Third Quarter Earnings Per Share were $1.43, Up 14 Percent
Over Third Quarter of 2017, Excluding the Impact of the 2018
Arbitration Decision Related to Legacy Cooper Business and the 2017
Gain on the Eaton Cummins Joint Venture
Earnings Guidance for Full Year 2018 Raised by 5 Cents at
Midpoint, Up 1 Percent Over Prior Guidance, Excluding the Impact of
the Arbitration Decision
Power management company Eaton Corporation plc (NYSE:ETN) today
announced that earnings per share were $0.95 for the third quarter
of 2018. Earnings per share were $1.43, an increase of 14 percent
over the third quarter of 2017, excluding the impact of the 2018
arbitration decision related to the legacy Cooper business and the
2017 gain on the Eaton Cummins joint venture.
Sales in the third quarter of 2018 were $5.4 billion, up 4
percent over the same period in 2017. The sales increase consisted
of 6 percent growth in organic sales, partially offset by 1 percent
negative currency translation and negative 1 percent from the
divestiture in 2017 of our share in a small electrical joint
venture and the formation of the Eaton Cummins joint venture.
Craig Arnold, Eaton chairman and chief executive officer, said,
“We had a solid third quarter. Revenue growth was strong and we had
record segment margins.
“Our segment margins in the third quarter were 17.6 percent, an
all-time quarterly record, and above the high end of our guidance,”
said Arnold. “This represents a 120 basis point improvement over
the third quarter of 2017. We had all-time record margins in the
quarter in three segments: Electrical Products, Electrical Systems
and Services, and Aerospace.
“Operating cash flow in the third quarter was $1.00 billion,”
said Arnold. “Year-to-date, we have generated operating cash flow
of $1.84 billion.
“We now expect the midpoint of 2018 earnings per share to be
$5.35, up $0.05 from our prior guidance, representing a 15 percent
increase over 2017, excluding the third quarter 2018 arbitration
decision, the 2017 gain on the formation of the Eaton Cummins joint
venture, and the income arising from the 2017 tax bill,” said
Arnold. “We are also narrowing our earnings per share guidance for
the year, resulting in revised guidance of between $5.30 and $5.40.
Accordingly, for the fourth quarter of 2018, we anticipate earnings
per share to be between $1.38 and $1.48.”
Business Segment Results
Sales for the Electrical Products segment were $1.8 billion,
even with the third quarter of 2017. Organic sales were up 1
percent while currency translation was negative 1 percent.
Excluding Lighting, organic sales were up 3 percent. Operating
profits were a record $343 million, up 4 percent over the third
quarter of 2017.
“Operating margins in the third quarter were 19.2 percent, 70
basis points over 2017 and an all-time quarterly record,” said
Arnold. “Orders in the third quarter were up 3 percent over the
third quarter of 2017, driven by solid growth in both industrial
and residential markets in the Americas, and modest growth in
Lighting.”
Sales for the Electrical Systems and Services segment were $1.5
billion, up 7 percent over the third quarter of 2017. Organic sales
were up 9 percent, currency translation was negative 1 percent, and
the sale in 2017 of our stake in a small joint venture reduced
sales by 1 percent. Operating profits were $234 million, up 19
percent over the third quarter of 2017.
“Operating margins were 15.4 percent, an improvement of 160
basis points over 2017 and an all-time quarterly record,” said
Arnold. “Orders in the third quarter were up 4 percent over the
third quarter of 2017, led by strong growth in EMEA and Asia
Pacific, and continued growth in data center markets.”
Hydraulics segment sales were $670 million, up 6 percent over
the third quarter of 2017. Organic sales were up 7 percent while
currency translation was negative 1 percent. Operating profits in
the third quarter were $94 million, up 18 percent over the third
quarter of 2017.
“Operating margins in the quarter were 14.0 percent, an
improvement of 140 basis points over 2017,” said Arnold. “Orders in
the third quarter were up 4 percent over the third quarter of 2017,
with solid growth in the Americas and Asia Pacific.”
Aerospace segment sales were $478 million, up 9 percent over the
third quarter of 2017, all coming from organic sales growth.
Operating profits in the third quarter were a record $105 million,
up 25 percent over the third quarter of 2017.
“Operating margins in the quarter were 22.0 percent, 280 basis
points over 2017 and an all-time quarterly record,” said Arnold.
“Orders in the quarter were up 12 percent over the third quarter of
2017. We saw particular strength in orders for commercial
transports, commercial aftermarket, and military rotorcraft.”
The Vehicle segment posted sales of $876 million, up 2 percent
over the third quarter of 2017. Organic sales were up 7 percent
partially offset by negative 2 percent as a result of the formation
of the Eaton Cummins joint venture in 2017 and negative 3 percent
from currency translation. Operating profits in the third quarter
were $166 million, up 11 percent over the third quarter of
2017.
“Operating margins in the quarter were 18.9 percent, an
improvement of 140 basis points over 2017,” said Arnold. “We now
forecast NAFTA Class 8 production in 2018 to be 320,000 units.”
eMobility segment sales were $80 million, up 7 percent over the
third quarter of 2017, all coming from organic sales. Operating
profits in the third quarter were $10 million, down 38 percent from
the third quarter of 2017 due to increased R&D investments.
Operating margins in the quarter were 12.5 percent.
Eaton is a power management company with 2017 sales of $20.4
billion. We provide energy-efficient solutions that help our
customers effectively manage electrical, hydraulic and mechanical
power more efficiently, safely and sustainably. Eaton is dedicated
to improving the quality of life and the environment through the
use of power management technologies and services. Eaton has
approximately 98,000 employees and sells products to customers in
more than 175 countries. For more information, visit Eaton.com.
Notice of conference call: Eaton’s conference call to discuss
its third quarter results is available to all interested parties as
a live audio webcast today at 11 a.m. United States Eastern Time
via a link on 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 third quarter results,
which will be covered during the call.
This news release contains forward-looking statements concerning
fourth quarter and full-year 2018 earnings per share, and the NAFTA
Class 8 truck market. 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; natural disasters; 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 nine months
ended September 30, 2018 are available on the company’s website,
www.eaton.com.
EATON CORPORATION plc
CONSOLIDATED STATEMENTS OF INCOME
Three months endedSeptember 30
Nine months endedSeptember 30
(In millions except for per share data) 2018 2017 2018 2017
Net
sales $ 5,412 $ 5,211 $ 16,150 $ 15,191 Cost of products
sold 3,597 3,466 10,841 10,221 Selling and administrative expense
889 902 2,679 2,669 Research and development expense 138 147 439
440 Interest expense - net 67 60 205 181 Gain on sale of business —
1,077 — 1,077 Arbitration decision expense 275 — 275 — Other
expense - net 7 19 13 24
Income
before income taxes 439 1,694 1,698 2,733 Income tax expense 23
293 184 381
Net income 416 1,401
1,514 2,352 Less net income for noncontrolling interests — —
— (1 )
Net income attributable to Eaton ordinary
shareholders $ 416 $ 1,401 $ 1,514 $ 2,351
Net income per share attributable to Eaton
ordinary shareholders Diluted $ 0.95 $ 3.14 $ 3.45 $ 5.24 Basic
0.96 3.16 3.47 5.27
Weighted-average number of ordinary
shares outstanding Diluted 436.3 445.2 438.4 448.3 Basic 433.5
442.6 435.8 445.9
Cash dividends declared per ordinary
share $ 0.66 $ 0.60 $ 1.98 $ 1.80
Reconciliation of net income
attributable to Eaton ordinary shareholders to adjusted
earnings
Net income attributable to Eaton ordinary shareholders $ 416 $
1,401 $ 1,514 $ 2,351 Excluding acquisition integration charges
(after-tax) — 1 — 2
Adjusted
earnings $ 416 $ 1,402 $ 1,514 $ 2,353
Net income per share attributable to Eaton ordinary
shareholders - diluted $ 0.95 $ 3.14 $ 3.45 $ 5.24 Excluding per
share impact of acquisition integration charges (after-tax) —
— — —
Adjusted earnings per ordinary
share $ 0.95 $ 3.14 $ 3.45 $ 5.24
See accompanying notes.
EATON CORPORATION plc
BUSINESS SEGMENT INFORMATION
Three months endedSeptember 30
Nine months endedSeptember 30
(In millions) 2018 2017 2018 2017
Net sales Electrical
Products $ 1,789 $ 1,785 $ 5,327 $ 5,167 Electrical Systems and
Services 1,519 1,421 4,413 4,168 Hydraulics 670 634 2,103 1,854
Aerospace 478 438 1,399 1,303 Vehicle 876 858 2,668 2,489 eMobility
80 75 240 210
Total net sales $
5,412 $ 5,211 $ 16,150 $ 15,191
Segment operating profit Electrical Products $ 343 $ 330 $
984 $ 915 Electrical Systems and Services 234 196 628 545
Hydraulics 94 80 285 214 Aerospace 105 84 284 244 Vehicle 166 150
464 399 eMobility 10 16 35 40
Total
segment operating profit 952 856 2,680 2,357
Corporate Amortization of intangible assets (95 ) (98 ) (289
) (288 ) Interest expense - net (67 ) (60 ) (205 ) (181 ) Pension
and other postretirement benefits expense (3 ) (16 ) (4 ) (38 )
Gain on sale of business — 1,077 — 1,077 Arbitration decision
expense (275 ) — (275 ) — Other corporate expense - net (73 ) (65 )
(209 ) (194 )
Income before income taxes 439 1,694 1,698
2,733 Income tax expense 23 293 184 381
Net income 416 1,401 1,514 2,352 Less net income for
noncontrolling interests — — — (1 )
Net
income attributable to Eaton ordinary shareholders $ 416
$ 1,401 $ 1,514 $ 2,351
See accompanying notes.
EATON CORPORATION plc
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30,2018
December 31,2017
(In millions)
Assets Current assets Cash $ 327 $ 561
Short-term investments 178 534 Accounts receivable - net 4,027
3,943 Inventory 2,835 2,620 Prepaid expenses and other current
assets 500 679 Total current assets 7,867 8,337
Property, plant and equipment - net 3,446 3,502 Other
noncurrent assets Goodwill 13,385 13,568 Other intangible assets
4,949 5,265 Deferred income taxes 241 253 Other assets 1,740
1,698 Total assets $ 31,628 $ 32,623
Liabilities
and shareholders’ equity Current liabilities Short-term debt $
82 $ 6 Current portion of long-term debt 426 578 Accounts payable
2,165 2,166 Accrued compensation 427 453 Other current liabilities
2,167 1,872 Total current liabilities 5,267 5,075
Noncurrent liabilities Long-term debt 6,737 7,167 Pension
liabilities 1,160 1,226 Other postretirement benefits liabilities
344 362 Deferred income taxes 347 538 Other noncurrent liabilities
984 965 Total noncurrent liabilities 9,572 10,258
Shareholders’ equity Eaton shareholders’ equity 16,754
17,253 Noncontrolling interests 35 37 Total equity 16,789
17,290 Total liabilities and equity $ 31,628 $ 32,623
See accompanying notes.
EATON CORPORATION plcNOTES TO THE THIRD QUARTER 2018
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 adjusted earnings,
adjusted earnings per ordinary share, net income per ordinary share
excluding the per share impact of the arbitration decision expense,
net income per ordinary share excluding the per share impact of the
gain on sale of a business, and operating profit before acquisition
integration charges for each business segment as well as corporate,
each of which differs 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 certain
transactions, 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.
Net income per ordinary share of $0.95 for the third quarter of
2018 was $1.43 excluding $0.48 per share impact from the expense
related to the arbitration decision. For full year 2018, we are
expecting net income per share to be between $4.82 and $4.92, and
between $5.30 and $5.40 excluding $0.48 per share for the expense
related to the arbitration decision.
Net income per ordinary share of $3.14 for the third quarter of
2017 was $1.25 excluding $1.89 per share impact from the gain on
the sale of the business related to the Eaton Cummins Automated
Transmission Technologies joint venture.
Note 2. ARBITRATION DECISION
Eaton announced in a press release on August 29, 2018 that
certain subsidiaries it acquired in the 2012 acquisition of Cooper
Industries have been ordered to pay $293 by an arbitration panel.
The panel’s award, issued on August 23, 2018, is related to claims
brought by Pepsi-Cola Metropolitan Bottling Company, Inc.
(“Pepsi”).
As Eaton previously disclosed, the dispute related to Pepsi’s
claims that it was harmed by a 2011 settlement agreement that
resolved litigation Pneumo Abex, LLC had previously brought against
various Cooper entities. The litigation involved, among other
things, a guaranty related to Pneumo Abex’s friction products
business. Pepsi claimed that the value contributed to Pneumo Abex
and a newly established trust in exchange for a release of the
guaranty was substantially below reasonably equivalent value, and
that an inability of Pneumo Abex to satisfy future liabilities may
result in plaintiffs suing Pepsi under various theories. There are
no other pending claims related to the contributions made for the
release of the guaranty.
A Texas state court confirmed the arbitration award at the
confirmation hearing, which was held on October 12, 2018. The
Company is considering its options, including an appeal.
The impact of the arbitration award was an after-tax expense of
$206 in the third quarter 2018, reducing third quarter earnings per
share by $0.48.
Note 3. ACQUISITION INTEGRATION CHARGES
Eaton incurs integration charges related to acquired businesses.
A summary of these charges follows:
Operating profit excluding Acquisition
Operating profit acquisition integration integration charges as
reported charges Three months ended September 30 2018 2017
2018 2017 2018 2017
Business segment
Electrical Products $ — $ 1 $ 343 $ 330 $ 343 $ 331 Electrical
Systems and Services — — 234 196 234 196 Hydraulics — — 94 80 94 80
Aerospace — — 105 84 105 84 Vehicle — — 166 150 166 150 eMobility —
— 10 16 10 16 Total business
segments — 1 $ 952 $ 856 $ 952 $ 857 Corporate
— — Total acquisition integration charges before
income taxes — 1 Income taxes — — Total after income
taxes $ — $ 1 Per ordinary share - diluted $ — $ —
Operating profit excluding Acquisition
Operating profit acquisition integration integration charges as
reported charges Nine months ended September 30 2018 2017
2018 2017 2018 2017
Business segment
Electrical Products $ — $ 3 $ 984 $ 915 $ 984 $ 918 Electrical
Systems and Services — — 628 545 628 545 Hydraulics — — 285 214 285
214 Aerospace — — 284 244 284 244 Vehicle — — 464 399 464 399
eMobility — — 35 40 35 40 Total
business segments — 3 $ 2,680 $ 2,357 $ 2,680
$ 2,360 Corporate — — Total acquisition integration
charges before income taxes — 3 Income taxes — 1
Total after income taxes $ — $ 2 Per ordinary share -
diluted $ — $ —
Business segment acquisition integration charges in 2017 related
to the integration of Ephesus Lighting, Inc. (Ephesus), which was
acquired in 2015. The charges associated with Ephesus were included
in Selling and administrative expense. In Business Segment
Information, the charges reduced Operating profit of the related
business segment.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20181030005491/en/
Eaton Corporation plcKelly Jasko, Media Relations, +1
440-523-5304kellymjasko@eaton.comorDon
Bullock, Investor Relations, +1 440-523-5127
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