Eaton Second Quarter Operating Earnings Up 32 Percent

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Eaton Second Quarter Operating Earnings Up 32 Percent

Second Quarter Operating Earnings Per Share of $1.09

2013 Earnings Guidance Midpoint Reduced by 2 Percent Due to Lower Global Growth


2013 Cooper Industries Integration Savings Increased by $25 Million, to $115 Million

DUBLIN--(BUSINESS WIRE)-- Diversified industrial manufacturer Eaton Corporation plc (NYS: ETN) today announced record sales and operating earnings, driven by the acquisition of Cooper Industries. Sales in the second quarter were $5.6 billion, 38 percent above the same period in 2012. Operating earnings for the second quarter of 2013, excluding charges of $39 million to integrate recent acquisitions, were $519 million, an increase of 32 percent over 2012. Operating earnings per share, which exclude charges of $0.05 per share to integrate recent acquisitions, were $1.09 for the second quarter of 2013. This result is a decrease of 5 percent from the second 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 second quarter operating earnings per share came in just below the midpoint of our guidance, despite softer market conditions than we expected at the start of the quarter. We were able to largely offset the lower revenue by generating higher operating margins, with our overall segment margin coming in at 15.6 percent, a quarterly record. This strong performance reflects our enhanced portfolio as a result of the Cooper Industries acquisition, Cooper integration savings, and our continued focus on productivity improvements.

"Our 38 percent sales growth in the second quarter consisted of a decline of 2 percent in core sales, offset by 40 percent growth from acquisitions," said Cutler. "The decline in our core sales reflected soft conditions in several of our end markets, which have shown a continuation of the sluggish economic conditions experienced in many parts of the world during the second half of 2012 and in the first quarter of 2013.

"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. "With global economic growth coming in lower than our earlier expectations, we now believe our markets will grow just 1 percent in 2013.

"We generated strong cash flow in the second quarter, posting $609 million of operating cash flow, and after capital spending of $129 million, $480 million of free cash flow," said Cutler. "With our markets in 2013 growing more slowly than expected, we have reduced our capital spending. We expect operating cash flow in 2013 to come in between $2.5 billion and $2.6 billion, about $100 million lower than our prior forecast, while capital expenditures are now estimated to be $650 million, $50 million lower than our prior forecast.

"As the Cooper integration has progressed, we have been able to realize synergy savings at a faster pace than we had expected," said Cutler. "We now estimate 2013 synergy savings to be $115 million, $25 million higher than our prior estimate. For 2014, we now estimate synergy savings of $210 million, $30 million higher than our earlier estimate.

"We anticipate operating earnings per share for the third quarter of 2013, which exclude an estimated $64 million of charges to integrate our recent acquisitions, to be between $1.05 and $1.15," said Cutler.

"We are reducing the top end of our guidance range for full year operating earnings per share by $0.20, reflecting lower expected market growth during 2013, and we are also narrowing the guidance range," said Cutler. "Accordingly, we now expect full year operating earnings per share to be between $4.05 and $4.25, a 2 percent reduction at the midpoint compared to our previous guidance range of between $4.05 and $4.45. Based on the $4.15 midpoint of our guidance, our operating earnings per share in 2013 will grow 5 percent."

Business Segment Results

Sales for the Electrical Products segment were $1.8 billion, up 95 percent over the second quarter of 2012, reflecting the impact of the Cooper Industries acquisition. Operating profits were $272 million. Excluding acquisition integration charges of $12 million during the quarter, operating profits were $284 million, up 88 percent over the second quarter of 2012.

"Our bookings in the Electrical Products segment were up 2 percent from the combined bookings of Eaton and legacy Cooper in the second quarter a year ago," said Cutler. "We are pleased with the 16.2 percent operating margin in Electrical Products, reflecting a significant step up from the 14.7 percent we posted in the first quarter."

Sales for the Electrical Systems and Services segment were $1.6 billion, up 78 percent over the second quarter of 2012, reflecting the impact of the Cooper Industries acquisition. Operating profits were $227 million. Excluding acquisition integration charges of $11 million during the quarter, operating profits were $238 million, up 148 percent over the second quarter of 2012.

"Combined bookings in the quarter were up 2 percent compared to the second quarter of 2012," said Cutler. "We posted a strong 14.7 percent operating margin in Electrical Systems and Services in the second quarter.

"In both of our Electrical segments, our end markets were strongest in the U.S., the Middle East, and Latin America, with weakness in Asia Pacific and Europe," said Cutler. "We believe sales will improve modestly from the second to third quarters, in line with the normal seasonal pattern of demand. However, overall growth in our electrical markets for 2013 is now expected to be about 2 percentage points less than our expectations at the end of the first quarter."

Hydraulics segment sales were $772 million, an increase of less than 1 percent compared to the second quarter of 2012. Sales growth was driven by revenues from acquisitions completed in 2012, which accounted for 10 percent growth, offset by a 9 percent decline in core sales and a 1 percent decline from currency translation. Operating profits in the second quarter were $104 million. Excluding acquisition integration charges of $8 million, operating profits were $112 million, a decline of 11 percent.

"The hydraulics markets in the second quarter grew modestly compared to the first quarter," said Cutler. "Compared to strong conditions in the second quarter of 2012, the year-over-year comparisons are negative. Reflecting this, our bookings in the quarter declined 12 percent from the second quarter of 2012.

"Our operating margin in Hydraulics rebounded to 14.5 percent in the second quarter, a significant step up from 11.9 percent in the first quarter," said Cutler.

Aerospace segment sales were $446 million, up 2 percent over the second quarter of 2012. Operating profits in the second quarter were $67 million, an increase of 14 percent compared to a year earlier.

"Aerospace markets in the second quarter continued their modest growth, with strongest growth in the commercial OEM market," said Cutler. "Our operating margin came in at 15.0 percent, an improvement over the 14.3 percent we realized in the first quarter."

The Vehicle segment posted sales of $1.0 billion, down 4 percent compared to the second quarter of 2012. The segment reported operating profits of $172 million, an increase of 2 percent over the second quarter of 2012.

"Our NAFTA truck and European vehicle customers experienced generally weaker market conditions compared to the second quarter of last year," said Cutler. "However, NAFTA Class 8 truck production grew about 20 percent from the first quarter of 2013. In addition, the South American and Asian vehicle markets posted good growth in the second quarter.

"We are pleased with our Vehicle operating margin of 17.2 percent, a marked step up from the 14.1 percent margin in the first quarter."

Notice of conference call: Eaton's conference call to discuss its second 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 second quarter results, which will be covered during the call.

This news release contains forward-looking statements concerning third quarter and full year 2013 operating earnings per share, operating cash flow, capital expenditures, acquisition synergy savings, 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 June 30, 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 102,000 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  Six months ended
June 30June 30
(In millions except for per share data)2013 20122013 2012
Net sales$5,602$4,068$10,912$8,028
 
Cost of products sold3,8702,8157,6055,569
Selling and administrative expense9606901,9181,392
Research and development expense161106313211
Interest expense - net713014658
Other expense (income) - net6 8 (4)11
Income before income taxes534419934787
Income tax expense37 37 57 94
Net income497382877693
Less net income for noncontrolling interests(3) (5)
Net income attributable to Eaton ordinary shareholders$494 $382 $872 $693
 
Net income per ordinary share
Diluted$1.04$1.12$1.83$2.04
Basic1.041.131.842.06
 
Weighted-average number of ordinary shares outstanding
Diluted476.3339.5475.7339.6
Basic473.4337.0472.6336.2
 
Cash dividends declared per ordinary share$0.42$0.38$0.84$0.76
 

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

Net income attributable to Eaton ordinary shareholders$494$382$872$693
Excluding acquisition integration charges and transaction costs (after-tax)25 10 47 12
Operating earnings$519 $392 $919 $705
 
Net income per ordinary share - diluted$1.04$1.12$1.83$2.04

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

 

0.05 0.03 0.10 0.04
Operating earnings per ordinary share$1.09 $1.15 $1.93 $2.08
See accompanying notes.
 
 
 
EATON CORPORATION plc
BUSINESS SEGMENT INFORMATION
 
    Three months ended  Six months ended
June 30June 30
(In millions)2013 20122013 2012
Net sales
Electrical Products$1,758$903$3,418$1,789
Electrical Systems and Services1,6249133,1451,765
Hydraulics7727691,5281,504
Aerospace446436880866
Vehicle1,002 1,047 1,941 2,104 
Total net sales$5,602 $4,068 $10,912 $8,028 
 
Segment operating profit
Electrical Products$272$151$513$290
Electrical Systems and Services22791437167
Hydraulics104123182232
Aerospace6759129119
Vehicle172 168 304 328 
Total segment operating profit8425921,5651,136
 
Corporate
Amortization of intangible assets(108)(42)(215)(84)
Interest expense - net(71)(30)(146)(58)
Pension and other postretirement benefits expense(43)(39)(81)(80)
Inventory step-up adjustment(1)(1)(34)(3)
Other corporate expense - net(85)(61)(155)(124)
Income before income taxes534419934787
Income tax expense37 37 57 94 
Net income497382877693
Less net income for noncontrolling interests(3) (5) 
Net income attributable to Eaton ordinary shareholders$494 $382 $872 $693 
See accompanying notes.
 
 
 
EATON CORPORATION plc
CONDENSED CONSOLIDATED BALANCE SHEETS
 
    

June 30,
2013

 December 31,
2012
Assets
Current assets
Cash$628$

577

 

Short-term investments368527
Accounts receivable - net3,8203,510
Inventory2,405 Read Full Story

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