ETN Eaton Corp New

2015 Operating Earnings Per Share Guidance Midpoint Reduced by 2 Percent To $4.80 Principally Due to Higher Negative Currency Translation

Power management company Eaton Corporation plc (NYSE:ETN) today announced that operating earnings per share, which exclude charges of $0.02 per share to integrate recent acquisitions, were $1.01 for the first quarter of 2015, the same as the first quarter of 2014. Sales in the first quarter of 2015 were $5.2 billion, 5 percent lower than the same period in 2014. Operating earnings for the first quarter of 2015, excluding pre-tax charges of $11 million to integrate recent acquisitions, were $473 million.

Alexander M. Cutler, Eaton chairman and chief executive officer, said, “Our first quarter results are a solid start to the year, coming in slightly above the midpoint of our guidance despite the impact from additional negative currency translation.

“Our 5 percent sales decline in the first quarter consisted of 1 percent organic growth offset by negative 6 percent from currency translation,” said Cutler. “Our operating earnings per share were flat with the first quarter of 2014, driven by a 9 cent negative impact from lower currency translation and a higher tax rate. Without this impact, our first quarter 2015 operating earnings per share would have grown by 9 percent.

“We returned substantial cash to our shareholders during the quarter,” said Cutler. “We raised our quarterly dividend by 12 percent and repurchased $170 million of our shares.

“As a result of weaker conditions in some of our markets, we now anticipate our organic revenue growth in 2015 will be between 2 and 3 percent, 1 percent lower than our earlier estimate,” said Cutler. “In addition, most currencies have declined against the U.S. dollar by more than we anticipated at the start of the year. As a result, we now expect the impact of negative currency translation to be 5 percent, 1 percent higher than our earlier expectation.

“We anticipate operating earnings per share for the second quarter of 2015, which exclude an estimated $16 million of pre-tax charges to integrate our recent acquisitions, to be between $1.10 and $1.20,” said Cutler. “In light of a larger impact from negative currency translation and lower growth in our end markets, we are slightly reducing our guidance for full year 2015 operating earnings per share to between $4.65 and $4.95, a reduction of 2 percent.”

Business Segment Results

Sales for the Electrical Products segment were $1.7 billion, down 2 percent from 2014. Organic sales grew 4 percent, offset by a 6 percent decline from currency translation. Operating profits were $260 million. Excluding acquisition integration charges of $6 million during the quarter, operating profits were $266 million, down 5 percent from the first quarter of 2014.

“Our bookings in the first quarter in the Electrical Products segment were up 5 percent over the first quarter a year ago,” said Cutler. “March bookings were particularly strong, registering an increase of 12 percent.”

Sales for the Electrical Systems and Services segment were $1.4 billion, down 5 percent from the first quarter of 2014. Organic sales were down 1 percent and currency translation was negative 4 percent. The segment reported operating profits of $186 million. Excluding acquisition integration charges of $3 million during the quarter, operating profits were $189 million, down 3 percent from the first quarter of 2014.

“As we had expected, organic sales were slightly lower in the first quarter, reflecting the softness we saw in bookings during the second half of 2014,” said Cutler. “Bookings in the first quarter were flat with the first quarter of 2014. March orders showed a significant increase in activity, with bookings up 13 percent.”

Hydraulics segment sales were $665 million, down 15 percent from the first quarter of 2014. Organic sales in the quarter declined 9 percent and currency translation was negative 6 percent. Operating profits in the first quarter were $66 million. Excluding acquisition integration charges of $1 million during the quarter, operating profits were $67 million, a decline of 40 percent from the first quarter of 2014.

“The hydraulics markets in the first quarter of 2015 were down markedly, reflecting the downturns in global agricultural equipment and Chinese construction equipment,” said Cutler. “Our bookings in the quarter were down 18 percent. 2015 will be more challenging for our Hydraulics business than we had anticipated at the start of the year.”

Aerospace segment sales were $464 million, equal to the first quarter of 2014. Organic growth of 8 percent was offset by 5 percent from the two divestitures we completed in the middle of 2014 and by 3 percent from negative currency translation. Operating profits in the first quarter were $77 million, up 24 percent over the first quarter of 2014.

“Aerospace markets in the first quarter posted another quarter of good growth,” said Cutler. “Bookings in the quarter rose 1 percent compared to the first quarter of 2014.”

The Vehicle segment posted sales of $955 million, down 4 percent compared to the first quarter of 2014. Organic growth of 4 percent was offset by negative currency translation of 8 percent. The segment reported operating profits in the first quarter of $164 million, up 9 percent over the first quarter of 2014.

“North American truck markets were particularly strong in the quarter,” said Cutler. “We continue to expect the NAFTA Class 8 truck market in 2015 to be 330,000.”

Eaton is a power management company with 2014 sales of $22.6 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 102,000 employees and sells products to customers in more than 175 countries. For more information, visit www.eaton.com.

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

This news release contains forward-looking statements concerning second quarter 2015 operating earnings per share, full year 2015 operating earnings per share, 2015 organic revenue growth, and the impact on 2015 operating earnings per share from negative currency translation. 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; unanticipated changes 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; changes in tax laws or tax regulations; 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 March 31, 2015 are available on the company’s website, www.eaton.com.

     

EATON CORPORATION plc

CONSOLIDATED STATEMENTS OF INCOME

 

Three months endedMarch 31

(In millions except for per share data)

2015 2014

Net sales

$ 5,223 $ 5,492   Cost of products sold 3,593 3,858 Selling and administrative expense 915 962 Research and development expense 158 162 Interest expense - net 57 62 Other income - net (5 ) (5 )

Income before income taxes

505 453 Income tax expense 38   12  

Net income

467 441 Less net income for noncontrolling interests (1 ) (2 ) Net income attributable to Eaton ordinary shareholders $ 466   $ 439    

Net income per ordinary share

Diluted $ 0.99 $ 0.92 Basic 1.00 0.92   Weighted-average number of ordinary shares outstanding Diluted 470.0 478.8 Basic 467.9 475.8   Cash dividends declared per ordinary share $ 0.55 $ 0.49  

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

Net income attributable to Eaton ordinary shareholders $ 466 $ 439 Excluding acquisition integration charges (after-tax) 7   44   Operating earnings $ 473   $ 483     Net income per ordinary share - diluted $ 0.99 $ 0.92 Excluding per share impact of acquisition integration charges (after-tax) 0.02   0.09   Operating earnings per ordinary share $ 1.01   $ 1.01  

See accompanying notes.

      EATON CORPORATION plc BUSINESS SEGMENT INFORMATION  

Three months endedMarch 31

(In millions)

2015 2014

Net sales

Electrical Products $ 1,691 $ 1,726 Electrical Systems and Services 1,448 1,524 Hydraulics 665 782 Aerospace 464 464 Vehicle 955   996   Total net sales $ 5,223   $ 5,492    

Segment operating profit

Electrical Products $ 260 $ 250 Electrical Systems and Services 186 169 Hydraulics 66 108 Aerospace 77 62 Vehicle 164   151   Total segment operating profit 753 740  

Corporate

Amortization of intangible assets (102 ) (110 ) Interest expense - net (57 ) (62 ) Pension and other postretirement benefits expense (28 ) (51 ) Other corporate expense - net (61 ) (64 ) Income before income taxes 505 453 Income tax expense 38   12   Net income 467 441 Less net income for noncontrolling interests (1 ) (2 ) Net income attributable to Eaton ordinary shareholders $ 466   $ 439  

See accompanying notes.

      EATON CORPORATION plc CONDENSED CONSOLIDATED BALANCE SHEETS  

March 31,2015

December 31,2014

(In millions)

Assets

Current assets Cash $ 663 $ 781 Short-term investments 139 245 Accounts receivable - net 3,733 3,667 Inventory 2,424 2,428 Deferred income taxes 576 593 Prepaid expenses and other current assets 405   386 Total current assets 7,940 8,100   Property, plant and equipment - net 3,634 3,750   Other noncurrent assets Goodwill 13,548 13,893 Other intangible assets 6,317 6,556 Deferred income taxes 220 228 Other assets 1,037   1,002 Total assets $ 32,696   $ 33,529   Liabilities and shareholders’ equity Current liabilities Short-term debt $ 267 $ 2 Current portion of long-term debt 1,244 1,008 Accounts payable 1,969 1,940 Accrued compensation 282 420 Other current liabilities 1,904   1,985 Total current liabilities 5,666   5,355   Noncurrent liabilities Long-term debt 7,829 8,024 Pension liabilities 1,530 1,812 Other postretirement benefits liabilities 506 513 Deferred income taxes 881 901 Other noncurrent liabilities 1,020   1,085 Total noncurrent liabilities 11,766   12,335   Shareholders’ equity Eaton shareholders’ equity 15,210 15,786 Noncontrolling interests 54   53 Total equity 15,264   15,839 Total liabilities and equity $ 32,696   $ 33,529

See accompanying notes.

EATON CORPORATION plcNOTES TO THE FIRST QUARTER 2015 EARNINGS RELEASE

Amounts are in millions of dollars unless indicated otherwise (per share data assume dilution).

Note 1. NON-GAAP FINANCIAL INFORMATION

This earnings release includes certain non-GAAP financial measures. These financial measures include operating earnings, operating earnings per ordinary share, and operating profit before acquisition integration charges for each business segment as well as corporate, each of which excludes amounts that differ from the most directly comparable measure calculated in accordance with generally accepted accounting principles (GAAP). A reconciliation of each of these financial measures to the most directly comparable GAAP measure is included in this earnings release. Management believes that these financial measures are useful to investors because they exclude transactions of an unusual nature, allowing investors to more easily compare Eaton Corporation plc's (Eaton or the Company) financial performance period to period. Management uses this information in monitoring and evaluating the on-going performance of Eaton and each business segment.

Excluding after-tax acquisition integration charges of $7 and $44, operating earnings were $473 and $483 for the first quarter of 2015 and 2014, respectively. Excluding the per share impact of acquisition integration charges of $0.02 and $0.09, operating earnings per ordinary share were $1.01 for both the first quarter of 2015 and 2014, respectively.

Excluding a negative $0.09 per share impact from currency translation and a higher tax rate, operating earnings per ordinary share were $1.10 for the first quarter of 2015.

Note 2. ACQUISITION INTEGRATION CHARGES

Eaton incurs integration charges related to acquired businesses. A summary of these charges follows:

        Operating profit Acquisition Operating profit excluding acquisition integration charges as reported integration charges Three months ended March 31 2015   2014 2015   2014 2015   2014

Acquisition integration charges

Electrical Products $ 6 $ 29 $ 260 $ 250 $ 266 $ 279 Electrical Systems and Services 3 26 186 169 189 195 Hydraulics 1 4 66 108 67 112 Aerospace — — 77 62 77 62 Vehicle —   —   164   151   164   151 Total business segments 10 59 $ 753   $ 740   $ 763   $ 799 Corporate 1   7  

Total acquisition integration charges before income taxes

$ 11   $ 66   Total after income taxes $ 7 $ 44 Per ordinary share - diluted $ 0.02 $ 0.09  

Business segment integration charges in 2015 and 2014 were related primarily to the integration of Cooper Industries plc (Cooper). These charges were included in Cost of products sold or Selling and administrative expense, as appropriate. In Business Segment Information, the charges reduced Operating profit of the related business segment.

Corporate integration charges in 2015 and 2014 were related to the acquisition of Cooper. These charges were included in Selling and administrative expense. In Business Segment Information, the charges were included in Other corporate expense - net.

Note 3. INCOME TAXES

The effective income tax rate for the first quarter of 2015 was expense of 8% compared to expense of 3% for the first quarter of 2014. The increase in the effective income tax rate in first quarter of 2015 is primarily due to more income earned in higher tax jurisdictions including the United States.

Eaton Corporation plcMedia RelationsScott R. Schroeder, +1 440-523-5150scottrschroeder@eaton.comorInvestor RelationsDon Bullock, +1 440-523-5127