--Eaton affirms 2013 profit guidance
--Company's Q1 results weighed down by weak economic
conditions
--Company sees improving demand in hydraulics, auto segments
(Updates with comments and quotes from CEO and more detail
throughout about
By Bob Tita
Eaton Corp.'s (ETN) first-quarter earnings rose 22% with the
help of its Cooper Industries acquisition, but the company's base
sales without the benefit of Cooper weakened from declining demand
for hydraulic gear and commercial truck components.
Eaton's profit topped analysts' profit estimate and the company
affirmed its 2013 profit outlook from January. But the
multi-industry conglomerate said weak economic conditions are
weighing on several of its businesses, particularly in Europe.
Chairman and Chief Executive Alexander Cutler predicted the
company's results this year will be "far more dependent upon our
execution, then global growth."
"It was a slow start [to 2013] and what we would characterize as
sluggish global markets," said Mr. Cutler during a conference call
Monday with analysts.
Eaton expects the end markets it competes in will have overall
sales growth of 2% to 3% this year over 2012, with the actual
growth rate closer to 2%.
Eaton's first-quarter base or core sales, which do not include
revenue from acquisitions, were down 5% from a year ago. Base sales
fell in most of the company's business units, with the exception of
the aerospace unit. The company's overall revenue from the first
quarter rose 34%, reflecting the addition of Cooper. Eaton's
operating margin from the quarter inched up to 14% from 13.8% a
year ago.
Eaton's first-quarter orders, which are an indication of future
sales, were down from a year ago in most of the company's business
units, with the largest drop occurring in the hydraulics segment
where bookings slipped 8% from a year earlier as customers reduced
their inventories.
Eaton is a major supplier of hydraulic components to
construction equipment maker Caterpillar Inc. (CAT) and farm
machinery manufacturer Deere & Co. (DE). It also builds
transmissions for truck manufacturers such as Navistar
International Corp. (NAV), Paccar Inc. (PCAR) and Daimler AG's
(DDAIY, DAI.XE) Freightliner unit.
Operating profit from the hydraulics unit slipped 18% from a
year earlier to $90 million, as the unit's operating margin shrank
to 11.9% from 15% a year earlier. Sales from hydraulics rose 3% to
$756 million, but base revenue slipped 9%.
In Eaton's vehicle segment, which supplies its transmissions,
operating profit fell by 18% to $132 million, as the segment's
margin contracted to 14.1% from 15.1%. Sales from the segment
dropped 11% to $939 million.
"We really believe we're seeing this business beginning to
turn," said Mr. Cutler, noting that demand for heavy-duty trucks in
North America has been improving. "Generally, whatever gets
destocked has to be restocked. So, we think those things tend to
work out over a couple of quarters."
The company, which recently relocated its corporate headquarters
to Ireland from Cleveland, paid about $11.8 billion for Cooper
Industries in November. The acquisition greatly expanded Easton's
business lines in lighting and electrical products, such as circuit
breakers.
In the company's electrical products business, sales surged 87%
to $1.66 billion with the addition of Cooper's brands and products.
Operating profit soared 76% to $244 million. In Eaton's newly
organized electrical systems and services segment, which provides
custom-built electrical gear to large commercial and industrial
customers, sales rose 79% to $1.52 billion, as operating profit
more than doubled to $215 million.
Overall for the first-quarter, Eaton reported a profit of $378
million, up from $311 million a year earlier. But per-share
earnings fell to 79 cents from 91 cents because of a higher number
of outstanding shares stemming from the Cooper acquisition.
Excluding items such as costs for the integration of Cooper and
transaction costs, operating earnings fell to 84 cents from 92
cents. Sales increased to $5.31 billion from $3.96 billion.
Analysts expected the company to earn 79 cents per share on $5.42
billion of sales.
The company expects to earn about $4.25 a share for 2013 and
anticipates a second-quarter profit of about $1.10 a share.
Eaton's stock was recently up 3.9% at $60.96 a share.
--Melodie Warner contributed to this article.
Write to Bob Tita at robert.tita@dowjones.com
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