CORRECT: Eaton Raises 2011 EPS Guidance On Improving Hydraulics Business

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 $2.3 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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