Eaton First Quarter Operating Earnings Per Share of $0.84 Exceed Midpoint of Guidance by 12 Percent

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Eaton First Quarter Operating Earnings Per Share of $0.84 Exceed Midpoint of Guidance by 12 Percent

Cooper Industries Integration on Track
2013 Earnings Guidance Affirmed

DUBLIN--(BUSINESS WIRE)-- Diversified industrial manufacturer Eaton Corporation plc (NYS: ETN) today announced record quarterly sales and operating profits, driven by the acquisition of Cooper Industries. Sales in the first quarter of 2013 were $5.31 billion, 34 percent above the same period in 2012. Operating earnings for the first quarter of 2013, excluding charges of $22 million to integrate recent acquisitions, were a record $400 million, an increase of 28 percent over 2012. Operating earnings per share, which exclude charges of $0.05 per share to integrate recent acquisitions, were $0.84 for the first quarter of 2013. This result is a decrease of 9 percent from the first quarter of 2012, reflecting the shares issued as part of the acquisition of Cooper Industries and the purchase price accounting charges resulting from the transaction.


Alexander M. Cutler, Eaton chairman and chief executive officer, said, "Our first quarter results are a solid start to the year, coming in above the high end of our guidance despite markets being slightly weaker than our expectations. We were able to generate attractive operating margins, reflecting our enhanced portfolio as a result of the Cooper Industries acquisition and our continued focus on productivity improvements.

"Our 34 percent sales growth in the first quarter consisted of a decline of 5 percent in core sales and a 1 percent decline from currency translation, offset by 40 percent growth from acquisitions," said Cutler. "Our markets in the first quarter were lower than a year ago, reflecting a continuation of the sluggish economic conditions experienced in many parts of the world during the second half of 2012.

"We entered 2013 expecting it would be a year of subpar global economic growth, leading to approximately 2 to 3 percent growth in our markets," said Cutler. "We continue to believe our markets will grow 2 to 3 percent in 2013, most likely toward the lower end of the range.

"We anticipate operating earnings per share for the second quarter of 2013, which exclude an estimated $25 million of charges to integrate our recent acquisitions, to be between $1.05 and $1.15," said Cutler. "There are two primary drivers of the expected increase in second quarter operating earnings per share over the first quarter: first, seasonally higher volumes, since our sales in the second quarter are typically 5 to 10 percent higher, and second, the absence of purchase price inventory expense in the second quarter related to the Cooper Industries acquisition.

"We are maintaining our guidance for full year operating earnings per share of between $4.05 and $4.45," said Cutler. "2013 is a year in which our results will depend more on our execution than on global growth. We are off to a great start this year, with our execution driving stronger than expected results in the first quarter. Based on the midpoint of our guidance, our operating earnings per share in 2013 will grow 8 percent."

Business Segment Results

Sales for the Electrical Products segment were $1.7 billion, up 87 percent over 2012, reflecting the impact of the Cooper Industries acquisition. Operating profits were $241 million. Excluding acquisition integration charges of $3 million during the quarter, operating profits were $244 million, up 76 percent over the first quarter of 2012.

"Our bookings in the Electrical Products segment were down 3 percent from the combined bookings of Eaton and legacy Cooper in the first quarter a year ago," said Cutler.

Sales for the Electrical Systems and Services segment were $1.5 billion, up 79 percent over the first quarter of 2012, reflecting the impact of the Cooper Industries acquisition. The segment reported operating profits of $210 million. Excluding acquisition integration charges of $5 million during the quarter, operating profits were $215 million, up 176 percent. Combined bookings in the quarter increased 2 percent compared to the first quarter of 2012.

"In both of our Electrical segments, our end markets were strongest in the U.S., the Middle East and Latin America, with mixed conditions in Asia Pacific and weakness in Europe," said Cutler. "We believe sales will improve during the balance of the year, in line with the normal seasonal pattern of demand."

Hydraulics segment sales were $756 million, an increase of 3 percent compared to the first quarter of 2012. Sales growth was driven by revenues from acquisitions completed in 2012, which accounted for 13 percent growth, offset by a 9 percent decline in core sales and a 1 percent decline from currency translation. Operating profits in the first quarter were $78 million. Excluding acquisition integration charges of $12 million, operating profits were $90 million, a decline of 18 percent.

"The hydraulics markets in the first quarter grew modestly compared to the fourth quarter," said Cutler. "Compared to strong conditions in the first quarter of 2012, the year-over-year comparisons are negative. Reflecting this, our bookings in the quarter declined 8 percent from the first quarter of 2012."

Aerospace segment sales were $434 million, up 1 percent over the first quarter of 2012. Operating profits in the first quarter were $62 million, an increase of 3 percent compared to a year earlier.

"Aerospace markets grew modestly in the first quarter, with strongest growth in the commercial OEM market," said Cutler.

The Vehicle segment posted sales of $939 million, down 11 percent compared to the first quarter of 2012. The segment reported operating profits in the first quarter of $132 million, a decrease of 18 percent from the first quarter of 2012.

"Continuing the trends we saw in the second half of last year, our NAFTA and European customers experienced generally weaker market conditions," said Cutler.

Notice of conference call: Eaton's conference call to discuss its first quarter results is available to all interested parties as a live audio webcast today at 10 a.m. United States 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 first quarter results, which will be covered during the call.

This news release contains forward-looking statements concerning second quarter and full year 2013 operating earnings per share, acquisition integration charges, and the performance of 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; 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 performance of recent acquisitions; unanticipated difficulties integrating acquisitions; 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 ended March 31, 2013 are available on the company's website, www.eaton.com.

Eaton is a diversified power management company providing energy-efficient solutions that help our customers effectively manage electrical, hydraulic and mechanical power. A global technology leader, Eaton acquired Cooper Industries plc in November 2012. The 2012 revenue of the combined companies was $21.8 billion on a pro forma basis. Eaton has approximately 103,000 employees and sells products to customers in more than 175 countries. For more information, visit www.eaton.com.

      
 
EATON CORPORATION plc
CONSOLIDATED STATEMENTS OF INCOME
 
 

Three months ended
March 31

 
(In millions except for per share data)20132012
Net sales$5,310$

3,960

 

 
Cost of products sold3,7352,754
Selling and administrative expense958702
Research and development expense152105
Interest expense-net7528
Other (income) expense-net(10)3 
Income before income taxes400368
Income tax expense20 57 
Net income380311
Less net income for noncontrolling interests(2) 
Net income attributable to Eaton ordinary shareholders$378 $311 
 
Net income per ordinary share
Diluted$0.79$0.91
Basic0.800.93
 
Weighted-average number of ordinary shares outstanding
Diluted475.1339.8
Basic471.9335.4
 
Cash dividends declared per ordinary share$0.42$0.38
 

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

Net income attributable to Eaton ordinary shareholders$378$311
Excluding acquisition integration charges and transaction costs (after-tax)22 2 
Operating earnings$400 $313 
 
Net income per ordinary share - diluted$0.79$0.91

Excluding per share impact of acquisition integration charges and transaction costs (after-tax)

0.05 0.01 
Operating earnings per ordinary share$0.84 $0.92 

See accompanying notes.

      
 
 
EATON CORPORATION plc
BUSINESS SEGMENT INFORMATION
 
 Three months ended
March 31
 
(In millions)20132012
Net sales
Electrical Products$1,660$886
Electrical Systems and Services1,521852
Hydraulics756735
Aerospace434430
Vehicle939 1,057 
Total net sales$5,310 $3,960 
 
Segment operating profit
Electrical Products$241$139
Electrical Systems and Services21076
Hydraulics78109
Aerospace6260
Vehicle132 160 
Total segment operating profit723544
 
Corporate
Amortization of intangible assets(107)(42)
Interest expense-net(75)(28)
Pension and other postretirement benefits expense(38)(41)
Inventory step-up adjustment(33)(2)
Other corporate expense-net(70)(63)
Income before income taxes400368
Income tax expense20 57 
Net income380311
Less net income for noncontrolling interests(2) 
Net income attributable to Eaton ordinary shareholders$378 $311 

See accompanying notes.

      
 
 
EATON CORPORATION plc
CONDENSED CONSOLIDATED BALANCE SHEETS
 
March 31,
2013
December 31,
2012
(In millions)
Assets
Current assets
Cash$639$577
Short-term investments397527
Accounts receivable-net3,6853,510
Inventory2,3942,349
Deferred income taxes459449
Prepaid expenses and other current assets622432
Total current assets8,1967,844
 
Property, plant and equipment-net3,8413,877
 
Other noncurrent assets
Goodwill14,27514,396
Other intangible assets6,6646,779
Deferred income taxes1,1031,254
Other assets8981,698
Total assets$34,977$35,848
 
Liabilities and shareholders' equity
Current liabilities
Short-term debt$84$757
Current portion of long-term debt569314
Accounts payable1,9781,879
Accrued compensation318463
Other current liabilities1,9542,018
Total current liabilities4,9035,431
 
Noncurrent liabilities
Long-term debt9,4739,762
Pension liabilities1,7941,997
Other postretirement benefits liabilities728732
Deferred income taxes2,0072,024
Other noncurrent liabilities862774
Total noncurrent liabilities14,86415,289
 
Shareholders' equity
Eaton shareholders' equity15,16715,086
Noncontrolling interests4342
Total equity15,21015,128
Total liabilities and equity$34,977$35,848

See accompanying notes.




EATON CORPORATION plc
NOTES TO THE FIRST QUARTER 2013 EARNINGS RELEASE

Amounts are in millions of dollars unless indicated otherwise (per share data assume dilution).

This earnings release includes certain non-GAAP financial measures. These financial measures include operating earnings, operating earnings per ordinary share, and operating profit before acquisition integration charges and transaction costs for each business segment as well as corporate expense, each of which excludes amounts that differ from the most directly comparable measure calculated in accordance with generally accepted accounting principles (GAAP). A reconciliation of each of these financial measures to the most directly comparable GAAP measure is included in this earnings release. Management believes that these financial measures are useful to investors because they exclude transactions of an unusual nature, allowing investors to more easily compare Eaton's financial performance period to period. Management uses this information in monitoring and evaluating the on-going performance of Eaton and each business segment.


Note 1. ACQUISITIONS AND SALE OF BUSINESSES

In 2012, Eaton acquired businesses in separate transactions. The Consolidated Statements of Income include the results of these businesses from the dates of the transactions. These transactions and the related annual sales prior to acquisition are summarized below:

Acquired businesses    

Date of

transaction

  Business

segment

  Annual sales
Cooper Industries plc (Cooper)

November 30,

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