ETN Eaton Corp New

Industrial manufacturer Eaton Corporation (ETN) today released its first quarter 2011 earnings results, which grew 75% year over year, on a per share basis, mainly on a 14% end-market growth.

Eaton’s operating earnings per share reached 84 cents in the quarter, beating the Zacks Consensus Estimate of 80 cents and exceeding the first quarter guidance range of $1.50 - $1.60. In the year-ago period, the Cleveland, Ohio-based company had earned 48 cents per share.

Revenue

In the first quarter, Eaton earned net quarterly revenue of $3.8 billion, above the Zacks Consensus Estimate of $3.6 billion, up 23% from the year-ago comparable period. Revenue growth in the quarter stemmed mainly from a 19% rise in organic sales, 2% from acquisitions and 2% from higher foreign exchange rates.

During the quarter, Eaton witnessed robust sales growth across all its business segments, with Electrical Americas, Hydraulics and Truck markets growing more strongly than expected.

Segment Analysis

Electrical Americas: Within its Electrical unit, Electrical Americas’ revenues improved 20% from the year-ago quarter to $964 million, while operating profit (excluding acquisition integration charges) was up 27% to $135 million.

Growth in Electrical Americas’ revenues reflected a 14% growth in end-markets and 21% growth in order bookings. The company witnessed solid growth in the industrial markets in the first quarter and anticipates recovery in the nonresidential construction activity by the middle of this year.

Electrical Rest of the World: Electrical Rest of the World segment’s sales was up 22% to $743 million. Operating income of $70 million was up 67% from the year-ago level. Segment bookings and end-markets recorded a growth of 9% each during the quarter.

Hydraulics: At $685 million, Hydraulics segment sales rose 40% over the prior year, while operating profits came in at $106 million, up 96% from the corresponding quarter last year. Hydraulics markets in the quarter grew 27%. Segment bookings in the quarter set a new record and showed a 39% growth from last year.

Aerospace: Segment sales in the first quarter grew 3%, while operating profits declined 8% compared to last year. Aerospace markets grew 2% in the quarter. However, margins in Aerospace segment suffered due to the increased expenses stemming from changes in scope, program delays, and execution of new customer programs. The company expects margins to improve by the second half of the year.

Truck: The Truck segment posted a 27% improvement in sales to $576 million. It earned operating income of $90 million during the quarter, an increase of 96% from the year-ago quarter. Eaton benefited from a 20% increase in truck markets, with U.S. markets growing 36% and non-U.S. markets up 9%.

Automotive: Helped by a 13% growth in the global auto markets, the segment’s first quarter sales grew 19% year over year to $446 million. It posted an operating profit of $50 million, an increase of 19% from last year.

Guidance

With greater-than-expected market growth recorded for the Electrical Americas, Hydraulics and Truck segments in the first quarter, Joy Global has raised its growth expectations for these three markets in 2011.

The company has revised its growth guidance for the Electrical Americas markets and Hydraulics markets to 7% (up 1% from prior estimate) and 18% (up 2% from prior estimate), respectively.  Also, the company now anticipates its overall end-markets to grow by 10% in 2011.

Given its strong first quarter and the revised market outlook for 2011, Eaton has now raised its full-year GAAP earnings guidance by 15 cents to $3.66 - $3.96 per share, while adjusted earnings are expected to be between $3.70 and $4.00 per share.

Eaton expects adjusted earnings per share for the second quarter to be in the range of 90 - 96 cents, while GAAP earnings, including integration charges, are expected to be in the 89 - 95 cents range.

Our View

 Eaton Corporation is a leading supplier of power accessories in the aerospace industry and has customers in 150 countries. The company has been consistently outperforming estimates in the past few quarters and we expect this trend to continue given the strong end-market growth witnessed in the first quarter and the company’s revised 10% market growth target.

Eaton Corporation currently has a Zacks #3 Rank (short-term Hold rating). The company competes with ITT Corporation (ITT) and Johnson Controls Inc. (JCI), which both also carry a short-term Zacks #3 Rank (Hold).

 
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