2nd UPDATE: Eaton 2Q Profit Soars On Stronger Demand
July 21 2010 - 12:18PM
Dow Jones News
Eaton Corp.'s (ETN) second-quarter earnings soared as increased
demand for the company's truck, auto and hydraulic components
provided a tailwind for sales and profit growth.
The diversified manufacturer beat expectations for the quarter
and raised its outlook for 2010. The Cleveland company also raised
its quarterly stock dividend 16% to 58 cents a share.
"Our markets were considerably stronger than we thought they
would be," said Chairman and Chief Executive Alexander Cutler
during a conference call with Wall Street analysts Wednesday. "As
we survey our end markets, the year is shaping up better than we
forecast in April."
Eaton now expects its end-markets, which also include electrical
and aerospace sectors, to grow 8% this year, up from 6% growth
forecast in April.
Eaton's strong second-quarter results and Cutler's confidence
about the company's prospects for the rest of the year counter the
recent sentiments that the manufacturing sector is weakening as
consumers and businesses grow more cautious about major
purchases.
Cutler said he sees healthy growth rates in manufacturing and
global economic activity continuing into 2011, noting that the
performance of Eaton's businesses segments remains far below the
market highs reached in 2008 and 2007.
Eaton's stock was recently trading up 6.1% at $73.25 a
share.
Eaton's truck segment was among its business lines that showed
better-than-expected performance in the quarter. Second-quarter
truck segment sales rose 53% from a year ago, with the U.S. market
alone up 32%. Operating profit from the truck segment totaled $59
million, following a $3 million loss a year ago. Eaton makes
transmission, clutches and hybrid power systems for commercial
trucks.
Eaton's automotive segment, one of the company's weakest
businesses last year, reported a 44% increase in second-quarter
sales. U.S. auto industry sales surged 73% from a year ago as
production volumes of passenger vehicles continued to expand off
depressed levels a year ago. Eaton supplies auto makers with gears,
superchargers engine valves and other power train components.
Operating income from the segment swung to $39 million profit after
a $19-million loss a year ago.
Eaton expects global automotive production to slow in the second
half of the year as the auto industry adjusts from a big rebound in
volumes during the first half of the year.
Sales of hydraulic components increased 34% on as construction
machinery manufacturers increase their production after scaling
back in 2009. Operating profit from the segment increased to $77
million, compared with $14 million a year ago.
Eaton projected third-quarter earning of $1.30 to $1.40 a share,
well ahead of Wall Street analysts' estimate of $1.17 a share. The
company also raised its 2010 earnings forecast to a range of $4.90
to $5.10 a share from $4.30 to $4.60 a share.
Cutler said he expects to accelerate spending on business
acquisition as conditions for business deals improve. Eaton last
week announced the purchase of EMC Engineers, a consulting and
engineering firm specializing in energy-system upgrades for
government offices, schools and factories.
For quarter ended June 30, Eaton reported a profit of $226
million, or $1.33 a share, up from $29 million, or 17 cents, a year
earlier. Excluding acquisition and other charges, earnings rose to
$1.36 from 23 cents. The company in April projected $1.10 to
$1.20.
Revenue during quarter climbed 16% to $3.38 billion. Analysts
polled by Thomson Reuters projected earnings of $1.17 a share on
revenue of $3.23 billion.
-By Bob Tita, Dow Jones Newswires; 312-750-4129;
robert.tita@dowjones.com
(Tess Stynes contributed to this article.)
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