Operating Cash Flow in the Fourth Quarter of $742 Million;
Full Year 2015 Operating Cash Flow of $2.4 Billion
2016 Operating Earnings Per Share Expected To Be Between
$4.15 and $4.45
Announces Expanded $400 Million Restructuring Program and $3
Billion Share Repurchase Plan
Power management company Eaton Corporation plc (NYSE:ETN) today
announced operating earnings per share for the fourth quarter of
$1.17, which exclude charges of $0.02 per share to integrate recent
acquisitions, a decrease of 8 percent from the fourth quarter of
2014. Sales in the quarter were $5.1 billion, down 9 percent from
the same period in 2014. Operating earnings for the fourth quarter
of 2015, which exclude charges of $14 million to integrate recent
acquisitions, were $541 million compared to $602 million in the
fourth quarter of 2014.
Alexander M. Cutler, Eaton chairman and chief executive officer,
said, “Our earnings came in above the high end of our guidance
range. Organic sales in the fourth quarter declined by 4 percent
compared to the fourth quarter of 2014, reflecting weakness in most
of our markets. The impact of currency translation reduced sales by
5 percent.
“In light of the challenging markets, we were pleased with our
performance in the quarter,” said Cutler. “We slightly exceeded our
revenue guidance, achieved record fourth quarter segment margins,
lowered our structural costs, generated operating cash flow of $742
million, and repurchased $228 million of our shares. Our record
segment margins of 16.0 percent reflect the positive impact of the
significant restructuring actions we initiated in the third quarter
of 2015.”
For the full year 2015, sales were $20.9 billion, 7½ percent
lower than in 2014. The sales decline consisted of a decrease in
organic sales of 2 percent and a decrease of 5½ percent from
negative currency translation. Restructuring actions during the
year incurred a total cost of $129 million. Excluding charges to
integrate recent acquisitions, operating earnings totaled $2.0
billion. Operating earnings per share for 2015, excluding
acquisition integration charges, were $4.30. Operating cash flow in
2015 was $2.4 billion. Share repurchases in 2015 totaled $682
million, resulting in the repurchase of 2.4 percent of the shares
outstanding at the start of 2015.
“In 2016, we anticipate our organic revenues will decline
between 2 and 4 percent, reflecting a continuation of sluggish
markets around the world,” said Cutler. “We expect the impact of
negative currency translation to be approximately 2 percent.
“For the first quarter, operating earnings per share are
expected to be between $0.80 and $0.90 per share,” said Cutler.
“The first quarter will be impacted by restructuring costs of
approximately $70 million, as we implement the second phase of the
restructuring plan we announced last year. For the full year 2016,
we estimate that operating earnings per share will be between $4.15
and $4.45 per share. Our guidance for 2016 includes the net impact
of restructuring actions. We anticipate acquisition integration
costs in 2016 will be insignificant, resulting in net income per
share in 2016 equal to operating earnings per share, and at the
midpoint of our guidance up 2 percent over net income per share in
2015.
“We anticipate 2016 will be the second consecutive year of
decline in our end markets, the first back-to-back decline in our
end markets since the industrial recession of 2001-2002,” said
Cutler. “Looking at our expected performance in 2016, we plan to
generate about the same pretax profits as in 2015 despite a
reduction of approximately $1 billion in revenue at the midpoint of
our guidance, with significant restructuring actions boosting
segment margins by 40 basis points.
“Building upon the effective restructuring activity we undertook
in 2015, we have increased our three-year restructuring program,
bringing the 2015 through 2017 program to a total cost of $400
million, with mature year savings estimated at approximately a
similar amount. In addition, we expect to continue to deploy the
bulk of our excess funds to share repurchases, resulting in
anticipated repurchases totaling approximately $3 billion from 2015
through 2018.”
Business Segment Results
Fourth quarter sales for the Electrical Products segment were
$1.7 billion, down 5 percent from the fourth quarter of 2014.
Organic sales declined 1 percent, and negative currency translation
was another 4 percent. Operating profits in the fourth quarter were
$298 million. Excluding acquisition integration charges of $8
million during the quarter, operating profits totaled $306 million,
down 5 percent from the fourth quarter of 2014.
“Our bookings in the Electrical Products segment declined 1
percent from the fourth quarter a year ago,” said Cutler. “We saw
particular weakness in Asia Pacific, while European orders
increased and Americas orders were marginally lower.”
Fourth quarter sales for the Electrical Systems and Services
segment were $1.5 billion, down 9 percent from the fourth quarter
of 2014. Organic sales declined 5 percent, and negative currency
translation was another 4 percent. Operating profits were $203
million. Excluding acquisition integration charges of $5 million
during the quarter, operating profits totaled $208 million, down 17
percent from the fourth quarter of 2014.
“Our bookings in the Electrical Systems and Services segment
were down 2 percent from the fourth quarter of 2014,” said Cutler.
“Orders were lower in all regions, with particular weakness in Asia
Pacific.”
Hydraulics segment fourth quarter sales were $552 million, down
18 percent from the fourth quarter of 2014. Organic sales declined
12 percent, and negative currency translation was another 6
percent. Operating profits in the fourth quarter were $62 million,
down 24 percent from the fourth quarter of 2014.
“The hydraulics market was impacted during the quarter by a
continuation of broad-based weakness in stationary and mobile
equipment end markets,” said Cutler. “Our bookings in the fourth
quarter declined 22 percent compared to last year.”
The Aerospace segment posted fourth quarter sales of $440
million, a decrease of 4 percent from the fourth quarter of 2014.
Organic sales declined 2 percent, and negative currency translation
was an additional 2 percent. Operating profits in the fourth
quarter were $77 million, up 10 percent over the fourth quarter of
2014.
“Aerospace bookings in the fourth quarter increased 6 percent
over the fourth quarter of 2014,” said Cutler. “We were pleased
with the strength in aftermarket bookings, which grew 14
percent.”
The Vehicle segment posted sales of $841 million in the fourth
quarter, down 13 percent from the fourth quarter of 2014. Organic
sales declined 6 percent, and negative currency translation was
another 7 percent. Operating profits were $155 million, down 5
percent from the fourth quarter of 2014.
Eaton is a power management company with 2015 sales of $20.9
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 97,000 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 fourth 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 fourth
quarter results, which will be covered during the call.
This news release contains forward-looking statements concerning
first quarter and full year 2016 operating earnings per share, 2016
projected revenue growth, the costs and benefits of planned
restructuring actions, intended share repurchases, and the impact
in 2016 from currency translation on revenues and earnings. 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; increases 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; stock market and currency
fluctuations; war, civil or political unrest or terrorism; 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
and year ended December 31, 2015 are available on the company’s
website, www.eaton.com.
EATON CORPORATION plc CONSOLIDATED STATEMENTS OF
INCOME
Three months endedDecember 31
Year endedDecember 31
(In millions except for per share data) 2015 2014
2015 2014
Net sales $ 5,057 $ 5,565 $ 20,855 $
22,552 Cost of products sold 3,427 3,847 14,292 15,646
Selling and administrative expense 873 903 3,596 3,810 Litigation
settlements — — — 644 Research and development expense 153 154 625
647 Interest expense - net 57 54 232 227 Other income - net (8 ) (2
) (35 ) (183 )
Income before income taxes 555 609 2,145
1,761 Income tax expense (benefit) 21 24 164
(42 )
Net income 534 585 1,981 1,803 Less net income for
noncontrolling interests (2 ) (4 ) (2 ) (10 )
Net income
attributable to Eaton ordinary shareholders $ 532 $ 581
$ 1,979 $ 1,793
Net income per share
attributable to Eaton ordinary shareholders Diluted $ 1.15 $
1.23 $ 4.23 $ 3.76 Basic 1.15 1.24 4.25 3.78
Weighted-average number of ordinary shares outstanding
Diluted 462.7 472.5 467.1 476.8 Basic 461.4 470.0 465.5 474.1
Reconciliation of net income attributable to Eaton
ordinary shareholders
to operating earnings
Net income attributable to Eaton ordinary shareholders $ 532 $ 581
$ 1,979 $ 1,793 Excluding acquisition integration charges
(after-tax) 9 21 31 102
Operating
earnings $ 541 $ 602 $ 2,010 $ 1,895
Net income per share attributable to Eaton ordinary
shareholders - diluted $ 1.15 $ 1.23 $ 4.23 $ 3.76 Excluding per
share impact of acquisition integration charges (after-tax) 0.02
0.04 0.07 0.21
Operating earnings
per ordinary share $ 1.17 $ 1.27 $ 4.30 $
3.97
See accompanying notes.
EATON CORPORATION plc BUSINESS SEGMENT
INFORMATION Three months endedDecember 31
Year endedDecember 31 (In millions) 2015
2014 2015 2014
Net sales Electrical
Products $ 1,730 $ 1,821 $ 6,976 $ 7,254 Electrical Systems and
Services 1,494 1,650 5,931 6,457 Hydraulics 552 673 2,459 2,975
Aerospace 440 456 1,807 1,860 Vehicle 841 965 3,682
4,006
Total net sales $ 5,057 $ 5,565
$ 20,855 $ 22,552
Segment operating
profit Electrical Products $ 298 $ 304 $ 1,156 $ 1,184
Electrical Systems and Services 203 242 776 843 Hydraulics 62 81
246 367 Aerospace 77 70 310 273 Vehicle 155 163 645
645
Total segment operating profit 795 860
3,133 3,312
Corporate Litigation settlements — — —
(644 ) Amortization of intangible assets (100 ) (105 ) (406 ) (431
) Interest expense - net (57 ) (54 ) (232 ) (227 ) Pension and
other postretirement benefits expense (31 ) (24 ) (130 ) (138 )
Other corporate expense - net (52 ) (68 ) (220 ) (111 )
Income
before income taxes 555 609 2,145 1,761 Income tax expense
(benefit) 21 24 164 (42 )
Net income
534 585 1,981 1,803 Less net income for noncontrolling interests (2
) (4 ) (2 ) (10 )
Net income attributable to Eaton ordinary
shareholders $ 532 $ 581 $ 1,979 $ 1,793
See accompanying notes.
EATON CORPORATION plc CONDENSED
CONSOLIDATED BALANCE SHEETS
December 31,2015 December 31,2014 (In millions)
Assets
Current assets Cash $ 268 $ 781 Short-term investments 177 245
Accounts receivable - net 3,479 3,667 Inventory 2,323 2,428
Deferred income taxes — 593 Prepaid expenses and other current
assets 369 386 Total current assets 6,616 8,100
Property, plant and equipment - net 3,565 3,750 Other
noncurrent assets Goodwill 13,479 13,893 Other intangible assets
6,014 6,556 Deferred income taxes 362 228 Other assets 995
1,002 Total assets $ 31,031 $ 33,529
Liabilities
and shareholders’ equity Current liabilities Short-term debt $
426 $ 2 Current portion of long-term debt 242 1,008 Accounts
payable 1,758 1,940 Accrued compensation 366 420 Other current
liabilities 1,833 1,985 Total current liabilities 4,625
5,355 Noncurrent liabilities Long-term debt 7,781
8,024 Pension liabilities 1,586 1,812 Other postretirement benefits
liabilities 440 513 Deferred income taxes 390 901 Other noncurrent
liabilities 978 1,085 Total noncurrent liabilities 11,175
12,335 Shareholders’ equity Eaton shareholders’
equity 15,186 15,786 Noncontrolling interests 45 53 Total
equity 15,231 15,839 Total liabilities and equity $ 31,031
$ 33,529
See accompanying notes.
EATON CORPORATION plc
NOTES TO THE FOURTH 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.
During the second quarter of 2014, Eaton settled litigation
matters with ZF Meritor LLC and Meritor Transmission Corporation
(collectively, Meritor) and Triumph Actuation Systems, LLC and
other claimants (collectively, Triumph), and related litigation,
resulting in pre-tax cost totaling $644.
Note 2. CHANGES IN ACCOUNTING POLICIES
During the fourth quarter of 2015, the Company early adopted
Accounting Standard Update (ASU) 2015-17, Balance Sheet
Classification of Deferred Taxes. ASU 2015-17 requires that all
deferred tax assets and liabilities, along with any related
valuation allowance, be classified as noncurrent on the condensed
consolidated balance sheet. The Company elected to apply this
standard prospectively for 2015 financial statements. As a result,
prior periods were not retrospectively adjusted.
Note 3. 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 December 31 2015 2014 2015 2014
2015 2014
Acquisition integration charges
Electrical Products $ 8 $ 17 $ 298 $ 304 $ 306 $ 321 Electrical
Systems and Services 5 8 203 242 208 250 Hydraulics — 1 62 81 62 82
Aerospace — — 77 70 77 70 Vehicle — — 155 163
155 163 Total business segments before income taxes
13 26 $ 795 $ 860 $ 808 $ 886 Corporate 1
6
Total acquisition integration charges
before income taxes
$ 14 $ 32 Total after income taxes $ 9 $ 21 Per
ordinary share - diluted $ 0.02 $ 0.04
*Operating profit excluding acquisition
integration charges is used to calculate operating margin where
that term is used in this release.
Operating profit
Acquisition Operating profit excluding acquisition integration
charges as reported integration charges* Year ended December 31
2015 2014 2015 2014 2015
2014
Acquisition integration charges Electrical Products $
25 $ 66 $ 1,156 $ 1,184 $ 1,181 $ 1,250 Electrical Systems and
Services 15 51 776 843 791 894 Hydraulics 2 12 246 367 248 379
Aerospace — — 310 273 310 273 Vehicle — — 645
645 645 645 Total business segments 42 129 $ 3,133
$ 3,312 $ 3,175 $ 3,441 Corporate 5 25
Total acquisition integration charges before income
taxes $ 47 $ 154 Total after income taxes $ 31 $
102 Per ordinary share - diluted $ 0.07 $ 0.21
*Operating profit excluding acquisition
integration charges is used to calculate operating margin where
that term is used in this release.
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.
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Eaton Corporation plcScott Schroeder, +1-440-523-5150 (Media
Relations)scottrschroeder@eaton.comorDonald Bullock,
+1-440-523-5127 (Investor Relations)
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