and Europe, Brazil and China weakened dramatically toward the end of the quarter,” said Cutler. “The sharp market slowdown, as well as continued shifts in mix to smaller vehicles in the U.S., impacted our margins in the quarter. For the balance of the year, we anticipate conditions in the U.S. and Europe to weaken further. In developing countries, we also expect modestly slower growth. |
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| “We completed the acquisition of the engine valves business of Kirloskar Oil Engines early in the third quarter,” said Cutler. “This acquisition gives us a good position in the Indian car market, and is a significant addition to our global capabilities.” |
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| Eaton Corporation is a diversified power management company with 2007 sales of $13 billion. Eaton is a global technology leader in electrical 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 82,000 employees and sells products to customers in more than 150 countries. For more information, visit www.eaton.com |
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| 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 the microphone on the right side of Eaton’s home page. This news release can be accessed under its headline on the home page. Also available on the Web site prior to the call will be a presentation on third quarter results, which will be covered during the call. |
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| This news release contains forward-looking statements concerning the fourth quarter 2008 and full year 2008 net income per share and operating earnings per share, the performance of our worldwide markets, and revenues under customer contracts. 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, energy 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; the impact of acquisitions, divestitures, and joint ventures; 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. |
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| Financial Results |
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| The company’s comparative financial results for the three months and nine months ended September 30, 2008 and 2007 are available on the company’s Web site, www.eaton.com |
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