Eaton Announces Net Income Per Share in the Third Quarter of $1.02

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Eaton Announces Net Income Per Share in the Third Quarter of $1.02

Record Quarterly Electrical Results Drive Earnings Performance
Acquisition of Cooper Industries plc on Track to Close in Fourth Quarter

CLEVELAND--(BUSINESS WIRE)-- Diversified industrial manufacturer Eaton Corporation (NYS: ETN) today announced net income per share of $1.02 for the third quarter of 2012, a decrease of 5 percent from the $1.07 earned in the record third quarter of 2011. Sales in the third quarter were $3.95 billion, 4 percent below the third quarter of 2011. Net income in the third quarter was $345 million compared to $365 million in 2011.


Net income in both periods included charges for integration of acquisitions. Before these acquisition integration charges, operating earnings per share in the third quarter of 2012 were $1.07 compared to $1.08 per share in 2011, a decrease of 1 percent. Operating earnings in the third quarter were $363 million compared to $367 million in 2011.

Alexander M. Cutler, Eaton chairman and chief executive officer, said, "Our third quarter results came in very close to our expectations despite the slowdown in economic growth which we discussed in September at several investment conferences. Economic growth in the EU and China remained subdued during the quarter, while industrial activity in the U.S. decelerated during the quarter reflecting uncertainties over fiscal reforms that have led customers to hold back on purchases. As a result, we expect our markets for full year 2012 will show less growth than we had anticipated earlier in the year, with our markets for the year now estimated to grow between 1 to 2 percent.

"Sales in the third quarter declined by 4 percent compared to the third quarter of 2011," said Cutler. "This reduction in sales was comprised of declines of 2 percent from core growth and 4 percent from foreign exchange, offset by 2 percent growth from acquisitions. End markets declined 1 percent in the quarter.

"We are pleased with our 14.6 percent segment operating margin in the third quarter," said Cutler. "Our electrical segments posted particularly strong margins, with the Electrical Americas segment registering an operating margin of 18.2 percent and the Electrical Rest of World segment registering an operating margin of 11.2 percent.

"Our operating cash flow in the third quarter was $606 million," said Cutler. "We expect our operating cash flow in the fourth quarter to be even stronger, reflecting our typical seasonal pattern.

"For the fourth quarter we anticipate our sales, prior to any impact from the close of the Cooper transaction, are likely to be about the same as the third quarter," said Cutler. "Our results in the fourth quarter will also be impacted by the expected close of the Cooper acquisition. In addition to Eaton's operating results, we expect our fourth quarter results to contain a partial quarter of Cooper operating results, purchase price accounting adjustments, and financing costs and the additional share count associated with closing the Cooper transaction. As a result, we anticipate to incur certain expenses in the fourth quarter related to the acquisition originally forecast to be incurred in 2013.

"We are pleased that Eaton's and Cooper's shareholders approved the Cooper acquisition last Friday," said Cutler. "We are awaiting two additional regulatory approvals and expect the acquisition to close in the fourth quarter. We are excited about the addition of Cooper to Eaton, as the combined company will have approximately 60 percent of its sales in the electrical markets, based on 2011 results, which are holding up well through this current period of global softness. In addition, Cooper's profitability, as shown in its third quarter earnings release, remains quite strong."

Business Segment Results

Third quarter sales for the Electrical Americas segment were $1.14 billion, up 6 percent compared to 2011 and a quarterly record for this segment. Operating profits in the third quarter were a record $207 million. Excluding acquisition integration charges of $1 million during the quarter, operating profits were a record $208 million, up 31 percent over results in 2011.

"End markets for our Electrical Americas segment grew 4 percent during the third quarter," said Cutler. "Both the nonresidential and residential electrical markets posted particularly strong growth in the quarter.

"Our bookings in the Electrical Americas segment, adjusted for foreign exchange and acquisitions, decreased 3 percent compared to our all-time record third quarter of 2011," said Cutler. "We did book some particularly large orders in October. We expect that our Electrical Americas markets in 2012 will grow by 6 percent.

"At the end of September, we completed the acquisition of Chilean electrical manufacturer Rolec Comercial e Industrial S.A.," said Cutler. "Rolec significantly expands our capabilities to serve mining and other heavy industrial applications in Chile and Peru."

Sales for the Electrical Rest of World segment were $686 million, a decline of 9 percent compared to the third quarter of 2011. The sales decrease was comprised of a decline of 6 percent from foreign currency and 3 percent from core sales. The segment reported operating profits of $76 million. Excluding acquisition integration costs of $1 million during the quarter, operating profits were $77 million, up 24 percent over results in 2011.

"Our markets in the third quarter declined 6 percent," said Cutler. "Our bookings for the Electrical Rest of World segment, adjusted for foreign exchange and acquisitions, declined 3 percent in the quarter. For all of 2012, we continue to believe that the markets in our Electrical Rest of World segment will decline by 3 percent."

Hydraulics segment sales were $763 million, up 6 percent compared to the third quarter of 2011. The sales increase was comprised of a 13 percent increase from acquisitions offset by a decline of 4 percent from core sales and 3 percent from foreign exchange. Global hydraulics markets were down 4 percent in the quarter, with U.S. markets down 1 percent and non-U.S. markets down 6 percent.

Operating profits in the third quarter were $93 million. Excluding acquisition integration costs of $5 million during the quarter, operating profits were $98 million, down 11 percent from the third quarter of 2011.

"Global hydraulics markets in the third quarter were impacted by a slowdown in capital expenditures, particularly in the construction equipment industries in the U.S. and China," said Cutler. "We believe the slowdown has been caused primarily by general economic uncertainties in both countries, which has resulted in some customers postponing purchases. Our bookings, adjusted for foreign exchange and acquisitions, declined 25 percent in the third quarter from last year's record third quarter. For all of 2012, we now believe global hydraulics markets will decline 2 percent, 5 percent lower than we had expected in July.

"We were pleased to close our acquisition of South Korean hydraulics manufacturer Jeil during the third quarter," said Cutler. "Jeil brings to Eaton an exciting range of motors and valves for the construction equipment market."

Aerospace segment sales were $419 million, flat with the third quarter of 2011. Aerospace markets were up 4 percent compared to the third quarter of 2011. Operating profits in the third quarter were $49 million, down 31 percent from the third quarter of 2011.

"Our Aerospace margins were 11.7 percent," said Cutler. "The margins were impacted by the continued shift in the mix to a higher percentage of commercial OEM business, as well as volume modestly below our earlier expectations.

"Aerospace bookings decreased 7 percent during the third quarter, adjusted for foreign exchange, reflecting in particular the decline in defense aerospace markets," said Cutler. "We continue to believe that our Aerospace markets will grow by 4 percent in 2012."

The Truck segment posted sales of $549 million in the third quarter, down 23 percent compared to 2011. Truck production in the third quarter was down 8 percent, with U.S. markets down 3 percent and non-U.S. markets down 11 percent. The segment reported operating profits of $103 million, down 26 percent compared to the third quarter of 2011.

"We now expect the NAFTA Class 8 market to total 270,000 units, a reduction from our forecast in July, largely driven by the uncertain economic outlook in the U.S.," said Cutler. "Despite the lower level of truck sales in the third quarter, our margins remained strong at 18.8 percent."

The Automotive segment posted third quarter sales of $390 million, down 12 percent from the third quarter of 2011. Global automotive markets were flat, with U.S. markets up 8 percent and non-U.S. markets down 3 percent. The segment reported operating profits of $41 million, down 34 percent from the third quarter of 2011.

"U.S. automotive production in the third quarter of 2012 was strong while European automotive production in the quarter declined considerably," said Cutler. "For all of 2012, we now expect global automotive markets to grow 2 percent, 1 percent less than our expectations in July."

Eaton Corporation is a diversified power management company with more than 100 years of experience providing energy-efficient solutions that help our customers effectively manage electrical, hydraulic and mechanical power. With 2011 sales of $16.0 billion, Eaton is a global technology leader in electrical components, systems and services for power quality, distribution and control; hydraulics components, systems and services for industrial and mobile equipment; aerospace fuel, hydraulics and pneumatic systems for commercial and military use; and truck and automotive drivetrain and powertrain systems for performance, fuel economy and safety. Eaton has approximately 74,000 employees and sells products to customers in more than 150 countries. For more information, visit www.eaton.com.

Notice of conference call: Eaton's conference call to discuss its third quarter results is available to all interested parties as a live audio webcast today at 10 a.m. Eastern time via a link on the center of Eaton's home page. This news release can be accessed under its headline on the home page. Also available on the website prior to the call will be a presentation on third quarter results, which will be discussed during the call.

This news release contains forward-looking statements concerning our fourth quarter sales, the closing of the Cooper acquisition, 2013 results and our worldwide markets. These statements should be used with caution and are subject to various risks and uncertainties, many of which are outside the company's control. The following factors could cause actual results to differ materially from those in the forward-looking statements: unanticipated changes in the markets for the company's business segments; unanticipated downturns in business relationships with customers or their purchases from us; the availability of credit to customers and suppliers; competitive pressures on sales and pricing; increases in the cost of material and other production costs, or unexpected costs that cannot be recouped in product pricing; the introduction of competing technologies; unexpected technical or marketing difficulties; unexpected claims, charges, litigation or dispute resolutions; strikes or other labor unrest; the impact of acquisitions and divestitures; unanticipated difficulties in completing or integrating acquisitions including Cooper; failure to close the Cooper acquisition; new laws and governmental regulations; interest rate changes; stock market and currency fluctuations; and unanticipated deterioration of economic and financial conditions in the United States and around the world. We do not assume any obligation to update these forward-looking statements.

Financial Results

The company's comparative financial results for the three months and nine months ended September 30, 2012 are available on the company's website, www.eaton.com.

        
 
EATON CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
 
 

Three months
ended
September 30

  

Nine months
ended
September 30

(In millions except for per share data)2012201120122011
Net sales$3,950$4,123$11,978$12,016
 
Cost of products sold2,7472,9008,3168,444
Selling and administrative expense6876682,0792,031
Research and development expense102104313316
Interest expense-net422910092
Other (income) expense-net(4)(10)7 (30)
Income before income taxes3764321,1631,163
Income tax expense29 65 123 172 
Net income3473671,040991
Less net income for noncontrolling interests(2)(2)(2)(3)
Net income attributable to Eaton common shareholders$345 $365 $1,038 $988 
 
Net income per common share
Diluted$1.02$1.07$3.05$2.86
Basic1.021.073.082.90
 
Weighted-average number of common shares outstanding
Diluted339.8341.9339.7344.4
Basic337.6338.1336.7339.7
 
Cash dividends declared per common share$0.76$0.34$1.52$1.02
 

Reconciliation of net income attributable to Eaton common shareholders to operating earnings

Net income attributable to Eaton common shareholders$345$365$1,038$988
Excluding acquisition integration charges (after-tax)18 2 30 6 
Operating earnings$363 $367 $1,068 $994 
 
Net income per common share - diluted$1.02$1.07$3.05$2.86
Excluding per share impact of acquisition integration charges (after-tax)0.05 0.01 0.09 0.02 
Operating earnings per common share$1.07 $1.08 $3.14 $2.88 
 

See accompanying notes.

        
 
EATON CORPORATION
BUSINESS SEGMENT INFORMATION
 
 

Three months
ended
September 30

  

Nine months
ended
September 30

(In millions)2012201120122011
Net sales
Electrical Americas$1,143$1,074$3,363$3,071
Electrical Rest of World6867552,0202,285
Hydraulics7637172,2672,130
Aerospace4194201,2851,218
Truck5497151,8051,964
Automotive390 442 1,238 1,348 
Total net sales$3,950 $4,123 $11,978 $12,016 
 
Segment operating profit
Electrical Americas$207$156$559$432
Electrical Rest of World7662181209
Hydraulics93109325335
Aerospace4971168166
Truck103139339349
Automotive41 62 133 167 
Total segment operating profit5695991,7051,658
 
Corporate
Amortization of intangible assets(45)(47)(129)(143)
Interest expense-net(42)(29)(100)(92)
Pension and other postretirement benefits expense(41)(35)(121)(105)
Other corporate expense-net(65)(56)(192)(155)
Income before income taxes3764321,1631,163
Income tax expense29 65 123 172 
Net income3473671,040991
Less net income for noncontrolling interests(2)(2)(2)(3)
Net income attributable to Eaton common shareholders$345 $365 $ Read Full Story

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