2nd UPDATE: Eaton 3Q Net Up 39%; Raises EPS Outlook
20 Ottobre 2010 - 8:27PM
Dow Jones News
Eaton Corp.'s (ETN) third-quarter profit rose 39% as
strengthening demand in the markets for trucks, autos and
hydraulics drove improved results for the quarter.
The diversified manufacturer topped expectations and raised its
outlook for the rest of the year. Eaton predicted demand in all six
of its business segments next year will be better than in 2010.
"Our confidence is building and our forward visibility continues
to improve," Chairman and Chief Executive Alexander Cutler said
Wednesday during a conference call. "There's more to come as far as
rebuilding our momentum. All six of our cylinders ought to be
firing next year."
Eaton's stock Wednesday rallied on the upbeat outlook. The
shares recently were up 3.1% at $86 a share.
Eaton's results in the quarter benefited from a near-record
operating profit margin and increased production volumes in
construction and farm machinery and the long-suffering commercial
truck industry. These markets helped offset lingering weakness in
the company's aerospace business and the portions of its electrical
equipment business with exposure to the commercial construction
industry.
Manufacturing has been one of the strengths of the U.S. economy
in recent quarters as industrial customers rebuild inventories
depleted during the recession. That restocking may be subsiding.
The Federal Reserve reported Monday that U.S. industrial output
fell last month for the first time in more than a year.
Nonetheless, Eaton said demand from customers has been stronger
than anticipated, especially outside the U.S. In hydraulic systems,
the company's third-quarter profit nearly quadrupled as revenue
rose 39%. Eaton's truck segment income almost tripled from a year
ago as sales rose 33%. Automotive segment profit rose 70% on a 20%
increase in sales.
Cutler predicted the electrical products businesses will show
significant improvement next year, noting that full-scale inventory
restocking by electrical distributors has yet to occur. Sales in
the Americas segment of the electrical business rose 15% in the
third quarter, but profit slipped 1%. Price-cutting on electrical
equipment sales to the still-weak commercial construction industry
drained the segment's income.
"We had anticipated that we would see margins come off," Cutler
said in an interview with Dow Jones Newswires. The strongest demand
in the Americas electrical segment is coming from government-funded
programs for energy efficiency and conservation. Last year's
federal economic stimulus legislation has accounted for $450
million in sales for Eaton so far this year.
Eaton's electrical business in the rest of the world recorded a
record margin in the third quarter as profit rose 53% from a year
ago on a 9% increase in sales. Cutler attributed the performance to
contributions from businesses Eaton bought in recent years to
bolster its market positions in backup power equipment for computer
server centers and power management systems.
Cutler anticipates rising sales and income next year in the
aerospace business, which reported flat profit in the third quarter
on a 1% reduction in sales. The company expects to begin supplying
components next year for Boeing's new 787 airliner and Airbus's
A350, and anticipates higher volumes of commercial aircraft already
in production, particularly Boeing's 737.
"There's a real change in the mood" of the aerospace industry,
Cutler said.
The Cleveland company raised its 2010 profit forecast range to
$5.45 to $5.55 a share from $4.90 to $5.10 a share. It forecast
$1.55 to $1.65 a share profit from the fourth quarter. Analysts had
expected earnings of $1.37 a share for the fourth quarter and $5.09
for the year, according to Thomson Reuters.
For the quarter ended Sept. 30, Eaton reported a profit of $268
million, or $1.57 a share, up from $193 million, or $1.14 a share,
a year earlier. Excluding acquisition charges, earnings rose to
$1.60 from $1.21 as revenue increased 18% to $3.57 billion.
Analysts expected the company to earn $1.38 a share on revenue
of $3.40 billion.
-By Bob Tita, Dow Jones Newswires; 312-750-4129;
robert.tita@dowjones.com
(Yogita Patel and Kevin Kingsbury contributed to this
article.)
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