News Column

Eaton Second Quarter Operating Earnings Per Share of $0.41

July 29, 2014



Adjusted for Gain on Aerospace Divestitures, Legal Settlements and Associated Costs, Second Quarter Operating Earnings Per Share of $1.11

Core Sales Growth in Second Quarter of 3 Percent

Lowering Top End of 2014 Operating Earnings Per Share Guidance Excluding Unusual Items, with 2 Percent Reduction to Midpoint of Range

DUBLIN, Ireland -- Power management company Eaton Corporation plc (NYSE:ETN) today announced that operating earnings per share, which exclude charges of $0.05 per share to integrate recent acquisitions, were $0.41 for the second quarter of 2014. Adjusted for the gain on the recent Aerospace divestitures, and the settlements and associated costs of the Meritor, Triumph Group, and related litigation, operating earnings per share were $1.11, up 2 percent over the second quarter of 2013. Sales in the second quarter of 2014 were $5.8 billion, 3 percent above the same period in 2013. Operating earnings for the second quarter of 2014, excluding pre-tax charges of $37 million to integrate recent acquisitions and the unusual gain and costs noted above, were $529 million, an increase of 2 percent over 2013.

Alexander M. Cutler, Eaton chairman and chief executive officer, said, "Our second quarter results, adjusted for unusual items, were above the midpoint of our original guidance for the quarter. Revenue came in as we expected, with core sales growth of 3 percent in the quarter, following 4 percent core growth in the first quarter of 2014. Our overall segment margins were also as expected, with the margins reflecting the impact of the $39 million of restructuring charges we took in the quarter in the Industrial Sector. Our strong margins in Electrical Products, Hydraulics, Aerospace, and Vehicle offset weakness in Electrical Systems and Services margins.

"During the second quarter, several unusual items impacted our earnings," said Cutler. "First, we closed the divestiture of two small Aerospace businesses for a pretax gain of $156 million. Second, we settled two longstanding litigations, one with Meritor and one with Triumph, as well as related litigation, for a pretax cost of $644 million. Factoring in these unusual items, operating earnings per share in the second quarter were reduced by $0.70 after tax.

"We are pleased with our strong second quarter bookings in both of our Electrical segments and in our Aerospace segment," said Cutler. "For all of 2014, we continue to forecast our end markets will grow 3 percent.

"We anticipate operating earnings per share for the third quarter of 2014, which exclude an estimated $33 million of charges to integrate our recent acquisitions, to be between $1.20 and $1.30," said Cutler.

"We are lowering the top end of our full year 2014 guidance for operating earnings per share, which exclude an estimated $160 million in acquisition integration charges, and which are also adjusted for the impact of the Aerospace divestitures and the legal settlements, to between $4.50 and $4.70," said Cutler. "The $4.60 midpoint of our revised guidance represents a reduction of 10 cents, or 2 percent, from our prior guidance, reflecting the impact of lower margins in our Electrical Systems and Services segment."

Business Segment Results

Sales for the Electrical Products segment were $1.8 billion, up 4 percent over 2013. Operating profits were $300 million. Excluding acquisition integration charges of $12 million during the quarter, operating profits were $312 million, up 10 percent over the second quarter of 2013.

"Our bookings in the second quarter in the Electrical Products segment were up 6 percent over the second quarter a year ago, continuing our strong momentum of the past several quarters," said Cutler.

Sales for the Electrical Systems and Services segment were $1.6 billion, the same as in the second quarter of 2013. Core sales were up 1 percent, which was offset by a decline of 1 percent from currency translation. The segment reported operating profits of $194 million. Excluding acquisition integration charges of $13 million during the quarter, operating profits were $207 million, down 13 percent from the second quarter of 2013.

"Our margins during the quarter were impacted by higher logistics costs, unfavorable mix, and pricing pressures," said Cutler. "We expect these factors to impact margins over the balance of the year. Bookings in the second quarter were up 7 percent from the second quarter of 2013.

"We were pleased with our strong bookings during the quarter in both of our Electrical segments," said Cutler. "For all of 2014, we continue to believe our Electrical markets will grow 3 percent."

Hydraulics segment sales were $787 million, an increase of 2 percent over the second quarter of 2013. Operating profits in the second quarter were $94 million. Excluding acquisition integration charges of $5 million, operating profits were $99 million, a decrease of 12 percent. These results include $13 million in restructuring costs incurred during the quarter.

"The Hydraulics markets in the second quarter of 2014 were modestly lower than the second quarter of 2013, with pockets of strength in industrial applications offset by weakness in agricultural equipment globally and construction equipment in China," said Cutler. "Our bookings in the quarter decreased 2 percent compared to the second quarter of 2013. For all of 2014, we now believe our Hydraulics markets will grow 1 percent."

Aerospace segment sales were $486 million, up 9 percent over the second quarter of 2013. Operating profits in the second quarter were $69 million, up 3 percent over the second quarter of 2013. These results include $2 million in restructuring costs incurred during the quarter.

"Aerospace markets in the second quarter posted another quarter of good growth, with strongest growth in the commercial OEM market, but also higher growth in the commercial aftermarket," said Cutler. "Bookings in the quarter rose 9 percent, including a 20 percent increase in aftermarket bookings. We continue to believe our Aerospace markets in 2014 will grow 3 percent."

The Vehicle segment posted sales of $1.0 billion, up 3 percent compared to the second quarter of 2013. The segment reported operating profits in the second quarter of $155 million, down 10 percent compared to the second quarter of 2013. These results include $24 million in restructuring costs incurred during the quarter.

"North American markets were particularly strong in the quarter while South American markets were notably weak," said Cutler. "We now expect the NAFTA Class 8 truck market to be 290,000 in 2014, up from our prior estimate of 280,000. For all of 2014, we continue to expect our Vehicle markets will grow 5 percent."

Eaton is a power management company with 2013 sales of $22.0 billion. Eaton provides energy-efficient solutions that help our customers effectively manage electrical, hydraulic and mechanical power more efficiently, safely and sustainably. Eaton has approximately 103,000 employees and sells products to customers in more than 175 countries.

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 2014 operating earnings per share, full year 2014 operating earnings per share, 2014 sales and margins in our Electrical segments, 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 and six months ended June 30, 2014.

Contact Scott R. Schroeder, Media Relations, +1 (440) 523-5150

Don Bullock, Investor Relations, +1 (440) 523-5127

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Source: M2 PressWIRE


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