UPDATE: Eaton Raises 2012 EPS Outlook; Buying Turkish Hose Maker

Eaton Corp. (ETN) raised its 2012 earnings forecast after announcing the acquisition of a hose manufacturer in Turkey.

The purchase of Polimer Kaucuk Sanayi ve Pazarlama A.S. will add about $225 million to Eaton's sales this year. The deal caused Eaton to raise its projected range of earnings per share on an operating basis by 5 cents to $4.20 to $4.60 per share, from the $4.15 to $4.55 per share forecast in January. With the integration costs for Polimer Kaucuk included, Eaton expects diluted earnings per share will increase by 3 cents to a range of $4.13 to $4.53 per share from $4.10 to $4.50 per share seen last month.

"We're really excited about the acquisition," said Chairman and Chief Executive Alexander Cutler during a presentation to analysts. "It's a company we've known for a long time."

Eaton expects the deal to close by April 30. Eaton did not disclose a purchase price for Polimer Kaucuk, which is headquartered near Istanbul and employs more than 2,100 people. The company, which had sales of $335 million in 2011, manufacturers hydraulic and industrial hoses under the SEL Hose brand name. The company's primary markets include the construction, mining and agricultural, petroleum, and food and beverage industries.

Cutler said the company's exposure to developing overseas markets made it especially attractive to Cleveland-based Eaton, which aims to increases its sales outside of North America.

Eaton's primary business operations include control and management gear for electric power, hydraulic components for farm and construction equipment, aerospace systems and auto components, and transmissions for commercial trucks.

Eaton did nine acquisitions last year. Cutler predicted the company will remain an active shopper in 2012, noting that the company will continue to target companies with significant exposure to developing overseas markets and business lines in hydraulics, aerospace and electrical components.

Cutler said the company's long-range goal of averaging 12% to 14% sales growth annually remains on track, following a 17% increase in 2011 sales and a 16% increase in 2010. Eaton reiterated its 2012 operating margin forecast from January of 14.5% to 15%, up from 14.2% in 2011.

Eaton expects strong end-market demand for its business segments, particularly in automotive and aerospace, to offset uneven global economic performance this year. Eaton believes the U.S. economy will log solid, though unspectacular, growth this year, while Europe endures a mild recession. The company anticipates China and Brazil will be able to reel in rising inflation without choking economic growth. But runaway oil prices and catastrophic events, like Japan's tsunami last year, could undermine the company's economic outlook.

"The world is getting better," said Jim Meil, Eaton's chief economist. "Risk and uncertainty remain unusually high. 2012 is probably a muddle through, slow-growth year."

Eaton's stock was recently up 0.75% at $52.26 a share.

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

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