By Lisa Beilfuss
Eaton Corp. said profit in its latest quarter rose, as cost cuts
offset sales declines across the business, and the company slashed
guidance due to weak customer demand and currency moves.
The Dublin-based company supplies hydraulic systems and
components to a host of struggling end markets, including the oil
and natural gas industry and the makers of farm machinery and
construction equipment. Meanwhile, Eaton has been grappling with
sluggish growth in key overseas markets--especially Brazil--and
adverse currency rates that make its products more expensive
abroad.
Chief Executive Alexander Cutler said revenue fell short of
expectations due to weaker conditions in most of the company's
markets and because of adverse exchange rates. While the company
had expected end-markets to strengthen after a weak first quarter
and though demand did pick up, Mr. Cutler said Wednesday that Eaton
no longer sees further strengthening over the balance of the
year.
As a result, the company further cut its full-year forecast, now
expecting organic revenue growth--which strips out currency
fluctuations--to be flat to up 1%. Previously, Eaton expected 2%
growth. Eaton anticipates operating earnings per share of $4.40 to
$4.60, down from an earlier guidance of $4.65 to $4.95.
The company brought down second-quarter expenses by about 18%
and said it is taking further steps to "reset our cost structure to
the lower activity levels we are seeing." Associated charges of
about $110 million will be booked in the third quarter and $10
million in the fourth quarter.
For the current quarter, Eaton expects to book $1 to $1.10 in
earnings per share, well short of the $1.30 analyst estimate.
In all for the June quarter, Eaton reported a profit of $535
million, or $1.14 a share, up from $171 million, or 36 cents a year
earlier. Revenue slid 6.8% to $5.37 billion.
The company had guided for $1.10 to $1.20 in per-share profit;
analysts predicted $5.49 billion in sales, according to Thomson
Reuters.
In recent quarters, better performance from Eaton's electrical
businesses has offset weakness in other areas. But in the second
quarter, the market was soft and electrical product sales declined
3% while revenue from electrical systems and services dropped 8%.
Adjusted for currency rates, electrical product sales rose 3%.
In the hydraulics business, sales plunged a worse-than-expected
18%. Adjusted for currency rates, sales fell 11%. The decline
reflects continued weakness in agricultural equipment and
construction equipment in China, the company said.
Aerospace revenue declined 7%, or an adjusted 2%, as bookings
for defense equipment fell. In Eaton's vehicle business, which
includes its commercial truck transmission lines, revenue declined
4% but rose 4% on an organic basis.
Write to Lisa Beilfuss at lisa.beilfuss@wsj.com
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