UPDATE: Eaton Raises 2011 EPS Guidance On Improving Hydraulics Business
February 25 2011 - 12:15PM
Dow Jones News
Eaton Corp. (ETN) on Friday raised its 2011 earnings forecast on
expectations for stronger growth in its hydraulics business and
improving operating margins.
The company anticipates per-share earnings in a range of $7.10
to $7.70, compared with $7 to $7.60 a share forecast in January.
Eaton predicted that half of the 10-cent increase will be reflected
in the company's first-quarter operating earnings. As a result, the
Cleveland industrial conglomerate raised its first-quarter guidance
to a range of $1.55 to $1.65 a share from $1.50 to $1.60 a
share.
The company attributed the higher earnings forecast largely to
its hydraulics business. Eaton now expects 16% growth in its
hydraulics market this year from 2010. Last month the company
predicted 12% end-market growth.
Eaton supplies hydraulics systems and components used in mobile
machinery and stationary industrial equipment, including
earth-moving equipment, farm machinery, filtration systems, machine
tools and power-generation equipment. Eaton's hydraulics business
reported sales of $3.2 billion last year. The company anticipates
its hydraulics operating margin will increase to 14.5% in 2011 from
12.7% last year.
The company sees particular strength in the U.S. hydraulics
market, where elevated spending on capital equipment by businesses
is driving growth. The company predicted that its U.S. hydraulics
market will increase 19% from 2010, up 6 percentage points from
Eaton's January forecast.
Eaton also expects widespread improvement this year in its other
industrial markets, which include electrical equipment, aerospace,
commercial trucks and automotive. Eaton's product lines are mostly
built around components and systems that manage or conserve power.
Many of the company's markets are highly cyclical, particularly the
truck market, which is emerging from a slump that began in 2007.
Eaton supplies transmissions, clutches and hybrid power components
for commercial trucks and buses.
"We think the truck market is in store for a few very, very good
years," said Eaton Chief Economist Jim Meil during a presentation
to analysts in New York.
Meil said moderate economic growth in the U.S. and Europe, along
with continued strong growth rates in developing countries should
provide sufficient momentum for Eaton's markets through 2011.
"We're happy with the recovery, but we wouldn't call it a
four-star recovery," Meil said. "It will be an average recovery for
the major [developed economies]. The real horsepower behind the
global recovery will come from" Brazil, Russia, India and
China.
The company expects its overall operating margin this year to
reach an all-time high of 14%, up from 12.7% in 2010. The company
Friday raised its long-term operating margin target to 16% by 2015,
compared with an earlier goal of 15% by 2014.
Eaton's stock was recently trading up 2.2% at $107.21 a
share.
-By Bob Tita, Dow Jones Newswires; 312-750-4129;
robert.tita@dowjones.com
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