2nd UPDATE: Eaton 1Q Profit Up 83%; Raises Full-Year View

Eaton Corp.'s (ETN) first-quarter earnings rose 83%, as the diversified industrial company benefited from rising demand for farm and construction machinery and a rebounding market for commercial trucks.

Eaton reported a string of double-digit profit and sales gains in its major business categories, allowing the company to exceed expectations for the first quarter and giving executives the confidence to raise their full-year earnings outlook.

"All and all, a very strong start to what we think is going to be a record year," said Chairman and Chief Executive Alexander Cutler during a conference call Wednesday with analysts.

Increased spending on capital equipment is translating into elevated demand for Eaton's products. The Cleveland company supplies electrical equipment, hydraulic components for farm and construction equipment, aerospace systems and parts for cars and commercial trucks.

In Eaton's hydraulics business, which supplies components to Caterpillar Inc. (CAT) and Deere & Co. (DE), first-quarter operating profit nearly doubled from a year ago as sales rose 40%.

"The hydraulics markets in the first quarter continued their V-shape recovery from the sharp downturn in 2008 and 2009," Cutler said.

The company's truck business had a 96% increase in operating income and 27% increase in sales, as the commercial truck industry snapped back following a prolonged slump in demand for trucks. The company raised its industrywide forecast for heavy-duty truck production in North America this year to 265,000 vehicles, up from 240,000 trucks previously. Cutler said he suspects actual demand for heavy-duty trucks may be higher than the revised figure, but added that production capacity constraints will likely limit the volume to about 265,000 trucks.

Electrical sales in the Americas, Eaton's largest business segment by revenue, jumped 20% from a year ago, as the unit's operating profit rose 27%. The company noted that it's beginning to see improvement in electrical equipment sales for nonresidential buildings, particularly in the oil and gas production installations.

In Eaton's aerospace business, which has been the company's weakest in recent quarters, first-quarter operating profit slipped 8% while sales grew 2%. The operating profit margin for the unit fell to 11.6% from 13.3% a year earlier.

"We're not particularly pleased by our performance in [aerospace] this quarter and we're looking to improve in the second half" of the year, Cutler said. "Our margins in aerospace were impacted by increased expenses stemming from changes in scope, programming delays and execution of new customer programs."

Eaton expects favorable currency exchange rates will add $200 million to sales this year. The company earlier had anticipated no benefit from currency rates.

Eaton raised its full-year earnings estimate from February by 15 cents a share, to $3.70 to $4 a share before acquisition costs. It also forecast second-quarter earnings of 90 cents to 96 cents a share, excluding acquisition costs. Analysts surveyed by Thomson Reuters expect the company to earn $3.81 a share for 2011 and 93 cents for the current quarter.

For the quarter ended March 31, Eaton had a profit of $286 million, or 83 cents a share, up from $156 million, or 46 cents a share, a year earlier.

Excluding acquisition charges, earnings rose to 84 cents a share from 48 cents. Sales jumped 23% to $3.8 billion. Analysts expected the company to earn 80 cents a share on revenue of $3.65 billion.

Eaton's stock was recently trading up 0.78% at $53.04 a share.

-By Bob Tita, Dow Jones Newswires; 312-750-4129; robert.tita@dowjones.com

--Melodie Warner contributed to this article.

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