3nd UPDATE: Eaton 1Q Profit Up 83%; Raises Full-Year View
April 20 2011 - 1:34PM
Dow Jones News
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," Chairman and Chief Executive Alexander Cutler
said during a conference call Wednesday with analysts.
Increased spending on capital equipment translated 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, grew 20% from a year ago, as the unit's
operating profit rose 27%. The company noted that it is beginning
to see improvement in electrical equipment sales for nonresidential
buildings, particularly in the oil and gas production
installations. Eaton also is seeing rising sales of backup power
systems for computer server centers as companies increasingly
combine smaller, separate server rooms into larger sites that
require new power and temperature control equipment.
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."
Cutler said the Japan's March 11 earthquake and tsunami will
likely have only a minor impact on Eaton's operations with most of
the effects coming in the second quarter as Japanese companies with
disrupted production capacity and logistics attempt to replenish
depleted inventories of components, particularly for the automotive
industry.
"It's very hard to estimate" the effects, Cutler said. "What
most people are speculating about is the second-quarter production
in automotive."
Eaton expects favorable currency rates to add $200 million to
sales this year, mostly as a result of the rising value of the Euro
against the U.S. dollar and an higher in inflation in Brazil.
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 grew 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 1.4% at $53.35 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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