--Eaton sees modest end-market growth in 2012
--Hydraulics and truck segments pull down 4Q results
--Eaton sees Cooper purchase contributing 15c to 2013
earnings
(Updates with comments from conference call and more details
throughout on markets and business units.)
By Bob Tita
Sharply lower demand from manufacturers for construction
machinery and commercial trucks drove Eaton Corp.'s (ETN)
fourth-quarter profit down 51%, increasing the pressure on the
company to extract benefits from its acquisition of Cooper
Industries PLC.
Eaton's fourth-quarter profit was weighed down by one-time
charges for the acquisition and integration of Cooper, which makes
a broad line of electrical gear and lighting. But Eaton Chairman
and Chief Executive Alexander Cutler said he's satisfied with the
integration of the $11.8 billion acquisition, which was completed
in November. He expects 2013 sales and operating margin from Cooper
to be stronger than originally anticipated.
"The Cooper acquisition was everything we expected and more,"
Mr. Cutler said during a conference call Tuesday with analysts.
The diversified manufacturer of power management equipment,
truck transmissions, hydraulic components and aerospace systems
offered a conservative profit outlook for 2013 and predicted its
end markets combined would expand by 2% to 3% over 2011.
"We think 2013 will be a year of modest GDP growth and as a
result modest growth for our end markets," Mr. Cutler said.
He said sluggish demand at the start of 2013 will eventually
give way to better sales growth later in the year. He explained
that Eaton's customers built inventories in early 2012 in
anticipation of strong sales growth. Instead they encountered weak
demand later in the year and put the brakes on orders by late
2012.
"It's going to take time [in 2013] to burn off these
inventories," he said.
In Eaton's hydraulics segment, which supplies components to
construction and farm machinery manufacturers such as Caterpillar
Inc. (CAT) and Deere & Co. (DE), fourth-quarter order bookings
dropped 24% from a year ago. Operating income from the unit plunged
52% from a year earlier to $51 million, as the unit's operating
margin plunged to 7.4% from 15% a year earlier. Sales slipped 1.6%
to $693 million.
In the company's truck business, which supplies transmissions,
operating profit decreased 41% to $81 million, as the unit's margin
shrank to 16.1% from 20.1% a year earlier. Sales dropped 26% to
$504 million. Falling demand from auto makers in Europe pressured
Eaton's automotive business. Operating income from the automotive
unit dropped 60% to $17 million, as sales slipped 8.4% to $367
million.
Eaton is counting its electrical products business to prop up
the rest of the company's business portfolio. Its electrical
products business is the company's largest, accounting for about
two-thirds of annual sales.
Fourth-quarter electrical sales in the Americas climbed 2.9% to
$1.15 billion, while operating profit rose 11% to $193 million. The
company said orders from the segment were up 11% on improvement in
U.S. residential and commercial construction markets. The company
forecast the U.S. electrical products market will grow 4% this
year.
Eaton expects Cooper to contribute 15 cents a share to its 2013
per-share earnings, after earlier forecasting Cooper would cost the
company 10 cents a share this year. Eaton forecast 2013 earnings in
a range of $4.05 to $4.45 a share. Analysts had been expecting
$4.42 a share for the year.
Overall in the fourth quarter, Eaton reported a profit of $179
million, or 46 cents a share, down from $362 million, or $1.07 a
share, a year earlier. Excluding items such as integration and
acquisition costs, per-share earnings fell to 82 cents from
$1.08.
Sales climbed 7.4% to $4.33 billion, of which Cooper contributed
$470 million.
Analysts polled by Thomson Reuters had expected earnings of 93
cents a share on revenue of $4.36 billion.
Despite the earnings miss, Eaton's stock was recently up 5% at
$59.46 a share.
--Melodie Warner contributed to this article.
Write to Bob Tita at robert.tita@dowjones.com
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